Amgen, Inc. (AMGN) Q2 2013 Earnings Call July 30, 2013 5:00 PM ET
Arvind Sood - Vice President of Investor Relations
Bob Bradway - Chairman of the Board, President, Chief Executive Officer
Jon Peacock - Chief Financial Officer, Executive Vice President
Sean Harper - Executive Vice President - Research and Development
Tony Hooper - Executive Vice President - Global Commercial Operations
Robyn Karnauskas - Deutsche Bank
Chris Raymond - Robert W. Baird
Matthew Roden - UBS Securities
Ravi Mehrotra - Credit Suisse
Eric Schmidt - Cowen and Company
Rachel McMinn - Bank of America Merrill Lynch
Geoff Porges - Sanford Bernstein
Howard Liang - Leerink Swann
Geoff Meacham - JPMorgan
Michael Yee - RBC Capital
Mark Schoenebaum - ISI Group
Terence Flynn - Goldman Sachs
Eun Yang - Jefferies
Joel Sendek - Stifel
Tony Butler - Barclays
My name is Marvin, and I will be your conference facilitator today for Amgen's second quarter 2013 financial results conference call. All lines have been placed on mute to prevent any background noise. There will be a question-and-answer session at the conclusion of the last speaker's prepared remarks. In order to ensure that everyone has a chance to participate, we would like to request that you limit yourself to asking one question during the Q&A session. (Operator Instructions).
I would now like to introduce Arvind Sood, Vice President of Investor Relations. Mr. Sood, you may now begin.
Okay, thank you, Marvin. Good afternoon, everybody. I would like to welcome you to our second quarter conference call. I believe through our prepared comments today, you will consistently hear the message of the progress we are making on our full-year objectives as well as steps we are taking to deliver long-term value to shareholders. To discuss the quarterly performance and our full-year outlook, I am joined by several members of our leadership team.
Our Chairman and CEO, Bob Bradway will begin with a brief strategic overview. Our Chief Financial Officer, Jon Peacock, will then review our quarterly financial results and provide an update on our guidance for the year. Our Head of Global Commercial Operations, Tony Hooper, will discuss product performances and trends followed by Sean Harper, our Head of R&D, who will provide a brief pipeline update.
After Sean's comments we should have ample time for Q&A. We will use slides for our presentation today. These slides have been posted on our website and a link was sent to you separately by email. Our comments today will be governed by our Safe Harbor statement, which in summary says that through the course of our presentation and discussion today, we may make certain forward-looking statements and actual results may vary materially.
So with that, I would like to turn the call over to Bob.
Okay, thanks, Arvind. Good afternoon and thank you for joining our second quarter call. As you can see from our results through the first half of the year, we are carrying good momentum into the third and fourth quarters and are on track to deliver solid revenue and earnings growth for the year, as indicated by our increased guidance. Reflecting on our second quarter performance, I would highlight the growth of our two largest products, Enbrel and Neulasta, as well as the continued success we are experiencing in launching Prolia and XGEVA globally.
While we are on track to deliver for the year, we are making strong progress as well on our long-term growth objectives. Our strategy for growth starts with innovations. So let me talk first about our pipeline.
As you may recall, we expect eight of our pipeline programs to generate registration enabling data by 2016. We announced positive Phase 3 data from the first two of these, T-Vec in malignant melanoma and trebananib in ovarian cancer in the second quarter. Sean Harper will have more to say about each of these in a moment.
In the cardiovascular arena, our innovative PCSK9 program, AMG145, is advancing well and we announced today that we expect pivotal data for this program in the first quarter of 2014. This will obviously be a significant event for us and, we hope, for cardiovascular patients as well.
In June, we announced a couple of business development initiatives in the cardiovascular area that we are touching on here. Per subject to the customary regulatory clearances, we plan to acquire the U.S. commercial rights to a novel heard drug, ivabradine, developed by Servier and approved in the EU and a number of other market for chronic heart failure in stable angina. Sean will talk about our plans for filing this drug with the FDA in his remarks.
As part of this transaction, we will partner our heart failure molecule, omecamtiv mecarbil, in the EU Servier and then separately we would acquire rights to develop omecamtiv mecarbil in Japan. We see development and commercial benefits to working with Servier in heart failure area and expect that the benefits of engaging cardiologists in the U.S. ahead of any launch of AMG145 will be attractive as well.
With respect to our international expansion efforts, we announced important progress during the quarter. We are excited about our collaboration in Japan with Astellas through which we now have clear path forward for innovative medicines in the world's second largest market.
We expect our collaboration with Astellas to result in a wholly owned Amgen affiliate as early as 2020. Additionally, we have formed a joint venture in China with Zhejiang Beta Pharma to commercialize Vectibix, which we expect to be our first new product for China in the 2015 timeframe. These collaborations clearly augment our presence in these large and growing markets and allow us to bring our medicines directly to patients who can benefit from them.
I can imagine there maybe questions about our M&A strategy at the moment, so without talking about any specific opportunities, I would like to highlight that our acquisition strategy continues to focus on assets that we think offer attractive prospects for growth and return on capital, in areas where we can add value for our shareholders through our capabilities, infrastructure and experience.
Our strategy is aimed at targets that are additive to the progress that we are making operationally and with our own pipeline. As we look at opportunities, we will remain disciplined and committed to growing our dividend and maintaining our solid investment grade credit rating.
Before turning over to Jon to review our financial highlights, I would like to acknowledge the contributions of my Amgen colleagues who once again this quarter delivered for patients and shareholders. Jon?
Thanks, Bob. Overall growth in total revenues of 5% for the quarter was supported by solid product sales growth of 9%. This was driven, as Bob as mentioned by strong performance across the portfolio, including Enbrel and Neulasta, our largest products and continued progress with Prolia and XGEVA. It also included a positive adjustment of $185 million to previous estimates for managed Medicaid rebates on prior period sales and this was based on recent claims experience. These adjustments primarily affected filgrastim and ESA franchises. And, overall they had an impact on the EPS of around $0.16. Others revenues in the quarter were lower compared to 2012, reflecting the $200 million payment from Takeda that we recognized in the second quarter of last year.
Operating expenses were up 8%, driven by the increase in the Phase III clinical activity, particularly related to PCSK9 molecule AMG145. Now that our Phase III trials are up and running and progressing well, you should expect that R&D expenses in the remaining two quarters of the year will be broadly in line with the expenses that we have reported for the second quarter.
SG&A expenses were 3% higher, within this Enbrel profit share expenses were up 15% to $425 million. As you may recall, one of the Enbrel royalty comments expired during the first quarter resulting in a higher increase in Enbrel profits relative to the increase in sales compared to a year ago. Excluding the Enbrel profit share SG&A costs were slightly downs' a year ago. Also, sales margin excluding the Puerto Rico excise taxes were flat at 13.9% of product sales.
Other income and expenses were $145 million in the quarter. This is broadly representative of what you should expect for the remaining two quarters of the year. The tax rate on the quarter of 11.9% benefited from a different jurisdictional mix of cost and revenues and the 2013 federal R&D credit. Overall, adjusted earnings per share increased 3% to $1.89.
Turning to cash flow and the balance sheet on page 5, we generated free cash flow of $1.4 billion in the quarter. The higher cash flow of $2.2 billion that you will see on the page in Q2 of last year, was driven by two discrete items, specifically the termination of interest rate swap agreements and a one-time payment received in Spain to settle several older receivable balances last year. In addition to our quarterly dividend this quarter, year-to-date we have repurchased shares for a total cost of $800 million and at an average cost of $85 per share. We didn't repurchase additional shares during the second quarter.
At the end of the quarter, we held $22 billion in cash or liquid investments and $23.9 billion in debt. As Bob mentioned earlier, we remain committed to increasing our dividend meaningfully over time and through our solid investment grade ratings.
Turning to guidance for the full-year on page six. We now expect full-year revenue to be at the upper end of our guidance of $17.8 billion to $18.2 billion. We are raising our guidance on adjusted earnings per share to a range of $7.30 to $7.45. Within this, we now expect our tax rate for the full-year to be between 9% and 10%. Finally, our guidance on capital expenditures remains unchanged at approximately $700 million.
Let me hand over to Tony now, who will give you some more insights on product sales during the quarter.
Thanks, Jon. You will find a summary about global performance in quarter two on the slide number seven. As expected, we had a strong quarter two with product sales growing 9% year-over-year and 11% quarter-over-quarter. We remain focused on executing against our commercial strategy. Our underlying business excluding the impact of the Medicaid adjustments delivered 5% year-over-year growth and 6% quarter-over-quarter. We also saw sales growth from all our regions. The U.S. was up and the rest of the world was up 9% year-over-year, or 12% excluding foreign exchange.
I would like to review our Q2 performance for our portfolio, starting with Enbrel. Enbrel continues to be recognized by rheumatologists and dermatologists with its track record of efficacy, safety and long-term experience. We are committed to investing in Enbrel over the long-term. In quarter two, Enbrel sales grew 9% year-over-year primarily due to price. Quarter-over-quarter, we saw increased unit demand of 9%. Underlying market demand in both rheumatology and dermatology segments remains strong.
In rheumatology, Enbrel continues to hold share while in dermatology we saw a slight decrease in share due to increasing competitor activity. Our direct to consumer advertising continues to emphasis the benefits of using Enbrel. Enbrel consistently leads to total brand awareness in the rheumatology segment. Additionally, physicians continue to augment over 90% of Enbrel patient requests. With Enbrel we remain the value share leader in both rheumatology and dermatology segments and I am confident in its further growth potential.
Moving now to Neulasta and NEUPOGEN. As you know, Neulasta represents approximately 80% of this franchise. We continue to emphasize first and every cycle of treatment as the best way to reduce the risk of febrile neutropenia in appropriate patients. Year-over-year global sales of Neulasta increased by 10%. This was driven by price, wholesale inventory and the impact of Medicaid that Bob mentioned previously. Worldwide, unit demand was down 3% year-over-year but flat quarter-over-quarter. In the U.S., we actually saw penetration levels increase in quarter two. NEUPOGEN sales were down 2% year-over-year. Declines in unit demand in the U.S. and the rest of the world were positively offset by price and the impact of Medicaid adjustment.
EPOGEN was up 50% quarter-over-quarter due to increased unit demand as a result of the Peginesatide recall as well as the impact of Medicaid adjustment. We continue to work with the dialysis clinics to ensure uninterrupted supply with dialysis patients.
Aranesp global sales were up 12% quarter-over-quarter and were flat excluding the impact of Medicaid adjustment. In both, the U.S. and Europe, demand appears to be trending slightly down driven by dose reductions in the U.S. and continued pressure and tight steps and competition in Europe.
Sensipar sales increased 12% year-over-year due to increases in overall unit demand driven by strong penetration. Sensipar is an important product addressing a significant unmet medical need. We are confident that Sensipar will remain a growth driver for Amgen.
Nplate and Vectibix sales in aggregate were higher year-over-year. For Nplate, market demand continues to grow in both the U.S. And in Europe. For Vectibix, we saw unit demand increases in both, the U.S. and Europe. Over 50% of our sales were in Europe and we continue to pursue reimbursements with payors across Europe in both, first-line and second-line treatment of metastatic colorectal cancer consistent with our label
Denosumab delivered strong results in quarter two. For Prolia, we saw the seasonal uptick that we have come to expect in the second quarter, we expect the third quarter to emulate the seasonality seen last year too. We continued to grow our share in the U.S and in Europe. In the U.S., since launching the new direct-to-consumer campaign with Blythe Danner business to prolia.com are up more than five-fold. Average monthly patient requests have increased 25% and over 90% of Prolia patients requests are honored by prescribers. We are improving repeat injection rights in the U.S. and our latest data shows that 63% of patients returning for their second injection. In Europe, we have recently finalized reimbursement negotiations in France and will be launching soon.
XGEVA global sales grew 12% quarter-over-quarter. In the U.S, our value share grew by two percentage points in the quarter. We now hold 61% share in the segment. Outside the U.S., XGEVA grew 33% quarter-over-quarter driven by share gains. Recent launches in Europe continue their strong trajectory. In France, we already achieved 40% segment value share since launch in Q1. Our commercial focus is the superior clinical benefit of XGEVA for the benefit of patients.
Moving onto inventory, for the U.S., I would note that our portfolio ended the quarter with wholesale inventory within the normal range. Lastly, let me comment on our business outside of the U.S. We saw solid growth in Europe 6% excluding impact of foreign exchange driven by continued growth of both, Prolia and XGEVA. We are also pleased with the contributions of both, our MN and Bergamo acquisitions in Turkey and Brazil.
Additionally, let me take a moment to comment on our recently announced Servier partnership that Bob talked about, which is subject to normal regulatory approvals. To us this is an important step as we build and expand our cardiovascular capabilities and relationships for the future potential introductions of AMG145 and other cardiovascular drugs.
In summary, I am very pleased with both, the competitive strategies our team have developed and their focused execution against these strategies. Our underlying business delivered a strong quarter and I believe we are well positioned to achieve our full year revenue growth objectives.
Let me pass you now to Sean. Sean?
Thanks, Tony. Good afternoon. It's been a quarter for the R&D organization. Our pipeline continues to march forward. We recently presented the results of our Phase III study at T-VEC in the setting of metastatic melanoma at ASCO. We have already engaged in discussion with regulators based on this data set, which demonstrated a clinically meaningful benefit in durable response and a strong trend in overall survival. Keeping in mind that the trigger for analysis is event-driven, our latest estimate for the primary overall survival analysis is now the first half of 2014.
Beyond monotherapy in melanoma, we remain very excited about the potential for pursuing T-VEC in other tumor types, in particular as a priming agent with other cancer immunotherapies such as PD-1 antagonist, an enthusiasm which is shared by other companies with whom we are building such collaborations. As you know in Q2, we released positive top line on the primary endpoint of progression-free survival from the Phase III study of Trebananib, our peptide antagonist of the angiopoietin axis in recurrence ovarian carcinoma. The final overall survival analysis, a secondary endpoint, is currently estimated to occur in the second half of 2014.
Turning to Vectibix, we are engaged in discussions with worldwide regulators on potential label changes based on recent studies and analysis in first and third-line metastatic colorectal cancer. XGEVA received an additional indication in giant cell tumor, which addresses a serious unmet need in this rare condition which affects pediatric and adult populations.
Data from a key study was recently published in Lancet Oncology. Data from Phase 2 studies from brodalumab in psoriatic arthritis resulted in a decision in our collaboration with AstraZeneca/ Medimmune to proceed into Phase III for this indication. In addition, within this collaboration AMG 139 a monoclonal antibody directed against IL-23, also known as MEDI2070 has entered Phase 2 for Crohn's disease.
We terminated our small molecule inhibitor, the GlyT1 transporter, AMG 747, which was in Phase 2 for schizophrenia due to unexpected severe skin reaction. As we announced last quarter, we have initiated our biosimilar Herceptin pivotal study. Due to a delay in the availability of biosimilar trastuzumab, manufactured by a contract organization, enrollment in this study is being suspended temporarily and will resume when continuous supply is ensured. We continue to expect to initiate launch of our biosimilars portfolio in 2017.
Turning to our cardiovascular disease therapeutic area. The AMG 145 Phase 3 program is proceeding nicely and we expect the LDL cholesterol data from our four Phase 3 studies as monotherapy in combination with statins in statin-intolerant patients and in patients with heterozygous familial hypercholesterolemia in the first quarter of next year.
I also want to comment on how pleased I am that we anticipate gaining rights in the United States for ivabradine, a novel ion channel antagonist through a partnership with Servier. We feel this partnership can bring unique value to heart failure in stable angina patients with elevated heart rate, despite treatment with available therapies. This will increase our engagement with the cardiovascular community an area of great focus for us.
Servier has generated an impressive of clinical outcomes data, including the recent outcome study in heart failure supporting registration in Europe and elsewhere. We look forward to working on U.S. registration with FDA.
Staying with cardiovascular programs, our phase 2 study of intravenous omecamtiv mecarbil in acute heart failure that we conducted in collaboration with Cytokinetics recently completed. These data will be presented at the European Society of Cardiology meeting in September.
Finally, just to share with you some thoughts on our earlier stage efforts. Around six months into it, we are finding our scientific integration with deCODE Genetics to be even more productive and tactful than we had hoped. We now have multiple cases in which advanced human genetic analysis have allowed us to establish programs against new novel disease targets as well as to prioritize the existing targets within our early and new stage pipeline.
As part of a future R&D review, I will look forward to elaborating with some examples. I am more confident than ever that the strategy of guiding our R&D efforts needed this advanced human genetics will meaningfully improve our productivity. Bob?
Clearly. Thank you, Sean, and now I will turn it over to Arvind and Marvin for the question-and-answer session.
Yes. Marvin, would you go ahead and review the procedure for asking question again?
Earnings Call Part 2:
- Health Care Industry