Amgen Inc. (NASDAQ:AMGN) BofAML Global Health Conference 2018 September 14, 2018 5:00 AM ET
David Meline - Executive Vice President and Chief Financial Officer
Arvind Sood - Vice President, Investor Relations
Ying Huang - BofA Merrill Lynch
[Call Starts Abruptly] our London Healthcare Conference. My name is Ying Huang, and I'm the Head of Biotech Equity Research here at BofA Merrill Lynch in the New York office. We're very pleased to have our next presenting company, Amgen. And with us, we have David Meline, EVP and Chief Financial Officer for Amgen. We also have Mr. Arvind Sood, Vice President of Investor Relations.
With that, I'm going to turn the podium over to David. He'll have some prepared remarks, and then we'll go into Q&A. Welcome to London. Thank you, David.
Okay, thank you very much. Good morning, all. Okay, let's get this going. Safe harbor. Okay, Amgen. So the company, as I hope you know, focused on generating long term volume-driven growth driven by our innovative portfolio, and I would highlight key drivers at the moment, which I'll go into, include products like Prolia, which has been in the market for a number of years, Repatha, and most recently, Aimovig, our migraine drug, our CGRP inhibitor, as well as our biosimilars portfolio that's just coming into its launch phase, which again, I'll highlight.
We also continue to expand globally as a company, and then finally, we expect to continue to deliver on a very strong track record, which I'll cover solid of operating margins, strong cash flow and solid returns to shareholders. If we take a quick look then at our performance year-to-date in the first half, we saw 3% revenue growth for the company, almost $5 billion of non-GAAP net income on $11.6 billion of revenue, and 14% EPS growth on a non-GAAP basis.
If you look at the guidance we've provided in our July mid-year call, we've provided an update and upgraded the outlook for the business, both on a revenue basis to $22.5 billion to $23.2 billion for the year, as well as on our EPS, where we raised guidance to $13.30 to $14 a share, which represents a 6% to 11% growth in earnings per share, if I then look at the key product growth drivers for the company.
First, as I already highlighted, Prolia, we've seen over these last five years, a 33% annual growth rate for the product. It grew another 21% here in the second quarter of 2018, driven primarily by double-digit volume growth and what we're seeing is increasing repeat injections. So in the second quarter, we saw 70% repeat injections, so patients staying on the product, which is continuing to drive growth of Prolia.
If you look at the second highlighted product, that being Repatha, which dramatically lowers LDL cholesterol and also significantly reduces the risk of heart attack and stroke, we've been working very hard, as you may know, on improving access for the product. So if you look in the U.S. now, we've got 65% of our commercial plans, including CVS, Anthem and many of the ESI downstream plans that are now moving from a more onerous documentation set of requirements for patients to get access to the drug. We now have 65% of this portfolio of commercial plans, where we're now agreeing on simple physician attestation, which is, we believe, going to continue to open up the market and increase access for patients.
If you look at Aimovig, so Aimovig is the first and only antibody that targets the CGRP receptor. We were first to the market, launching here in May of this year. We have a monthly auto injector subcutaneous administration, which requires no loading dose, and we've now got 30% of lives are covered by plans. So we're seeing that opening up and you can see we've had a very nice uptake here of initial prescriptions, which has been supported, of course. We've got a two-month free drug program, and plus a bridging program, to allow patients to get on the drug, while waiting to get all of the coverage decisions finalized.
So and in particular, we have a large bolus of patients that are waiting for the drug and we saw last – the last week in August, 18,000 new patients came on to the drug. If you look at our material brands, which we believe will continue to generate very strong cash flow for many years to come, of course, the headline that many people have been focused on, of course, is our Neulasta product, which now as of July, does have the first biosimilar competitor. So we're starting to see that in the market, but we think that with 63% of our sales now on the Onpro delayed injection device, we think that will help us to maintain a very strong position in that market despite having competition here for quite some time in the future.
If you go to our pipeline, we feel very excited about the pipeline of innovative products that are coming through for the company. We focus, as shown in six therapeutic areas, a few I would highlight: Late stage Phase III trials going on for tezepelumab for asthma; omecamtiv mecarbil in heart failure; and AMG 520, which is a base inhibitor for Alzheimer's, all of those programs in Phase III. We also have 13 BiTE molecules bispecific T-cell engagers in oncology and we have – of these 13, many are either already in the clinic or very close to entering the clinic, and we have a number of those where we've developed the half-life extended version, which allows for weekly dosing of those BiTE. So we're pretty excited about this portfolio, and I'm sure we'll talk a little bit more about it.
We also expect to see Phase II data this year from our PAC1 antibody and migraine, so another product coming into the migraine space. And our Phase I AMG 420, the BCMA BiTE, we expect to have data available at ASH for this product for multiple myeloma, and a phase I AMG 330, which is a CD33 BiTE for AML, which likewise, we expect to be able to feature at the ASH conference.
If you turn to the other area of growth for the company, which is as a provider of biosimilar molecules, we've got a portfolio of 10 molecules that we've been working on now for a number of years. We've come very much on track with the original development plan, and if you look last year, those 10 molecules represent some $65 billion of sales for the innovators. So we think there's some very interesting opportunity for Amgen, and we have three of those molecules are now approved.
We have AMGEVITA, which is a biosimilar for HUMIRA, which we'll be launching now next month in the European Union. We have KANJINTI, which is a biosimilar to Herceptin, that's already launched here over the last couple of months in the EU, and we finally, we have MVASI, a biosimilar for Avastin, which has been approved both in the U.S. and the EU, and we'd be launching once we have the expiry of patent exclusivity. So we think it's going to be – this will be a multibillion-dollar opportunity for the company.
In terms of our capital allocation, we take a very balanced approach to the business. For us, I think most importantly, we have very strong and stable cash flow. Free cash flow last year exceeded $10 billion for the company, and that allows us to both continue to invest, to bring forward more innovative medicines, both internally, as well as through adding to the portfolio externally. In addition to that, of course, we're also able to provide very good shareholder returns. You can see here the growth of our dividend since its initiation in 2011, where most recently, this year, we raised it again 15%. And also, we – following tax reform, we have plenty of additional financial flexibility, where we entered the year now with some $42 billion of accumulated cash, which in the first half, we returned $14 billion of that to shareholders.
So in a very nice position to invest in the business and also provide shareholder returns, and you can see that the performance of the company on a TSR basis during the decade has been very strong, exceeding the S&P 500 by some 100 percentage points.
So finally, long term drivers of the business. The innovative pipeline of differentiated molecules, our biosimilars effort, building out the business globally, and then a number of the products that I've highlighted already, along with a very solid and stable financial performance for the company.
So with that, we can go to discussion.
Thank you, David. So usually, I think with Amgen – I would kick off with you to ask a financial question. But today, maybe I'll switch the gear biggest we have some exciting news on Monday from Amgen on [indiscernible] BiTE program. So two questions here.
Number one, Amgen has always been thought of by some investors as a dodgy, slow moving company with stable cash flow, but is this a key inflection for your R&D pipeline? Does that mean we're starting to see a new era of R&D productivity for Amgen organization?
And then secondly, specifically, on this [indiscernible] BCMA program, do you believe the efficacy could actually be as good as some of the CAR T programs targeting BCMA? And when will we see the next update for AMG for 2020?
Yes, thank you for the question, Ying. And yes, there has been quite a lot of interest in some news that came out during the weekend. We'll not talk a lot about it because we'd like to be able to present the full presentation of the data here at the ASH conference. But certainly, there was news around this AMG 420 BiTE molecule point to that multiple myeloma. Again, it was reported that some five patients in this trial experienced MRD. So a complete response, which is very exciting and encouraging but we're going to hold additional comments on that specific opportunity until we can present all of the information in December. But I would say more broadly, as I mentioned here, we've got now some 13 BiTE molecules that are either in the clinic or very close to, and we'll start to see data – initial data here at the end of the year.
We've said over recent quarters that we are indeed very excited about the opportunity, and we think the technology on, which we believe we're in a very strong position of leadership, is going to lead to some very interesting oncology innovative medicines. We've also got efforts in other areas, including in the CAR T space. So it's not a narrow set of activities for the company in that area. Beyond that, of course, we have other products. We highlighted tezepelumab, which is in the late stage of development.
So we feel very good about the innovation that's going on in our labs, and we look forward to being able to share that data as it develops.
And Yin, I would also add that, first of all, we are taking a multi-modality approach. It's not either/or, and yet, we have made a big commitment to the bio specific platform. And one of the principal reasons behind that, being that we already have an approved product, BLINCYTO. That's approved for ALL, which is a form of leukemia. Inherently, the BiTEs are convenient to use. It's an off-the-shelf antibody, and one of concerns that you have with CAR-T is that once these cells have been infused, the manageability of side effects can be a challenge, and CRS, the Cytokine Release Syndrome, is a principal concern.
Obviously, we are not here to represent other companies' products, but one of the concerns with the Bluebird product has been the incidence of CRS. Again, the data that David has alluded to is small. This is a cohort of five patients. Again, we saw five out of five responses, complete responses, and four of these individuals were MRD negative. But again, the manageability of CRS in these particular patients, first of all, was not an issue. There was only one patient who had a Grade I CRS. But kind of overall, from the use of these BiTE sources, CAR Ts, I think it's the manageability of side effects, the ease of use. Those are really some of the principal differences that [indiscernible] are very much in favor of the BiTE.
Great. Just to continue on the path of new products, you just recently launched the Aimovig, and David showed the prescription curve, which is really steep since the launch. So just wondering, how should we think about converging from patients were on the two month of free-drug provided by Amgen to eventually commercial paying patients.
Sure. So what I would say is and we’ll see now as we get to the third quarter review of our results. But we are starting to see patients now transition onto insurance plans, with coverage, where we're generating revenue from those sales. And as I mentioned, some 30% at the end of the third quarter of the plans had already completed negotiation with us. So once the patients get through this initial phase, they move on to the planned coverage.
In other cases, considering the possibility of a more extended period until such time as those plans are in place, we've offered not only the two-month free drug initially, but a bridging program to, again, to ensure we get patients onto our product. We address very – as quickly as possible, what is a very debilitating disease for people, and we've been very encouraged, I would say, by the initial reaction, the kinds of feedback we're getting as the effectiveness of the product, once patients are having access to this.
And as we thought would be the case, it's a very determined patient population that suffers from chronic migraine. Not only the patients, but in many cases, employers are quite interested in this product because of the negative impact on productivity for their workforce. So we're pretty excited for the opportunity, and we're pushing as quickly as we can to get as many of those patients onto the drug as possible.
So where in the end of third quarter, do you expect by end of this year, the majority of the commercial plans will have a formulary decision on Aimovig?
I guess, I wouldn't – I don't have top of mind precisely where we'll be on December 31. But certainly, we continue to move forward to put those plans in place, and I think, again, because of the uptake, the insurance plans are taking notice and are being asked to complete those negotiations. So I expect we'll have continuously more of those negotiations completed, and it would be remiss not to comment, which is that we do expect competition with potential other competitors entering the market, and certainly, that will also feed these completion of plans and negotiations as – if that were to occur.
And again, I would just add there that the $6,900 list price on an annualized basis, we price the product for access in recognition of the fact that the competitive landscape is going to change pretty quickly here. So the idea is to get as many patients as possible on therapy, and hopefully, they will stay on therapy.
So you mentioned that, Arvind, that the price for access, does that mean so far the 30% of commercial payers who have contact with Amgen, they don’t really have significant pushback, and they would not set up a significant hurdle for reimbursement? In other words, you don’t have to step through, for example, Botox before they get Aimovig?
Yes, and as much there’s no requirement in the label to step through other therapies, most plans do have a requirement to step through at least two therapies before they are candidates for Aimovig therapy. That’s fine. I mean, mechanistically, this is a new product. The value proposition of this product is very strong. If you really look at the management of migraine, over the past two years, there really haven’t been any new therapies. But you have the likes of the triptan. Even Botox is used in this particular setting.
So yes, most plans have those step ladders before you get to Aimovig. But to David’s point, the pent-up demand for new therapies were so strong that the response for this product truly has been overwhelming.
Maybe switching gears a little bit to Neulasta.
So the first biosimilar Neulanta was recently approved in the U.S., sold by Mylan. I was wondering if you can provide some initial feedback from the field, what you are seeing on this drug called Fulphila in terms of initial launch? And then how confident are you in maintaining the share for Neulasta in the marketplace?
Yes. No, I think it’s an important question. We do see that the competitors’ now entering the markets. So they’re visible in the market. Our general guidance that we’ve offered when people have asked us over these recent years, how to think about the loss of market share for the innovators, as biosimilars enter in the U.S., has been – our guidance to them has been our best proxy would be the experience in Europe, which typically, over a several year period, you’ll see a decline of penetration of the innovative product, and then when you get out into the period when you have a multiplicity of competitors, then the decline continues more significantly.
In the case of – but every case is different. So what I would say in the case of Neulasta, I think, importantly for us, we had, as of the end of the second quarter, some 63% of our sales were with, what we call, the Onpro device, which is if you’re familiar with the use of Neulasta, this is a product that’s administered 24 hours after a chemotherapy session to restore the white blood cells. And normally, in the traditional format, the patients have to come back to the hospital or clinic to receive that Neulasta injection, and so we launched several years ago the Onpro device, which is administered. It’s basically attached to the skin and automatically injects Neulasta 24 hours later.
So it has the benefit of avoiding the return visit, which often, people are not feeling well, and it’s – and may have traveled from their homes to the clinic for their chemotherapy. So we found the uptake has been very significant for the product over these last several years. And it’s a significant change for the hospitals and clinics in terms of their procedures, having adopted the Onpro device. So we think that’ll be an important contributor when we’re competing with offerings, which are simply the traditional format that will enable us to hold onto share. But we also are very realistic that, with competition, we will face pressure in the market, and we’re fully prepared to address that.
And you also mentioned the biosimilar Herceptin or KANJINTI has been recently launched in Europe, but you received a complete response letter from the FDA in the U.S. side. Are we still on track for the U.S. launch plan for the product?
Yes. So first of all, in Europe, we’ve had a very good reception in a number of countries to KANJINTI, and we feel very good about the prospects for the uptake and our position as our first biosimilar launch. In the case of the U.S., we got a complete response letter. What we’ve indicated, and we continue to confirm that we do not expect that, that will negatively impact our launch timing in the U.S., which will occur after the patent expiry of that drug.
Okay. Finally, maybe we should ask about – a question on M&A and the cash of – the use on the cash on the balance sheet. I think Bob actually mentioned at another Investor Conference this week that the small cap biotech evaluation seems to be somewhat frothy, and I was just wondering if you can provide some comment on that, and whether Amgen remains on the hunt for M&A?
Sure. Thank you. Yes, yes, that’s right. You – I think, for us, the first point is we recognize that how do we create value as a company? It’s through innovation, right?
So our first priority, of course, is to invest and find more attractive opportunities to invest in innovation, both internally, and also, we’re very active, in particular, in the fixed therapeutic areas that we’re now commercializing products and looking for additional acquisition opportunities. And if you look at the company’s history, roughly 50% of our revenues come from efforts in our own labs, and about 50% has come from some form of externally-acquired products and technologies. And we don’t have any reason to think that’s going to change in the future. So we’re very active looking at acquisition opportunities. We make it known in the market that if there is an interesting opportunity in those areas, that they should – that we’d like to have a look at them.
But what you’ve also seen in these last several years now is that you haven’t seen us transacting in some of these larger bolt-ons of later stage assets because, as hard as we’ve tried and as interesting as some of them were, we just – given the price levels that we’re in the market and the expectations, we haven’t been able to put together a case where we could get a return for our shareholders and we tried to be quite disciplined about that question. So it’s not only the scientific and strategic interest of these potential acquisitions, but more importantly or as importantly, we consider the return possibilities as a key gating consideration.
So what we’ve seen is, yes, as Bob said, prices have been high. We’ve chosen not to transact later stage. We have some interesting collaborations and inbound in the earlier stage, and we continue to see opportunities there. So case study, we’ve got an agreement with Arrowhead Pharmaceuticals on an Lp(a) product, which we’re excited about, and we’ve got Xencor, a collaboration with them. So those are case studies of where we think we can do something that is exciting and can have the potential for returns from the company.
If you believe the small-cap valuation is high, would you even consider the possibility of large scale M&A in that context?
Sure. Yes, I mean – and we’ve said, and I won’t say anything new on this topic today, but we’ve indicated that our – we view our job is to look broadly at all the possible scenarios for the company. That’s what our shareholders expect of us as a management team. So we look broadly on an ongoing basis. Quite frankly, the good news for us is we have a business that, as it’s currently constructed, that we’re very excited about. And to your earlier question, we have a lot of excitement about what’s coming out of the labs and the ongoing capability of the company as we continue to build-out. So – but we have to push ourselves to also ask the question, is there actually something that can make the company even better? And that, we take seriously.
So if the right deal eludes you, be it small, large, can we expect you to continue to return cash to shareholders because Amgen repurchased roughly $15 billion stock in the first half, and you’re committed to another $3 billion to $5 million in the second half of share buyback?
Yes. So as I said in my opening comments, the company is in a fortunate position to have very strong cash flow, over $10 billion of free cash flow in 2017 on a $23 billion revenue base. We see our portfolio increasingly diversified, which is important for stability of that cash flow. And even in the event of competition against – in particular, our biologic products that are coming off exclusivity, we see a long tail of cash flow from those as we face biosimilar competition.
So all of those factors add up to a point of view that we expect, going forward, that cash flow will be strong. It will be stable, and therefore, we’re in a privileged position to be able to invest heavily in all of the good opportunities in the business, and as you pointed out, still have excess cash, which we're committed. If we've got excess cash that we're going to return that to shareholders, and what was an unusual event for us, of course, was we've accumulated through our history some $42 billion by the end of last year that hasn't been repatriated.
But now with tax reform, that not only the ongoing, if you will, $10 billion, but the stored up $42 billion is available. And so to put facts behind our commitment to shareholders, we returned actually $14 million in share repurchases in the first half, raised our dividend, which you can expect will continue to raise in the future. We raised it by 15% here this year. And we've said that, in the second half, we'll do another 3% to 5%. So yes, so you can expect, as I said, first and foremost, we'll look to reinvest in the business, but to the extent we have excess cash available, we – you can expect we will be returning that to shareholders.
Can you give the microphone to the gentleman in the back?
Q - Unidentified Analyst
I noticed that EVENITY was on the slide, but you didn't mention it and you refiled it recently. So is this basically was done on the basis that the R&D cost was already sunk across, so on your opinion, it was worth the try? Or what is the basis for refiling and how should investors think about it?
Yes. So EVENITY has been submitted and also resubmitted now in the U.S. The basis for the resubmission, as we conducted two trials for EVENITY, one was a placebo-controlled trial, and this was a large trial, about 8,000 patients. And we did a second trial, which has had – which had an active control arm, including alendronate. That was about a 4,000-patient trial. And in this particular study, there was an imbalance in terms of cardiovascular aid that gave us a reason to pause and kind of have the discussion with the regulators. The regulatory feedback has been, that despite the fact that we see this imbalance – by the way, since we saw this imbalance, we also commissioned the TIMI group to try to understand what's contributing to this imbalance, the fact that this was only observed in one trial.
There's some speculation that it could be just a play of chance. There's some speculation that the fact that we saw this in the study with an active control arm that, perhaps, alendronate was having cardio protective effect. So there are a lot of different theories. But be that as it may, the regulatory feedback was that this can still be very applicable to a segment of the patient population. Considering if you look at the antibody market, there really aren't that many anabolic agents around. So it was based on the regulatory feedback that we decided to go ahead and resubmit this in the U.S. I suspect that at some point in time, there will be an advisory panel review. We don't know at this point in time when that will be, but we look forward to participating in that.
I think there are a lot of European investors who are wondering what could happen with the mid-term election in the U.S. in about two months. And obviously, Amgen has significant exposure to the Medicare Part D program. So given some of the recent proposal that we could see some change in Part B, what do you think that could potentially impact your business at Amgen?
Yes. Well, they are – as you would know, there are a number of proposals that the administration has put forward, whether it be for DTC pricing, whether it be related to Medicare advantage plans, adopting step therapy, indication-based coverage that CMS is calling for by 2020. And to the extent these are implemented, each of them will obviously have varying levels of impact on the industry and Amgen. We're very active in engaging with the administration, seeking to influence the outcome of those regulatory changes, and a couple of the key principles that we think are important in pursuing good policy.
One of those is ensuring that we continue to have an environment in the U.S. that encourages risk-taking and innovation, and investing to advance the medical practice, which the administration embraces and is very aligned with our thinking on that, given the importance of biotechnology, in particular, and pharmaceuticals to – as an industry in the U.S.
And then the second principle we also seek to achieve is to ensure that there's broad access to innovative medicines for patients on an ongoing basis. So each of these proposed plans, we start with those principles and seek to then influence the decision-making and policymaking, but we also recognize that the cost of health care, in general, is rising. The demographics of the U.S. population point to continued increases, and we need to be a constructive participant in that dialogue and policymaking, which we're doing.
Typically, in the third quarter earnings cycle, Amgen tends to update the guidance for the year. I was wondering, should we expect something like that? Because you did provide updated guidance, but it seems that things are going really well, so far, year-to-date and we haven't seen a really big impact from the Mylan's biosimilar, Neulasta, this year. Does that mean, potentially, you could at least narrow the guidance range?
Sure. Yes, so we give annual guidance, of course, and which we then update on each call as we provide our quarterly results. We've been encouraged by the performance of the company here in the first half, where we've updated and upgraded our outlook for the year after each of the first and second quarter. And you have to stay tuned, but basically, I would expect that, certainly, the guidance would likely narrow, as we get to the third quarter call.
In that, some of the uncertainties that we were facing, as we entered the year, start to play out through the calendar year. So as you mentioned, one of the uncertainties that we reflected in our guidance was, "Would we have competition, new competition, for Neulasta this year?" And as I often remind people, I've had that in my guidance now for, I think, three years. And now, we actually do have a competitor that is entering. So but anyway, as we get through the year, then we can expect that guidance to narrow.
We also have been managing an uncertainty around the outlook for the business, as it relates to our product Sensipar, which came off patent exclusivity in March of this year, and we've been through a litigation process with some potential entrants. We just completed over the last, I think it was in the last month or so we got, there was a trial that took place, and we got some initial decisions coming from the judge on that trial, where there were four companies that we're seeking to – that we were really litigating with around patent infringement. The judge concluded that one of those indeed was an infringer and three of those did not, and what we're waiting for now is the final judgment, after which case, we'll be appealing that decision as it relates to those three.
So there's a certain amount of uncertainty on the legacy portfolio that we continue to update and provide the best information we can to the market as to what to expect.
Any questions from the audience? If not, I'll maybe ask a last question on Enbrel. You're in the court, as we speak now, litigating against Novartis' Sandoz on the Enbrel 2028 and 2029 patents. Some of the investors, just wondering, given the proportion of Enbrel in your revenue, why would Amgen not settle, maybe, and then have certain degree of certainty about the future revenue from Enbrel?
Yes, I mean, what I would say, as I'm sure you can appreciate, especially in the context of a trial that's going on right now, we'd prefer not to comment on the eventualities of the outcomes. But I think, importantly, for us, we have two compositional matter of patents that expire in 2028 and 2029, and we feel very good about the intellectual property associated with those patents, and hence, the position we're taking in court to defend that and Enbrel's exclusivity, so important product for the company. We continue to invest in the product, and we look forward to that being a key contributor for a long time to come for the company.
Thanks very much, David and Arvind.