The Super Bowl is arguably the event of the year for sports enthusiasts -- but it's still more than three weeks away. For investors in the healthcare sector, the Super Bowl of all conferences is under way right now in San Francisco.
The J.P. Morgan Healthcare Conference offers a stage for more than 400 companies each year, ranging from drug developers to device makers, to highlight their accomplishments over the previous year and showcase to Wall Street analysts and investors where they're headed next. One highly anticipated presentation that investors heard yesterday was that of Bob Bradway, CEO of the original biotech blue-chip stock, Amgen (AMGN -0.81%).
Everything you need to know about Amgen in five slides
Amgen's 2015 was nothing short of phenomenal, with the company launching six new products, growing its adjusted EPS by 19% through the first nine months of fiscal 2015, expanding its operating margins by four percentage points, and announcing yet another huge dividend increase of 27% to $1 per share, per quarter. But, it was the following highlights from Bradway's presentation -- in the form of five slides -- that truly tells investors everything they need to know about Amgen going forward.
Amgen is probably a more diverse company than you realize
The first thing that may surprise investors is to visually see just how broad Amgen's portfolio has become. For years Amgen was known for producing oncology, hematology, and inflammation products. But, Amgen is much more than that now. It's built a cardiovascular franchise from the ground up, which isn't easy to do for a company that had no previous experience with a CV franchise, and it's looking to greatly expand its oncology and inflammation offerings in the coming years.
As you can see from the red outlines above, it launched six new products last year (note: Kyprolis was a label expansion into second-line multiple myeloma from third-line and up), and it could launch a significant number of novel and biosimilar therapies before the end of the decade. With no reliance on a single therapeutic indication, the implication is that Amgen has plenty of levers it can pull to generate strong growth over the long run.
This will be a big year for Repatha
Bob Bradway hit on a number of current and developing products that are going to be critical to Amgen's growth, but the product that really stood out was PCSK9 inhibitor Repatha, which is designed to reduce low-density lipoprotein cholesterol, or LDL-C, the bad type of cholesterol.
Last year Repatha was approved to treat two rare genetic diseases known for high LDL-C, as well as patients who have atherosclerotic CV disease where statins aren't doing enough. What makes the above slide so worthwhile is that we're getting our first real look at prescription data compared to its biggest competitor Praluent (scientifically known as alirocumab), which was developed by Sanofi (SNY 0.56%) and Regeneron Pharmaceuticals (REGN -1.06%). On the surface, I have to admit that this data isn't overwhelmingly positive for either drug, but then again the $14,100 annual cost for Amgen's Repatha, and $14,600 yearly cost for Sanofi's and Regeneron's injectable are tough to swallow for physicians and consumers.
Bradway also mentioned that Repatha has access to more than 81% of the addressable market with commercial payer contract negotiations now finished.
So why the sluggish launch? Everyone's waiting for the second-half of the year when its event-driven CV outcomes study will be released. If Repatha demonstrates a statistically significant advantage in terms of reduced risk of death, then you can expect consumers and physicians to jump on board even with its high annual cost. If not, we could be looking at a different story. Sanofi and Regeneron shareholders should be watching this data release very closely as well.
This could be one of the best biosimilar portfolios around
One aspect of Amgen's portfolio that you want to make sure you don't overlook is its nine biosimilar molecules in development. Unlike generics, which are more or less copycats of an existing drug that price at an 80% to 90% discount, biosimilars are a copycat of biological products with similar efficacy to an innovator drug. They too price at a discount, but only an expected 10% to 50% reduction from an innovator drug. Long story short, biosimilars could be a multi-billion dollar franchise for Amgen.
According to Bradway, Amgen has the potential to launch five of its biosimilars between 2017 and 2019, with the most advanced being ABP 501. This is a biosimilar for anti-inflammatory giant Humira, which is currently the best-selling drug in the world. Having already submitted ABP 501 for global regulatory reviews, investors can expect to find out its fate later this year.
As you can see above, if Amgen can meet Bradway's expectation of five launches by 2019, it could be targeting an addressable market worth $43 billion with just five biosimilars.
Amgen is on track to hit its 2018 goals
It's also important that investors understand Amgen isn't all talk.
Back in 2014, Amgen's management team outlined a six-point plan that would allow for long-term growth. As you can observe in the slide above, it involved cutting costs, improving margins and efficiency, and returning more income to its investors. Roughly 40% of the way to 2018, Amgen is on track to meet every single goal.
Cost-cutting was a key component to Amgen's outline. This included headcount reduction of 3,500 to 4,000 employees (with Bradway noting the company will come in toward the high end of its forecast), facilities square footage reduction of 23% by 2018, and $1.5 billion in gross cost savings.
You might be wondering why a company that's growing as fast as Amgen needs to reduce headcount. The big concerns are costs tied to its late-stage pipeline and drug launches. It's not that Amgen is saving copious amount of money by laying off workers and closing R&D facilities, so much as it's simply redirecting a lot of the cash that went to pay its employees, or lease its facilities, to marketing and launching its new products. This strategy has worked by allowing Amgen to boost dividends to its shareholders in a big way, and it's also created an 11 percentage point improvement in adjusted operating margins since 2013.
What you should be watching in 2016
Last, but not least, Bradway and Amgen offer up their cheat sheet to investors for 2016. Altogether there are eight approved/developing therapies that look to achieve a data milestone this year.
As mentioned above, perhaps none is more important than the CV outcomes trial for Repatha. PCSK9 inhibitors like Repatha and Praluent have blockbuster potential and could tip the scales well above $2 billion in annual sales at their peak.
We're also going to get data from the first of two late-stage studies for romosozumab, a drug designed to treat osteoporosis in postmenopausal women. The results of this 7,200-patient, placebo-controlled study are expected in the first quarter, with a 4,000-patient phase 3 study expected next year. Expected to be a complimentary therapy to Prolia, this will be a data release worth closely monitoring.
Amgen is among a rare breed of companies that can appeal to growth, value, and income investors all at once. It's certainly not without its risks (oncology competition and cardiovascular pricing, for example), but the diversity of its pipeline, its growing margins, and management's focus make it a company that long-term investors may want to seriously consider for their portfolios.