Highlights From AMGN's Q4 Conference Call: Guides In-line for FY10

January 26, 2010 1:49 PM EST

Amgen (NASDAQ: AMGN) reports Q4 EPS of $1.05, ex-items, 11 cents lower than the analyst estimate of $1.16. Revenue for the quarter was $3.8 billion, which compares to the estimate of $3.85 billion. Shares are up 1.18% today

Highlights From AMGN's Q4 Conference Call:

• Sees FY10 adj-EPS of $5.05-$5.25, versus the consensus of $5.12. Sees yearly sales of $15.1-%15.5 billion, versus the consensus of $15.31B.
  
• (CEO) While no one can be fully satisfied with a revenue decline, even a modest one, coming within a percent of the low end of our original revenue guidance in this environment was admirable.
  
• We advanced the pipeline meaningfully in 2009, highlighted by a recommendation for Prolia approval in Europe and a 15 to zero FDA advisory panel vote to recommend approval in the United States.
  
• We also managed expenses and cash effectively, as Arvind mentioned and generated over $6 billion in operating cash flow to invest in growing the business and returning cash to shareholders.
  
• 2010 is an important year. First, we will learn the course of healthcare reform. Today, it is impossible to confidently predict its course, so we have not included estimates about its possible financial consequences in our guidance.
  
• Second, we predict for Amgen a return to top line growth and another solid year of earnings per share growth with strong cash generation. We expect, and are ready to launch Prolia worldwide.
  
• FDA in the Prolia complete response letter for postmenopausal osteoporosis. Also important clinical results are forthcoming this year, particularly the prostate SRE Phase III trial. Roger will comment on the expected 2010 pipeline key events. We also expect a number of ESA- related important events this year, including REMS, MEDCAC and CRDAC on which George will comment.
  
• We are ready to launch Prolia. We have the financial resources and will to advance and then grow our pipeline based on a combination of internal innovation, collaboration and acquisition from outside.
  
• (CFO) Year-over-year revenues were up about 2% in Q4 to $3.8 billion. Aranesp revenues were up 4% in the quarter.
  
• Shifting to a review of our business by geography, U.S. sales were down 1% to $2.9 billion for the quarter and again excluding Aranesp, U.S. sales were up 2% on a year-over-year basis.
  
• Internationally, we posted a strong quarter with sales of $861 million, which represents an increase of 11% versus the prior year. Changes in foreign exchange positively impacted fourth quarter sales by $35 million.
  
• Turning now to operating expenses, as you can see, on an adjusted basis, our total operating expenses were up 7% this quarter versus last year. In terms of the components of that, cost of sales for the quarter decreased by 3% as efficiencies more than offset a less favorable product mix and higher sales volume.
  
• R&D expenses were up 12% year-over-year and that's primarily driven by higher licensing fees of some $60 million associated with the Array BioPharma agreement as well as higher staff-related costs and some costs associated with ongoing collaborations in our early and mid-stage pipeline.
  
• Turning to SG&A expenses, you can see they increased by 9% versus the same quarter last year and this increase includes the cost of hiring the Prolia primary care sales force.
  
• In addition, SG&A expenses were higher in the quarter due to higher staff related costs away from the Prolia sales force, which were offset to some extent by recoveries associated with the GlaxoSmithKline collaboration for Prolia.
  
• Excluding expenses associated with the Enbrel profit share, adjusted SG&A in Q4 of 2009 was up 13% versus the same quarter last year.
  
• Our adjusted rate for the quarter was 15.9% compared to 19% in the prior year.
  
• Year-over-year, revenues were down 2% to $14.6 billion, and when looking at the full-year results, recall that the Aranesp label changed last year in Q3 and that's reflected in these results.
  
• Shifting to a review of our business by geography, U.S. sales were down 3% to $11.1 billion.
  
• Internationally, we posted sales of $3.2 billion in 2009, unchanged from last year. Excluding the negative impact of foreign exchange, which was some $213 million, total product sales decreased 1% and international sales increased 6%.
  
• Turning now to operating expenses; again, on an adjusted basis, our total operating expenses were down 3% versus last year and we ended the year with an operating margin of 42.4%, which is an improvement over where we were in 2008.
  
• R&D expenses decreased 6% year-over-year due to lower clinical trial costs, primarily for denosumab and Vectibix, as well as lower staff-related costs for the full year.
  
• As a percent of sales in 2009, R&D expenses were 19.1%. Turning again to SG&A, you can see that expenses increased by 1% versus 2008 due to increased spending for activities associated with the anticipated launch of Prolia, and increased promotional expenses for our marketed products.
  
• Turning now to earnings per share; 2009 adjusted earnings per share were $4.91, up 8%, and as you can see, earnings per share benefited from lower OpEx as well as the decreased tax rate and decreased share count following our buybacks this year.
  
• Our year-end global cash balance was $13.4 billion. You see, we ended the year with $11.2 billion of debt and our adjusted stockholder's equity increased by $2 billion over the year to $22.4 billion.
  
• With respect to our cash flow, we generated approximately 6.3 billion of cash flow from operations in 2009, which represents an increase of 6% over the prior year. Capital expenditures for 2009 were approximately $500 million, which is down again for the second year in a row, thanks to improved productivity and efficiency in our capital programs.
  
• (Vice President, Global Commercial Operations) For the fourth quarter of 2009, product sales increased 2% year-over-year with the U.S. declining 1%, primarily due to Aranesp, as Bob mentioned, and international growing 11%, with growth across all products.
  
• The U.S. Aranesp decline of 20% was due to the 2008 label change and was largely offset by gains in EPOGEN, which saw a record quarter.
  
• Internationally, our European business continued its strong performance with 7% growth with new product launches and new territories both contributing.
  
• For the full-year 2009, global product sales declined 2% year-over-year, driven mainly by Aranesp in the U.S., wholesaler inventories and foreign exchange. U.S. sales declined 3% year-over-year, with an Aranesp sales decline of 24%, offset by the remainder of the sales portfolio, which grew 1%. In addition, U.S. wholesaler inventories declined during 2009, accounting for a $70 million reduction in sales.
  
• Turning to Aranesp, worldwide Aranesp sales decreased 8% in Q4 versus last year. In the U.S. Aranesp sales were down 20% year-over-year.
  
• Wholesaler inventory fluctuations also contributed to the year-over-year decline, accounting for roughly 7% of the total.
  
• We expect the REMS to be finalized in the first quarter of this year and cannot rule out an additional step down in Aranesp sales as a result.
  
• In response to the TREAT data, we have already updated the U.S. labeling for ESAs and further labeling changes may be undertaken as further analysis and review of the data occur. Our analysis of the Aranesp weekly sales in the U.S. is that, when adjusted for inventory levels and one-time accrual adjustments, we have not seen any material impact in TREAT data availability.
  
• Next is EPOGEN. EPOGEN grew by 9% in the fourth quarter of 2009 versus the fourth quarter of 2008, driven by patient growth, increased dose utilization and an increase in net price. For the full year, net sales increased 5% driven by patient growth, increased dose utilization and a net price increase.
  
• For 2010, dose fluctuations may continue as healthcare practitioners continue to refine their treatment practices in order to maintain hemoglobin levels in the 10 to 12 range.
  
• Neulasta and NEUPOGEN combined grew 2% in the fourth quarter '09 versus the fourth quarter '08. In the U.S., sales were flat with units and price combined up 5% and inventory and business adjustments down 5%. Neulasta and NEUPOGEN wholesaler inventory levels exited fourth quarter '09 at the low end of the normal range. Internationally, Neulasta and NEUPOGEN increased 9% year-on-year, including foreign exchange.
  
• During Q4, U.S. Enbrel maintained its leadership position in both rheumatology and dermatology. In rheumatology, Enbrel captured around a 35% dollar share during the quarter, a slight increase versus the prior quarter.
  
• For Enbrel, the combined year-on-year effect was approximately 120 million and without this impact, Enbrel would have grown slightly in 2009.
  
• For Q4, worldwide Sensipar sales grew 12% versus the fourth quarter of 2008, comprised of an 8% increase in demand, a 2% increase in foreign exchange and a 2% increase in inventory and business adjustments.
  
• Vectibix sales grew 43% in Q4 '09 versus Q4 '08, and during the quarter, we saw growth in the U.S. EGFR colorectal cancer segment for the first time since the second quarter 2008.
  
• Internationally, sales grew 8% excluding divested products and the effects of foreign exchange versus the prior year. Growth was driven by Neulasta conversion, new product launches and expansion into new territories.
  
• (Vice President, Research and Development) We completed five Phase III mega trials, all of which delivered data on schedule and within a six week period. Including among these were two studies demonstrating the ability of denosumab to delay bony complications in patients with metastatic bone disease, two studies of Vectibix used in combination with chemotherapy for the treatment of colorectal cancer and the TREAT outcome study exploring the benefits and risks of anemia treatment in patients with chronic kidney disease who do not yet require dialysis.
  
• Also in 2009, we advanced three drug candidates into formal dose-ranging studies. AMG 785, our sclerostin antibody that we are developing in partnership with UCB is being evaluated in postmenopausal osteoporosis, and is a means for improving fracture healing. AMG 827, an anti-IL 17 receptor antibody is being evaluated in psoriasis and in other inflammatory diseases. And AMG 853, a small molecule prostenoid receptor antagonist is being evaluated in asthma.
  
• We added eight new molecules to our development roster, including a Phase II glucokinase activator that we licensed from the Array BioPharma in Q4, and we exercised our option for AMG 423, a very exciting potential treatment for heart failure that was originally discovered by Cytokinetics.
  
• Here in the United States, in mid-December, we received detailed comments on our Prolia file from the FDA, related to the complete response letters that were sent in mid-October. The questions posed by the FDA related principally to the conduct of post marketing surveillance. We completed a very comprehensive response to the agency at the end of last week, and as Kevin mentioned, we have submitted our complete response dossier for their review. Discussions with regulatory agencies in Australia, Canada and Switzerland are also progressing.
  
• In 2009, we obtained very impressive results using denosumab to reduce the risk of skeletal-related events, meaning fractures, the need for surgery or radiotherapy to treat bone pathology or spinal cord compression in patients with metastatic bone disease. Our two Phase III studies, one in patients with breast cancer and the second in patients with a variety of other solid tumors or multiple myeloma will be complemented by a third study in patients with prostate cancer. We expect results from this third study during the Q1 of 2010.
  
• Much additional work remains to be completed using the very comprehensive TREAT database and there is much still to learn about ESA therapy in patients with renal insufficiency.
  
• We're also initiating metastasis prevention study in women with breast cancer having reviewed the protocol in some detail with the FDA.
  
• Similarly, though enrolment in the Phase III study of Motesanib in non-small-cell lung cancer is nearly complete, the current event rate data suggest that the study will complete in 2011 rather than at the end of 2010 as we have previously thought.
  
• Moving forward in 2010, there will be numerous opportunities to review our current understanding of anemia management.
  
• Finally, the brisk pace of data release that we have established during the past 12 months will continue during the next 12 months.
  
• I've mentioned the two denosumab phase 3 studies that will provide data this year. In addition, we will also see the data from a study evaluating the use of Vectibix in combination with standard regimens in the treatment of metastatic squamous cell carcinoma of the head and neck. Additional data from numerous phase 2 studies in oncology using AMG 386, AMG 479, AMG 655 and AMG 102 will also become available.
  
• (Q&A)Just a point of detail on, I guess, guidance and the impact of the TREAT study. In the past, I think, you - as I recall, you guys have talked a little bit about your market intel in terms of the starting hemoglobin levels maybe and the stopping, the targets where they were, which shouldn't typically stop. In light of the FDA op-ed piece and The New England Journal article issued about a month ago, can you talk about where things might stand right now?(A)And this is data from September of 2009. The average dose at initiation, or average hemoglobin initiation is 9.5 and maintenance is on average 10.6 and Roger, you may want to comment on how that related to the TREAT placebo.(A)It's really important to note again, this was data from September that George reviewed and of course that was prior to the publication of the TREAT results and yet those data show that people are already practicing medicine in this patient population, the non-dialysis population, in much the same way that we saw in the placebo arm of TREAT, that is they are initiating with the hemoglobin below 10 and they maintain hemoglobin at 10.6, which is like the hemoglobin arm. So not like the treatment arm in TREAT and that's relevant to thinking about the way in which people going forward will view appropriate therapy, I think.
  
• A question for you on d-mab filing in SRE. Can you talk about the gating factor once you have the prostate data in hand? And then, second part to that was, how would a superiority versus non-inferiority result change your view about the prostate opportunity overall?(A)So again, the - within Q1, we should get the results of the 103 study. We're in the midst of trying to get those files, the databases cleaned up and locked, which we hope will happen very soon, and then we'll see the data. We'll then have three SRE studies to look at. As you know that we saw a superiority in the breast cancer study, a non-inferiority in the solid tumor study, and it will take a while to pull these very large files together. There is more than 6,000 patients involved in this. So, we'll move forward, get the best filing put together. Obviously, we'd like to see superiority in the prostate cancer study; can't speculate on whether or not we will, but we'll just put together the best file that we have and present it to the agency. I can't speculate about what they'll do with it, but it certainly is an extraordinarily robust file for this indication for the reduction of skeletal-related events in patients with bony metastases.
  
• Good afternoon, I was intrigued by Kevin's comments at the outset of the call that you think Amgen has a shot at delivering top quartile industry performance. Just kind of wondering what metric you were looking at there, whether that's EPS growth, or total return or stock price performance and also where you think the top quartile in the industry will be by that metric?(A)I'll leave the stock price performance to you guys in predicting, but I'll be optimistic there. What I'm thinking about is a consolidated analysts'
  forecast for the top 13 to 15 or so revenue growth rate performance for our industry over the next period of time, and that's where I'm coming from. And so within that range, top quartiles are shot I have seen those numbers from various people, various analyses, being kind of in the mid-single digits for the very top in revenue growth. So that was basically what I'm talking about.
  
• Thanks very much for taking my question. Just a follow-up for Roger. On Prolia, with all the discussions you've had with the FDA, do you have a sense of what it will take to potentially get fracture prevention or prevention of osteoporosis at least in PMO? And also what it will take to get the TIBL approval? Thanks.(A)Yeah Geoff, most of our conversations of course have focused on the treatment indication for which we received all the detailed questions in mid-December and the basis of our complete response letter. There have been other discussions related to the prevention indication and also with respect to the hormone ablation indications, treatment-induced bone loss, which of course, we did get that indication recommended in - for men in the EU. There is more work to be done there. I think that the information that we're getting from our SRE studies will be very relevant in terms of reinforcing the safety profile of denosumab in that setting, obviously at 12 times the dose of Prolia. And as we have that data to make available to FDA, I think that will catalyze some discussions about what can be done to gain the indication in treatment-induced bone loss.
  
• A question on bone met prevention. I'm intrigued by the fact that you're moving forward with bone met prevention in breast, without the data from bone met prevention in prostates. I'm just wondering if you can discuss the confidence in moving forward without the final data. Is there anything from the prostate bone met prevention study that gives you confidence in terms of safety, cancer end points or efficacy? And if that trial doesn't work, would you reconsider the breast study?(A)Jim, we'd always intended to do a study in breast. It was sort of a question of aligning all the many, many priorities that we have, because we have a lot of opportunities, I think, in our pipeline. And the question is, when to do which things, when to do which studies. The thing that was really, in many ways most encouraging for the breast study were the results of the 136 SRE study, the superiority result that we observed versus zoledronic acid and that study gave us great confidence that we're having a pretty profound effect on the way in which breast cancer cells behave when they are in bone and that encouraged us to think even more seriously about the breast cancer prevention study. So, I think, if anything that was more a go than certainly than anything else. We have no results from the prostate study and won't until the second half of the year. So we're just waiting to see what happens. But you can expect that there will be differences in the way metastasis progresses for these different tumor types and it's important, I think, to look in both prostate and breast cancer cells, tumor cells that favor metastasis to bone.
  
• I'm wondering if you can give us an update on the Vectibix regulatory strategy and challenges and what we can expect next there?(A)Yeah, Michael, of course, we are going to file for Vectibix in the first and second line colorectal cancer setting. It takes a while to pull together all the data and all the results from the various different Vectibix studies. We'll file around the world and we expect a lot of discussion about it because, as you know, there will be concerns at the regulatory level about the overall survival trend that we saw, which was favorable, but did not meet statistical significance. There will be a lot of discussion about drop-ins. As you know, in our studies, patients who progressed would very likely receive an EGF receptor antagonist after progressing, what does that mean? So I expect a lot of those kinds of discussions, but we will pull our files together. We think our data are very, very, very supportive of the use of Vectibix in this setting, for patients with wild-type KRAS gene.

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