Amgen Inc. (NASDAQ:AMGN) Credit Suisse 31st Annual Healthcare Conference Call November 9, 2022 3:50 PM ET
Company Participants
Peter Griffith – EVP and CFO
David Reese – EVP, Research and Development
Conference Call Participants
Matthew Weston – Credit Suisse
Matthew Weston
Good afternoon, everyone [indiscernible] and Dave Reese, EVP of R&D. My name is Matthew Weston. For those of you who don’t know me, I cover European therapeutics for Credit Suisse.
Gentlemen, thank you so much for joining us. And I think you want to make a few opening comments before we jump in with the discussion.
Peter Griffith
Great. Matt, thank you, and thank you, Credit Suisse. We’re delighted to be here.
So I’d just like to give you a couple of thoughts. The third quarter was another quarter of solid execution for Amgen despite the macro headwinds that we’re all facing out there that reflected volume-driven growth. In the inflamm portfolio, our TEZSPIRE launch continues to be strong and moving ahead for patients with severe asthma. We closed the acquisition of ChemoCentryx recently. Great deployment of our shareholders’ capital for a newly launched innovative product in [inflamm, TAVNEOS] to — for patients who have ANCA-associated vasculitis. So we’re very pleased with that.
Our innovative hematology/oncology portfolio grew 8% year-over-year, driven by volume growth of 10% in the third quarter. And I’d like to mention, too, our established products of about $900 million or so in the third quarter, continue to drive strong cash flow, which we can reinvest in innovative products and innovation itself.
In general medicine, you’ll want to, I’m sure, explore some of that with Dr. Reese and what we have going on there. We’ve got some great medicines coming along, Olpasiran. And we discussed that at AHA this last — or I guess the weekend before last, moving rapidly to a Phase III outcome study there. We’ve talked about AMG 133. I’m sure you’ll have some questions on that, too. Arvind said it was okay to bring a little prop for AMG 133, the great, big, beautiful pretzels out there, that may be one of the culprits in driving obesity around the world, but I’m sure Dr. Reese will tell us more about some of that.
And then in inflammation, we continue to see — explore additional LCM opportunities with TEZSPIRE. And oncology, very excited. And it’s really important, tarlatamab, which is — it’s some Phase I data that demonstrated a median duration of response of about 13 months for patients with small cell lung cancer, which has been a very difficult disease area. I think there’s been very little change in standard of care over many, many years. So we’re very excited about that for patients.
And then we continue to be very strong on the biosimilars area. We have 5 in market. We’ve got 6 more coming before the end of the decade. We’ve indicated we expect our biosimilars portfolio to more than double from the 2021 level to 2030. We’re looking forward to launching AMGEVITA early next year, which is a biosimilar for HUMIRA. We’ve got SOLIRIS coming in March 25. And between now and then, we’ve got biosimilars for both STELARA and EYLEA. And then we’ve got 3 that we haven’t talked about between SOLIRIS at the end of the decade, so we’re excited about that.
Strong balance sheet, great cash flows, $2.8 billion of free cash flow in the third quarter. And so we’ve got the balance sheet and the capital to execute on multiple capital allocation priorities.
So with that, Matt, I’m going to turn it over to you.
Matthew Weston
You’re going to turn it over to me and give me that smorgasbord. I mean you’ve done a great job in framing near-term performance and some of the midterm opportunities. We’re definitely dig into the science because you’ve had some really interesting data in the last week, which I know the audience is going to be very interested in hearing about.
Question-and-Answer Session
Q – Matthew Weston
But I’m going to jump in with a financial question to start with. And it’s really to do with that long-term guidance that you set out with that goal of mid-single-digit organic sales to 2030. And you see that in the face of a number of generics for Otezla, for ENBREL and for others. I’d really love to understand, given the portfolio of your business, the pipeline that’s coming, how we see the building blocks to achieve that growth to give investors confidence about that potential?
Peter Griffith
That’s a great question, Matt. And I’ll refer all of our colleagues here today and those who might be listening to what we now have named the mountain chart. And so you asked for the building blocks, we’ll give you the strata on the mountain.
And we like to start with that established products foundation, which are — we remind people our biologics erode at a much slower rate than small molecules. So when you look at the denosumab LOE coming in ’25 and so forth, we want to just remind our colleagues that we feel the biologics erosion is slower.
So establish — the established product portfolio is an important base, providing that cash flow on an ongoing basis. As we go then into the next strata, we get 2 biosimilars. And we just talked about that a few moments ago, so I don’t need to cover it again just to maybe remention that we see that doubling through 2030 from the 2021 base, and that’s really, really important.
And then the next strata would be Otezla. Otezla is a very important product. It was approved for the mild to severe, all aspects of psoriasis. It’s a terrific way for patients to start a systemic. It’s been proven safe and effective over 750,000 or so patients around the world. So it’s been out there. It doesn’t require any laboratory monitoring. And it’s a very strong way for patients to get into — and get treatment for psoriasis.
The next strata up the mountain would be Repatha. And so we talked about Repatha quite a bit. We see it as a multibillion dollar opportunity, really, we would say, for patients. And there was some great — and I’m sure you’ll ask Dave about the OLE that came out recently.
But what we see with Repatha is not just early is better in terms of getting it to patients, earliest is best. Not just lower LDL, but lowest is best. We’re just seeing that. And it’s a really, really important drug for patients. So we are working that hard. That is at the top of the priority of the company in terms of making sure we get that to patients and get it to them as effectively and efficiently as possible.
And then we get to what’s really exciting, which is the pipeline. And that’s where we should spend some time and make sure everybody gets a chance to hear your questions of Dave. And we go all the way from bemarituzumab, which is a wonderful acquisition we were able to make with Five Prime a year ago. And not just — it’s in Phase III for gastric, but there are some other indications we’re exploring. Then we get into — we talked about tarlatamab. We talked about Olpasiran. We talked about AMG 133. We’ve got other drugs in the pipeline coming along. We feel great about that.
So those 5 strata really make up what we call the mountain and get us to that single — mid-single-digit revenue growth guidance through 2030 and get us to the EPS growth that we talked about at the business review. So we’re excited about that. We’re working hard.
And admittedly, a lot’s changed since business review day. I mean the world’s a lot different between February 8, I think was the day we did it, and today. A lot of inflation. A lot of headwinds. But Amgen is a very agile and adaptable company. And we’re going to do our best, first to provide and drive long-term growth for patients and then for shareholders and for the staff. So that’s where we sit on that, Matt.
Matthew Weston
So Dave, I promise I’m going to get to you.
But you did mention Otezla as a critical strata in that mountain picture. And I think investors have a lot of questions about the rebate environment. And it’s kind of — it’s two-pronged. One is that TYK2 is coming and people are trying to understand the rebate environment in that prebiologic psoriasis marketplace, but also trying to understand that the strength you have with your HUMIRA biosimilar as to what leverage that may give you in a formulary strategy and inflammation going into 2023.
Peter Griffith
Look, that’s a — thank you. So think about — and this actually goes to how we market biosimilars, too, which is as we commercialize them in our therapeutic area — in the commercial therapeutic area, and this is really important. So AMGEVITA, the biosimilar, [indiscernible] is commercialized with Otezla, as you noted, but ENBREL also. And so it’s really important to think we go to the payers and the PBMs with a grouping of products we think is really important and gives us some leverage going in. So we see that as being really, really important and gives us an opportunity to deal with them on a different level.
Matthew Weston
So I know you’re not going to give us any numbers, but can I interpret from that answer that you’re feeling very confident about the inflammatory drug formulary positioning environment into 2023, even with the incremental competition from TYK2?
Peter Griffith
Well, now — so back to Otezla in TYK2. We feel really good about Otezla versus TYK2. I mean we think it’s — what we call it, Matt, we call it — I think Murdo says it very eloquently, which is it’s a post-topical prebiologic. And if you think about what deucra is, right, it’s really priced for — to compete against biologics.
So we like where we’re at. We like being between those 2. We like the fact that there’s no laboratory monitoring. We like the fact safety and efficacy are proven over any number of years. We think that the dermatologists that we’ve worked with and the other specialists find it to be a very prudent way to begin patients on a systemic that have psoriasis. And again, all the way from mild up to moderate and severe.
Matthew Weston
So I promise I’m going to come to the pipeline now. I don’t know which one you want to take first. I’m sure the audience is going to be — have a ton of questions or want to hear your perspectives on AMG 133, but also on Lp(a).
So should we take obesity first? It’s obviously a marketplace where investors are extremely focused, given what’s happening both with Mounjaro and Wegovy, Ozempic at Novo and Lilly. We’ve seen the early data. It looked like a very deep and rapid response, albeit in a small number of patients.
I’d love to understand how you see it positioned relative to the GLP-1s. I know it’s very early in the life cycle, but how you see that molecule building in terms of its commercial potential as you test it in subsequent stuff.
David Reese
So perhaps I can start with the molecule attributes itself, and this was a molecule that was explicitly engineered to do a few things. One, it antagonizes the GIP receptor. And there is a wealth of genetic evidence that suggests that variance, that decreased signaling through GIP receptor or in rare cases, human knockouts of the receptor, strongly associate with lower weight, lower BMI.
And in fact, a lot of that genetic evidence is ours. There are 3 major genetic studies that have been published. We contributed a large number of patients to 2 of those 3, and we have additional internal data. So mechanistically, we felt very strongly on the basis of the genetic data that we wanted to inhibit that receptor, and others have taken a different approach. So that’s one area of difference.
And then it’s fused to 2 GLP-1 molecules to give you the dual mechanism of action. Because this is built on an antibody backbone, you’ve got antibody-like pharmacokinetics, which permits a once-monthly dosing. We’ll show all of these data now just in a matter of 3 or 4 weeks in Los Angeles.
It also may give us some flexibility as we think about treatment paradigms going forward where there may well be an induction and then a maintenance phase. And because of that long half-life — and this is something that for those of who will review the Phase I data, take a look at the pharmacokinetic data, take a look at the kinetics of weight reduction, which you alluded to in your question and sustainability over time and then the adverse event and the tolerability profile. Those are the things that I would point you to, to take a look at.
But we feel we’ve got a very nice molecule in hand right now. Again, it’s a Phase I study, but we’re getting ready to launch a robust Phase II study shortly.
Matthew Weston
Can I just — you mentioned treatment and induction. Can I just check that you’re suggesting that with your molecule, you could use differential dosing or dosing regimens to do treatment and induction? Or you’re suggesting that in the treatment of obesity, the combination of other people’s molecules and yours could be built into a regimen?
David Reese
I think it could be both. But partly what I was alluding to is you may have an induction phase where you’ve got frequent dosing and then you may have a maintenance phase where you have less frequent dosing. A molecule with a long half-life actually gives you an advantage for sustainability of effect in that setting. All of these are things that are going to have to be explored as part of the development program over time.
Matthew Weston
And the other issue we’ve seen with the GLP-1s so far is that you have to be really careful about titration in terms of GI tolerability for the molecules. And you were able to get very meaningful weight loss very quickly with your molecule. And certainly, in the release, it suggested that there weren’t huge tolerability constraints. Should we assume normal GLP-1-like tox? Or do you think there’s something about your molecule that means that there’s less effect?
David Reese
Certainly, you see incretin-like effects, which is the pathway or the class or the family that we’re talking about here. But in general, the tolerability, we think, has been acceptable. And it is — again, because of the mechanism of action, you don’t have this sort of wrapping on off of the receptor as well, which may help.
This is one of the things that we’ll look at in Phase II. So in Phase II, we are planning on testing different dose — not only dose ranging, but also dose escalation or titration versus fixed dosing. And again, I think the molecule attributes give us the opportunity to go potentially in different directions.
Matthew Weston
And I should know this, forgive me. It’s subcu or can be made subcu?
David Reese
It is subcu.
Matthew Weston
It’s subcu. All right. Okay. Yes. You have an embarrassment of riches. So I guess do we move to Lp(a)?
David Reese
Yes.
Matthew Weston
Again, I think for the audience, why don’t you frame the opportunity of — everyone is familiar with statins and cholesterol lowering and obviously, from a PCSK9 perspective. But why don’t you frame Lp(a) a little bit in terms of the science and then also frame the data that you’ve recent?
David Reese
Yes, I know. And this is a — I think this is a terrific molecule. Lp(a) is a lipoprotein. It — there is a wealth of genetic and epidemiologic evidence linking elevated Lp(a) levels with risk of atherosclerotic cardiovascular diseases. In fact, Lp(a) and obesity are probably the 2 major drivers outside of elevated LDL cholesterol as contributors to atherosclerotic cardiovascular disease.
Elevated Lp(a) levels occur in 15% to 20% of the population. And they can drive cardiovascular disease independent of LDL. In fact, a typical story would be a younger patient and their 40s, for example, shows up with a major cardiac event, has a family history but relatively normal or normal cholesterol levels, that’s almost certainly Lp(a) driven.
The other thing to know about Lp(a) is that it is genetically fixed, which makes testing easy. Testing is one and done. Once you have your Lp(a) level done, you know what it is. In fact, it’s not like LDL cholesterol that can change.
It is also fixed in the sense that diet, exercise, other lifestyle modifications don’t affect it. And currently existing drugs, some of them have nominal effects on Lp(a), but not anything close to what we would think is required to drive a therapeutic effect.
So you’ve got this sort of wealth of evidence and the data that we presented are for a molecule called Olpasiran, which is a small interfering RNA molecule, given subcutaneously once every 3 months and then 1 cohort once every 6 months. And what we showed was a very profound suppression of Lp(a) levels. In fact, in the dosing cohorts, which were all but 1 at 75 milligrams and above, you saw a 95% to 100% suppression of Lp(a) levels corrected for the placebo group. So very, very profound and consistent effects in the — meaning they occurred in the vast number of patients.
The adverse event profile in the Phase IIb study looked great. It was really hard to distinguish it from placebo with the exception of some injection site reactions, which were generally very mild and transient, not what I would call clinically meaningful. So I think this molecule, again, is a terrific molecule, and it will test the Lp(a) hypothesis, so we are moving quickly.
Hopefully, next month, we will launch the Phase III trial, cardiovascular outcomes trial, about 6,000 patients selected to have — to be enriched for those who are at high risk so that we can try to demonstrate a very robust treatment effect size. And that trial is one that we’re going to try to enroll very aggressively. But this is a molecule that I think is absolutely going to test the hypothesis. There was a simultaneous publication in The New England Journal of Medicine, which is worth taking a look at if you haven’t seen that yet.
Matthew Weston
Now you’re going to have to forgive me, we’ve never met before. So there’s a lot of competition in Lp(a). So there’s plenty of people looking at the pathway. And someone suggested to me at dinner that their sixth-grade son had an Lp(a) in his lunchbox, which is why you’ve got to forgive me for joking.
Do you see it as just trying to prove that, clearly, you’ve got your first and you’ve got what appears to be a great molecule? Do you see this as proving the class, and you’re then first and it’s a huge opportunity? Or do you think that your molecule is different relative to the — some of the competitors that are out there?
David Reese
So the one thing that we don’t have with Lp(a) is this, more than a half century of evidence that you have with LDL cholesterol, where you can predict precisely what the reduction in cardiac — the cardiac event rate will be based on the LDL cholesterol reduction. So this — that’s the last step we need to take here, which is showing that reducing Lp(a) profoundly reduces the event rate.
We’ve loaded the dice, I think, as much as you can with the genetics, the epidemiology and the molecule that’s doing exactly what it’s supposed to do. As I said, it can be given quarterly, which I think is a potentially differentiating attribute, and the degree of suppression that we can’t do any better. You can’t do any better than 100%. So we’ve got a molecule that I think won’t be able to be beat in terms of Lp(a) lowering.
Matthew Weston
So it really is the hypothesis that we need to prove, and then you think you’ve got the molecule enduring the lead?
David Reese
Yes, if that hypothesis is correct, I feel great about this molecule.
Matthew Weston
Understood. Perfect. I’m going to — we’re not done with the pipeline because there’s OX40 in this number of elements, but I’m going to ask a more general question. We’ve had a lot of discussion at the conference about IRA and the impacts of the Inflation Reduction Act.
I’m actually going to start with a pipeline question because now everybody in the industry has got this 9 versus 13 years differential, the value of a small molecule versus a biologic may be perceived to be different, but we also know there’s going to be a lot of change in how IRA is probably implemented over the next 5 years. But you’ve got to decide about your pipeline if not today, then soon because you’re making bets for the next decade.
At Amgen, are you already going through a process of looking through your pipeline and trying to decide with an IRA goggles on that there are different molecules or different priorities? Or do you think that’s going to take some time? Or science just can’t be predicted like that, you just go with where you feel the best science is and you’ll make the economics work with time?
David Reese
Maybe I’ll start and then Peter can add something. Well, first of all, the first thing I would say is we’re not making any abrupt changes or strategic changes, of course, based on the IRA. It is now another factor that, of course, we have to keep in mind as we think about the value of a program.
Over time, do I see that shaping portfolio choices?, Of course, but not immediately. As you indicated, we have a law that’s relatively vaguely written in many parts, and there’s a lot of policy that has to come between that law and implementation and we’ll be keeping a close eye on that as things evolve.
A couple of takeaways are obvious. One of them you mentioned, which is, in general, large molecules would be favored over small molecules, and there are certain therapeutic areas where it will almost certainly have to affect your thinking. Oncology small molecule development, I think, is one of them because of the traditional development pathway there where you start in late lines of therapy and then over time, advance through a development program into earlier lines of therapy. Now you may have to think about indication, sequencing and what the optimal launch timing is. Those things will play out over time. But is it a variable in the mix? Yes, absolutely.
Peter?
Peter Griffith
I would add, Matt, that when we think about IRA, we think about ourselves as a very agile, adaptive company. We proved that through COVID. We’re going to deal with the IRA at Amgen. And as Dave said, we’re not doing anything jerk in the wheel at all. We’re very focused on being extremely thoughtful and realizing that before we ingest too much of what’s in the IRA, there’s a lot of game to play. There’s a lot of rulemaking to be made and there’s a lot to come, so we’ll think about that.
We know large molecules look like they’ll be very important there. And I would add, when you think about Amgen, we are one of the most efficient, if not the most efficient manufacturer of large molecules in the world. And we’re very focused on that. We’ve got a terrific set of facilities to do that around the world. We’ll continue to work hard on that. We’ll continue to work to lower our cost per unit, and move quickly there and allocate capital to that.
While at the same time, our #1 capital allocation at Amgen is innovation. It’s going to be the best innovation internally and the best innovation externally when we get an opportunity to get at that. So we’ll continue to do what we best — do what we do best at Amgen, which is serve patients.
Matthew Weston
Another question on IRA, if I can. I always think of you as like a cornerstone of the biologics industry. But at the same time, you’ve got a number of small molecules, both in the pipeline and drugs like Otezla that are critical in — currently in revenue.
There’s a lot of talk within the industry to try and normalize the 9- versus 13-year differential within IRA. And I imagine if I’m a biologics company, I don’t care. I don’t want to give anything to government to normalize that gap. But obviously, if I’m a small molecule company, I’m desperate for the industry to try and normalize that gap.
You’re in a very unusual position as like a key originator in biologics, but where small molecules really matter in your pipeline. I’d love your perspective as to whether or not you think that’s something the industry should lobby and change or whether that’s something that you just have to live with and select and work with the portfolio over time.
Peter Griffith
Look, at the end of the day, Matt, we think this life cycle compression, if you’ll allow me to call it that, for either small or a large makes no sense. It just doesn’t serve patients well. So we’re going to lobby for patients. And we want the most innovation getting to the patients, their ability to access, to afford it, and so we’re excited about that. And so that’s what we’re going to stay focused on.
And we’re — if it’s — in terms of strong innovation, we’re going to allocate capital to it and move aggressively at it. In terms of working with our colleagues in the industry, let’s wait and see what comes out in terms of the rules and all that before we spend too much time trying to lobby something that I think is still maybe, as we say in the accounting department, work in process.
Matthew Weston
Fair enough. I’m mindful I’ve probably only got one — time for one more topic. I’m going to go capital allocation. You’ve made a number of comments already from this podium. I don’t think I’ve ever been to a conference where I’ve heard more executives talk about capital allocation, capital allocation strategies and M&A as we’ve heard probably over the last 2 days.
I would very much love your thoughts on where you see the landscape, the kind of SMID bio M&A perspective. There’s obviously a lot of companies looking for capital. You have a very strong balance sheet, and you’ve said that the organic and inorganic are both ways that you can grow. Are we reaching a point where valuations of biotech companies are more attractive and management teams are more realistic about acquisition potential? Or you think there’s further to go?
Peter Griffith
I’m going to answer it this way, Matt, which is capital allocation at Amgen is always a forethought, not an afterthought. I mean we’ve been on the podium talking about capital allocation for many, many years. We think it’s really important to be predictable and consistent in that.
So it’s as I said before, first and foremost, internal innovation, external innovation, the best innovation. So this year, when you think about Amgen, we just had a really important discussion about AMG 133. We had an important discussion about Olpasiran. We’ve had important discussions about LUMAKRAS on the internal side of innovation.
And we went and we acquired ChemoCentryx and TAVNEOS, great external innovation. We are going to take our commercial footprint, and we’re going to help that medicine get to patients faster. So that’s first and foremost, capital allocation at Amgen, that’s what we’re going to do. There’s no change in how we think about obtaining that innovation through strategic business development.
We’re going to work on opportunities. We’re agnostic as to size, shape, structure, whether it’s collaborations, licensing, in-license, out-license, whether it’s full M&A. But we’re going to be very focused on getting that best innovation, so we’re not going to hesitate to do that. And we think as we go out and we get the best innovation that we want to be the best buyer.
So TAVNEOS, they — that goes with rheumatologists and nephrologists. Those are the 2 specialists. There’s no company in the industry that does both. We do them and we do them well, and we’ve done them for decades, frankly. Number two, we’re going to exceed our hurdle rate, cash-on-cash return. We’ve said that for many, many years. We’ll continue with that.
Number three, it’s going to be in our commercial areas of expertise — or excuse me, our discovery areas of expertise, so onc and imm and for inflammation and for — also in general medicine, cardiometabolic, which we spent a lot of time interrogating today. And then finally, we want opportunities where we can integrate the opportunity quickly and thoughtfully to realize the returns. We think that’s really important at Amgen in order to take advantage of these acquisitions and licensings and so forth.
So a long answer to your question, we’ll look at — we’d love to see prices go down, and we’d love for owners of those companies to finish going through, as we say, kind of the denial, acceptance, bargaining, depression and finally, acceptance, right? It’s the fifth stage. So we’re hopeful they’re getting there. But at any rate, we want to find that best innovation and get it to patients, and we’ve got the balance sheet and the strategic flexibility to do it.
Matthew Weston
Perfect. Time’s run out. Peter, Dave, thank you so much for the discussion.
Peter Griffith
Thank you.
David Reese
Thank you.
Matthew Weston
Best of luck for the next year. It’s going to be very exciting.
Peter Griffith
Yes. We’re looking forward to it. Thank you.
Matthew Weston
Thank you.
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