AMGN

Amgen Inc. (AMGN)

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Amgen (AMGN)

Q4 2012 Earnings Conference Call

January 23, 2013, 5:00 pm ET

Executives

Arvind Sood – VP of IR

Bob Bradway – CEO, President, COO

Jon Peacock – CFO, EVP

Tony Hooper – EVP of Global Commercial Operations

Sean Harper – EVP of Research & Development

Analysts

Robyn Karnauskas – Deutsche Bank

Robby Winarta – Credit Suisse

Matt Roden – UBS

Michael Yee – RBC Capital Markets

Geoffrey Porges – Bernstein

Chris Raymond - Robert W. Baird

Marshall Urist – Morgan Stanley

Eric Schmidt – Cowen and Company

Eun Yang – Jefferies

Geoffrey Meacham - JPMorgan Chase

Yaron Werber – Citi

Mark Schoenebaum – ISI Group

Josh Schimmer – Lazard Capital Markets

Rachel McMinn – Bank of America Merrill Lynch

Terence Flynn - Goldman Sachs

Joel Sendek – Stifel Nicolaus

Tony Butler - Barclays Capital

Presentation

Operator

My name is (Marvin) and I will be your conference facilitator today for Amgen’s fourth quarter and full-year 2012 financial results conference call. All lines have been placed on mute to prevent any background noise.

There will be a question-and-answer session at the conclusion of the last speaker’s prepared remarks. In order to ensure that everyone has a chance to participate, we would like to request that you limit yourself to asking one question during the Q&A session. (Operator Instructions)

I would now like to introduce Arvind Sood, Vice President of Investor Relations. Mr. Sood, you may now begin.

Arvind Sood

Thank you, (Marvin). Good afternoon, everybody. I would like to welcome you to our conference call. The focus of our call today will be to primarily discuss our strong operating performance during the fourth quarter and full-year 2012.

This performance is increasingly backed by diverse portfolio products. In addition to our strong operating performance, 2012 was characterized by meaningful advances within our pipeline, completion of important acquisitions and return of significant capital to shareholders.

To discuss these topics in greater detail, I’m joined by several members of our leadership team. Our Chairman and CEO, Bob Bradway, will begin with a brief strategic overview. Following Bob, our CFO, Jon Peacock, will review our quarterly results and provide revenue and EPS guidance for 2013.

Our Head of Global Commercial Operations, Tony Hooper, will then highlight our product performance followed by our Head of (Warranty), Sean Harper, who will provide a brief pipeline update.

The reason I said brief is because we will host our business review meeting in New York on February 7th. At this meeting, we’ll discuss several initiatives and strategies in detail, notably our pipeline, which will be critical towards driving our long-term growth.

We’ll use slides for our presentation today. These slides have been posted on our website and a link was sent to you separately by email.

Our comments today will be governed by our Safe Harbor statement, which in summary says that through the course of our presentation today, we may make certain forward-looking statements and actual results could vary materially.

So with that, I would like to turn the call over to Bob.

Bob Bradway

Thank you, Arvind. Good afternoon and thank you to all of you for joining our fourth quarter call. Our performance in 2012 was consistent and strong throughout the year. We ended 2012 with momentum really across our products and geographies, delivering 11% revenue growth for the year. For the full year, growth in revenues and our ongoing commitment to operational efficiencies provided operating leverage, which is reflected in our 15% growth in operating income.

Enbrel was particularly strong, and we had solid contributions from a number of our other products, including Prolia, XGEVA, Sensipar, Nplate, and Vectibix. Our European business continued to grow despite the tough fiscal environment on that continent.

We also made significant advances with our pipeline in 2012, with four programs advancing into Phase III development. The most recent advance is the initiation of Phase III studies earlier this month for AMG-145, our PCSK9 antibody that is being developed with patients with high levels of LDL cholesterol. In addition, romosuzamab, for osteoporosis; brodalumab, for psoriasis; and rilotumamab for gastric cancer also advanced in Phase III trials.

In December, we further advanced our strategic agenda, with the acquisition of Decode Genetics. We’re excited about the opportunity that this brings to identify and validate new targets based on human genetics.

We also delivered on our commitment to return capital to shareholders in 2012. In December, we raised our dividend for 2013 by 31% and our $10 billion share repurchase plan begun in 2011 is now completed. For 2013, we expect revenue gains in the range of 3-5% and EPS growth of 5-10%. John will provide additional details on that shortly and will comment as well on the progress we’ve made against our previously communicated 2015 objectives.

We look forward to providing an update on our strategy, business outlook, and pipeline as Arvind mentioned earlier at our business review on February 7 in New York. Before I turn it over to John, I’d like to thank our staff members around the world for their hard work, dedication, and execution and delivering for patients and shareholders in 2012.

John?

Jonathan Peacock

Thanks, Bob. So turning to the first quarter, on page 4 of the slide deck, you can see that revenues in product sales grew by 11% in the quarter, and Enbrel, Prolia, and XGEVA were the biggest contributors to that growth, but Sensipar, Nplate, and Vectibix all continued to deliver strong growth.

And our businesses outside of the U.S. grew by 14%, helped by good performance in Europe and from recent acquisitions in Turkey and in Brazil.

Operating income also grew by 11%, with growth in operating costs again largely held in line with product sales growth.

Cost of sales grew at 13%, primarily driven by the sales increases, but also by our changing product mix, partially offset by manufacturing efficiencies.

Overall in 2012, our operations group again delivered reliably for every patient and to a high quality. Research and development costs increased by 9%, driven by the ramp up of the Phase III trials, particularly for romosuzamab, our sclerostin antibody for the treatment of post-menopausal osteoporosis, and for AMG-145, our innovative cholesterol-lowering therapy.

SG&A expenses increased by 13%, largely driven by the increase in the Enbrel profit share payments during the quarter and to a lesser extent international expansion costs. The increase in expenses in the other income and expense line is a result of the higher interest costs from our debt-financed share repurchase program over the last 18 months.

And then income taxes, at 16.1% of pretax income, are higher relative to last year, due to some variability in the geographic mix of our earnings, primarily Enbrel, in the quarter, and the benefit of the federal R&D tax credit that was recognized in 2011. This was partially offset by the resolution of certain state tax matters related to prior years that we settled in the quarter.

As I’m sure most of you have noted, the federal R&D tax credit was renewed for 2012, but it was renewed at the beginning of January, and it will be recognized for the full year in the first quarter in addition to the credit for the first quarter of 2013.

And finally, adjusted earnings per share were 16% higher, helped by an average share count that was 10% lower compared to the fourth quarter of 2011.

In summary, for the full year, on page 5, revenues grew 11%, operating income grew 15%, and adjusted earnings per share grew 22%, to $6.51 per share.

We exit 2012 with strong momentum, both in the fourth quarter and over the year as a whole. So turning next to cash flow. We generated $5.2 billion in free cash flow in 2012. This was after payment of the previously disclosed settlement with the US government of approximately $800 million, which was paid during the fourth quarter and higher interest expense payments from our debt finance share repurchases.

Read the rest of this transcript for free on seekingalpha.com