Amgen Inc. (AMGN) Q3 2013 Earnings Conference Call October 22, 2013 5:00 PM ET
Bob Bradway - Chairman of the Board, President, CEO
Jon Peacock - EVP, CFO
Sean Harper - EVP, Research and Development
Tony Hooper - EVP, Global Commercial Operations
Arvind Sood - VP, Investor Relations
Robyn Karnauskas - Deutsche Bank
Terence Flynn - Goldman Sachs
Eric Schmidt - Cowen and Company
Mark Schoenebaum - ISI Group
Michael Yee - RBC Capital Markets
Matthew Roden - UBS Securities
Geoff Meacham - JPMorgan
Ravi Mehrotra - Credit Suisse
Yaron Werber - Citi
Rachel McMinn - Bank of America Merrill Lynch
Geoffrey Porges - Sanford C. Bernstein & Co., LLC
Christopher Raymond - Robert W. Baird & Co.
Tony Butler - Barclays Capital
Eun Yang - Jefferies & Co.
Joel Sendek - Stifel Nicolaus & Company, Inc.
Howard Liang - Leerink Swann
Gene Mack - Brean Murray, Carret & Co.
My name is Marvin, and I’ll be your conference facilitator today for Amgen's Third 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’d like to request that you limit yourself to asking one question during the Q&A session (Operator Instructions).
I’d now like to introduce Arvind Sood, Vice President of Investor Relations. Mr. Sood, you may now begin.
Thank you, Marvin. Good afternoon, everybody. I’d like to welcome you to our conference call to review our third quarter financial results. This sure has been a busy year. It’s also been a great year so far as we’ve made remarkable progress against our strategic priorities.
I’m joined today by our Chairman and CEO, Bob Bradway, who will provide a progress update on our accomplishments. Following Bob, our CFO, Jon Peacock; will review our financial results for the third quarter and provide an update on our guidance for the remainder of the year. Tony Hooper, Our Head of Commercial Operations will then discuss our product performance during the quarter and trends that we see going forward. And finally Sean Harper, our Head of R&D, who will provide a brief pipeline update and 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’d like to turn the call over to Bob. Bob?
All right. Thank you, Arvind. We executed well through the third quarter and you can see that both in our financial and our strategic results for the quarter. Financially sales were up 11% and earnings per share were up 16% and off the back of this performance we’re raising our guidance for revenues and adjusted earnings per share for the full year.
A number of important pieces came together for our strategy over the past few weeks and I want to just quickly summarize them for you. In Japan our strategic alliance, which is known as the Amgen Astellas BioPharma KK has now begun operations and we’re developing five innovative molecules through the alliance, the first of which we expect to launch in 2016 and then ultimately of course we expect to establish our own wholly owned subsidiary in Japan as early as 2020.
In China our joint venture with Zhejiang Betta Pharma is now complete and we hope to launch Vectibix there together as early as 2015. We also announced our plans to build research and translational capabilities in China at Shanghai Tech University representing a step forward in our commitment to this market.
Consistent with our stated strategy of building a presence in some 75 countries, we’ve achieved that and more following the repurchase of rights to Neulasta and NEUPOGEN from Roche in markets outside of the U.S and the E.U. These markets account for about $200 million in NEUPOGEN and Neulasta sales and we will provide a platform for future product launches.
And finally of course we completed the acquisition of Onyx at the beginning of the month and now its still early days the transition is progressing smoothly and we’re excited about the prospect of adding value and driving growth in multiple myeloma with Kyprolis, which we think has significant opportunity in earlier alliance of therapy and in markets around the world as a best-in-class proteasome inhibitor.
Oprozomib looks attractive as well as a potential oral proteasome inhibitor for maintenance therapy in multiple myeloma and of course we expect Nexavar, Stivarga and Palbociclib to contribute to growth also.
While we were busy laying the ground work for long-term growth with our strategic moves during the quarter, our internal efforts were also progressing well. In R&D with the addition of Kyprolis and ivabradine, the innovative medicine for heart failure we licensed from Servier in July, our pipeline now includes 10 late-stage innovative programs set to generate pivotal data over the next couple of years.
Separately, our portfolio of six biosimilars continues to advance as well and we now have a pivotal trial underway for our second of these molecules, this one a biosimilar to Humira.
Some of you’ve asked about the status of the patent infringement lawsuit we filed in the U.S versus Teva on their long-acting lipegfilgrastim product candidate. Teva has advised us that they’ve withdrawn their PLA for the product and the FDA has confirmed this withdrawal, so we’ve agreed to dismiss our lawsuit on this product. Of course if circumstances change we can refile the lawsuit.
Before turning to Jon, I want to thank my colleagues in Amgen and our new colleagues from Onyx for their efforts during this past quarter. All of our focus on patients is evident in the strong operational and strategic results we produced over the last three months. Jon?
Thanks, Bob. This has been a busy quarter for us. We’ve advanced several of our most important strategic priorities as Bob has outlined. But at the same time, we’ve remained focused on our business and delivered a strong operating performance in the quarter.
Revenues advanced 10% compared to the third quarter of 2012 with product sales up 11%. This included a $155 million NEUPOGEN order from the U.S government. It also reflected continued momentum with Prolia, with XGEVA, Enbrel, and Neulasta as well as important contributions from Sensipar, Nplate, and Vectibix.
Operating expenses were up 10% on the quarter overall. Over the course of the last 12 months we’ve been enrolling multiple clinical trials, which will enable a data rich year in 2014 as several of these trials start to readout. At the end of the quarter, we had approximately 45,000 patients enrolled in our late-stage programs compared to around 30,000 twelve months ago. That’s an increase of 50%.
Research and development costs in the quarter were also impacted by a $50 million upfront payment to Servier for the U.S. rights to ivabradine. SG&A costs included 12% increase in Enbrel profit share payments, which amounted to $430 million. And as a remainder, the Enbrel profit share expires at the end of this month and is replaced by a 12% royalty on sales, leading to an anticipated net benefit of around $800 million in operating income in 2014 compared to 2013.
Net income increased by 13%. Our tax rate in the quarter was lower compared to 2012, benefiting from the federal R&D credit and a change in the geographic mix of expenses and revenues. This was partially offset by higher other income and expense. The third quarter charge for other income and expense is broadly representative of the charge that you should expect to see in the fourth quarter and into 2014. Adjusted earnings per share growth of 16% also benefited from a lower average share count.
Turning to cash flow and the balance sheet on page five, we generated $1.6 billion of free cash flow in the quarter and paid a dividend totaling $400 million. Our total cash and investments of $26.5 billion at the end of the quarter included a $3.1 billion bank loan to fund the Onyx acquisition, which was disbursed when the deal closed on October 1.
The funding for the acquisition was completed with a further $5 billion bank loan received and disbursed on October 1. With this, total debt outstanding at the end of the fourth quarter is expected to be $32.2 billion. And as a remainder, the $8.1 billion raised from the Onyx acquisition carries an interest rate linked to LIBOR, and at current rates, this amounts to 1.3% pre-tax.
Share repurchases year-to-date amounted to $800 million at an average price of $85 and following the Onyx acquisition, we don’t expect any significant share repurchase activity in 2014 and 2015.
Turning to page 6, we’re raising our guidance for the full year and this includes the contribution of Onyx from October 1. We now expect revenues to be in the range of $18.3 billion to $18.5 billion and adjusted earnings per share to be between $7.35 and $7.45. Our guidance on tax and capital expenditures remains unchanged. Tony?
Thanks, Jon. You'll find the summary of our global sales performance for quarter three on Slide 7. I'm pleased to report we had a strong quarter three with product sales growing 11% year-over-year and 1% quarter-over-quarter. We also saw strong top line contributions from all our geographic regions. Our U.S. business grew 12% year-over-year with wholesale inventory ending in the normal range. Outside the U.S., sales grew 7% year-on-year or 9% excluding foreign exchange.
I'd like to start the review with our portfolio beginning with Enbrel. Rheumatologists and dermatologists continue to recognize Enbrel with track record of efficacy, safety, and long-term experience. We are committed to investing in Enbrel over the long term given our prolonged exclusivity and the end of our profit share agreement with Pfizer at the end of this month. Enbrel sales grew 7% year-over-year, primarily due to price.
We remain focused on demonstrating the value and benefits of Enbrel to physicians, payors, and most importantly patients. Our direct-to-consumer advertising continues to emphasize the benefits of using Enbrel. Enbrel consistently leads total brand awareness in the rheumatology segment, and physicians continue to honor over 90% of Enbrel patient requests. We remain the value share leader in both the rheumatology and dermatology segments, and I'm confident in Enbrel's potential growth.
Moving now to Neulasta and NEUPOGEN. Please remember that Neulasta represents about 80% of the combined sales of these two products. We continue to emphasize the addition of filgrastim to the first and every cycle of chemotherapy as the best way to reduce the risk of febrile neutropenia in appropriate patients. Year-over-year, global sales for Neulasta increased by 9%. This was mainly driven by price and a slight increase in unit demand.
For NEUPOGEN, sales grew 50% year-over-year including the $155 million order from the U.S. government. EPOGEN sales were flat year-over-year. Quarter-over-quarter, sales declined slightly due to the favorable Medicaid rebate adjustment recorded in quarter two. Unit demand in the quarter was stable.
Aranesp sales were down 10% year-over-year. Quarter-over-quarter sales were negatively impacted by changes in estimates in both quarters including the Medicaid rebate adjustments recorded in quarter two. We expect Aranesp sales in both U.S. and Europe to continue trending slightly downwards.
Sensipar sales increased 7% year-over-year due to increases in overall unit demand driven by strong segment penetration. Nplate and Vectibix sales in aggregate were higher by 19% year-over-year due to increases in unit demand.
In Europe, we continued to pursue reimbursement with payors for the treatment of first and second line metastatic colorectal cancer, and our European label now includes the new NRAS data which allows more targeted treatment to patients based on their wild-type RAS status.
Turning now to the denosumab franchise. Prolia posted a 62% year-on-year growth. We did see, however, some seasonal softness in the third quarter something we have come to expect, but we continue to grow share in both the U.S. and the rest of the world. We also continued to improve repeat injection rates in the U.S. and our latest data shows over 60% of patients are returning for their second injection.
Earlier this month, we launched Prolia in France which is the largest PMO market in Europe. XGEVA global sales grew 5% quarter-over-quarter. In the U.S., our value share grew by 6 percentage points in the quarter. On a unit basis, our share grew by 2 percentage points, while competing against numerous generic zoledronic acid competitors. We now hold 42% unit share in this segment. Outside the U.S., XGEVA grew 12% quarter-over-quarter driven by share gains.
Recent launches in Europe continued its strong uptake. In France we already achieved 50% segment value share since launching in quarter one. Our commercial focus remains on reminding physicians and patients of the superior clinical profile of XGEVA.
Other products, which is comprised of our Brazilian and Turkish businesses declined 13% year-on-year. This was primary due to Turkey since this business is driven in part by government tenders where timing of awards tends to fluctuate. We expect sales to significantly rebound in quarter four.
Let me now turn to our new and exciting business Onyx Pharmaceuticals. I'll like to start by thanking the entire Onyx team for their unwavering commitment during the acquisition period. They remain focused and grew their business 6% quarter-over-quarter. Importantly, as most of their U.S. execution drove a 10% increase in the number of Kyprolis [ph] accounts during the quarter as the depth of prescribing continued to grow.
We're excited to continue building on this important growth platform in multiple myeloma with potential expansion into early lines of therapy as well as launching in countries outside the United States.
In summary, I'm very pleased with the competitive strategies our team have developed and our execution against these strategies. We remain focused on serving patients and bring them vital medicines. Our underlying business delivers another strong quarter and I believe we are well positioned to meet our full year revenue growth objectives.
Let me now pass it to Dr. Sean Harper.
Thanks, Tony. We continue to forge ahead on our existing pipeline efforts and I'd like to take this opportunity to also welcome our colleagues at Onyx. The team has done an outstanding job advancing innovative multiple myeloma therapies and we're very optimistic about the long-term potential of Kyprolis and Oprozomib. We're looking forward to the new Kyprolis data next year including the final analysis of the FOCUS study in relapsed/refractory multiple myeloma.
In addition the Independent Data Monitoring Committee will review an interim analysis of the ASPIRE study in relapsed disease next year. As many of you are aware, FOCUS is the registration enabling study for refractory/relapsed multiple myeloma targeting the EU and ASPIRE is the confirmatory study for full U.S. approval as well as the registration enabling study for relapsed patients in both the U.S. and in EU.
We will also be presenting additional data on Oprozomib an oral proteasome inhibitor at this year's American Society of Hematology meeting. We are doing everything we can to help maintain momentum on these programs and to bring to bear any resources we can to further enable our success. The mission and culture of the two companies seem remarkably well aligned and I'm excited to have them on our team.
The lipid-lowering program intended to be the basis of registration for AMG 145 now called Evolocumab. It's completely enrolled and we eagerly await the results in 1Q '14. We plan to speak more about this program along with our other cardiovascular programs at an investor event at the American Heart Association meeting in November where we will be presenting one year data from over 1,100 subjects in our Phase 2 open-label extension study.
For Trebananib we continue to estimate the final overall survival analysis from the ongoing pivotal study in recurrent ovarian carcinoma to occur in the second half 2014. We have decided to discontinue enrollment in our study of Trebananib in combination with DOXIL in the study of recurrent ovarian carcinoma due to ongoing DOXIL supply issues.
We've also determined that a much smaller study than initially planned can be utilized to accurately assess the effects of Trebananib on progression-free survival and first line ovarian cancer. In addition, the emerging therapeutic landscape in non-small cell lung cancer limits the potential utility of Trebananib in this study, so we're also just continuing enrollment in this Phase 2 study. There were no new safety findings related to these decisions.
Our psoriasis program for Brodalumab consists of three Phase 3 studies, one placebo controlled and two head-to-head against ustekinumab or STELARA. I'm pleased to report all these are now fully enrolled and we expect to see the data next year.
Velcalcetide or AMG 416 is our novel IV calcimimetic being investigated for the treatment of secondary hyperparathyroidism in patients with chronic kidney disease who are on hemodialysis. Phase 3 data are expected next year and we will be presenting Phase 2 data at the American Society of Nephrology meeting next month.
Just to close the loop a few on outstanding XGEVA filing after extensive discussions with EU regulators, we've decided not to pursue further our request for a bone metastasis free survival indication in castrate resistant prostate cancer in Europe. Our biosimilar unit continues to make good progress and as Bob mentioned enrollment has commenced in our biosimilar Humira pivotal study in psoriasis.
Finally I’d just like to take a moment and acknowledge my colleagues in R&D who continue to innovate and execute at a very high level. We’ve made great progress this year, and as you can see from my last slide eight of our late stage programs will achieve significant milestones next year. We’ll be very busy in 2014, but our organization is ready and we look forward to continuing our track record of delivering noble therapies for patients in need. Bob.
Okay. Thank you Sean. Marvin, we’re ready for questions. If you’d remind our listener’s of the procedures, we’ll open up the line for questions.
Earnings Call Part 2:
- Health Care Industry
- Tony Hooper