Amgen Inc. (NASDAQ:AMGN) SVB Securities Global Biopharma Conference Call February 14, 2023 10:40 AM ET
Company Participants
Peter Griffith – Executive Vice President and Chief Financial Officer
Susan Sweeney – Senior Vice President of Global Marketing Access and Capabilities
Arvind Sood – Vice President of Investor Relations
Conference Call Participants
Dave Risinger – SVB Securities
Dave Risinger
Great. So good morning, everyone. Thank you for joining us for this next session with Amgen. It’s very much my pleasure on behalf of SVB Securities to host a few of the company’s executives.
For those of you who don’t know me, I’m Dave Risinger. I cover diversified biopharmaceuticals. And with us today, we have Peter Griffith, who’s Executive Vice President and CFO; Susan Sweeney, who’s Senior Vice President of Global Marketing Access and Capabilities; and Arvind Sood, who’s Vice President of Investor Relations.
I thought it would be great, Peter, to turn it over to you to have you start us off with a few minutes of opening comments to frame the broader picture for Amgen before we transition to discussing some of the commercial opportunities with Susan.
So, with that, let me turn it to you, Peter.
Peter Griffith
Dave, thank you very much. Thank you, SVB Securities. We’re always very pleased to join you. So, we always started Amgen thinking about patients. All 25,000 of our colleagues are committed to our mission of discovering, developing, manufacturing, and delivering first-in-class, best-in-class innovative medicines to patients with Gravis and serious illnesses all over the world.
So, having started there, I would just suggest 2022 was a year of continued solid execution at Amgen, despite some strong headwinds that we all are certainly well aware of. Our strong balance sheet, our stable cash flow, free cash flow of 8.8 billion, enabled us to continue our disciplined capital allocation approach in 2022. We invested over $4 billion in research and development and internal innovation, and we executed strategic transactions, ChemoCentryx and – with ChemoCentryx’ TAVNEOS and the announced acquisition of Horizon.
We invested $900 million in capital expenditures, including for our environmentally-friendly facilities that we’re building in Ohio and North Carolina increased our dividend 10% and repurchased over $6 billion of shares. Our 2023 outlook reflects confidence in our ability to execute through continued macro headwinds. And the announced acquisition of Horizon can further augment our long-term growth potential. Horizon’s key products, [indiscernible] UPLIZNA and KRYSTEXXA, can benefit from decades of leadership in inflammation and nephrology that we have, as well as our global scale.
So, just a couple of reminders before I give it – turn it back over to Dave, so we can get into some commercial questions and with Susan, some reminders here. We expect the first quarter 2023 revenues to be below 2022 first quarter revenues. We shared that with you on our year-end call. That reflects the COVID antibody revenues last year that we don’t expect to repeat this year.
We expect the non-GAAP operating margin, as we suggest in the year-end call, of 50% for product sales for the full-year, but to be below that, below 50% in the first quarter, with correspondingly lower operating income in the quarter. So that reflects that one-time residual Puerto Rico excise tax impact of $125 million we talked about, most of which we expect to materialize as a charge to cost of sales in the first quarter, reflects an anticipated double-digit year-over-year increase in non-GAAP R&D expense for the first quarter, reflecting advancing numerous priority programs that we’re always happy to talk about around Olpasiran, LP(a), rocatinlimab, atopic dermatitis and bemarituzumab around gastric cancer.
We expect our full-year total operating expenses to be more evenly balanced through the quarters than in past years. And we also expect our other income and expense to be evenly balanced through the quarters of the year, with other income and expense of approximately 1.4 billion for the full-year.
So, as we’ve said, our 2023 non-GAAP tax rate outlook of 18% to 19% reflects the reclassification of the Puerto Rico excise tax from cost of sales to the tax provision line. That’s the primary increase there. So, we do expect our Q1 non-GAAP tax rate to be in-line with this full year guidance.
So, I normally would give a few more comments on commercial and the pipeline, Dave, but I think we’ve got Susan, we’ve got Arvin. We would love to visit with you about that. So, I’ll turn it back over to you for some Q&A.
Question-and-Answer Session
Q – Dave Risinger
Excellent. Great, and thank you for those opening comments. So, I already received a question online, which relates to Horizon. Could you please provide an update on the timing – the time line for the Horizon transaction?
Peter Griffith
Absolutely. We still see the Horizon transaction closing in the first half of 2023.
Dave Risinger
Excellent. Okay. Short and sweet. Perfect. So, turning to Susan, and thank you for joining us, Susan. Repatha generated amazing data last November. And it’d be helpful to understand how to think about its prospects from here. So, how do you plan to leverage that into greater commercial success globally in coming years? And how much of an incremental opportunity relative to the recent momentum of the product should we anticipate?
Susan Sweeney
Yes. Thanks, Dave. Thanks for having us here today. I’m really excited about the continued evolution and impact that Repatha is making in the market. And just to recap the data that was presented, it was at the November AHA. We presented our FOURIER open-label extension. And these were recognized by the American College of Cardiology Expert Consensus Decision Pathway, which indicated.
And I quote them, ‘there appears to be no LDL-C level below, which benefit ceases. As a result of that, the guidelines were changed and updated to reflect a reduction in target LDL-C levels in the highest-risk patients to 70 – from 70 milligrams per deciliter down to 55 milligrams per deciliter, and a level that’s really not attainable without the treatment of a PCSK9.’
Certainly, in the marketplace, there is a significant number of patients that still remain undertreated in getting their lipid levels down. So, we believe we still have a large opportunity with Repatha to continue to penetrate this large and growing pool of patients, both in the U.S. and worldwide.
We have worldwide Repatha being marketed throughout the world. In the U.S. specifically, we have a very strong position with our access coverage at 80% right now. And we’ve already reached 1.5 million patients. We’re continuing to gain momentum, but there’s still a significant number of patients that are undertreated.
Outside of the U.S., we recently received the National Reimbursement Drug Listing in China. We’re off to a great start there, and being able to make penetrations in the millions of patients that can benefit in China, and that’s continuing to grow. And we continue to invest in Repatha, both in studies. We have the [Visalia study] [ph] that is still ongoing in a patient population and likewise also in our commercial footprint. One area that we’re continuing to invest in is in primary care.
In the primary care population, it is still in single digits, the penetration. And so, there’s a real opportunity for focused efforts in the primary care to get depth of prescribing in that area. So, we do expect to see some benefits. So overall, product profile, I think, versus the competition, sets us up well. We’re the Number 1 prescribed PCSK9 around the world. We still maintain that share position. And we see a real growth opportunity with the access position that we have in the market.
Dave Risinger
Right. And just to dive a little bit deeper. I mean, clearly, your access in the U.S. is quite impressive, but could you help us understand that access coverage at 80%? Is that commercial? Is that commercial and Medicare Part D.? And – maybe you could help us understand what percentage of those lives have, I don’t know, Tier 3 versus Tier 2 access or just help us understand a little bit better how accessible the drug really is?
Susan Sweeney
Yes. So, we’ve done a lot of work on getting accessibility to the product. And it is both in the Medicare population, which is crucial for the patient population that we’re treating, as well as the commercial. The 80% is a blended rate. And by individual plans, it will be a little bit different on what the out-of-pocket will be for patients, but we feel pretty good about the position we’re in. And we’re hearing positive feedback from our customers about the accessibility to it.
I should also say, we do a significant investment in ensuring that we continue to make sure that patients have access to the therapy. We have reimbursement support services that patients can call into to make sure that they can get access to it. So, we do think that puts us in a good position. And again, a lot of work has been done to really improve that position in the marketplace.
Dave Risinger
And thinking about access, I’m sure that you’ve worked on this internally, but is there anything you can say about the new out-of-pocket cost cap for seniors starting in January of 2025? I understand that out-of-pocket costs are coming down for Medicare Part D recipients in 2024, but then there’s that firm cap at $2,000 in 2025. Is there any way to characterize or frame how much of an incremental volume benefit a product like Repatha would have an opportunity to realize?
Susan Sweeney
Yes. I think it’s a little too early for us to say exactly what the benefit would be for it. But just in general, especially in the Medicare population of patients being able to afford their out-of-pocket at a reasonable price makes a difference. Evening out as well makes a difference, right. You have uneasiness that happened in the Medicare population on what the co-pays would be as you went through the donut hole and dependent, of course, on the other medications you were taking.
So overall, I think we are focused on making sure patients get access to our therapy, focused on making sure that we have reasonable out-of-pockets that they can afford the therapy. And again, the marketplace is so underpenetrated in the number of patients that can benefit. So, there’s plenty of patients out there that can still benefit from Repatha.
Dave Risinger
Yes. That makes a lot of sense. Okay, great. So then, let’s just pivot to TEZSPIRE, please. So, that’s clearly a pipeline within a product, with a number of indication opportunities ahead. Could you characterize the biggest opportunities as you see them and potential timing?
Susan Sweeney
Yes, absolutely. So TSLP, the mechanism by which TEZSPIRE works is at the top of the inflammatory signaling cascade. So , there’s multiple potential disease targets that we’re looking at, and there’s multiple life cycle opportunities. Currently, we’re in four clinical trials, two in Phase III, and two in Phase II. Chronic rhinocynositis and nasal polyps are in Phase III trials right now. We’re exploring in a Phase II trial, COPD as an indication and chronic spontaneous uticaria.
Overall, the largest of these would be COPD, but we think, taken together, these indications compromise a meaningful opportunity beyond the currently approved severe asthma indication. And I would be remised without at least commenting on the severe asthma indication and how we’re doing in the market.
It’s been a really strong start to test buyer in the market, filling an unmet need of being able to treat regardless of the eosinophil status. And we’re seeing strong uptake across both low and high Eos, as well as allergic and non-allergic, a little bit more patients in the low EOs, where there’s a greater unmet need, but we are seeing very good initiation with patients that are new to biologics.
Dave Risinger
Got it. That’s very helpful. And just going back to Repatha and the NRDL in China. Could you talk about the corporate strategy there? And help us understand – I don’t know how you think about future gap down. So, the Chinese government is known to be, I guess, pretty challenging when it comes to Western companies with respect to price negotiations and what they’re after. Clearly, China is focused on China first and not Amgen first. So, how do we think about that going forward, looking ahead in coming years for future price reduction risks?
Susan Sweeney
Yes, I think in the China marketplace, there is a lot of opportunity because there are so many patients that are undertreated across many different disease areas. And it is a focus of ours, as you know, of geographic expansion around the world, China being a key component of that. The NRDL really opened up the access to a large patient population, but at a lower price.
So, it really requires that we put the investment behind our field organizations, our medical organizations as we do get those access positions to really drive the uptake in the market, which is what we’re doing today. So, we have Repatha listed on the National Reimbursement Drug Listing. We are seeing good uptake in penetration there. We also have Prolia that has been listed on the NRDL. And we have a partnership with Beijing who is moving forward our oncology portfolio.
So I think overall, in China, you have a large undertreated patient population. You have Western and Chinese medicines that can help the patients. The NRDL opened up the ability to get to a wide population at a lower price, but does give us that opportunity to serve the patients in China.
Dave Risinger
Got it. Okay. Thank you. And then why don’t we pivot to OTEZLA. So, OTEZLA is facing additional competition. Could you discuss Amgen’s efforts to drive growth? And to what degree additional rebating may be necessary in coming years?
Susan Sweeney
Yes, absolutely. Why don’t I start with the rebating side and just on the pricing. In the Q4 commentary, we had noted net price declines, but this was really reflective of enhancements to our co-pay program. And it was a strategic decision that we made to make sure that our patient assistant programs are there to assist patients in initiating new patient therapy. And that’s key to the volume growth that we’ve seen and we’ll see going forward. This really doesn’t reflect pricing pressures from payer.
The year-on-year decline was really a strategic choice to drive access, given the importance of new acquisitions. OTEZLA still remains as the only oral systemic therapy that does have an indication across mild, moderate, and severe patients. Similar to the other markets that we’ve talked about, there’s quite a number of patients that are undertreated.
There’s about 4 million patients in the mild-to-moderate segment, of which OTEZLA’s profile addresses about 1.5 million of those that are still not completely penetrated and particularly in the mild space. Now, we do have some headwinds. There’s new competition coming in the marketplace, both on the topical side, as well as another oral entering in the marketplace, but we do feel there’s a number of attributes that OTEZLA brings in this space.
First, our heritage in the market, 700,000 patients have been treated to date. Our safety profile is well understood by physicians. There is no lab monitoring to initiate therapy. We maintain a very strong access position, and this is really important as we see the evolution of the market.
The new products coming into the market have free goods programs, and which we do believe is driving their uptake in the beginning. But we’ll see – we’ll have to see how that plays out, of how their formulary actually gets picked up over time.
For – again, for now, we feel like we’re in a good position with Otezla, but we do see some headwinds in the beginning of the first quarter as these new entrants come in with their free goods programs.
Dave Risinger
Got it. Okay. And just a follow-up. So – just, so we understand, when you say enhancements to your co-pay program, I’m sure that that’s public because the co-pay program is on websites, but could you just explain that so that we understand a little bit better?
Susan Sweeney
Yes. There’s a number of different mechanisms that we can use to ensure patients get access and through the co-pay. We had decided to do some work on updating just some of the components of the program. We have an 800 number that call in to assess what your particular situation is and how we can help with [that co-pay] [ph], of course, in the commercially insured population, which is a large portion of the population.
So, there’s just – again, I think we continue to monitor. We continue to understand from working with physicians what their experience is and ensuring that when they have a patient that they do prescribe OTEZLA for, and then also working and understanding the patient’s experience, that they have a quick and easy way to get access to therapy.
Dave Risinger
Got it. Okay. And then could you also provide a little more color on the figures. So, you mentioned 4 million Americans in the mild-to-moderate category and OTEZLA can address 1.5 million of those. How did you calculate that 1.5 million out of the 4 million?
Susan Sweeney
Yes. So, it’s really about who is the treatable population. Mild-to-moderate is a very different type of patient that can present during there. And it’s really for the patients that have a larger body surface area that is treatable with an oral product. Sometimes with low – very, very low BSA, a topical might be a choice. But even in the cases where you have low BSA, there are sometimes awkward places on the body that make it more difficult to treat with a topical therapy that we would consider in that 1.4 million that would be eligible for OTEZLA.
Dave Risinger
Got it. Okay. That is very, very helpful. Thank you. And then let’s pivot to TAVNEOS. Could you talk about Amgen’s initiatives to maximize the commercial value?
Susan Sweeney
Yes. So, we are really pleased to have the ChemoCentryx team and TAVNEOS join us at the end of last year. It’s still pretty early in the launch of TAVNEOS, but the – I do have some stats I’ll go through in a minute just on, kind of how it’s doing in the marketplace. But just to recap for those who may not be familiar with the disease, this is ANCA-associated vasculitis is the indication. It’s a very serious and systemic autoimmune disease that leads to inflammation and eventually destruction of small blood vessels. This process can lead to permanent organ damage, and in some cases, can be life-threatening.
There is approximately 8,000 to 10,000 patients in the U.S. who do develop severe active disease or major relapses, because that’s also another patient population we are seeing treatment in. We see this as the addressable population. It does represent a significant advancement over other therapies that were available in the past. Many patients were receiving steroids or older immunosuppressants. And we feel that bringing TAVNEOS in to Amgen really allows us to leverage our decades of experience in rheumatology and nephrology to help more patients.
And just on the early days, so at the end of 2022, you may have seen that we reported, we have 775 patients that were prescribed. It was a 30% increase from the end of September. It’s about 1,000 patients that we’ve treated since launch. The number of unique prescribers, that’s an area that we’ve been focusing on, has been continuing, and we continue to focus on access.
Coverage now is up at 69%, up from 66%. And our payer mix is stable. About 50% of it is commercial, 40% Medicare, and less than 10% on Medicaid. And we continue to evolve from a program that provided free goods in the beginning that now that 62% are on paid prescriptions in the third quarter.
Actually, I’m sorry, it’s moved from 62% in the third quarter to 90% on [indiscernible] in the commercial space. As I said, bringing TAVNEOS in, we really saw the opportunity to leverage the heritage and experience we have with Enroll and the work that we have in – with nephrologists. 85% of the prescriptions for TAVNEOS are written by nephrologists or rheumatologists. About 60% of that is in rheumatology.
So, overall, we’re pleased with the beginning of the integration of TAVNEOS into Amgen, and we’re off to a great start with the team. It’s been a delight to get to know the folks at ChemoCentryx and work with them on continuing to advance this forward. And we’re seeing real impact to patients and physicians who are seeing the benefits of treating ANCA-associated vasculitis, such a terrible disease, with TAVNEOS.
Dave Risinger
Very helpful. Could you just repeat the coverage figures again, please?
Susan Sweeney
Yes. So we are – [care mix] [ph] is 50% commercial, 40% Medicare, 10% Medicaid. 90% commercial is now on paid prescription. And I think that’s the number you were looking for.
Dave Risinger
Yes. And you said 85% of scripts are written by nephrologists or rheumatologists. And did you mean 65 percentage points of the 85 percentage points on rheumatologists?
Susan Sweeney
Yes. So, it’s 60 – yes, exactly. 85% on rheum and 60% of those are rheumatologists.
Dave Risinger
Okay. All right. So then just moving along here. So, I’d love to just talk about AMGEVITA. So, obviously, you get a lot of questions on this, given the company’s leadership in biosimilars, but if you could just paint the picture looking forward. So, how is the product set up on formularies today? We understand that it has, sort of equal status with respect to the brand on a lot of formularies, but no preferential treatment on most.
So, physicians don’t – aren’t really pushed to prescribe a biosimilar. I guess I have a couple of questions. First, with respect to pricing, does the pricing automatically adjust as part of contracts when the slew of competitors comes in, in the second half, so pricing comes down then? And then second, is there a nice opportunity or not for the company to have AMGEVITA put in preferred formulary positions for January of 2024 after it has interchangeability?
Susan Sweeney
Yes. So, a lot of questions there. So far, we’re off to a good start just having launched it in January. As you mentioned, so we’ve secured formulary position at three national PBMs at a parity position. And you did note that is versus an exclusive position. An exclusive position, you would expect, meaning exclusive, that you would use it prior to use instead of in the same position with the branded product, which could lead to a steeper uptake curve.
So, we’re expecting a bit of a more modest uptake curve because of the position we’re in the marketplace. Although it still remains a good position that the three national PBMs do have us on their formularies. I do want to note versus you asked about the other biosimilars in our experience in that area, with our other biosimilars, many of them have launched into a buy-and-bill marketplace rather than the pharmacy marketplace.
We do see those as quite a bit different. I’m not sure the curves will be comparable. We would expect that you would see potentially a slower curve in the PBM marketplace. And again, AMGEVITA, just in terms of the asset itself and our experience with biosimilars, we’ve had this on the market in Europe for some time and outside the U.S. It’s done extremely well in that market. So, there’s a lot of patient experience. I still believe it’s the Number 1 biosimilar for HUMIRA outside of the United States.
So, on the – and again, Amgen’s experience also in a number of different things that we provide, we have, of course, manufacturing capabilities. This is a very, very large product, so we want to make sure we supply every patient every time. We have a lot of experience in the inflammatory space with co-pay programs, which we do for AMGEVITA, as well as for reimbursement support and nursing support. So, when patients were initiating therapy, they still get that same care that they’re accustomed to as a patient in the space.
On the potential formulary positions and new products coming in, we do have a five-month lead ahead. We can’t really comment on what the pricing of the competitors are going to be coming into the market and how that looks. We do know from all of the biosimilars that we launched, with new entries, we would expect pricing pressures to come in.
For our position in 2024, it’s a bit early to comment on it. We’re not ready to comment on where we are in 2024 for the position. And just right now, we’re focused on using the same footprint and sales organization that we have for our other inflammatory products like Ambrol of making sure that physicians are aware of the availability of AMGEVITA, making sure that they understand that there are different programs that are in place to help patients go and transition.
Dave Risinger
Right. Well, before we run out of time, and we’ve covered a lot of ground, I thought that it would be helpful, particularly since Peter has joined us, to ask a little bit more about IRA. So Peter, could you provide a framework for how Amgen has adjusted its internal long-term planning? And then also comment on how you view Amgen’s exposure to future “negotiation” by Medicare.
Peter Griffith
Yes. On the second part of your question, on future negotiations, we do think it’s still a little bit too early to comment there. We’ll wait, as everyone else will, with – to see what comes out on that. On the IRA, it’s a great question. And it’s a little early to provide specifics around the impact of the IRA, to the pipeline or our long-term plans. But I think probably like others, we’re evaluating our portfolio given the impact of the new legislation on innovation.
We expected negative longer terms. They post 2030 impact on innovation in the industry. We’ll make appropriate resource allocation decisions within our portfolio. We’re not going to make abrupt changes, Dave, or as we say, we’re not going to jerk the wheel. But with that said, we’ll remain true to our core research and development principles of focusing on innovation, discovering, developing first-in-class and best-in-class therapeutics and generating medicines with large affect sizes in areas of significant unmet needs. So, no change there.
So, we think those principles have served us well. We think they’ll serve us well going forward. So, that’s how we’re thinking about the IRA. We feel we’re in a strong position, strong as anyone. And we’ll continue – as I started 30 minutes ago, we’ll continue at Amgen, Susan, Arvind and I, for their 25,000 colleagues waking up each morning thinking about how we can help discover, develop, manufacture, and distribute these first-in-class, best-in-class innovative medicines to patients all over the world so – with [serious illnesses] [ph].
So that’s exciting for us. I’d like to say thank you, again, Dave, for inviting us. It’s great to see you. We wish everyone great health and thank them for their interest in Amgen.
Dave Risinger
Excellent. Well, this has been a great session. Really appreciate you all joining us, and hope you have a great rest of the week.
Arvind Sood
Thank you very much, Dave.
Peter Griffith
Thanks, Dave.
Dave Risinger
Thanks, again. Okay. Bye-bye.
Be the first to comment