Image source: Amgen via Flickr.

It's been about three weeks since Amgen (AMGN 0.26%) reported its fourth-quarter earnings results, but the magnitude of its earnings beat still hasn't completely worn off.

Amgen's Q4, by the numbers
For the quarter, Amgen generated $5.54 billion in sales, a 4% jump from the prior-year quarter, all while its adjusted operating income and adjusted EPS rose 16% and 21%, respectively. Although Amgen's revenue was more or less in line with Wall Street's projections, its $2.61 per share profit surpassed expectations by $0.32 per share.

Furthermore, Amgen's full-year 2016 guidance was nicely ahead of what the company had previously forecast. Amgen is now calling for full-year revenue to be in the range of $22 billion to $22.5 billion, and adjusted EPS to fall within a range of $10.60 to $11. Its prior forecast, issued just months earlier, had called for $21.7 billion to $22.3 billion in sales and $10.35 to $10.75 in full-year adjusted EPS.

Five things Amgen's management wants you to know
Based on these headline figures, it looks as if Amgen is firing on all cylinders. However, headline numbers and a couple paragraphs in a quarterly report can only tell you so much about a company. In order to get the full story we need to be willing to dig below the surface. How, you ask? By listening to Amgen's conference call and picking out the most important morsels of information that Amgen's management team has to offer.

After reviewing Amgen's call, these are the five comments that shareholders aren't going to want to miss. Quotes are courtesy of S&P Global Market Intelligence.

Amgen could be looking to partner or buy into these indications

In addition to our own pipeline of molecules, we expect to remain active in business development. When it comes to later stage opportunities, we would expect this to revolve around our 6 core areas which are hematology/oncology, cardiovascular, inflammation, bone health, nephrology and neuroscience.

--Robert Bradway, CEO

Image source: Amgen via Flickr.

CEO Bob Bradway's prepared comments set the tone for the conference call, indicating that Amgen, while growing organically, wouldn't hesitate to in-license, out-license, or make acquisitions in order to grow its business. This strategy is pretty consistent with what we've witnessed some of the larger drug developers doing.

What's notable is that Amgen didn't specify a particular therapeutic indication or two that it'd be focusing on. Instead, we have an array of six therapeutic indications, including cardiovascular, a brand new indication for Amgen as of 2015, where Amgen could be looking for development partners or acquisitions. I'd think with Amgen trying to keep expenses down that acquisitions (at least sizable ones) are probably off the table for now. However, I wouldn't be surprised one bit to see immuno-oncology and hematology licensing pacts from Amgen in the near future -- although you'll note that Amgen has a particular eye on later-stage molecules.

Cost-cutting is a critical growth strategy

We've already reduced gross costs by $700 million, enabling our 2015 adjusted operating margin to grow by some 4 points. We'll make further progress in 2016, and we're expecting another $400 million of gross savings as we expect to reduce adjusted operating expenses year-over-year.


Speaking of costs, Amgen is well on its way to achieving $1.5 billion in annual cost savings by 2018. This was a target outlined two years prior by Amgen's management team. As noted by Bradway, gross costs were down by almost half of its target in 2015, and Amgen should be sitting at $1.1 billion in annual gross savings by the end of fiscal 2016.

You might be wondering why Amgen is so busy cutting costs at a time when it's brought a half-dozen new therapies to market in the U.S. since Dec. 2014. The answer lies in the question: those drug trials, launches, and marketing drives are very expensive, and Amgen has been paring back expenses in other areas, such as research and development, in order to redirect some of its cash flow to these late-stage trials and product launches. Ultimately, the move has cost Amgen about 20% of its workforce, but it's expected to boost operating margins from the high 30-percentile in 2013 to 52%-54% by 2018.

Insurer coverage of Repatha is still dicey

More than 80% of commercial lives currently have access to Repatha. The strict payer utilization management criteria are limiting the uptick... We continue to work with payers on evaluating the utilization management criteria to ensure that appropriate patients are able to receive Repatha through their plans.

[Y]ou have to understand that the majority of prescriptions getting to the pharmacy are either being rejected or abandoned at the moment.

--Anthony Hooper, Executive VP of Global Commercial Operations

We also learned that the early uptake on cholesterol-lowering PCSK9 inhibitor Repatha has been very hit-or-miss. Although Amgen announced that 80% of commercial lives are covered by insurers, Hooper also notes that it's been difficult getting this number higher. The reason there is such resistance is Repatha's $14,100 annual wholesale cost, which is leaps and bounds higher than current standards of care for high LDL-cholesterol readings. If there is a solace here for Amgen, it's that Regeneron Pharmaceuticals' (REGN -1.02%) and Sanofi's (SNY -0.36%) Praluent is struggling just as much to gain insurer coverage with its $14,600 wholesale price tag. As Hooper notes, some Repatha subscriptions are simply not getting picked up at the pharmacy due to cost.

Image source: Amgen.

The real growth driver will be Amgen's cardiovascular outcomes trial for Repatha, with results expected to be announced in the second half of this year. If Repatha provides a statistically significant reduction in cardiovascular event risk, Hooper and Amgen's management team expect rapid growth. However, Hooper also cautions that negotiations with payers also means that this growth won't literally happen overnight.

It's also worth pointing out that Regeneron's and Sanofi's injectable PCSK9 inhibitor Praluent won't have its ODYSSEY trial results on cardiovascular outcomes until 2017. Even if both drugs ultimately perform well in these long-term studies, Amgen's Repatha could have a roughly six-month head start in garnering market share.

Biosimilars giveth and taketh away

We do not expect Neulasta or EPOGEN biosimilars in the U.S. until the end of 2016 at the earliest. Assuming potential competitors provide us 180 days' notice between approval and launch.


Another expected avenue of growth for Amgen is in biosimilars, or copycat drugs derived from living organisms. Biosimilars, if they can manage to prevail over a mountain of intellectual property that protects innovator drugs, could price at a 10% to 50% discount to brand-name products and generate billions in annual revenue. Amgen has nine biosimilars in its pipeline. One of these, ABP 501, a biosimilar for the best-selling drug in the world, Humira, should receive a ruling on a possible approval from the Food and Drug Administration later this year.

On the flipside, Amgen could find itself fighting tooth and nail against biosimilars as well. Both Neulasta, a drug designed to stimulate white blood cell production for patients undergoing chemotherapy, and Epogen, a treatment for anemia caused by chronic kidney disease patients on dialysis, could be facing biosimilar competition by the end of the year. Thankfully, Amgen has taken steps to mitigate this effect. Amgen has been pushing Aranesp as a next-generation treatment over Epogen, and its Neulasta OnPro Kit is slowly but surely resecuring Amgen important market share.

Sorry folks, no unicorn expected for Kyprolis

I don't think we are, in any way, planning on seeing a first-line study [of Kyprolis] stopped for overwhelming efficacy at the interim, but it is a possibility.

--Sean Harper, Executive VP of Research and Development

Image source: Amgen.

Lastly, Sean Harper's comments about multiple myeloma drug Kyprolis were noteworthy. Despite responding to analysts' commentary about Kyprolis by noting that trials for ASPIRE and ENDEAVOR were stopped early due to overwhelming efficacy, and pointing out that Kyprolis would be tested in numerous ways in earlier-stage indications, Harper didn't seem overly optimistic when asked about an interim analysis for the CLARION study, which looks at Kyprolis in newly diagnosed multiple myeloma patients. As you see above, Harper isn't expecting the study to be stopped due to overwhelming efficacy.

Kyprolis is integral to Amgen's success, as is the company's ability to expand this drug's label. Although these comments are disappointing, the results from CLARION, which is a 36-month study, should shed light on Kyprolis' opportunity to challenge competing drug Revlimid. We should get a top-line readout on CLARION in 2017.