APA Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 3, 2023

There are 16 speakers on the call.

Operator

Afternoon, everyone, and welcome to our call to discuss our results for the Q2. We continued down the path of strong unit volume growth during the quarter that led to an improved outlook for the rest of the year. This also sets the stage for growth longer term augmented by some meaningful pipeline updates, particularly within oncology development. Our Chairman and CEO, Bob Bradway will lead the call with some prepared remarks, followed by a broader review of our performance by other members of our leadership team. You should have received a link to our slides that we posted.

Operator

Through the course of our discussion, we will make some forward looking statements and use non GAAP financial measures to describe our performance. And just a reminder that actual results can vary materially.

Speaker 1

So with that, I would like to

Speaker 2

turn the call over to Bob. Bob? Okay. Thank you for joining our call.

Speaker 3

It was an excellent quarter across the board for Amgen and one that demonstrates why we remain very confident about our ability to deliver attractive long term growth in sales and earnings. We delivered $7,000,000,000 in quarterly revenue, up 6% from a year ago, along with record non GAAP earnings per share of $5 a share, up 8% over the prior year. Volume growth globally was 11% in the quarter and that reflects all 3 of our therapeutic areas and all 3 of our geographic regions contributing to performance. For example, volume in our general medicine business grew by 21% in the quarter, while volume in our Asia Pacific region, which we have previously identified as a key source of growth for us was up 46%. At a time of product shortages in the industry, our World class manufacturing capabilities have enabled us to meet growing demand for our products and continue our long standing tradition of serving every patient every time.

Speaker 3

9 of our medicines generated record sales in the quarter. This is consistent with my comments from our Q1 call in April when I said we see the potential for many of our currently marketed products to reach significantly more patients over time and to contribute substantially to our long term growth. In April, I spoke about Repatha and the growing contribution it's making in the fight against cardiovascular disease. Today, I'll highlight Prolia, which achieved $1,000,000,000 in quarterly sales for the first time, up 11%. Ehrlia is one of the first biologics to be widely prescribed by primary care physicians to treat a chronic disease, something we expect to see replicated over time in other categories like cardiovascular disease.

Speaker 3

For all of Prolia's success though, We know that osteoporosis remains an under diagnosed and undertreated disease, placing millions of elderly women at risk for life changing fractures. With recently generated real world data, we've established that Prolia is superior to alendronate, the most frequently prescribed bisphosphonate treatment in the U. S. In reducing fractures and not by a little, but by a lot. To give you one data point, in May we announced that in a real world study, Prolia reduced the risk of hip fracture by 36% compared to elendronate.

Speaker 3

That's superior. Prolia and EVENITY which achieved 47% sales growth in the quarter give us a powerful one two punch against osteoporosis, a disease that will only become more prevalent as the world grows older. You'll hear more from Murdo shortly about our very strong commercial performance through the first half of twenty twenty three. We're seeing strong momentum in our pipeline too. As you'll hear in detail from Dave Reese, we're sharing positive data today for our BiTE tarlatanab in small cell lung cancer and for lumacraft in combination with vectabix in colorectal cancer.

Speaker 3

We are especially excited about the tarlatanab readout, not only because of what it may mean for patients whose prognosis is otherwise exceptionally poor, but also because it adds to our growing conviction that bispecific T cell engagers are an effective way to treat solid tumors as well as liquid tumors as we have demonstrated with BLINCYTO. Elsewhere in our pipeline, we continue to advance registration enabling trials for several potential new first in class medicines, including opaziran in heart disease, roketimlimab in atopic dermatitis and of course bemrituzumab in gastric cancer. We look forward to additional readouts from our pipeline in the second half of the year. Turning to our planned acquisition of Horizon Therapeutics, We remain very enthusiastic about what our companies can achieve together for patients suffering from rare serious diseases. Horizon has certainly accomplished a great deal as an independent company.

Speaker 3

Amgen's global commercial manufacturing and R and D capabilities, especially for biologic products will enable Horizon's medicines to reach even more patients more quickly than Horizon could have achieved on its own. As you know, this combination has been approved by regulators around the world with the exception of the Federal Trade Commission in the United States. The FTC's arguments in this case are based on speculation and hypothetical notions. Their arguments are not grounded in long established antitrust law. Notwithstanding that in choosing to pursue this case, they've ignored the commitments we made to address their stated concerns.

Speaker 3

Life changing medicines that Amgen and Horizon offer, treat different diseases and different patient populations. Simply put, there are no competitive overlaps and no incentives to bundle our drugs with theirs. We look forward to making our case in court in September and confident rather that we will prevail. In the meantime, we're working closely on integration plans with Horizon so we can hit the ground running by mid December, which is when we anticipate being able to close the deal. And let me just reiterate one more point before I hand over to Murdo.

Speaker 3

As the Q2 illustrates, Amgen's business is performing very well and our organic outlook for growth is strong. Adding Horizon will serve to enhance our growth prospects even further. And let me close by thanking my Amgen colleagues around the world for their unwavering commitment to patients and to our business. We're excited about the future and our ability to serve many, many more patients than we do today. Murdo?

Speaker 4

Thanks, Bob. I'm very pleased with our performance in the Q2, fueled by a commitment to deliver on our mission to bring innovative products to millions of patients globally. Execution is strong across the business with record quarterly sales for 9 brands and robust volume growth across our general medicine, inflammation and hematology oncology portfolios. Excluding the impact of foreign exchange, 2nd quarter global product sales grew 8% year over year. Including the impact of foreign exchange product sales increased 6 percent year over year.

Speaker 4

Volume growth was 11% with strength across our regions. U. S. Volume growth was 9% and volume growth in our Europe, Latin America, Middle East and Canada region was 8%. And consistent with our international expansion Asia Pacific continues to be our fastest growing region with 46% volume growth in the quarter.

Speaker 4

Starting with our General Medicines business, which includes Repatha, Prolia, Evenity and Aimovig. Overall revenue for these four products grew 19% year over year in the Q2, driven by 21% volume growth. Cardiovascular disease is a growing public health crisis and the state of care for high risk ASCVD patients with elevated LDL cholesterol is poor. Family Heart, The real world analysis of 38,000,000 high risk Americans revealed that fewer than 30% of them ever reach their recommended LDL levels. This is a clear call to action that lowering LDL cholesterol as much and as early as possible with Repatha will reduce cardiovascular risk for patients.

Speaker 4

And so to meet this need, Amgen is committed to improving patients' ease of access and affordability. Today, we have best in class formulary coverage for Repatha, helping 90% of eligible U. S. Patients gain access to this important medicine. Improved access is enabling broad adoption of Repatha by cardiologists and increasing adoption by primary care providers.

Speaker 4

So this has set the stage for growth for Repatha sales, which increased 30% year over year to a record $424,000,000 in the second quarter. In the U. S, volume growth of 34 and was driven by a record number of new patients starting treatment. Outside the U. S, we saw 37% volume growth with momentum across our regions.

Speaker 4

We recognize there are still many more patients around the world who can benefit from Repatha. And to meet that challenge, we are increasing investment to intensify our engagement with healthcare providers, bring our message directly to patients through direct to consumer media and drive urgency around LDL C testing and adherence to treatment guidelines. Transitioning to bone health. Prolia sales grew 11% year over year to a record $1,000,000,000 in the 2nd quarter, driven by 11% volume growth. As Dave will discuss in more detail, new real world evidence data presented at the World Congress on Osteoporosis in May demonstrates that Prolia significantly reduces fracture risk across multiple endpoints when compared to alendronate.

Speaker 4

Our sales teams are now equipped with these data and are actively helping physicians understand the superior ability of Prolia to reduce the risk of fracture for their osteoporosis patients. EVENITY, which complements Prolia in our bone portfolio, had record sales $281,000,000 for the quarter, driven by strong volume growth across markets. In Japan, if entities achieved a 42% share of the growing bone builder market, steadily increasing performance versus competitors and increasing initiation for naive patients. EVENITY sales are now annualizing at over $1,000,000,000 given the severe impact of fractures on the lives of women who are postmenopausal. Our success in Japan, The first launch market for EVENITY enhances our confidence in the significant growth potential through this decade.

Speaker 4

Otezla sales increased 1% year over year driven by 2% volume growth. Otezla remains the only approved oral systemic therapy with a broad indication and is well positioned to help the more than 1,500,000 systemic naive U. S. Patients with milder psoriasis that cannot be optimally addressed by a topical treatment and can benefit from a systemic drug like Otezla. Our U.

Speaker 4

S. Otezla business has been impacted by free drug programs for newly launched topical and systemic competitors, and we expect new patient demand will continue to by these programs for the remainder of 2023. Despite this, we see a compelling opportunity to invest in growth of Otezla and to drive increased awareness amongst physicians and patients. We're confident in the growth potential of OTEZLA given its unique combination of established efficacy and safety profile, broad payer coverage with limited prior authorization requirements and a lack of testing required for initiation and of course ease of administration. Enbrel sales grew 84% quarter over quarter following the seasonal impact on price and large drawdown of inventory during the Q1 in the U.

Speaker 4

S. Year over year, Enbrel sales increased 2% driven by favorable changes to estimated sales deductions and higher net selling price partially offset by lower inventory levels. Although year over year volume was flat in the Q2, the number of new patients in the U. S. Starting treatment increased by 6% driven by improved payer coverage.

Speaker 4

For the remainder of 2023, we expect this improved coverage will lead to continued growth in new patients. We also expect declining net selling price on a full year basis. Test buyer continues to show robust growth with $133,000,000 in sales in the 2nd quarter. Sales increased 39% sequentially driven by 37% volume growth that benefited from the introduction of our self administered, prefilled, single use pen approved by the U. S.

Speaker 4

Food and Drug Administration in the Q1. The pen offers patients the convenient option to administer TESBIR at home, which improves accessibility and provides more flexibility in treatment options for all patients in the U. S. With severe uncontrolled asthma. Sales of TAVNEOS were $30,000,000 in the 2nd quarter.

Speaker 4

U. S. Volumes grew 28% quarter over quarter, driven by an increase in new patients starting treatment. In the U. S, Approximately 2,000 patients have now been treated with TAVNEOS by over 1300 healthcare providers.

Speaker 4

Looking forward, Amgen's deep experience in inflammation and nephrology and substantial market presence will allow us to bring TAVNEOS to even more patients with ANCA associated vasculitis. AMGEVITA sales increased 29% year over year for the 2nd quarter, driven by 60% volume growth, partially offset by lower inventory levels and net selling price. U. S. Sales decreased 63% sequentially, driven by inventory drawdowns after stocking to support the launch in the Q1, partially offset by volume growth.

Speaker 4

Moving to our hematology and oncology business, which includes Lumacraft, Kyprolis, XGEVA, Vectabix, Nplate and BLINCYTO. Strong commercial execution and exciting new clinical data drove 12% volume growth year over year for these 6 innovative products. BLIDCYTO sales grew 48% year over year with adoption across academic, community and pediatric centers, following positive data from the registration enabling E1910 study presented in December of 2022 and updated NCCN guidelines that were issued in May. Both the positive data and the updated guidelines support our confidence and the continued growth potential for BLINCYTO. Vectabix sales increased 20% year over year for the Q2, driven by 20% volume growth, supported by promotional positive data from the Phase 3 PARADIGM trial demonstrating the superiority of vectabix over bevacizumab in combination with chemotherapy for patients with wild type RAS colorectal cancer.

Speaker 4

Kyprolis grew 9% year over year driven by 15% volume growth, partially offset by lower net selling price. And LumaCraz reported $77,000,000 of sales for the 2nd quarter. Year over year sales were flat in the quarter's 20% volume growth was offset by lower net selling price and inventory levels. We see future growth opportunity for lumikrans driven by launches in new markets and our comprehensive global clinical development program. Our execution is strong across the business, driving growth and exemplifying our dedication to serving patients.

Speaker 4

Our business is performing at a very high level and with the announced acquisition of Horizon Therapeutics, We have the potential to serve many more patients who can benefit from our decades of leadership in inflammation and nephrology. And with that, I'll turn it over to Dave Reese.

Speaker 2

Thanks, Murdo. Good afternoon, everyone. For R and D, The Q2 was one of high quality execution as we progressed our innovative pipeline with 2 important data readouts, multiple registration enabling studies on track and additional exciting data coming later this year. Beginning with oncology, we are exceptionally pleased to announce positive top line results from the global Phase 2 DELFI-three zero one trial evaluating tarlatanab, a 1st in class DLL3 targeting BiTE molecule in patients with relapsed for small cell lung cancer that progressed after 2 or more prior lines of treatment. Tarlatanab demonstrated an objective response rate, the primary endpoint that substantially exceeds what was previously reported in the Phase 1 study.

Speaker 2

Responses were durable and longer than what is expected with standard of care chemotherapy. Safety and tolerability were also more favorable compared to the Phase 1 study. This is the first time that a bispecific T cell engager has shown unequivocal activity in a common solid tumor, a real milestone in the field. We look forward to discussing these data soon with the FDA and other regulatory agencies and presenting detailed results of this potentially registrational Phase 2 study at an upcoming medical Congress. Based on the data we have observed, We are moving tarlatanab into earlier lines of therapy with Delphi-three zero four, a Phase 3 study underway comparing tarlatanab with standard of care chemotherapy in second line small cell lung cancer.

Speaker 2

We are also planning to initiate 2 additional Phase 3 studies vivtarlatumab in earlier lines of small cell lung cancer. From my personal vantage point as an oncologist, I believe this molecule can be transformative and can't wait to share these data with the field. Turning to lumacraft, we continue to execute on our comprehensive clinical program designed to generate the breadth of data necessary to understand KRAS biology and the role NumaCrest can play in non small cell lung cancer, for colorectal cancer and other solid tumors. We are delighted to announce that the global Phase 3 CodeBREAK-three hundred trial evaluating lumacraft combined with vectavix in chemo refractory metastatic KRAS G12C mutated colorectal cancer met its primary endpoint of progression free survival for both the 2 40 milligram and 9 60 milligram doses. At comparable doses.

Speaker 2

Efficacy results were consistent with what was previously observed in this setting with no new safety signals. We look forward to sharing these results with global health authorities and presenting the detailed results at an upcoming medical Congress. The FDA recently granted breakthrough therapy designation to lumacraft in combination with Vectavix for the treatment of patients with metastatic KRAS G12C mutated colorectal cancer as determined by an FDA approved test who have received prior chemotherapy based on data from the prior CodeBreak 100 and 1 study. Beyond these data, we continue to explore novel combinations as we seek to move LumaCrest into the first line setting. Recently presented data from the SCARLET study provide the rationale to initiate a Phase 3 trial of lumacraft combined with chemotherapy in first line non small cell lung cancer patients with PD L1 negative tumors.

Speaker 2

And Phase 1b data in combination with Vectavix and chemotherapy support the initiation of for Phase 3 study of lumacraft with vectavix and FOLFIRI in first line G12C mutated colorectal cancer. In June, the FDA approved the supplemental biologics license application for BLINCYTO for the treatment of adults and pediatric patients with CD19 positive B cell precursor acute lymphoblastic leukemia in first or second complete remission with minimal residual disease greater than or equal to 0.1%. The approval converts BLINCYTO's accelerated approval to a full approval. Global regulatory submissions are on track for E1910, a Phase 3 trial conducted by the National Cancer Institute, Eastern Cooperative Oncology Group and the American College of Radiology Imaging Network Cancer Research Group that demonstrated superior overall survival with Glencito treatment added to consolidation chemotherapy over standard of care consolidation chemotherapy in newly diagnosed adult patients with Philadelphia negative ALL who are MRD negative following induction and intensification chemotherapy. 3 important updates were made to the National Comprehensive Cancer Network clinical practice guidelines in oncology in B cell ALL.

Speaker 2

These included listing the BLINCYTO E1910 regimen as the only preferred regimen for the first line treatment of Philadelphia negative adult patients, adding BLINCYTO to multi agent chemotherapy as consolidation in MRD negative disease and lastly moving BLINCYTO in combination with a tyrosine kinase inhibitor to the top of the treatment algorithm for MRD negative Philadelphia positive disease. Finally, in April, Data were published in the New England Journal of Medicine demonstrating that BLINCYTO added to chemotherapy improved 2 year survival in KMT2A rearranged B ALL in infants compared to historical data, when CYTO 2 year survival was 93% versus 66% for chemotherapy alone. If you look at the totality of the data, It is clear that Plincyto is changing the paradigm for the treatment of B cell ALL in late stage disease, in early disease, in young patients in an older patients. We remain excited about its future potential and are focused on further investigating BLINCYTO in earlier lines of treatment and improving patient convenience through subcutaneous administration. As the first bite, BLINCYTO also provides a roadmap for the development of molecules such as tarlatanab, which could have enhanced activity in settings of lower tumor burden.

Speaker 2

2 additional early oncology programs to watch are zoluritamig and AMG 193. Daluritimig is a 1st in class STEP1 targeting bispecific being studied in advanced prostate cancer where STEP1 is expressed on almost all tumor cells. We are observing significant anti tumor activity with this molecule and are rapidly enrolling dose expansion cohorts. Valuritamig provides another example of a bispecific T cell engager demonstrating activity in a solid tumor setting. AMG 193 is a 1st in class small molecule MTA cooperative PRMT5 inhibitor being studied in patients with advanced MTAP null solid tumors.

Speaker 2

The overexpression of PRMT5 in the absence of MTAP leads to the accumulation of MTA and we leverage this biology in the unique design of AMG 193, which requires the presence of MTA to effectively inhibit PRMT5. Alterations in pathway occurring approximately 15% of solid tumors are often associated with a poor prognosis and historically have been very hard to draw. We are currently enrolling a Phase 1btwo study of AMG 193 and while it is early, We are encouraged by the anti tumor responses we've observed in multiple tumor types. We look forward to sharing data from both Zaluritimig and AMG 193 this fall. In General Medicine, we are advancing our cardiovascular franchise in emerging portfolio of obesity molecules with a focus on clinical trial execution.

Speaker 2

The Phase 3 outcome study of opasorin, our potentially best in class Lp targeting small interfering RNA molecule and atherosclerotic cardiovascular disease is enrolling well as is a Phase 2 study of miridabar capraglutide formerly known as AMG133 in patients with obesity, with or without diabetes and related comorbidities. The goal of the Phase 2 study is to generate data that will provide broad finality to design a Phase 3 program leveraging the unique properties of miridbartafraglutide that will deliver strong sustainable weight loss. In May, as mentioned, we presented data from a real world study of nearly half of a 1000000 postmenopausal women with osteoporosis in the United States Medicare program showing Prolia substantially reduced fracture risk in patients versus oral alendronate. In addition, the same study showed that longer duration of Prolia treatment was associated with a greater reduction in major osteoporotic fracture risk. These data are a great demonstration of the importance of Prolia in treating postmenopausal osteoporosis and the ability to study treatment effects in large patient populations using real world evidence.

Speaker 2

In inflammation beyond severe asthma. We are investigating multiple additional indications with Tezpyre, including separate Phase 3 studies in chronic rhinosinusitis with nasal polyps and eosinophilic esophagitis. We also have 2 Phase 2 studies, 1 in chronic spontaneous urticaria and the other in COPD. The CSU study is complete with top line data anticipated imminently. The COPD trial was fully enrolled and has recruited a broad population of COPD patients, including patients with both high and low eosinophil counts.

Speaker 2

We look forward to the readout of this study in the first half of twenty twenty four. Oroketinlimab, 1st in class anti OX40 monoclonal antibody being investigated in patients with moderate to severe atopic dermatitis. Recruitment is off to a strong start on the ROCCAT Phase 3 clinical development program. We are also planning to initiate a Phase 2 study in moderate to severe uncontrolled asthma as we explore roketinlimab in this additional indication. Rounding out the clinical summary, we've continued to execute both on time and on budget with our biosimilars portfolio, including the recent initiation of a pivotal study evaluating the pharmacokinetic similarity of ABP-two zero six compared with Opdivo, one of 6 planned new biosimilars.

Speaker 2

In closing, I'd like to highlight or recently announced collaboration with T SCAN Therapeutics. This is a multi year collaboration that will use T SCAN's proprietary target discovery platform, TargetScan to identify the antigens recognized by T cells in patients with Crohn's disease and represents a novel approach to investigating this tough to treat illness. I'd like to thank Amgen staff around the world for the relentless focus on execution as we work hard to meet the needs of the patients we serve. I'll now turn it over to Peter.

Speaker 5

Thank you, Dave. We're pleased with our strong second quarter performance, growing volumes by 11%, increasing investment in research and development and delivering 8% year over year non GAAP EPS growth. This drives our confidence in delivering against our 2023 objectives and keeps us in position to meet or beat our longer term commitments. I'll review our Q2 results before discussing our 2023 guidance. As a reminder, these results and outlook reflect Amgen on a standalone basis without any adjustments for the announced Horizon acquisition.

Speaker 5

Turning to our Q2 financial results, which are shown on Slide 41. Total revenues of $7,000,000,000 grew 6% year over year and the highest quarterly revenues in Amgen's history. Product sales increased 8%, while total revenues increased 7% year over year excluding the negative impact of foreign exchange rates. 2nd quarter total non GAAP operating expenses increased 7% year over year. We invested in and advanced our pipeline and accelerated growth across our priority marketed products, while delivering a non GAAP operating margin as a percent of product sales of 52.6 percent demonstrating expense discipline.

Speaker 5

Non GAAP R and D spend in the quarter increased 7% year over year, reflecting growing investments in our pipeline, driven by higher spending on late stage programs and marketed product support. Non GAAP cost of sales as a percent of product sales increased 2.4 percentage points on a year over year basis to 17.1 percent, primarily driven by higher profit shares and changes in product mix. Non GAAP SG and A expenses in the 2nd quarter decreased 6% year over year. We continue to focus on our continuous improvement operating model, prioritizing investments, digitalization and driving productivity and beginning and in other cases continuing what we have already started historically to execute in any number of uses of artificial intelligence. Non GAAP other income and expenses were a net $307,000,000 expense in the 2nd quarter.

Speaker 5

This year over year favorability was driven primarily by change in Beijing accounting from equity methods to a mark to market investments with the impact included only in our GAAP results. As expected, our 2nd quarter non GAAP tax rate increased 1.7 percentage points to 16.4%, primarily due to the 2022 Puerto Rico tax law change that replaced the excise tax with an income tax beginning in 2023. We continue to execute on our capital allocation priorities. First, we continue our priority investments in the best innovation, both internal and external innovation. In Q2, we drove higher spend in late stage programs such as AMG133 and opaciran, as well as support for our marketed products including TAVNEOS.

Speaker 5

2nd, we continue investing in our business. Capital expenditures are at near peak levels driven by simultaneous construction of our state of the art manufacturing facilities in Ohio and North Carolina. We expect our annual capital expenditures to begin to decline starting in 2024 with the completion and licensing of our Ohio plant and capital expenditures will then begin to return closer to historical levels over the coming years. And third, we plan to continue to return capital to our shareholders. We paid dividends of $2.13 per share in the 2nd quarter, representing a 10% increase over the Q2 of 2022.

Speaker 5

The company generated $3,800,000,000 of free cash flow in the Q2 of 2023 versus $1,700,000,000 in the Q2 of 2022, primarily driven by the timing of tax payments and includes higher interest income and higher operating income. We expect strong cash flow for the remainder of the year, consistent with our full year 2023 financial outlook that includes a non GAAP operating margin of roughly 50%. Now turning to the outlook for the business for 2023 on Slide 43. Our guidance is currently provided on the and Gen standalone business and does not include any Horizon projections. As the Horizon transaction is expected to close by mid December, resulting contributions from Horizon would be included after that period.

Speaker 5

Given our strong performance, we are raising our 2023 revenue guidance to $26,600,000,000 to $27,400,000,000 versus previous guidance of $26,200,000,000 to 27,300,000,000 Although our results give us confidence to raise our full year guidance, we expect the 3rd quarter sales may be lower compared to the 2nd quarter due to the impact of the Medicare donut hole, which is more pronounced in the second half of the year and also to certain favorable changes estimated sales deductions in the 2nd quarter. Regarding our non GAAP earnings per share guidance, we intend to increase investments in our internal innovation and priority marketed products from a position of strength given the acceleration in our business and our pipeline. Reflecting our improved revenue outlook. Along with our investment plans, we are revising our non GAAP EPS guidance to $17.80 to $18.80 versus previous guidance of $17.60 to $18.70 Again, although our results give us confidence to raise our full year non GAAP EPS, We expect 3rd quarter non GAAP EPS to be lower compared to the 2nd quarter, resulting from the expected Q3 sales and our investments in the business. Important additional points to consider as you model the remainder of 2023.

Speaker 5

We now project full year Neulasta sales of approximately 800,000,000 and full year combined conjuncte and Embossy sales of approximately $900,000,000 We now expect other revenue for to be in the range of $1,100,000,000 to $1,300,000,000 versus our prior range of $1,200,000,000 to 1,500,000,000 Note that our Q3 2022 results included about $90,000,000 of other revenue related to our COVID antibody manufacturing agreement and the milestone we earned that we do not expect to repeat in the Q3 of 2023. We anticipate full year non GAAP operating expense for 2023 to increase by closer to 3% versus last year compared to our previous estimate of a 1% increase with higher cost of sales from projected increased sales, additional investments driving our innovative pipeline and increased support for our growing priority marketed products including Repatha and Otezla. We continue to expect the full year 2023 operating margin as a percentage of product sales to be roughly 50%, although will vary in each of the remaining two quarters. We continue to expect non GAAP cost of sales as a percentage of product sales to be between 16% 17%. We now expect our non GAAP R and D expenses in 2023 to increase about 5% year over year, which is higher than our prior guidance of 3% to 4%.

Speaker 5

We continue to expect non GAAP SG and A spend to be slightly down year over year as a percentage of product sales. We now expect non GAAP other income and expenses to be in the range of $1,100,000,000 to $12,000,000,000 down from the prior guidance of $1,200,000,000 to 1,300,000,000 For the full year, we anticipate a non GAAP tax rate of 17.5% to 18.5%, down from prior guidance of 18.0 percent to 19.0 percent. We expect Q3 tax rate to be near the upper end of the revised range of 17.5% to 18.5%. Our capital expenditure guidance remains unchanged at approximately $925,000,000 in 2023. Our confidence is strong in the long term outlook and long term growth for Amgen.

Speaker 5

And we look forward to completing the announced acquisition of Horizon by mid December as Bob indicated. I'm incredibly grateful to our 24,000 plus colleagues for successfully executing on our mission of serving patients in the Q2 and beyond. This concludes the financial update. I'll turn it over to Bob for Q and A.

Speaker 3

Okay. Thank you, Peter. And now we'll open the line for callers so they can ask questions. And I'll just I'll ask our operator to remind you of the procedures for doing that, please.

Speaker 6

Thank you. Our first question comes from Mohit Bansal from Wells Fargo. Please go ahead. Your line is open. Great.

Speaker 7

Thank you very much for taking my question and congrats on the quarter. Maybe one question on OX40. There are some concerns and people are talking about the safety of OX40. Like one concern is regarding the autoimmune phenomena. And I'm reading some literature and suggest that in OX40 lacking OX40 animal models, there is an impairment of interferon gamma.

Speaker 7

So just trying to understand how are you managing that risk in this particular drug? And how is it what immune phenomena is it? Is it concern at all there? Thank you.

Speaker 2

Thanks, Amit. This is Dave. So we're aware of those conversations. What I can tell you is that Let me approach your question in 2 parts. 1 mechanistically, oX40 is primarily expressed on activated T cells and activated pathogenic T cells in the setting of atopic dermatitis.

Speaker 2

In the Phase 2 program, we did not observe autoimmune phenomena. Obviously, this is something we are tracking, but We have no clinical signal or indication of such concerns at this time. Likewise, Your question regarding interferon gamma would imply risk for example for infections. That's also something that we did not see at a greater rate in treated patients than placebo in the Phase 2 program. These are things that we will follow.

Speaker 2

Followed routinely for almost all cytokine inhibition programs, but to date we have not had signal.

Speaker 6

Thank you, Mohit. Our next question comes from Michael Yee from Jefferies. Please go ahead. Your line is open.

Speaker 8

Hey, guys. Thanks for the question. Bob commented about the enthusiasm for the Horizon deal. I know in general there's a of uncertainty in the TED market going on with sales. Can you maybe just describe your Ongoing confidence with what you think is going on in the TED market, why you're excited about this and your confidence around regrowing this business and Have you been in discussions or at least aware of the ongoing dynamics or at least an ongoing dialogue with the company about the market for TED?

Speaker 8

Thank you.

Speaker 3

Yes, sure. Mike, we've answered it in 2 parts. Maybe I'll kick it over to Murdo in a moment. But let me just reiterate that we remain very excited. And of course, we're watching carefully developments in the marketplace and talking as appropriate with our friends at Horizon about that.

Speaker 3

And again, based on Our view of the clinical data and our view of the international opportunities and ability to expand in the reach of the product. We're very excited about what we think we can do there. But Murdo, why don't you elaborate further?

Speaker 4

Yes. From our vantage point, Mike, what we see is strong execution by the Horizon team in the U. S. And there are several catalysts for growth here. They've already expanded their commercial and so that should start to take traction.

Speaker 4

They have the data now for the low CAS patient population with the positive results from that trial in public domain, not yet published, but in public domain having been presented and in hand with their sales forces. So that's very recent and not reflected necessarily in their historical performance. Bob mentioned the international market launches. We continue to believe post close, we will be able to help accelerate the work being done there. We're also seeing some improved medical policies being issued prior to the new calendar year and so that's very encouraging to see payers improve or remove restrictions I should say on the use of the PEZA for the lower cast patient population.

Speaker 4

So there are many good catalysts and what I see is Horizon systematically unlocking those additional opportunities for growth and we remain quite bullish on to PEZA's utility across a very large population of thyroid eye disease patients who would benefit from that treatment given the clinical data. The last thing I should mention on TEPEZZA is they also were able to replicate the low CAS population results in OPTIC J in their OPTIC J trial, sorry, they're not the low cast, but the registrational data for thyroid eye disease and OPTIC J. So that sets them up well for future potential launch in Japan. So really good data flow, really good execution and investment and focus here. And look beyond Tepesa, we also remain very excited about There are other 2 large in line brands with Krystexxa and obviously aplizna.

Speaker 4

So Overall, we remain excited and confident that the 2 companies working together on this really strong portfolio will be a good pairing.

Speaker 6

Thank you, Michael. Our next question comes from Salveen Richter from Goldman Sachs. Please go ahead. Your line is open.

Speaker 9

Good afternoon. Thanks for taking my question. Could you put the top line Phase II data for tarlatanab in small cell lung cancer into context for us and share any more details on the profile. In particular, how does this compare to the Phase 1 data where you had confirmed objective response rate of 23% and the median duration of response of 13 months. I think you noted it substantially exceeds the Phase 1 results.

Speaker 9

Thank you. Yes,

Speaker 2

Salveen. Thanks for the question. Very, very excited about this molecule. If you step back, I think It represents what we had hoped to see in the BiTE platform and substantial clinical effects in a major solid tumor. To put the data in context in comparison to Phase 1, as noted, we substantially exceeded the 23% response rate that we reported in Phase 1.

Speaker 2

We are planning to present these data at a fall conference embargoed in terms of course in terms of providing more specifics. But I can tell you that I couldn't be more pleased with the response rate data, the duration of response and overall survival. For context, in patients with small cell lung cancer in the third line. Response rates are typically well under 50%, but importantly, they are vanishingly brief in most instances, often a matter of weeks for a few months. And so based on what we're observing, I think we really have a chance to change the natural history of this disease, particularly as we march towards earlier lines of therapy, where the activity of the BiTE in a lower tumor disease burden setting should be enhanced as we have observed with Glyncyto.

Speaker 2

So all of our efforts now are focused on executing earlier line trials. So this is one to I think pay attention to as we go forward and we're really looking forward to presenting these results this fall.

Speaker 3

Dave, do you want to say anything about safety? Obviously, I'm sorry.

Speaker 2

Yes. In terms of the safety, I think we have learned a lot in the development program about the clinical management here. We're quite pleased with the rates of in principle side effects like cytokine release syndrome and we look forward to sharing those details as well when we present the data this fall, but exceptionally happy with the tolerability and safety profile as well.

Speaker 6

Thank you, Salveen. Our next question comes from Jay Olson from Oppenheimer. Please go ahead. Your line is open.

Speaker 10

Hey, congrats on the quarter and especially the tarlitumab and lumacraft results and happy birthday to Arvind.

Speaker 3

For lumikrass,

Speaker 10

absolutely. For the lumikrass Phase 3 in colorectal cancer. Can you just talk about the filing strategy and timeline and maybe a little bit about the market opportunity in CRC for Lumigram. Thank you.

Speaker 2

Yes. In regards this is obviously a smaller patient population, about 4% of colorectal cancers harbor the G12C mutation. In terms of next steps here, our plans are have discussions with the FDA and other regulatory authorities on these Phase 3 data. And as those conversations unfold, I'll provide guidance about the potential regulatory pathway. And then as I mentioned, based on the strength of these data and Phase 1b data in the first line setting using a vectabix chemotherapy lumacraft combination.

Speaker 2

We are also advancing a Phase III trial in first line disease. So I think it's full steam ahead in colorectal cancer as well. And again, I'll give guidance about next steps as we've had the appropriate conversations.

Speaker 6

Thank you, Jay. Our next question comes from Chris Raymond from Piper Sandler. Please go ahead. Your line is open.

Speaker 1

Thanks. And warm birthday wishes to Arvind from us here

Speaker 3

at Piper as well.

Speaker 1

Just a question on AMGEVITA. So obviously the uptake in the U. S. Has not been maybe what was originally sort of contemplated when you guys were first talking about that opportunity. But maybe a couple of questions.

Speaker 1

Can you maybe talk about first maybe the split in scripts between the high and low priced SKU. And then second, maybe there's been a lot of talk around what AbbVie has done to sort of blunt uptake biosimilars to date. What if anything on their part has surprised you guys maybe the most in terms of what they've done? And what's the plan maybe going forward.

Speaker 3

Sure. Yes. Yes. To tackle that, Murdo? Sure.

Speaker 4

Thank you for the question, Chris. We're obviously very early innings still in this biosimilar market with AMGEVITA and we're seeing clearly what is new payer behavior in light of such a large product having biosimilar competition. With respect to the high versus the low, we're It's kind of a different mix. We see mostly the high in PBM utilization and the low in the IDN utilization where the low cost low net cost is attractive to them. But again, it's very early and the product mix I don't think has settled out yet between those 2 SKUs.

Speaker 4

I would also say that we're still waiting to see what happens in the next payer negotiation cycle going into 2024. As you've seen, many of the PBMs are on record as saying that they haven't done a whole lot in terms of driving utilization of biosimilars in 2023, but plan to do more of that in 2024. So I think there's a lot more to follow here. And with with AbbVie's strategy. Look, we compete against them in the innovative side and we now compete against them with our biosimilar and we know their practice as well, so not a lot of surprises there.

Speaker 4

But I think the clarity of how pharmacy benefit works with biosimilar uptake or lack thereof is becoming clear to us and to other biosimilar manufacturers and other onlookers. So more to follow there. I would say though, we remain very excited about the growth of biosimilars in the longer term. We continue as Dave mentioned, we continue to commit research investment in the development of additional biosimilars with most recently with the initiation of ABP-two zero six, a biosimilar to Opdivo. We also are continuing to look at being able to launch other biosimilars in the medical benefit reimbursement system in the U.

Speaker 4

S. And That's where we were successful obviously with Tianjinci and Embase in our previous launches. So going forward, the majority of our Biosimilar growth will come from ex U. S. And U.

Speaker 4

S. Medical benefit biosimilars and we We continue to believe we'll be able to generate strong growth having previously said that we would more than double our 2021 annual sales of roughly $2,000,000,000

Speaker 6

Thank you, Chris. Our next question comes from Umer Raffat from Evercore ISI. Please go ahead. Your line is open.

Speaker 11

Hi guys. Thanks for taking my questions.

Speaker 12

And Dave, I felt like you were on a roll on Harbin's birthday today. So congrats on all the data. My question is, 3.5 month was the PFS in the prior data. I think it was 20 plus percent response rate. And Judging by the way you were describing it as transformative, is it fair to say PFS also improved in a meaningful way in the DLL3 study?

Speaker 12

And secondly, Back on the Horizon deal, I feel like 2 things are clear. You're very committed to the deal, but also that Tepesza is falling dramatically short, at least so far. And the question that's coming up from investors is, is there any way to renegotiate the purchase price? Thank you very much.

Speaker 2

Yes. What I can say, Umer, without getting into specifics on the number being under embargo is that I'm very happy with the efficacy package, overall response rate, progression free survival, duration of response and overall survival and we'll have presentation of all of those data at an upcoming medical Congress. But to me, it's a very, very compelling efficacy package.

Speaker 3

Okay. And on horizon, Umer, you're right, we remain enthusiastic about proceeding on the basis of the deal that we announced. I would take issue at least with our perspective is different from what was implicit in your question, but we'll leave that for another day.

Speaker 6

Thank you, Umer. Our next question comes from Yaron Werber from TD Cowen. Please go ahead. Your line is open.

Speaker 1

Great. Thanks for taking the question. I have a question on the Tesla and sort of is relating to Envrel too. Specifically Envol sort of bouncing back, which is good to say, it looks like that's really a net benefiting from the contracting that you've put in place given Emgevita and Generica HUMIRA, OTEZLA though is facing Cetiktu, which is actually doing pretty well in terms of uptake. It's got a benign label and obviously, it's a drug program.

Speaker 1

What gives you a lot of confidence in the outlook ahead? Thank you.

Speaker 4

Thanks, Yaron, for the question. Yes, you're right. Enbrel has I did have a strong quarter and is benefiting from quite frankly the best access we've ever had on Enbrel where we're covered across all the major PBMs now. So we're seeing really nice new patient growth on Enbrel. So more new patients coming on to treatment with Enbrel and we think that that will support sustained volume through the course of the year.

Speaker 4

We did give up a bit of price to do that. So that's also flowing through Enbrel. But overall, I think there were some concerns perhaps last quarter that the biosimilar activity in this category was somehow impacting Enbrel and I was pretty clear last quarter that that wasn't what we were seeing and it's definitely now clear in the Q2 that similar competition for HUMIRA is not negatively impacting Enbrel. So we see stability in Enbrel going forward. For Otezla, we're actually seeing some strength in Otezla.

Speaker 4

We are pleased with what new patient acquisition looks like. We think we can do better and we, as I mentioned in my prepared remarks, are investing more in Otezla through the back end of this year and Peter also mentioned that. And the reason we're optimistic is We're gaining momentum in helping those post topical first systemic patients and the epi here is pretty significant. There's 1,500,000 of these patients in the U. S.

Speaker 4

That persist with topical treatment that would be better being initiated on a systemic agent and Otezla is really the ideal for systemic agent. We have great commercial coverage with Otezla with very little prior authorization requirement. We have no testing requirement for initiation and the affordability and out of pocket is very good. So Otezla is an attractive option for PBMs and payers to maintain on their formularies and it's an easy option for dermatologists as the 1st systemic agent that they would choose for a patient coming off the topicals and being treated. And again this milder form of disease and no one else has indicated for that mild population from a systemic perspective.

Speaker 4

So overall, the thesis is good. Now I think so TYK2 coming into the market clearly put pressure on us where there were patients who were probably on our oral and didn't have full resolution of their psoriasis symptoms and they would have switched to Sotek 2. What we're seeing is that that has slowed. We are losing less to Sotyc2 in our current mix of patients that we have on Otezla. And we think that the other dynamic that put pressure on us in the 1st part of the year was the topical treatments also had free goods programs out there and they were getting trial and that has abated.

Speaker 4

They flattened out. So we're getting less pressure from topicals and much less patient movement away from OTEZLA to SOTYK2. So I think we really have to see into 2024 how The access will evolve for the novel agents, but we're very confident with our current access and the current perception of the safety and because of OTEZLA, we can further penetrate that population of patients. So going forward, we're feeling good about it.

Speaker 6

Thank you, Yaron. Our next question comes from Gregory Renza from RBC Capital Markets. Please go ahead. Your line is open.

Speaker 11

Great. Thanks guys. Congrats on the quarter and thanks for taking my question. Bob, we certainly appreciate you framing the case for the Horizon deal before the eyes of regulators and the courts. And maybe just to build on the conviction that you laid out.

Speaker 11

I just wanted to ask on your thoughts on the implication to potentially a negative outcome on the bio pharma value creation ecosystem and essentially the ability for companies like Amgen to bring medicines to patients. So We just call it that this novel legal theory like bundling does prevail. What impact would that have? And maybe to that, how far would you and the Amgen team Really been willing to take this to preserve that opportunity to close the deal. Thanks so much.

Speaker 3

Well, John, I think I would reiterate What I said in my prepared remarks, right, which is that we don't believe that their case is based on any established antitrust law. We think it's based on hypotheticals and speculative notions and we look forward to having a chance to assert that in court. And again we expect to prevail in court. And I think what's implicit in your question is the recognition that we live in a very fragmented industry and that there are a lot of innovators in particular that are herbicides that makes it difficult for them to capitalize on the full potential of their innovation, especially globally. And so there is

Speaker 5

a role

Speaker 3

for companies like ours to play in bringing value to companies like Horizon. We've talked about it repeatedly, but we think the capabilities we have with our global commercial organization, that demonstrated expertise we have in manufacturing, research and development for products like this, I think that will enable us to reach far more patients than the company would be able to on its own. So this is an industry that has flourished by being able to capitalize on the innovation ecosystem that exists for biotechnology companies for the most part in the United States. And again, we expect that that will continue

Speaker 2

and think that were it

Speaker 3

not possible for companies to combine to benefit from each other's strengths. The result would be fewer innovation reaching fewer patients. So that would be an unfortunate outcome.

Speaker 6

Thank you, Gregory. Our next question comes from Evan Seigerman from BMO. Please go ahead. Your line is open.

Operator

Hi, guys. Thank you so much for taking my question. Maybe one for you, Dave. Can you just expand on the biologic rationale to target STEEP-one versus PSMA and prostate cancer? And I'm asking this in context of an update we had from a competitor today, whereas their PSMA program different than yours, they had to modify significantly due to safety issues.

Operator

Thank you very much.

Speaker 2

Yes. Thanks Evan. We're So a couple of reasons to target steep one. Number 1, it's almost universally expressed on advanced cancer cells. There is not extensive high level normal tissue expression.

Speaker 2

So that allows you to generate the therapeutic window that we're always looking for with bispecific T cell engagers. PSMA

Speaker 13

has been

Speaker 2

a challenging target. There appear to be unique properties with that target. As I think you're aware, multiple molecules including some of our own have gone into and then fallen out of clinical development. And I've come to the belief that that maybe in part target related. So, steep one is a relatively novel target.

Speaker 2

We are in the clinic, I think, far advanced compared to anyone else. And based on the clinical data that we're seeing now, this is a program we really want to accelerate. This is another one of the programs where We will be presenting data this fall and I'd urge you to put zaluritamig under the radar screen and pay attention to those data. But this one I think has a real opportunity.

Speaker 6

Thank you, Evan. Our next Question comes from Collin Bristow from UBS. Please go ahead. Your line is open.

Speaker 13

Hey, good afternoon and thanks for taking the questions. Maybe just A quick one on TESSPI. You have the upcoming COPD data in the first half of twenty twenty four. I was just curious to get your expectations here. What's the threshold for success, especially in light of the recent sort of very positive Borrius data?

Speaker 13

Thank you.

Speaker 2

Yes. I think in light of what we've seen in the field, we would look to see something that is competitive with that. Just to level set everyone, the rationale for this study is that the target of TESPIRE TSLP is expressed in bronchial mucosa, sputum can be detected in bronchoalveolar lavage fluid in patients with COPD. The pathway may be a contributor or driver of exacerbations and that's really the hypothesis that we are testing here. So we'll look at the totality of the clinical data, but I think some of the things you've We published give us benchmarks as to what we hope to see.

Speaker 6

Thank you, Colin. Our next question comes from Dane Leone from Raymond James. Please go ahead. Your line is open.

Speaker 14

Thank you. Maybe just two quick ones for me. Firstly, in terms of the rebound in the Tesla and and the good strength that seems to be coming out of some of the trialing periods for competitive products on the topical side and also oral side. Can you just maybe provide whatever response makes sense to your competitors analysis on the oral side suggesting they've achieved over 40% TRx share. And whether you think that share could go back in favor of Otezla during the back half of this year or is that something you would see steady state from here on out?

Speaker 14

And then secondly, just regarding the Phase 2 terlolitomab, is there anything we need to be aware of that maybe the patient population in this Phase 2 small cell lung cancer study was maybe less heavily pretreated as opposed to what was seen in the Phase I study, which is sometimes the case. Thank you.

Speaker 3

Yes. Let me take it in 2 parts.

Speaker 11

Yes. Dane, I'll attempt

Speaker 4

to answer your Tesla question. As I said, we are encouraged by what we're seeing in the market here. It's really hard for me to comment on market share claims from other companies, particularly when they're adding what we can see versus what we can't see in their free drug program. So they're giving a lot of product away and I think they're including that in their denominator when they're providing share. I actually don't think that's going to be reflective of what their ultimate end market performance will look like because we've seen that in many categories where free programs or bridging programs are not representative ultimately of the final access picture and the final effect that that new access picture will have on demand.

Speaker 4

So I think that given our very good access coverage with little to no prior authorization requirements across many of those plans. We are definitely in a position should some of those free drug patients end up getting rejected for sustained actual insurance coverage because of the broad coverage we have. We have not factored that into our go forward, but It could happen.

Speaker 2

Regarding tarlatanab, no substantive differences very heavily pretreated our population. We'll provide details as well.

Speaker 6

Thank you, Dane. Our next question comes from David Risinger from Leerink Partners. Please go ahead. Your line is open.

Operator

Yes, thanks very much. Could you please provide an update on your oral obesity Phase 1 trial and also discuss your evaluation of backup candidates. Thanks very much.

Speaker 2

Yes. In terms of the oral obesity program, it's moving through its Phase 1, which includes single dose and short term multiple dose. We expect probably now to have data in the first half of next year. Behind that, we have multiple programs looking at orthogonal mechanisms of and many of them non incretin based and as some of those progress towards the clinic, we'll start to talk about them and give you insights into our portfolio approach here. Thank you.

Operator

Julian, why don't we take one last question as we are over a lot of time?

Speaker 6

Certainly. Our final question will come from Robyn Karnauskas from Truist Securities. Please go ahead. Your line is open.

Speaker 15

Great. Thank you. So congratulations on trelotumab. I'm going to call tmab to make my life easier. But can you just opine a little bit, usually the first innovators expand a market like small cell to be much bigger than what people think of today.

Speaker 15

And walk us through the cadence of these Phase 1 trials in particular I think the checkpoint inhibitor combination trial like when could we see data from that and how do you view like even harpoon the competitive landscape and how you are differentiated from them? Thanks so much.

Speaker 2

Sure. Let me start with the latter. I'm extremely enthusiastic about this molecule. As always, I'll let others talk about there molecules, but this one is one that we're really putting muscle behind to sort of level set everyone here as you start to think about The unmet medical need, there are roughly 240,000 cases of lung cancer in the United States each year, roughly 15% of them our small cell lung cancer, comparable numbers in Western Europe, for example. So that gives you a sense of the patient numbers.

Speaker 2

The clinical development program over time is going to be designed to look at really that broad swath of patients. Of course, we're starting in the 3rd line therapy, but our goal here is to quickly advance in the second and earlier lines of treatment. And we'll talk more about those clinical studies as we get through later in the year. But this is one again where I think when we get into settings of lower tumor burden as we've observed with Lincyto, we can really effect a natural history of the disease. Recall that upon initial diagnosis only 7% of patients with small cell lung cancer will be alive 5 years later and that's the opportunity to change that I think is in front of us now.

Speaker 3

Okay. Well, thank you For your question, Robin, and thank you all for joining. As Arvind said, we know we're a couple of minutes over a lot of time, so I want to be respectful of your calendars. But I also just do want to Make one more statement if I may, which is before we break, I wanted to announce that after nearly 19 years in the role, Arvind Sood will be transitioning his Head of IR responsibility to our Treasurer, Justin Clays. And Arvind will remain a VP in Finance and will help Justin transition seamlessly into this new role.

Speaker 3

So while he's not leaving, this is nonetheless a big moment and I wanted to acknowledge it because I know Arvind is something of a legend and a fixture in the Investor Relations world. And on a personal note, I want to just add that I've worked with Arvind now for more than 20 years. So we began working together even before we both joined Amgen. So I want to publicly congratulate him on his accomplishments in the IR profession. And I want to again publicly state that I'm delighted that he's going to remain part of the finance group working with me and Peter and the rest of the team.

Speaker 3

So on his birthday, we have a second thing to celebrate, which is the culmination of nearly 19 years in his role at Amgen. And those of you who haven't met Justin will enjoy getting to know him. He's been with Amgen for more than 20 years and served as our Treasurer for most of the past 4 years. So I know you'll all join me in wishing Justin well as he begins his transition into this role and I know you'll all join me in wishing Arvind a good celebration here with us later this evening. Thank you.

Speaker 3

We'll talk to you after the next quarter.

Operator

Great. Thank you everybody and we'll keep in touch.

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Earnings Conference Call
APA Q2 2023
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