Amgen Inc. (NASDAQ:AMGN) 37th Annual J.P. Morgan Healthcare Conference Call January 8, 2019 11:30 AM ET
Robert Bradway - Chairman and Chief Executive Officer
Conference Call Participants
Cory Kasimov - JPMorgan
All right. Good morning, everyone. We are transitioning right to the next presentation. My name is Cory Kasimov. I am the large-cap biotech analyst at JPMorgan, and it's my pleasure to introduce Amgen. Here to present for the Company is the Chairman and CEO, Bob Bradway. And please note that following Bob's presentation, there is a breakout across the hall in the Borgia room.
So with that, I will turn it over to Bob.
Okay. Thank you, Cory. Good morning, everyone. We are delighted to see you here and to have an opportunity to update you on the progress that we are making at Amgen. And I'd say heading into the volatile environment that we are all living in, in 2019, we feel well prepared to manage through the volatility, but also to harness the incredible array of opportunity that we see arising not just at Amgen, but across the industry.
Of course, my remarks this morning are governed by the elements of this safe harbor statement. And what I'd like to talk about this morning are the ways in which we are effectively executing our strategy in a volatile environment. I'd like to talk to you about the products in our portfolio that we've launched that are at an early stage of their lifecycle and demonstrating attractive global growth.
I'd like to share with you an update on some of the highlights from our innovative R&D portfolio, where we've generated tremendous data in 2018 and expect even more in 2019, to talk about our approach to capital allocation, and finally to reiterate our commitment to create value for patients and by doing that for our shareholders.
And I thought I'd start this morning by reminding you that some four or five years ago, we made a series of commitments, long-term commitments that came due at the end of 2018. And we look forward to having an opportunity when we report our financial results here at the end of the month to update you on the progress that we've made. But we ended the year well on track to meet or even beat the set of ambitious targets that we committed to four or five years ago.
So those targets include double-digit earnings per share growth. Those targets included operating margin improvement from 38% to 52% to 54%. As you can see, we were on track to deliver 53%. Commitments included gross savings of $1.5 billion. We were on track to well exceed that. And of course, our commitments as well included return on capital to our shareholders that was to be not less than 60% of net income. And again, we're well ahead of that with a projection to be closer to 95% through the end of the year. But as significant as the financial commitments, we’re in our progress against them.
More important, I think for the long-term is what the set of transformational accomplishments we delivered in this period mean for the future of the business and for our potential to grow globally. And we were able to deliver those financial results that I just refer to while launching nine new products in two therapeutic, including in two new therapeutic areas, increasing our global presence from some 50 countries in 2011 to more than 100 by the end of last year, and we were operating much more leanly and much more quickly than ever before across all of our business, including R&D, and I thought I'd give you some of the highlights of our progress there.
Through the work that we've done in our transformation program, we've been able to eliminate up to 36 months of development time in our portfolio. We've been able to generate the largest ever number of innovative and first-in-class molecules in our portfolio.
We were able, through the transformation to drive a three percentage point improvement in R&D efficiency through the productivity initiatives that we embraced. And so when we look at 2018 where we are spending about 16% of sales in R&D, we're getting like-for-like about 19% of or what would have been in 2014 19% of sales, so three percentage point improvement which has been quite effective for us.
In addition, while delivering those financial results, we also continued to invest heavily in research and development and in particular, in our industry-leading genetics investment through deCODE Genetics in Iceland, in particular.
And I'm delighted to report that in addition to the subjects that we have in Iceland, we have about 1 million people outside of Iceland that are part of our genetics effort and we ended the year by reaching an agreement with an integrated delivery network in the United States that will provide a further 500,000 patients for us to study genotypically and phenotypically.
So we are continuing to invest heavily and what we think is a differentiated approach to human genetics. And again, we've been able to maintain that heavy commitment throughout the period of our transformation while delivering those financial results.
And then finally, I'd also like to note that we were able to deploy what we call manufacturing of the future, which is a much less capital intensive, much more efficient from an operating standpoint way to manufacture large molecules. And this combination of transformation accomplishments we think will serve us in good stead as we try to deliver on the next phase of our long-term growth ambition.
Now as I said at the outset, we have products in six areas that are at an early stage of their lifecycle driving growth for the Company. Those include cancer, cardiovascular disease, migraine, bone health, nephrology with Parsabiv, and we expect in 2019 for our biosimilars business to begin to contribute significantly the revenues as well.
In addition to these commercially launched products that are at an early stage of their lifecycle, again, we're excited about the data that we've seen from our pipeline of innovative first-in-class molecules, which are moving very rapidly through clinical development.
We are also excited that we now have a strong global commercial footprint from which to capitalize on the full value of our innovation and encouraged by the strong unit volume growth that we've seen now over the past couple of years from our international business.
And finally, I'd reiterate that we have a strong balance sheet and strong cash flows, which provide us a means to invest beyond our own research and development and try to grow the business by acquiring or in-licensing attractive innovation.
Let me start by talking about cancer, which as I said is a portfolio of first-in-class innovative molecules. We have six cancer medicines that are at an early stage of their lifecycle. Most of these brands are by now familiar to those of you who follow Amgen closely, but what might not be so familiar to you is the fact that these now comprise some $4 billion of revenues and these products were growing at double-digit rates throughout the course of the last 12 months.
Going forward in cancer, we expect to have a strong portfolio built on first-in-class molecules. Our approach is harnessing a number of different modalities, small molecules, large molecules, bispecifics in particular, our trademark BiTE platform, CAR Ts, and of course we have an approved oncolytic virus on the market as well.
Our strategy continues to be that of developing combination and sequential therapies with the goal of deep, durable responses, and we are expecting to be generating considerable data in 2019, which we hope will offer the prospect of accelerated timelines.
Looking first at what we're doing in hematologic malignancies, we have a broad portfolio of BiTE molecules targeting multiple myeloma and one of those molecules in particular directed at BCMA has been the subject of a great deal of attention. We think with good justification, we're excited about that product, which has a fast-track designation, and we're anxious to continue to enroll patients and generate data for that program.
In addition, we have an active program as I hope you're aware in acute lymphoblastic leukemia, including the approval of BLINCYTO in that disease state and we have active programs in acute myeloid leukemia as well. We recently received fast-track designation for our bispecific T-cell engaging therapy against FLT3 for that disease.
In addition, we're excited about our CD38 bispecific, which engages CD3 and we think offers the prospect of potency and incremental opportunity in multiple myeloma.
And then we have an MCL program that I know is gathering quite a bit of attention as well in particular for its prospects in multiple myeloma and AML and that’s a product that I know many of you will be interested to see using combination with other therapies like BCL-2. And finally, I would note that in hematologic malignancies, we're also pursuing a CAR T against FLT3 for AML.
Shifting then to solid tumors, we have quite a bit of progress to report here as well, including a small molecule directed at the G12C version of the KRAS mutation. And we're excited about the clinical data that we're generating there and hopeful that we'll have opportunity in a couple of different settings in 2019 to present you with updated preclinical and clinical data on that program.
In addition, as some of you are aware, we have begun to see glimpses of efficacy in our data for our BiTE programs directed against solid tumors and we have programs directed against prostate, gastric, small cell lung cancer, and glioblastoma, the latter two being directed at DLL3 and EGFRvIII respectively, so two high-value targets that we're excited to begin generating data from. In addition, we'll be pursuing our bispecific collaboration with an XmAb in prostate cancer, and additionally advancing a CAR T against DLL3 in small cell lung cancer.
Shifting to cardiovascular disease, let me just remind you that we have an innovative portfolio here against atherosclerosis and heart failure. And of course, I would like to reiterate that there is no greater public health need in the United States and around the rest of the world then making progress in the battle against cardiovascular disease. This remains the leading killer of people on the planet and the single greatest source of cost for all of us in the healthcare system.
In the United States, every 40 seconds somebody has a heart attack or stroke and more often than not that's caused by LDL levels being too high. And we have in Repatha an innovative way to address that risk, a drug that reduces by some 63% bad LDL cholesterol level and with that reducing stroke, heart attack and coronary revascularization. So we have a leading share in this area of PCSK9 inhibition and we're excited about continuing to grow the market. We think Repatha is the right product for this disease.
Patient access and affordability for Repatha is improving. More than half of our commercial patients can now get Repatha with a simple attestation from their physician that represents significant progress versus where we were at the launch of Repatha. And then I would also note that the lower price Repatha, some of you may know we lowered by 60% the price of Repatha in 2018, particularly to make it more affordable for Medicare patients. And so we're pleased that some 80% of Medicare patients now have access to Repatha at a much lower list price than was the case previously.
In addition to our work with Repatha and our heart failure drug, Corlanor, we have other attractive assets against atherosclerosis, including siRNA inhibitor of LP(a). And we're very impressed with the clinical data that we're seeing from that molecule and we look forward to having the opportunity to share data with you perhaps later this year or early in 2020. In addition, we continue to advance our thinking about ASGR1 and the role that that plays in heart disease.
We have a Phase III program for heart failure in omecamtiv mecarbil. And in addition, we're intrigued by the early data that we've seen for our peptide agonist directed against apelin-APJ. So we'll have more data again to share with you on that program to help you appreciate why we're enthusiastic for that as a potential solution to heart failure.
Moving to inflammation disease area where we've been an industry leader now for more than a decade. We have two molecules in particular that we're excited about and paying close attention to. The first of those is an antibody known as tezepelumab, which is an antibody designed to block thymic stromal lymphopoietin access. Our data from Phase II clinical trials demonstrated that we have the potential with this agent to treat a broad asthma population. And so with the benefit of those data in hand, we began rapidly enrolling a Phase III study of this molecule.
Respiratory disease is the sixth leading killer of people in the world. And there are some 315 million individuals worldwide who suffer from asthma and as many as 10% of those patients have severe asthma, so we're excited about the prospects of tezepelumab for those patients.
Additionally, I'd like to mention AMG 592, which is an IL-2 mutein program that we're advancing, which has demonstrated interesting results and its ability to stimulate the production of regulatory T-cells. So we see in this the potential to restore immune tolerance for immune balance and we're pursuing this product in several different immune-related diseases, including arthritis, systemic lupus and GvH. So we'll have more data we believe on that program in 2019 as well.
Migraine, we are rapidly establishing leadership in migraine with our first-in-class biologic against the CGRP access. Our product Aimovig has already been used by 150,000 patients. We already have more than 18,000 physicians who are prescribing Aimovig, so we're off to a very strong start and encouraged by the reaction of migraine patients and physicians to this innovative new biologic.
Shifting to bone health, osteoporosis is a global epidemic and the number of fractures in the community of postmenopausal women is still far too high. And Prolia is the leading osteoporosis therapy for addressing that challenge. Nine years into the launch of Prolia, we continue to enjoy strong double-digit growth and we're still just scratching the surface of the number of patients who need to be treated to be protected against fracture. So we're continuing to invest heavily in Prolia and see this as an important unmet medical need in society.
And then I can also report that we had our first approval through EVENITY. The Japanese regulators have approved this new therapy, which is our anabolic agent, also an antibody directed at women who are at high risk of fracture and have indeed already fractured. So we will be launching EVENITY in Japan shortly, and we of course have an advisory panel discussion of that molecule next week in Washington with the FDA.
This time next year, I think we'll be talking about biosimilars and the fact that biosimilars will be a source of revenue growth and earnings growth for Amgen. We've launched two molecules already, our biosimilar to Humira and our biosimilar to Herceptin. We have a biosimilar to Avastin approved, and we have another several programs that are rapidly advancing through clinical development.
And I would note as well for those who are interested that we committed last year to advancing our Soliris biosimilar to a Phase III development and that process is underway now.
Lifecycle management has been an important source of our performance over the last several years and will remain that over the next several years. And our mature brands continue to generate very strong cash flows, and those include Enbrel, of course, where we continue to invest in clinical studies to demonstrate the safety and efficacy of Enbrel, but also where we continue to invest in attractive delivery devices that we think enhance the patient experience with that product.
Onpro is our delivery device for Neulasta, where we've achieved in excess of 60% share. We think, again this is an option that provides an attractive option for patients and for oncology care deliverers.
We have an ongoing partnership to provide our red blood cell agents to DaVita through 2022. We've been very successful in helping small and midsize dialysis clinics, transfer parts of their red blood cell management business from our short-acting EPOGEN to our longer acting Aranesp franchise. And of course, as many of you who follow us closely are aware, we continue to defend the intellectual property of our products in general, but in particular, Sensipar right now, which is in an appeals process in the U.S.
Turning to capital allocation, we have said for some time and I'll reiterate this morning that capital allocation is a forethought at Amgen, not an afterthought. And we have a commitment that we take seriously to return capital to our shareholders in the form of dividend and share buyback.
Our dividend has grown in excess of 400% since we initiated it in 2011. We've increased the dividend again considerably this year. And we've also taken advantage of the free or improved access to our cash by continuing to invest in share buybacks. Altogether, as you can see, since 2011, we've returned some $54 billion to our share owners through this combination of dividends and buybacks, perhaps helping to enable us to outperform the market over that period.
So thinking about the long-term, as I said at the outset, we feel we're in good position to harness the opportunities that we see arising from Amgen’s portfolio of marketed and innovative R&D programs. But we also feel we're well positioned to capitalize or harness opportunities arising externally as well.
Our strategy is to focus on long-term growth. And for us, we think that includes an important focus on volume driven growth. We think we're in an environment now where it's not going to be feasible or practical to grow simply by increasing prices year-over-year on small specialty products. And so I think we're well positioned with a mix of products that address large patient populations as well as products that make an important difference for patients suffering from rare diseases.
We have an evolving new product portfolio with a number of launches underway, and in particular, quite a bit of activity in oncology. As I said earlier, we will be generating quite a bit of data on that portfolio in 2019. We put 10 new first-in-human molecules in our oncology portfolio in 2018 alone and a number of those will be generating important data over the course of 2019.
Our R&D strategy is focused. It is clearly aimed at advancing differentiated programs. I think when you look at the programs that we're investing in, you'll see that they are indeed just that.
And then finally, I would again reiterate our commitment to delivering for our shareholders through thoughtful capital allocation. So we enter 2019 feeling prepared, feeling ready, as I said, to harness the opportunities underway. Thank you.
Q - Cory Kasimov