AMGEN Inc (AMGN) — Q1 2017 Earnings Call Transcript

Thanks, Derek, and good afternoon, everybody. So first of all, thank you for taking the time to participate in our conference call today to review our operating performance for the first quarter of 2017. Before we begin, I would like to extend a warm welcome to those who are new in their coverage of Amgen, including Umer Raffat of ISI Evercore and Carter Gould of UBS. Each of us very much look forward to working with you. We made a lot of progress during the quarter both in our commercial execution as well as our R&D efforts, so I'm anxious to get started. I would urge you to listen for specific themes, including volume-driven growth and operational expense management as you hear our senior leaders describe our performance. Our Chairman and CEO, Bob Bradway, will lead the call today with a brief report on how we are executing against our long-term strategy for growth. Following Bob, our CFO, David Meline, will review our financial results for the first quarter and our outlook for the remainder of 2017. Our head of Global Commercial Operations, Tony Hooper, will then discuss our product performance during the quarter, followed by our head of R&D, Sean Harper, who will provide a pipeline update.

Okay, thank you, Arvind, and thank you all for joining our call. It's been an active first quarter at Amgen. And before talking about our financial results, I want to put the events of the first 90 days of the year in context because I think they underscore the reasons why we're confident about achieving our long-term objectives for growth. As you know, we're focused on six therapeutic categories. And during the quarter, we achieved important milestones in each of them. Core to our strategy is a commitment to differentiated innovation. We aim for products with a big effect size in areas where the unmet need is high. That's what we feel will be required to succeed over the long term in this industry. In our cardiovascular portfolio, we strongly believe Repatha represents one such product. As all of you know, cardiovascular disease poses by far the biggest health burden on society today. And our outcomes data demonstrated unequivocally that Repatha can play an important role in reducing that burden. And the data also showed, to my mind, that the rate of cardiovascular events, which approached 10% per year in the optimized statin arm of the trial, is still far too high without Repatha. Against this backdrop, we expect Repatha to be an important product in the fight against cardiovascular disease and increasingly expect physicians, patients, and other stakeholders to recognize that rejecting an innovative drug for high-risk patients, which demonstrated beyond 12 months a 35% reduction in the risk of heart attack, a 24% reduction in the rate of stroke, and a 28% reduction in the rate of revascularizations, is simply inappropriate. The practice of medicine won't change overnight, but it won't stall either, not in the face of an innovative new therapy that can prevent hundreds of thousands of otherwise needless and tragic events. In the U.S. alone, cardiovascular disease costs our society in excess of $600 billion a year. And without meaningful innovation like Repatha to change the trajectory of this disease, those costs will exceed $1.2 trillion by 2035. We believe it's right to embrace innovation not only for patients but also for society. Economic study after study has shown that society benefits financially from adopting therapies like Repatha. Nonetheless, we recognize the access challenges of the day, and that's why we have and will continue to offer innovative value-based contracts to help build a bridge between the medical need and the affordability concerns for patients and payers. In addition to novel biology, intellectual property is another source of differentiation for our innovation. We were obviously gratified this quarter by the Delaware court's support for our position on Repatha, and we now stand ready for the Appeals Court to hear the case in June. In oncology, there's no better standard for differentiated innovation than achieving an overall survival advantage for patients. In the first quarter, we achieved that with both KYPROLIS and BLINCYTO.

Okay. Thanks, Bob. We were pleased with our solid overall results and earnings growth again in the first quarter, as our transformation efforts enabled progress in an environment of strong competition and portfolio transition. We also were encouraged by our 7% volume growth in Europe, reflecting the value of our innovative products in a market where we have experienced similar competition and portfolio transition for a number of years. Turning to the financial results on page 6 of the slide deck, worldwide revenues at $5.5 billion in the first quarter are flat year over year excluding the impact of foreign exchange and are 1% lower on a reported basis including FX. Worldwide product sales at $5.2 billion in the first quarter are flat year over year excluding the impact of foreign exchange and are 1% lower on a reported basis including FX, as strong unit demand for our newer products was offset by declines in our mature brands. Other revenues at $265 million decreased $23 million versus the first quarter of 2016. Non-GAAP operating income at $3 billion grew 5% from prior year. Non-GAAP operating margin improved by 3 points to 57.6% for the quarter, reflecting continued favorable expense impacts from our transformation initiatives across all operating expense categories and the expiry of the Enbrel residual royalty payments in Q4 of 2016.

Thanks, David, and good afternoon, everyone. You'll find our product sales starting on slide number 10. Our business performance is shifting to a more volume-driven growth as we launch innovative products targeting the large patient populations with unmet medical needs. Whilst our focus is on innovation, we have also executed effective life cycle management strategies for some of our legacy brands which are facing potential new competition. Though our U.S. revenues declined 1%, our ex-U.S. growth was 3%, excluding the impact of foreign exchange, fueled by a 7% volume growth. I'll now discuss our specific product performance, organizing my comments by therapeutic area. Let me begin with our bone health franchise. Prolia is a great example of one of our innovative products that realized robust volume growth during the quarter, with most of its 21% year-over-year sales growth driven by unit volume. Prolia, with a strong value proposition, is uniquely positioned in postmenopausal osteoporosis as the leading branded product on the market.

Thanks, Tony, and good afternoon. I'll begin my comments today with Repatha. As you know, we presented the results of our Repatha cardiovascular outcomes study at the American College of Cardiology meetings in March with simultaneous publication in The New England Journal of Medicine. This represented a major step on the path of getting this therapy to the patients who so desperately need it. The study had several objectives: first, to validate the PCSK9 mechanism with respect to cardiovascular outcomes; second, to establish the safety of reaching unprecedented low LDL levels; recall that 25% of patients in the Repatha arm had on-treatment LDLs below 19; and third, to understand whether the linear relationship established by statins and ezetimibe between LDL and cardiovascular risk continues down to very low LDL levels, as the human genetics had suggested. This study gave clear positive results on all of these objectives.

Okay, thank you, Sean. I know we've taken more time than usual on our introductory remarks, so let's go straight to questions, Derek, and just remind our callers of the process for the next step.

Hi, thanks for taking the question, maybe just a two-part on Repatha. First, Tony, can you comment if the payers appreciate the details of the four-year data that Sean walked through? And then it looks like net price might have taken a step down in the U.S. in the first quarter. I'm just wondering if you can confirm that and any additional commentary that you can provide.

Terence, sure. All our discussions with the payers have really started with the discussion on the Repatha outcomes data, and I don't think we've had any pushback at all in terms of people really understanding the robust value. We will continue to work with them. Obviously, each one of them has agreed to go back and relook at the utilization management criteria as we speak. There does appear to be a slight adjustment in the net price. One was due to a small accounting adjustment. And two, of course, we book our patient copay program to the net price, and the first quarter is normally a lot higher than second, third, or fourth. So we see that normalizing as we go forward.

Can we go to the next question?

Great, thanks for taking the question. Tony, thanks for the detail on Enbrel. I'm sure, as you appreciate, there's a lot of questions that people have on that. If I can just ask two points there, you cited a market slowdown which you think will improve throughout the rest of the year. Could you just talk about your confidence around that?

Thanks, Matt. So as you know, with Enbrel as a retail product, about 97% of the volume is reported on a script basis, so we can track it quite tightly. For the quarter, it was definitely down, both rheumatology and dermatology. When I look at it sequentially, January, February, March, and then as I see it going into April, each one of those months has shown an incremental growth both in terms of DOT as well as prescriptions and in terms of growth. So January was down a lot.

Hi, thanks so much for taking my questions. I have two pipeline questions, if I may. On romosozumab, the upcoming ARCH trial, what percentage of patients were enrolled in Latin America? And secondly on CGRP, I noticed you have a TREADMILL CV safety trial that wrapped up earlier in the year. Any update and/or feedback from that, and was that a study that FDA asked you to do? Thank you.

Okay, so with respect to ARCH, the percentage of patients in Latin America, I don't remember an exact number, but it is substantially less that it was in the FRAME study, but it is still meaningful. So I think it's about 30% roughly, whereas it was higher than that in FRAME. But I think it's important to recognize that it wasn't the part of the world that the drug was being administered that was the problem. It was the fact that the fracture rates in a placebo-controlled population where physicians were very hesitant to put high-risk individuals into the trial because of the placebo arm.

Okay, thank you, Sean. I know we've taken more time than usual on our introductory remarks, so let's go straight to questions, Derek, and just reminder our callers of the process for the next step.