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Amgen (NASDAQ:AMGN)

Q4 2012 Earnings Conference Call

January 23, 2013, 5:00 pm ET

Executives

Arvind Sood – VP of IR

Bob Bradway – CEO, President, COO

Jon Peacock – CFO, EVP

Tony Hooper – EVP of Global Commercial Operations

Sean Harper – EVP of Research & Development

Analysts

Robyn Karnauskas – Deutsche Bank

Robby Winarta – Credit Suisse

Matt Roden – UBS

Michael Yee – RBC Capital Markets

Geoffrey Porges – Bernstein

Chris Raymond - Robert W. Baird

Marshall Urist – Morgan Stanley

Eric Schmidt – Cowen and Company

Eun Yang – Jefferies

Geoffrey Meacham - JPMorgan Chase

Yaron Werber – Citi

Mark Schoenebaum – ISI Group

Josh Schimmer – Lazard Capital Markets

Rachel McMinn – Bank of America Merrill Lynch

Terence Flynn - Goldman Sachs

Joel Sendek – Stifel Nicolaus

Tony Butler - Barclays Capital

Operator

My name is (Marvin) and I will be your conference facilitator today for Amgen’s fourth quarter and full-year 2012 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.

Arvind Sood

Thank you, (Marvin). Good afternoon, everybody. I would like to welcome you to our conference call. The focus of our call today will be to primarily discuss our strong operating performance during the fourth quarter and full-year 2012.

This performance is increasingly backed by diverse portfolio products. In addition to our strong operating performance, 2012 was characterized by meaningful advances within our pipeline, completion of important acquisitions and return of significant capital to shareholders.

To discuss these topics in greater detail, I’m joined by several members of our leadership team. Our Chairman and CEO, Bob Bradway, will begin with a brief strategic overview. Following Bob, our CFO, Jon Peacock, will review our quarterly results and provide revenue and EPS guidance for 2013.

Our Head of Global Commercial Operations, Tony Hooper, will then highlight our product performance followed by our Head of (Warranty), Sean Harper, who will provide a brief pipeline update.

The reason I said brief is because we will host our business review meeting in New York on February 7th. At this meeting, we’ll discuss several initiatives and strategies in detail, notably our pipeline, which will be critical towards driving our long-term growth.

We’ll 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 today, we may make certain forward-looking statements and actual results could vary materially.

So with that, I would like to turn the call over to Bob.

Bob Bradway

Thank you, Arvind. Good afternoon and thank you to all of you for joining our fourth quarter call. Our performance in 2012 was consistent and strong throughout the year. We ended 2012 with momentum really across our products and geographies, delivering 11% revenue growth for the year. For the full year, growth in revenues and our ongoing commitment to operational efficiencies provided operating leverage, which is reflected in our 15% growth in operating income.

Enbrel was particularly strong, and we had solid contributions from a number of our other products, including Prolia, XGEVA, Sensipar, Nplate, and Vectibix. Our European business continued to grow despite the tough fiscal environment on that continent.

We also made significant advances with our pipeline in 2012, with four programs advancing into Phase III development. The most recent advance is the initiation of Phase III studies earlier this month for AMG-145, our PCSK9 antibody that is being developed with patients with high levels of LDL cholesterol. In addition, romosuzamab, for osteoporosis; brodalumab, for psoriasis; and rilotumamab for gastric cancer also advanced in Phase III trials.

In December, we further advanced our strategic agenda, with the acquisition of Decode Genetics. We’re excited about the opportunity that this brings to identify and validate new targets based on human genetics.

We also delivered on our commitment to return capital to shareholders in 2012. In December, we raised our dividend for 2013 by 31% and our $10 billion share repurchase plan begun in 2011 is now completed. For 2013, we expect revenue gains in the range of 3-5% and EPS growth of 5-10%. John will provide additional details on that shortly and will comment as well on the progress we’ve made against our previously communicated 2015 objectives.

We look forward to providing an update on our strategy, business outlook, and pipeline as Arvind mentioned earlier at our business review on February 7 in New York. Before I turn it over to John, I’d like to thank our staff members around the world for their hard work, dedication, and execution and delivering for patients and shareholders in 2012.

John?

Jonathan Peacock

Thanks, Bob. So turning to the first quarter, on page 4 of the slide deck, you can see that revenues in product sales grew by 11% in the quarter, and Enbrel, Prolia, and XGEVA were the biggest contributors to that growth, but Sensipar, Nplate, and Vectibix all continued to deliver strong growth.

And our businesses outside of the U.S. grew by 14%, helped by good performance in Europe and from recent acquisitions in Turkey and in Brazil.

Operating income also grew by 11%, with growth in operating costs again largely held in line with product sales growth.

Cost of sales grew at 13%, primarily driven by the sales increases, but also by our changing product mix, partially offset by manufacturing efficiencies.

Overall in 2012, our operations group again delivered reliably for every patient and to a high quality. Research and development costs increased by 9%, driven by the ramp up of the Phase III trials, particularly for romosuzamab, our sclerostin antibody for the treatment of post-menopausal osteoporosis, and for AMG-145, our innovative cholesterol-lowering therapy.

SG&A expenses increased by 13%, largely driven by the increase in the Enbrel profit share payments during the quarter and to a lesser extent international expansion costs. The increase in expenses in the other income and expense line is a result of the higher interest costs from our debt-financed share repurchase program over the last 18 months.

And then income taxes, at 16.1% of pretax income, are higher relative to last year, due to some variability in the geographic mix of our earnings, primarily Enbrel, in the quarter, and the benefit of the federal R&D tax credit that was recognized in 2011. This was partially offset by the resolution of certain state tax matters related to prior years that we settled in the quarter.

As I’m sure most of you have noted, the federal R&D tax credit was renewed for 2012, but it was renewed at the beginning of January, and it will be recognized for the full year in the first quarter in addition to the credit for the first quarter of 2013.

And finally, adjusted earnings per share were 16% higher, helped by an average share count that was 10% lower compared to the fourth quarter of 2011.

In summary, for the full year, on page 5, revenues grew 11%, operating income grew 15%, and adjusted earnings per share grew 22%, to $6.51 per share.

We exit 2012 with strong momentum, both in the fourth quarter and over the year as a whole. So turning next to cash flow. We generated $5.2 billion in free cash flow in 2012. This was after payment of the previously disclosed settlement with the US government of approximately $800 million, which was paid during the fourth quarter and higher interest expense payments from our debt finance share repurchases.

Our strong cash flow performance was driven not only by the strong underlying performance of the business but also by significant improvement in collection of trade receivables moist notably in Southern Europe and by cash received from unwinding some historic fixed to floating interest rate swaps.

Uses of cash during the year (were) acquisitions which totaled $2.4 billion, dividends totaling $1.1 billion and share repurchases which totaled $4.7 billion. By year-end we had largely completed our $10 billion share repurchase program at an average cost of $66.30 per share.

Over the next few years, our share repurchase activity will moderate and our focus will be more on continuing to deliver meaningful increases to the dividend. As you know, we’ve increased the dividend for 2013 by 31% to $0.47 a share.

The board of Amgen has authorized a further $2 billion share repurchase program which we expect will carry us well into 2014.

At the end of the year, we held $24.1 billion in cash and short-term investments and $26.5 billion in debt. The debt has an average maturity of 13 years and a fixed average pre-tax coupon of 3.8%.

The balance includes a $2.5 billion convertible which matures in February and which we intend to settle in cash.

We’re not planning to raise any additional debt in 2013 and I expect us back in a net cash position during this year.

So just stepping back for a second, compared to the beginning of 2011, each Amgen shareholder now owns 23% more of the company and receives a dividend that we’ve increased by an average of 30% in each of the last two years.

Let me turn now to guidance for 2013 on Page 7. We expect total revenues to be between $17.8 billion and $18.2 billion, a growth rate of between 3% and 5%. We expect adjusted earnings per share to fall between $6.85 and $7.15, a growth rate of between 5% and 10%.

Our adjusted tax rate is expected to be between 14% and 15%. And if you include the Puerto Rico excise taxes that are carried in cost of sales and that you’ll see in the press release, the total tax burden is expected to be between 17% and 18%. And capital expenditures are expected to be approximately $700 million.

Finally, in 2011, we issued 2015 guidance and we projected 2015 revenues in the range of $16 billion to $18 billion and adjusted earnings per share in the range of $7.25 to $8.60.

Since then, the performance of the business has accelerated. We’re on track to hit the upper end of our 2015 revenue guidance two years early and we expect to be comfortably within our 2015 guidance on adjusted earnings per share at least one year early.

As for 2015, we’re on track to deliver at least the upper end of our guidance on revenues and at least $8 in adjusted earnings per share.

Going forward, our focus will be on initiatives and strategies to drive longer term growth beyond 2015 and you’ll hear more about that at our business review on February 7th.

Let me turn now to Tony.

Tony Hooper

Thanks, Jon. So we delivered strong performance in 2012 despite increased competition, intensified macroeconomic pressures and access and reimbursement challenges. Our product sales grew 9% for the full year and 11% for the fourth quarter.

Our commercial team remains focused to navigate the changing environment, build the right strategies and execute them as we embark on 2013.

I look forward to discussing these challenges and opportunities with you in greater detail at our upcoming business review on February 7th. Let me now review our product performance for the fourth quarter, which is shown on Slide number 8.

Starting with Neulasta and NEUPOGEN, I’d ask you to remember that Neulasta represents about 80% of the full graphic in sales. Sales declined 1% globally on a year-over-year basis but let me speak to the sequential trends for a moment.

NEUPOGEN sales were flat as compared to the third quarter and Neulasta sales were down 5% driven by a 3% decline in unit demand.

While Neulasta sales were down slightly, we saw little change in the underlying market dynamics. In particular, we saw little change in the overall size of the segment, patient demographics, or access. We will continue to stay close to, and monitor, these metrics.

Remember this is still a market in which not every appropriate patient receives treatment at first and every cycle. In fact, approximately 60,000 patients are hospitalized in the U.S. each year due to febrile neutropenia.

Our research has shown that in the U.S., when appropriate patients ask about treatment with Neulasta, or NEUPOGEN, they typically receive the therapy. Hence, we are focusing on increasing investment in direct-to-patient and caregiver communications in the U.S. to raise awareness of the risk of febrile neutropenia and to encourage them to engage their healthcare provider in conversations regarding the risks.

Now let’s turn to Enbrel, which grew 23% in the fourth quarter. I’m very pleased with these results, based on our investment strategy, which includes three core components: Firstly, optimizing our sales force, secondly, increasing direct-to-consumer advertising, and third, focusing on appropriate access.

We saw year over year unit demand growth of 6% for the second straight quarter. We’ve also seen a trend of stable share in the rheumatology segment for several quarters. These results reinforce our conviction in our strategy. Enbrel remains, in value terms, the leading biologic in the fast-growing rheumatology and dermatology segments. Enbrel also has an extensive track record and is trusted in the marketplace by both physicians and patients.

Moving now to Aranesp, Aranesp sales globally were down 9% year on year due to practice patent changes, particularly in the first half of the year. However, sales were down just 2% sequentially quarter-on-quarter.

EPOGEN sales quarter-over-quarter were down 2%, due to competition. However, the impact of competition continues to be modest, and primarily in the form of pilot programs. Dialysis providers continue to recognize the value of EPOGEN based on their long term experience.

Sensipar had a strong fourth quarter, with sales in excess of $250 million globally. On a year over year basis, Sensipar grew 19%, driven primarily by unit growth. In the U.S., as part of the fiscal cliff legislation that was recently enacted, [all orals], including Sensipar, would be excluded from the end-stage renal disease bundle through 2016.

Vectibix and Nplate sales in the aggregate grew by 15% year over year globally, driven by continued unit demand growth.

Global XGEVA sales grew sequentially by 7%. Unit demand grew sequentially by 9% in the fourth quarter, as compared to 7% in the third quarter. In the U.S., XGEVA’s unit share grew from 35% to 37% in the fourth quarter as compared to the third, and the SRE segment continued to grow at about 14% year over year.

Our primary area of focus remains on communicating XGEVA’s superior clinical profile, and in the U.S., investment in direct-to-patient programs. Outside the U.S., XGEVA grew by 23% sequentially. Over the past two months, we’ve also achieved market access and reimbursement for XGEVA in Spain, Italy, and France. XGEVA is now reimbursed in all major E.U. markets.

Now I’d like to turn to Prolia. As I discussed last quarter, we expected a rebound from a seasonally slower quarter three. In fact, Prolia had an excellent fourth quarter, with 40% growth sequentially in both the U.S. and the rest of the world. In the U.S., unit share increased a third, from 6% to 8% during the quarter, and we continue to make good progress improving both access and seeing patients return for their injections on schedule. In Europe, unit share increased sequentially from 4% to 6%.  

Let me touch quickly on our markets outside the U.S., primarily Europe, Canada, Australia, and Latin America. We had a very strong 2012 in these regions, where sales grew from $3.6 billion to over $3.8 billion. Our presence grew in the fourth quarter by 14%, or 7% excluding the acquisition of MN in Turkey. In an environment with significant macroeconomic pressure, we are very pleased with these results.

So, in summary, strong execution, [unintelligible] strong 2012, and we carried excellent momentum into 2013. Let me hand you over now to Sean.

Sean Harper

Thanks, Tony. Good afternoon. As most of you know, I’ll be reviewing our R&D strategy and giving an update on the pipeline at our February business review, so my comments today will be relatively brief.

Our clinical programs are progressing well. We’ve initiated our Phase III program with the AMG 145, our PCS (K9) inhibitor for hypocholesterolemia. We recently reinitiated our study of Trebananib or AMG 386, our (inaudible) in recurrent ovarian cancer in the context of DOXIL now that supply issues for this chemotherapy litigation have eased. This study will complement our ongoing registrational program in ovarian cancer.

If you will recall, earlier this month we announced the results of the Aranesp, RED-HF cardiovascular outcome study in patients with heart failure. This study was initiated back in 2006 and pursued (technical difficulty) target hemoglobin of 13, much higher than today’s therapeutic practices in establish indications such as renal disease or oncology.

The topline results demonstrated no benefit on the primary endpoint of the study and no new safety findings were identified.

It is important to recognize that anemic heart failure patients are not currently treated with DSAs as standard care.

We completed our acquisition of deCODE Genetics at the end of December and we continue to be very excited about taking an industry-leading position in the use of human genetics to discover and validate our drug targets. I’ll discuss how this fits into our broader R&D strategy at the business review.

Finally, we had a very productive 2012 in R&D and I’d like to thank all of the Amgen staff who made this possible. Bob?

Bob Bradway

Let me turn now to questions and answers. Why don’t we review the procedures for the Q&A?

Arvind Sood

(Marvin), would you go ahead and open it up for Q&A please?

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Robyn Karnauskas – Deutsche Bank.

Robyn Karnauskas – Deutsche Bank

I guess my first question just comes along the – there’s been some talk around the bundle and maybe how the bundle rate might change given the new fiscal cliff law. Maybe you could talk a little bit about what you factored into your guidance and how you’re thinking about that.

Bob Bradway

I think there are a couple of things in there, one related to ESAs and then it sounds like you’re asking also about Sensipar. Tony, why don’t you address Robyn’s questions?

Tony Hooper

So while the (SBO) estimates that provisions to the SRD bundle payment system could save about $4.9 billion over 10 years but legislation of course does not explicitly direct (NYSE:CMS) to remove the $4.9 billion from the payment system.

Importantly, (CMS) is allowed the opportunity to conduct their own analysis and the legislation then directs (CMS) to use the most recently available data on average sales prices and changes in prices for drugs and biologics when the agency refaces the ESR (DPPS).

I’d remind you that (NYSE:AP) levels have been reduced to about ($10.7) and we’ve seen it stabilize at this level for the past few quarters and we do believe that further reductions would increase the number of transfusions.

As regards to Sensipar, we do not believe that the current treatment patterns with Sensipar will be impacted by the delays of (inaudible). We will have and continue to encourage the appropriate use of Sensipar.

Operator

Your next question comes from the line of Robby Winarta – Credit Suisse.

Robby Winarta – Credit Suisse

If I triangulate some of the numbers you’ve given on the buyback and the div and your at least 60% return, it looks like you’re implying a further increase in dividend this year that’ll get you to roughly 50% dividend, 50% buyback.

Can you give us some more color on where you see that proportion of dividend versus buyback going beyond 2013 and where you see at least 60% of return going?

Jon Peacock

Yes, I think, Robby, I’ll talk in more detail about that when we come to the February 7th review. I think the focus – two things I’d remind you of, one is we’ve said that we would return on average at least 60% of net income to shareholders and we’re certainly well on track to doing that.

And what I’ve said as going forward now we’ve completed the $10 billion share repurchase program, the focus will shift more to continuing to deliver meaningful increases in the dividend and I’ll elaborate more on that when we get to February 7th.

Operator

Your next question comes from the line of Matt Roden – UBS.

Matt Roden – UBS

First, for Jon or Tony, on the above consensus 2013 revenue guidance, can you comment on where your forecasts differ from Street models? And then secondly, for Sean, on AMG-145, on lipid lowering, one interesting aspect is the entry criteria for the outcome study. It describes patients with a history of clinically evident cardiovascular disease at high risk for a recurrent event. Can you talk about how you define that population, and clarify whether or not this represents a secondary prevention label?

Robert Bradway

All right, Matt, thanks. We’ll try and take that in two pieces, first with Jon and then Sean can give you some thoughts.

Jonathan Peacock

I think generally, on a $17-18 billion revenue base, we’re $200 million to $300 million apart on consensus, so I think it’s just generally a sense of the momentum of the portfolio on some of our key growth products that’s driving the difference. The other thing I’d just pay attention to is the international business where we have the businesses like MN and Bergamo that are making an increasing contribution as well. So I think it’s just a sense of the general momentum of the business, plus the increase in contribution of those businesses.

Robert Bradway

Obviously we’ll have a lot to say about 145 in New York when we’re there in February, Matt. But Sean, do you want to address any of the specifics of Matt’s question now?

Sean Harper

Well, I would just say that this kind of population that is status post having some kind of coronary event, and therefore is at high risk of another type of cardiovascular event, is a fairly standard approach for cardiovascular outcome studies in lipid lowering settings. So there’s really, I don’t think, anything particularly special going on here.

Operator

Our next question comes from the line of Michael Yee of RBC Capital Markets.

Michael Yee – RBC Capital Markets

A question on the 2013 guidance. It’s a fairly wide range on EPS. Can you talk about how we should be thinking about expenses? I know in the past you’ve sort of given some range of percent of revenue, etc. Maybe talk a little bit more specifically about that? And then also, on the share count, which would be another additional factor, I know you have some share buyback guidance, but are you thinking about, in your guidance, a fairly spread out sort of buyback, over two years?

Robert Bradway

Some good questions there. Obviously we’ll have a chance, when we’re together, as Jon said earlier, in New York, on February 7, to talk more about our plans for returning capital. With respect to your general question about expenses, bear in mind that it has been our objective - and again, we delivered on it again this year - to let revenues lead expenses, which is to say to have revenues grow more quickly than expenses, and that continues to be a focus for us.

But we’re investing where we see opportunities to grow the business. Our focus is on growing the business in the long term, and we think we’re able to do that now while constraining expenses grow a little more rapidly than revenues. But again, that’s a rich topic for when we get together in February.  

Operator

Our next question comes from the line of Geoffrey Porges with Bernstein.

Geoffrey Porges - Bernstein

Just quick question on the two antibodies, the big antibody programs, sclerostin and 145. Sean, can you give us an update on exactly the formulation that you’re taking forward for the subcu administration? Have you managed to get to a single shot for the q.2 or q.4 week dosing, or are you still using multiple subcu shots?

Jonathan Peacock

We’re really not wanting to talk about that level of specificity, about the way that we’re going to be delivering the product commercially. I just remind you that oftentimes the product is developed through different phases of development, with formulations and formats that are different than what is actually launched commercially.

Operator

Our next question comes from the line of Chris Raymond with Robert Baird.

Chris Raymond - Robert W. Baird

Just kind of curious on your commentary regarding the dynamics in the ESA market. I think I heard you guys talk about competition perhaps as a source of the sequential quarter on quarter decrease for EPOGEN. But even further than that, we’ve seen, I think, a longer term, still downward trajectory for EPO, even though at the beginning of the year you kind of talked about stabilization of that franchise as a result of bundling.

The long and short of it is, when you talk about the guidance and what your expectations are for EPO, how much of your expectations on EPO are driven by competition, and how much on maybe further degradation of the overall market from bundling?

Robert Bradway

Okay, there’s a lot there, Chris. I know Tony will probably want to talk about both EPO and Aranesp, so Tony, why don’t you share your thoughts?

Tony Hooper

So as I said earlier, in the EPO market, we’ve really seen a stabilization of dose with hemoglobins stabilizing around ($10.7). So we haven’t seen any dramatic changes in either dose or size of the market for some time now.

The 2% sequential decline in the fourth quarter was fundamentally all around competition but, as I said, we exited the year still in excess of 96% market share, so we continue to believe that the (inaudible) see the true value and benefit of EPOGEN based on this long history in the marketplace around both efficacy and safety.

Aranesp as well, as you know, probably 65% of our business is outside the US. But, again, that continues to be fairly stable in terms of quarter-by-quarter performance with some competition coming from the side. But the actual market in terms of usage or dosage appears to be fairly stable.

Operator

Your next question comes from the line of Marshall Urist – Morgan Stanley.

Marshall Urist – Morgan Stanley

So my question is just specifically on the 2013 revenue guidance. Could you guys just comment specifically on what your assumption is in the 2013 guidance about competition in the – for EPOGEN in the US dialysis market and how that’s reflected in your estimates?

And then similar question on XGEVA, how you guys think a generic (Zomeda) is going to impact the market, if at all, and if there’s any conservatism around that that’s built into the 2013 outlook.

Bob Bradway

We’re not going to talk about specific product revenue guidance but why don’t we address your questions, again, about EPO and we can talk a little bit about XGEVA as well and the competitive dynamics that we see there. So Tony?

Tony Hooper

So the market going forward fundamentally has a (inaudible) as a competitor and we have not predicted any dramatic changes in the makeup of the market. Obviously we take every competitor seriously.

We have long-term conflict with (Aveda). We have non-exclusive conflict with (Frasinius) in the marketplace and we have a highly experienced team out there every day talking about the benefit and the longer-term experience of EPOGEN.

Let’s move into XGEVA and as we approach the patent expiry for the (subchronic) acid, we expect there will be some temporary disruption in the marketplace both as a result of competitive activities and some reimbursement considerations.

But we continue to be very confident on XGEVA’s superior clinical profile and the benefit that it actually delivers to patients.

Operator

Your next question comes from the line of Eric Schmidt – Cowen and Company.

Eric Schmidt – Cowen and Company

It’s for Jonathan on the Enbrel co-promote profits. It looks like you’ve paid out just under $1.5 billion in 2012 but I think your guidance is only to see about an $800 million benefit in 2014.

I know you have (inaudible) declining royalty to Phizer but there must be something else that I’m missing in that equation.

Jon Peacock

No, it’s essentially the profit share falls away. We pay the royalty stream which declines over a three-year period and we would expect the net benefit to be about $800 million in terms of operating profits.

Next year, we’re happy after the call to take you through the specifics of that if there is some gap in how you’re looking at it but those are the two components.

Arvind Sood

Eric, I can give you a call after this conference call and run through additional details if you would like.

Operator

Your next question comes from the line of Eun Yang – Jefferies.

Eun Yang – Jefferies

I want to ask you one earlier (program) in Amgen’s pipeline 319. There is a fair amount of excitement in the (inaudible) class, so I want to get Amgen’s view on the target and also it seems to me that it’s a competitive field with a number of (PA3) (inaudible) perhaps in development. So how does Amgen see the advantage with the 319 and development plan?

Sean Harper

We do find the target quite interesting and think it has potential application in both oncological and (inaudible) settings. But as you point out, it is a target that’s being pursued by a number of companies and its settings. But as you point out, it is a target that’s being pursued by a number of companies, and they’re all in pretty early stages of development. So it’s rather difficult to get a real sense of head-to-head comparison. So we’re pursuing, with significant interest, but very early, the activity of this type of molecule in both of those therapeutic areas.

Robert Bradway

Thanks, Sean. Next question?

Operator

Our next question comes from the line of Geoff Meacham with JPMorgan.

Geoffrey Meacham - JPMorgan Chase

Bob, you guys have talked about growing your OUS presence to about a billion in sales by 2015, and I see that you have Bergamo and MN revenues broken out for 2012. What’s the updated outlook here at this point, and what inning would you say you’re in with respect to plugging in Amgen products to more OUS channels?

Robert Bradway

We’re still in the early innings, Geoff. The two markets that we’re very focused on now are Japan and China. Obviously Japan is the world’s second largest pharmaceutical market, and while we have three very successful partnerships there, and the products that are associated with Amgen generate some $2 billion in sales, we know we have molecules in our pipeline that are well-suited to that market, and we’d like to have an operating platform there from which we can reach patients directly. So we feel we’re making progress there, but it’s premature to give you more detail.

China is the third-largest, and a rapidly growing market, including for biologics. There’s a lot of interest in that market in biologics like those that are in our pipeline. Molecules like rilotumamab for gastric cancer, molecules like 145 in cardiovascular disease, and of course 785, our sclerostin antibody. So there’s strong interest in China in our pipeline molecules, and we’re looking at ways, again, of gaining direct access in that market to be able to reach patients and caregivers directly.

But we’re optimistic that we have a plan that will get us there over the next few years in time to benefit from the launch of these products as the data become available over the next several years. So those are the two most important markets.

We had said previously that Russia, Brazil, and Turkey were three priority markets for us. I think we’ve positioned ourselves very well in each of those now by, in the case of Brazil and Turkey, acquiring businesses from which we’re able to launch our own proprietary molecules quite effectively. And in Russia, we have a joint venture that I think has also given us a stronger position in that market than we had on our own.

So we feel good about where we are there, and there are a couple of other small, emerging markets that we continue to look in. But overall early innings, business performing well, and we remain encouraged.

Operator

Our next question comes from the line of Yaron Werber with Citi.

Yaron Werber - Citi

Also John, just a follow up a little bit, just to understand, potentially, I don’t want to drill into specific product lines, or operating expense lines, but one of the things that strikes me, and it’s sort of a follow on to what Eric’s question was, is it looks like in the last two years, Amgen’s own SG&A expenses have been pretty flattish. And most of the growth has really been driven by the royalty payment to Pfizer. Is that sort of the way we should look on 2013 as well? And then just a follow up is the $800 million in savings is certainly very reasonable for next year, when [we’ll run] for over three years, but after that, you should have another $800 million or so minus whatever SG&A you would have for Enbrel starting in 2017.

Anthony Hooper

Starting firstly with the Enbrel question, the royalty stream, as I think we’ve disclosed, starts at 12%, declines to 10% over three years. So once that three-year period expires, that 10% royalty, on whatever the sales are of Enbrel at that time, falls away. So there’s significant step-up again, three years beyond the end of this year.

And then on SG&A, you’re right. The SG&A cost over the last couple of years have been largely flat, except for the Enbrel profit share payments. I’ll talk about this more in February, but certainly you should expect that we deliver that Enbrel profit share to shareholders as it falls to the bottom line. We’re also investing significantly in growing the business for the longer term, and we are driving a lot of operational efficiency across the business and the primary focus of that operational efficiency is to fund the investment in growing the business for the longer term.

So yes, I think the intent is to drive significant operational efficiency, and you should see at least the kind of trajectory you’ve seen over the last two years. But there will be a lot of reinvestment as well. But certainly expect that Enbrel profit share to create operating leverage on the business over the next few years.

Operator

Our next question comes from the line of Mark Schoenebaum with ISI Group.

Mark Schoenebaum – ISI Group

I was wondering if you guys could tell us whether or not you’re planning on giving a new five-year financial target at your analyst meeting the way you did at the 2010 analyst meeting. And then also related to the guidance, if I – do I understand your comments about 2013 through 2015?

It sounds like, the skinny, we shouldn’t be expecting much revenue growth based on those comments, 2013 to 2015, or should we really just be thinking about those as floors?

Bob Bradway

With respect to the meeting in February, I think it’s unlikely that we’re going to give a new set of five-year revenue and earnings targets the way we did when we were together with you in April of 2011. I think in April of 2011, we and the street consensus were in very different places with respect to the outlook for our business.

So when we get together in February, we’re really going to concentrate on what we see as the long-term growth opportunities for the company, so we’ll focus on our strategy and how we think that will enable us to grow, so the international expansion plans, of course, our plans with biosimilars will have an opportunity for the first time to describe for you more fully the molecules that we’re planning to advance and the timeline against which we think we can advance them.

We’ll talk, of course, about the pipeline in great detail and the molecules that are emerging from the pipeline that we think can drive growth. And so we’ll talk about the competitive profile as well that’s emerging for in line commercial products and go through that and what we hope will be useful depth so you can have a sense for why we remain excited about the long-term growth potential for the company.

But with respect to the specific guidance for this year, Jon, why don’t you go ahead and add any other comments.

Jon Peacock

I think to be clear, what I said was that for 2015 we expect revenues to be at least at the upper end of that $16 billion to $18 billion range and to be at least $8 a share. So I think we have positioned those as floors and business will progress and we’ll work against those floors over the next couple of years.

Operator

Your next question comes from the line of Josh Schimmer – Lazard Capital Markets.

Josh Schimmer – Lazard Capital Markets

Just curious as to the rationale for letting the net cash position improve. Do you not feel like you’ve got sufficient flexibility on the balance sheet the way it stand now? You can talk about that strategy.

Jon Peacock

I think we laid out clearly our plans to return at least 60% of net income to shareholders and retain the strategic flexibility to continue to make the kinds of acquisitions that you’ve seen over the last couple of years.

So for the first time, this – the second half of this year we were in a small net debt position and over the course of 2013 we’ll be in a small net cash position, so it’s not a significant shift in the capital structure and our focus is to try to keep it on the sheet relatively efficient but keep sufficient strategic flexibility and we’ll continue to keep that under review.

Josh Schimmer – Lazard Capital Markets

Is deCODE a type of deal that we should expect more of?

Bob Bradway

We’re obviously excited about the deCODE deal, Josh. That wasn’t the only transaction we did last year, as you know. We’re also excited about the acquisition of Micromet, which brought a very malleable piece of biology to treat grievous disease, in particular, leukemia and we hope lymphoma and perhaps all tumors as well.

So we’re very excited about what that transaction did for us earlier in the year. We think the KAI transaction, as well, enables us to bring forward an innovative molecule that we can add value to in our pipeline, so another opportunity for us to grow.

And of course, international expansion was part of our acquisition game in 2012. And I think each of those are the kinds of transactions that we’ll continue to look to do in 2013.

So in addition, to the extent that we have an opportunity to acquire molecules that are either on the market or soon to be on the market where we think we can add value, we’ll look at those as well.

Operator

Your next question comes from the line of Rachel McMinn – Bank of America Merrill Lynch.

Rachel McMinn – Bank of America Merrill Lynch

Just a question on the $18 billion floor guidance for 2015; does that assume impact from any pipeline products or is that just straight organic growth from currently marketed products?

And then just to follow up on the share repo question, I guess I just wanted to clarify whether your EPS guidance actually assumes share repurchase in there because some companies like Celgene, for example, give us EPS guidance assuming no share repurchases.

Tony Hooper

Yes, our EPS guidance assumes the capital allocation strategy that we’ve had in place for the last couple of years. And I talked a little bit about that, and I’ll talk more about it in the future. So there is an assumption of a certain level of share repurchase activity in there, but as I’ve said, we expect that to moderate over the next couple of years relative to what you’ve seen recently.

Robert Bradway

With respect to the outlook for growth, Rachel, when we get together in New York we’ll detail our thinking about some of the late-stage molecules. Obviously the nearer term opportunities arise from molecules like TVEC and malignant melanoma, of course our ovarian cancer program, which Sean talked about, potentially our antibody to PCSK9. So we’ll step through those and give you a sense for where we think we are in the clinical development programs, and where we think the opportunities are for those when we get together in New York.

Anthony Hooper

And just to clarify, Rachel, I said that at least the upper end of our guidance range of 16-18.

Rachel L. McMinn - BofA Merrill Lynch

Right, so is that 18 including those products, Bob, that you just highlighted? Or no?

Robert Bradway

I’m not going to get into individual product guidance, Rachel, but the pipeline molecules would not be material to the 2015 number. But more important, I think, is the context that we’ll give you for where we think we are with those when we’re together in February.

Operator

Our next question comes from the line of Terence Flynn with Goldman Sachs.

Terence Flynn - Goldman Sachs

First, just wondering if you can give us any more color on the Enbrel dynamics in the fourth quarter. Just wondering how much was driven by unit growth versus price. And then any early thoughts on as the entry of the new oral competition. And then one on the pipeline front, on AMG 785. Just wondering if there’s any update on the Phase II fracture healing trial.

Anthony Hooper

Let me take the Enbrel question. We do continue to be delighted with the performance of the team, and the execution in the marketplace. The quarter-over-quarter growth for the fourth quarter was 23% growth. Eleven points of that was price, six points was units, three was inventory, and three was accounting adjustments.

But I think the important thing is the sequential 6% unit growth showing ongoing evolution of the brand. We see ongoing growth in our bio-naïve market share for rheumatology. We see clear stabilization of market share in rheumatology and a definitive slowdown in any decay in the dermatology market.  

Robert Bradway

With respect to 785, Sean, do you want to add any thoughts for Terence?

Sean Harper

Nothing’s really changed. We’re going to be waiting to see the one-year data from those studies that comes later in the year, before we make any decisions about whether we would move that forward into Phase III.

Operator

Our next question comes from the line of Joel Sendek with Stifel Nicolaus.

Joel Sendek – Stifel Nicolaus

I had a question about Neulasta. You went through some of the details. I’m wondering whether the decline was due at all to payer pressure, or was it more detail-related? Can you give us some detail on i

Anthony Hooper

As I said in my prepared remarks, Neulasta was slightly down, about 5%. We looked at every single marker in the industry, and fundamentally saw very little change in anything. Not the size of the segment, the patient demographics, or access. No changes in actual access. So we continue to focus on the unmet medical need, a lot of patients who potentially have access to the drug. And that’s where we’ll be going in the future.

Operator

Our last question comes from the line of Tony Butler with Barclays Capital.

Tony Butler - Barclays Capital

At a very high level, I wanted to ask about Decode. And I wanted to ask Sean, how does the communication occur in research? How does it change? Or how do you think it will change, given I assume that entity will still be abroad? And moreover, why does that asset actually have increasing value underneath the Amgen umbrella, as opposed to maybe something like a strategic alliance?  

Sean Harper

Those are great questions. I’d prefer to go into it in real detail around this in the context of the overall R&D strategy in February. But I certainly would say that I think from our perspective, and from Decode’s perspective, there was going to be a real synergy by bringing the two organizations together.

We were seeking really an industrial platform to become the industry leader in using human genetics for target identification and validation, and they were really seeking a way to see the enormous way of discoveries that they are engaged in right now translate into impact on patients and through the development of new medicines and I think the sum of the parts is much greater than the individual pieces.

Arvind Sood

Thanks very much, Sean. I think that’s a great place to end this call and continue the discussion when we see everybody at the business review on February 7th. I want to thank all of you for your participation this afternoon.

If you have any follow-on questions, of course, myself and the rest of the investor relations team will be around for several hours. Thanks again.

Operator

Ladies and gentlemen, thank you for joining us for today’s Amgen’s fourth quarter and full-year 2012 financial results and conference call. This concludes today’s conference call. You may now disconnect.

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