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Executives

Arvind Sood - Vice President, Investor Relations

John Shutter - Director of Investor Relations

Analysts

Eric Schmidt - Cowen and Company

Amgen Inc. (AMGN) Cowen and Company 33rd Annual Health Care Conference March 6, 2013 9:20 AM ET

Eric Schmidt - Cowen & Company

Good morning, everyone. My name is Eric Schmidt. I'm one of the biotechnology analyst at Cowen and Company. It's my pleasure to introduce our next company, Amgen, and welcome them back to the Cowen Conference for what's been many years running.

We're delighted to have with us today, the company's Vice President, Investor Relations, Arvind Sood. Also from the Investor Relations team John Shutter is here in the audience. And I know Arvind has planned about 20 minutes of an overview presentation, so we should have some in his room for Q&A after his overview. And then we'll move next to our, if there's further interest in Q&A for the breakout session, which will be held in the Tufts room.

Arvind Sood

Thank you very much, Eric. Good morning everybody. So Eric, first of all, I'd like to thank you for inviting us to your conference. I mean this conference undoubtedly is one of the premier healthcare conferences, so it truly is a privilege being here.

What I'd like to do over the next few minutes is really focus and embellish one theme, the steps that the company is taking to drive long-term growth and that particular concept or issue has many different dimensions. We actually ended 2012, a strong business momentum across the board, emanating both from the product sales growth that we had, from some of the capital allocation decisions that we have made and also the operating leverage that the company had. But you know, as we think about the steps that the company is taking to drive this long-term growth, some of the dimensions that I would like to highlight today are, our plans to grow revenues in an environment that's becoming increasingly competitive.

Operational efficiencies, this is going to be important. We have taken steps across the board, within our commercial organization, within our R&D organization to drive operational efficiencies. And recently just a few days ago, we actually held a Business Review Meeting in New York, and at this meeting we had highlighted that we expect to derive about $1 billion in operating efficiencies by 2015. And we also expect to deploy these operating efficiencies to drive some of our long-term growth initiatives, and it's a point that I will embellish a bit more, as I get through our prepared comments.

The new mentor at the company of course is a focus on return on capital across the company in anything and everything that we do. We have made some significant strides, some significant advancements with pipeline, and again is a point that I will address, and of course our continued focus on driving shareholder value.

So let me begin with our largest franchise, which is Neulasta and NEUPOGEN. These products combined generated sales of almost $5.5 billion last year, and there are a couple of points that I would note here. First of all, there is still significant unmet medical need that exists for the use of these products.

As a matter of fact, if you take breast cancer as an example, the average patient gets about seven cycles of chemotherapy, but only for four of those cycles do they get Neulasta or NEUPOGEN in conjunction with their chemotherapeutic cycle. And of course for optimal therapy they should be getting Filgrastim therapy in combination to their first and every single chemotherapy cycle that they are receiving.

We have also estimated that there are about 60,000 patients in the U.S. alone, who suffer from febrile neutropenia, who can benefit from Neulasta and NEUPOGEN therapy. I would also note that 75% of our business now, the Filgrastim business is actually concentrated in Neulasta. And the patent protection on Neulasta extends out to 2015, so we do have prolonged exclusivity on this particular product.

NEUPOGEN, the patent actually runs out towards the end of this year. There is one other competing product that may become available by the end of this year, and that's by Teva. It's a product called tbo-filgrastim. But I would just note that this product is not biosimilar, and the Teva product would have to be established, based on the merit of its own safety and efficacy.

Our ESA business remains an important component of our overall portfolio of products. Aranesp generated revenues of about $2 billion last year. And EPOGEN, which is used primarily in the dialysis setting, also generated revenues of about $2 billion last year.

I would just note that Aranesp, first of all, we have patent protection on this product that extends to 2024, and this remains an important treatment option for appropriate patients, both in the nephrology setting as well as in the oncology setting. The practice patterns are largely stable for this particular product.

And EPOGEN that I had mentioned before, which is used primarily in the dialysis setting, has a long-established history of safety and efficacy, and it also offers flexibility of treatment. EPOGEN is actually given three times a week, which aligns very well with the frequency of a glitch, and average dialysis patient is dialyzed, which is also three times a week.

The hemoglobin levels and doses have largely stabilized, and you maybe aware of the fact that one of our competitors' products from Affymax, a product called OMONTYS was unfortunately recalled recently. And we are focused now on ensuring that the supply for these dialysis patients remains uninterrupted. The relationships that we have with our customers are strong, so we are working with them very closely to make sure that they clearly understand the conversion protocols, to bring these patients back to EPOGEN.

Let me highlight two of our newly launched products or relatively new products, Prolia and XGEVA. These products are doing very well. The combined sales of these products last year were over $1.2 billion, with Prolia in particular, which is used for the treatment of postmenopausal osteoporosis, our focus is on expanding access. So we are working to continue to improve and to foster a better understanding of the prior authorization process.

Through that, we have been able to help the physicians in terms of reducing the insurance rejections and also we have taken steps to increase the number of repeat visits. As a matter of fact, we are now at a stage that in excess of 50% of the patients come back for their repeat injections, and in Europe the number is actually higher, it's about 70%.

We have also re-launched our direct-to-consumer campaign. You may have seen some of these ads that we have on television with Blythe Danner, and the return on this direct-to-consumer campaign actually has been quite positive. As a matter of fact, we have found that 95% of the individuals, who request Prolia therapy and in whom Prolia therapy is appropriate, actually get a prescription for this product.

For XGEVA, we continue to purport the strong value proposition that we have with XGEVA for the treatment of skeletal-related events in cancer patients. And the strong value proposition, of course, is based on a superior efficacy and safety profile, and the fact that it's available in a convenient subcutaneous injection form.

You know that XGEVA, it is now approved for reimbursement in a majority of the European markets as well. So in 2013, we are going to be busy launching XGEVA in many of these markets, and we believe that that's going to be a meaningful growth driver for XGEVA.

We have also broadened our direct-to-patient campaign. This is an internet-based campaign. And lastly over a period of time, there is certainly the potential for new indications. XGEVA is being developed for the prevention of bone metastases and breast cancer patients and also for multiple myeloma.

Our so called growth-phase products, Sensipar, Vectibix and Nplate also have a very good momentum. As a matter of fact, last year these products collectively generated revenues of about $1.7 billion and the growth was about 18%. Sensipar, which is used for the treatment of secondary HPT in the dialysis setting, as a matter of fact is on track to exceed $1 billion in revenues this year, so clearly a blockbuster potential product.

As far as Vectibix is concerned, having the first and second-line colorectal cancer indications approved in Europe. Again, we believe that that's going to be a meaningful growth driver for this product. And as far as Nplate is concerned, we expect to launch this product in several emerging markets this year.

Let me spend a few seconds talking about Enbrel, which is our second largest franchise that generated revenues in excess of $4 billion last year. Our market share, both in the rheumatology segment and dermatology segment has been relatively stable at about 31% in rheumatology and about 38% in dermatology. What's noteworthy is the market or segment growth in each of these segments, which was very robust in 2012. As a matter of fact, the rheumatology segment increased about 20% and the dermatology segment increased about 27% last year.

With Enbrel, the contribution to our profitability is going to go up significantly in 2014, because you maybe aware of the fact that we have a profit sharing agreement with Pfizer that actually comes to an end at the end of this year. And once that agreement ends, it transitions into a royalty agreement, it begins at 12% and then it goes down to 10% at the end of the two-year period.

So the contribution at the operating income level for 2014 is expected to be about $800 million, and of course this benefit flow straight through to shareholders through increased margins. When this royalty agreement comes to an end at the end of the two-year period, there is an additional 10% of Enbrel sales that's going to be additive at the operating income level.

So let me switch gears now and talk a little bit about some other growth strategies that we think are going to be important in terms of the long-term growth profile of the company. You remember what I had mention on the very first slide, that we have operating efficiencies across our business and we estimate that by 2015 these operating efficiencies of about $1 billion that we expect. But our anticipation is that we are also going to reinvest these operating efficiencies in some of the growth strategies of the company, this being one of them, an advent of foray into biosimilars.

Why do we think we can make a difference? Why do we think that we can succeed by getting into the biosimilars business? Well, for one, we have some functional expertise in terms of R&D. We have some functional expertise in terms of our regulatory, skill sets that we have acquired. We certainly have the manufacturing expertise in biologics and we also have the commercial expertise. And each of these attributes are going to be extremely important for players, who expect to play in this particular arena.

We have identified six different molecules that we expect to develop biosimilars, again, which are noted on this particular page or this particular slide. And these products collectively are expected to have peak revenues of over $40 billion. And of course, our view is that even if we can carve out a small portion of that that could represent a blockbuster revenue opportunity for the company.

Recently we launched a campaign that simply called Manufacturing Matters, and again, this is designed to underscore the manufacturing prowess that we have developed over the years. Safe and reliable biologics manufacturing is an important competitive advantage.

And through this campaign, we actually, direct both providers and physicians to a website. And through this website, they can get access to several materials, several videos, which basically provide highlights, on why manufacturing is important. And why this particular expertise, particularly on the biologic side is extremely important. So it's an important campaign for us.

Another key aspect to our strategy is to expand the presence of the company internationally. Today, we still derive about 80% of our sales in the U.S. market. We conduct business in about 56 different countries outside the U.S. and our objective is to expand that eventually to about 75 different markets.

Two areas, which hold a great deal of interest for us are the Japanese market and the Chinese market. And again, at our Business Review Meeting that we held just a few days ago, we highlighted the fact that we are in deep discussions with several Japanese companies to establish a joint venture, through which we eventually expect to develop and commercialize three principle products.

AMG 145, which is one of the key products for the treatment of elevated cholesterol levels; 785 for postmenopausal osteoporosis; and also Rilotumumab or AMG 102, which is a product that has been developed for gastric cancer, for which there is a tremendous unmet medical need in the Asian markets for a product like that. The idea of this joint venture would be to eventually convert this into a wholly-owned presence for Amgen in the Japanese market. And we expect to do that towards the end of the decade.

In the Chinese market, it's a multi-prolong strategy. The idea there is to establish an R&D platform, to also some plants in place to eventually develop and commercialize biosimilars. And through partnerships and acquisitions, we also hope to embellish our commercial presence in the Chinese market down the road. In each of these markets in Japan and China, we expect to launch our very first product in 2016 and 2015 respectively, 2016 in the Japanese market and 2015 in the Chinese market.

Last year, we generated close to $600 million in these emerging market sales and our expectation is that by 2015 revenues in these market can actually exceed $1 billion. So let me again switch gears and highlight a very important component of our long-term growth, of course, that being the pipeline. And between now and 2016, we expect that eight of our registration programs are going to yield pivotal results.

And let me just quickly run through these, and if you have any questions about these, of course we can dealt into that, once I am done with my prepared comments. Talimogene or TVEC, this is a product that we are developing for malignant melanoma. We expect to get both durable response data as well as overall survival data this year for this particular product.

And also for AMG 386, this is a product that we are developing for the treatment of second-line ovarian cancer initially. We expect to get the PFS or the progression-free survival data this year, and then the overall survival data next year.

But you'll see on this chart that 2014 should be a very data-rich year for us. In 2014, we expect to see the readout from several of our products. Perhaps the more notable product here is AMG 145. This is a PCSK9 antibody for hypercholesterolemia. We are running several files and we expect to get those readouts next year.

Brodalumab, this is AMG 827. This is our IL17 antibody for the treatment of psoriasis. We also expect to get that data next year. AMG 416 is an intravenous calcimimetic, and our view is that this can serve as a very effective life cycle management strategy eventually for Sensipar. We expect to get that data next year. And lastly, I would not Blinatumomab. This is a product that we are developing for acute lymphoblastic leukemia, ALL, we also expect to get that data next year.

Beyond that, AMG 785, that readout should be in 2015. And Rilotumumab AMG 102 for the treatment for gastric cancer, we also expect that data in 2016. So again when you look at the pipeline in aggregate, we have made some meaningful progress with our pipeline over the last couple of years. And of course, we look forward to these data readouts over the next couple of years.

So just by the way of conclusion, from a capital allocation standpoint, we have made some significant progress, again over the last two years. We had a $10 billion share buyback program that was largely completed at the end of 2012. Now, we have an authorization to buyback an additional $2 billion worth of shares that we expect to complete between now and 2014.

So clearly going forward, the focus from a capital allocation standpoint is going to be less on share buybacks and more on the continued growth of the dividend. So share buybacks will moderate. We'll still continue to engage in share buybacks, but the growth in dividend is something that should continue.

Over the last couple of years, we have increased the dividend on average by about 30%. And also our plans are to return on average more than 60% of net earnings in terms of a payout to shareholders. So this slide notes some of the key messages that I would like to leave with you. If we accomplish these then I think we can accomplish what I've noted as the very last point on this slide, which is our commitment to continue to return capital to shareholders.

Obviously, eight late-stage pipeline molecules generating data by 2016, six biosimilars launches beginning in 2017, and again as I had mentioned before, our view is that collectively, what we expect to do with biosimilars can represent $1 billion or multi-billion dollar opportunity.

International expansion, again, our view is that this too can be a blockbuster opportunity, if we succeed in generating over $1 billion in revenues by 2015, as I had outlined before. Significant improvement in Enbrel's profitability and its contribution, and of course, that flows right through the P&L and through the improvement in margins that goes back to shareholders.

Obviously, continued expansion of denosumab and growth-phase products that I had outlined before those being Sensipar, Nplate and Vectibix. And again, I would just reiterate our commitment to continue to create value for our shareholders. So I will stop there and if we have any questions, I'll be happy to address those.

Question-and-Answer Session

Unidentified Analyst

(inaudible)

Arvind Sood

So the question was with the recent recall of Omantis, does that imply any changes for 2013 guidance. So if there are any changes to our guidance, we would obviously do that at the appropriate time when we report our earnings. I would just highlight that our priority at this point in time is to, first of all make sure that from a supply standpoint, there is no interruption. And I mean, there are no supply issues. We are in a very good position to continue to supply these patients with the EPOGEN.

We've had a very good longstanding relationship with Fresenius, DaVita, some of our customers in the dialysis setting. And we are working very closely with them again to ensure that they understand what the conversion protocols are. But obviously, if there are any changes in the guidance we'll communicate those at the appropriate time.

Unidentified Analyst

(inaudible)

Arvind Sood

Certainly from a planning standpoint, we have taken into consideration the fact that at some stage you could see that emerging subgenerics, and of course, we saw that yesterday. I think it could create some temporary disruption, because it does create somewhat of a financial incentive in terms of how the ASP methodology is structured before physicians.

But despite that our view is that even if there is a disruption, it's going to be short-lived because, again, the value proposition of XGEVA is very clear. We have demonstrated unequivocal superiority over Zometa and the form of administration, of course, is also very different because Zometa has to be given intravenously, it has to be given as an IV infusion over about a 15 minute period.

And XGEVA, of course, is given subcutaneously, so that I think can also complicate the transition from Zometa to XGEVA, if that's something that a physician desires because of the financial incentives that's there. So again, our view is that if there is indeed a disruption, is going to be short-lived, but longer-term I think the better profile, the superior profile of XGEVA should prevail.

Unidentified Analyst

(inaudible)

Arvind Sood

So the question from, Jerome, was if we have a view on the (inaudible) and what type of an impact it might have on XGEVA. I would just note that, first of all, this particular product is going to require good referral to a radiation specialist. I think from a side-effect profile standpoint, it's not clear what the implication of the emissions of this radiation, the alpha particles is.

Again, I would just go back to what I had mentioned before that the value proposition that we have with XGEVA. It's very compelling. In the clinical trials that we have conducted in several tumor types, but particularly in breast cancer and prostate cancer, we have demonstrated unequivocal superiority over the standard of care. The fact that we have a very convenient subcutaneous form of administration, again, is something that is very well accepted in this particular indication.

Unidentified analyst

(inaudible)

Arvind Sood

First of all, I think just the whole advent of biosimilars is something that is new for the industry. Obviously, the pharma industry has dealt with generics, but for biosimilars we have some draft guidelines in the U.S., but at this point in time we don't have definitive guidelines. But I think if you go by the guidelines, they are very clear in terms of the needs for doing clinical trials, the stringent clinical trails. I think the FDA also pointed out, they addressed the issue of interchangeability in some detail.

And at least the indication appears to be that in the initial phases of biosimilars launchers, the interchangeability is not going to be permissible. And then also the desire, the need to commercialize these products by their own distinct trade names, which I think will facilitate post-marketing surveillance of these products, I think, is going to be extremely important.

Again, what I had mentioned before that many of the attributes, which are going to be required for biosimilars are attributes that Amgen already has, in terms of manufacturing, in terms of the regulatory needs, in terms of the commercialization, and these are going to be extremely important, be it on the defensive side or be it on the offensive side in terms of actually getting into the biosimilars business.

Again, on the defensive side near-term, we really don't have a great deal of exposure to biosimilars and the patent on EPOGEN goes off in 2015, so beyond that, you see some biosimilars entrant assuming that the guidelines are finalized by then. And NEUPOGEN, as I have noted before the patent on NEUPOGEN expires towards the end of this year. But apart from that, for most of our other products we have prolonged exclusivity.

I would also note as I have mentioned before that NEUPOGEN now represents only about 25% of our filgrastim franchise. Now, as far as our desire to get into biosimilars against some of the other products which are out there, that desire is really born out of the commercial potential that we have seen in that market.

Again, we can leverage the attributes of manufacturing regulatory commercialization to successfully develop these products. And we think again, going back to what I had mentioned before this campaign that we have launched of Manufacturing Matters that that is going to be a strong competitive advantage that we have.

I'll share an anecdote with you. Even in markets like China, despite the fact that we don't have a huge presence today, but the name Amgen is very well recognized. And Amgen is correlated with safe and reliable manufacturing. So again, that's how we are thinking of biologics or that's how we are thinking about biosimilars, to be able to leverage some of these core competencies that we have developed to succeed both on the defensive side, as we defend our own products against biosimilars, and also to be able to utilize this as a revenue or as a growth opportunity going forward.

Unidentified analyst

(inaudible)

Arvind Sood

In Europe first of all, biosimilars have now been on the market for several years. And you're right, if you look at biosimilars in aggregate, they have captured a modest share, I would say in terms of value shares, it's probably in the range of about 12% to 14% across the board. But you do see some variations on a market-by-market basis. For example, if you look at the German market, I think that's an example that cited most often. And if you look at the share that has been garnered by biosimilars in the German market that is significantly higher than what you see, let's say, in comparison to the French market.

And part of the reason, Jerome, is that there are some specific financial incentives that are provided, that have pushed the adoption of biosimilars in some of these markets. Again, going back to the guidelines that have been placed in Europe, again, they are very specific. They're called for stringent clinical testing before biosimilars can be approved. Again, interchangeability is not allowed at this point in time and these products have to be commercialized by their own distinct trade names.

Now, at this point in time, I couldn't give you a lot of clarity in terms of how the biosimilars are going to play out in the U.S., though there be incentives to push or push the adoption of biosimilars in the U.S. market or not, that time will tell. But again, what we find attractive in the U.S. market is the fact that these products that I have highlighted, the six products that I have highlighted today, represent a pretty large chunk of potential, peak sales revenues.

And again, even their ability to carve out a very small portion of that represents a very meaningful growth opportunity for us. We then combine that with the capabilities that we have developed along the lines of issues that you had mentioned, manufacturing, commercialization, and that's where we think we can make a difference.

Eric Schmidt

Great, thank you very much.

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