Amgen (NASDAQ:AMGN) reported its second-quarter earnings results two weeks ago, delivering yet another quarter of impressive growth and boosting full-year guidance.
During the quarter, Amgen announced that total revenue had increased 11% to $5.18 billion from the year-ago period as adjusted earnings per share vaulted higher by 25% to $2.37.
But earnings reports generally only let you scratch the surface of a company's performance. That's why it's always important to dig deeper and hear what management has to say about the current and future state of a company.
Today, let's examine five important quotes from management during Amgen's conference call, courtesy of S&P Capital IQ, and size up what this means for Amgen presently and down the road.
Make or break time has arrived
"We've talked about our substantial portfolio of 10 late-stage molecules delivering pivotal data by 2016. So far in 2014, we've reported positive pivotal data for five of these molecules and we have submitted two of them already in the U.S." – Bob Bradway, Chairman, President, and CEO
Bradway is prepping investors for what should be 10 key late-stage and Food and Drug Administration decisions before the end of 2016.
For investors it means we can expect plenty of catalysts and potentially more volatility than we've been accustomed to with Amgen. It's also the perfect opportunity for Amgen to reignite organic growth exclusive of acquisitions, share buybacks, and price hikes.
Late-stage trials and drug launches are expensive
"We'll reduce our workforce by between 2,400 and 2,900 positions, beginning in the fourth quarter of 2014 and continuing through 2015, predominantly in the United States. This represents approximately 12% to 15% of Amgen's global workforce of some 20,000 staff members." – Bob Bradway
And why is Amgen reducing its workforce? Because running large-scale stage 3 trials, manufacturing and stockpiling drugs for launch, and boosting a marketing staff and ad campaign surrounding new therapies is expensive.
Amgen's announced sweeping reforms that'll see 12% to 15% of its workforce laid off and cuts coming from every department, including research and development. These cuts accounted for $700 million in expenses in 2013, implying that not only will Amgen's expenses be lowered, resulting in EPS-boosting benefits, but that it'll be able to reallocate some of these savings toward the higher expenses associated with its drug launches.
There's a reason Amgen bought this company
"Kyprolis continues to maintain a dominant share in the third-line multiple myeloma setting. We expect the next major inflection point for Kyprolis will be upon the inclusion of second-line data in the label and look forward to reviewing the Aspire data in the near future." – Tony Hooper, Executive Vice President, Global Commercial Operations
Though Amgen hasn't expressed any interest in additional acquisitions, its management team is quick to remind investors that there's a good reason Amgen ponied up $10.4 billion for Onyx Pharmaceuticals – and a big part of that is multiple myeloma drug Kyprolis.
As a third-line treatment for multiple myeloma Kyprolis delivered $78 million in revenue in the latest quarter, up 15% globally and 23% in the U.S. sequentially. But, the real allure of Kyprolis is in potentially expanding its indication to second-line.
Last week, Amgen announced in its planned interim analysis that patients treated with injectable Kyprolis in combination with Revlimid and low-dose dexamethasone lived a median of 26.3 months without their disease worsening as compared 17.6 months for the control arm treated with Revlimid and low-dose dexamethasone. This significant difference should form the basis of a regulatory filing in the first half of 2015. More importantly, it opens the door for Kyprolis to gallop toward its peak annual sales projections on Wall Street of between $2 billion and $3 billion.
Playing it safe
"In order to maximize the probability of a first cycle approval for evolocumab delivered via our auto-injector, we've decided to not include our automated mini doser device in the initial submission." – Sean Harper, Executive Vice President of Research and Development
Even though shareholders would prefer to see Amgen littering pharmacy shelves with newly approved compounds, Amgen is taking the cautious approach to drug approvals when necessary. Evolocumab, an investigational therapy to treat dyslipidemia, has reported solid LDL-C-reducing results that make it a strong potential candidate.
However, Amgen noted its intent to hold back on seeking approval for its mini-doser. Instead, Amgen will seek approval for the device-drug combos which it feels most comfortable with and seek to add approval in conjunction with its once-monthly mini-doser shortly after initial approval. This is a smart move as it likely gives the injectable drug a better chance at approval, and also gives insurers more time to acquaint themselves with the product and presumably offer coverage.
This industry trend appears here to stay
"My take on the inversion activity is that unfortunately our country doesn't yet have a globally competitive corporate tax system or structure. And until that changes, I think there will be tax financial engineering-related transactions." – Bob Bradway
Finally, when asked about his take on tax inversions in general and whether or not Amgen would be interested in such a move by ISI Group analyst Mark Schoenebaum, Bradway made it abundantly clear that he anticipates sectorwide consolidation to continue under this premise.
Corporate tax inversion is the process by which as U.S.-based business buys a company on foreign soil and relocates its headquarters to the overseas address. Bradway conveyed his displeasure with the corporate tax structure as it is now and suggested that Congress reform existing laws.
Amgen receives a lot of its cash from ex-U.S. countries and a one-time repatriation of its cash could be a very positive move for the company. At the moment Amgen's effective tax rates are already among the lowest in the industry, but I wouldn't rule out the possibility in the intermediate to long-term if nothing is done about corporate tax inversion laws that Amgen could seek to change its address through a merger.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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