On October 28, 2020 Amgen (NASDAQ:AMGN) reported financial results for the third quarter of 2020 (Press release, Amgen, OCT 28, 2020, View Source [SID1234569223]).

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Key results include:

Total revenues increased 12% to $6.4 billion in comparison to the third quarter of 2019 driven by higher volume growth, partially offset by lower net selling prices and the effects of the COVID-19 pandemic.
Product sales increased 12% globally, driven by 18% volume growth across a number of our newer products, including Otezla (apremilast), MVASI (bevacizumab-awwb), KANJINTI (trastuzumab-anns), and Repatha (evolocumab), partially offset by declines in select products from the impact of COVID-19, and biosimilar and generic competition.
GAAP earnings per share (EPS) increased 5% to $3.43 primarily driven by increased revenues and lower weighted-average shares outstanding, partially offset by the amortization of costs associated with our November 2019 acquisition of Otezla.
GAAP operating income decreased 1% to $2.5 billion and GAAP operating margin decreased 5.1 percentage points to 40.2%, primarily driven by the amortization of intangible assets from our Otezla acquisition.
Non-GAAP EPS increased 19% to $4.37 driven by increased revenues.
Non-GAAP operating income increased 14% to $3.2 billion and non-GAAP operating margin increased 1.0 percentage point to 52.1%.
The Company generated $3.2 billion of free cash flow in the third quarter versus $3.2 billion in the third quarter of 2019.
2020 total revenues guidance narrowed to $25.1-$25.5 billion; EPS guidance revised to $11.53-$11.93 on a GAAP basis and revised to $15.80-$16.15 on a non-GAAP basis.

References in this release to "non-GAAP" measures, measures presented "on a non-GAAP basis" and to "free cash flow" (computed by subtracting capital expenditures from operating cash flow) refer to non-GAAP financial measures. Adjustments to the most directly comparable GAAP financial measures and other items are presented on the attached reconciliations.

Product Sales Performance

Total product sales increased 12% versus the third quarter of 2019 driven by 18% volume growth, partially offset by declines in net selling prices.
COVID-19 update: During the third quarter, physician-patient interactions and prescribing volumes continued to increase, but remained modestly below pre-COVID-19 levels on a portfolio basis. While prescription trends were more consistent throughout the third quarter versus the second quarter, we continue to expect quarter-to-quarter variability due to the pandemic.
Prolia (denosumab) sales increased 11% year-over-year driven by 10% volume growth as patients returned for treatment in the quarter, with rates of osteoporosis diagnoses in the U.S. recovering to ~70% of pre-COVID-19 levels. Our efforts remain focused on assisting patients with continuity of care to improve product access from the initial stages of the pandemic. Prior to the pandemic, the first and third quarters of each year had lower sales than the second and fourth quarters. Given the impact of the pandemic in the second quarter of 2020 and 6-month dosing regimen of Prolia, we expect year-over-year growth rates in the fourth quarter to be lower than pre-COVID-19 growth trends.
EVENITY (romosozumab-aqqg) generated $59 million of sales in the third quarter of 2020. U.S. sales increased 35% quarter-over-quarter driven by 30% volume growth. Japan sales declined quarter-over-quarter driven by an inventory drawdown by our partner Astellas following large purchases during the first half of 2020, as well as an unfavorable change to estimated sales deductions.
Repatha sales increased 22% year-over-year driven by 60% volume growth, partially offset by lower net selling price and unfavorable changes to estimated sales deductions. Despite a modest disruption in access in the third quarter, Repatha remains the global segment leader in the proprotein convertase subtilisin/kexin type 9 (PCSK9) class. Repatha’s year-over-year net selling price declined as a result of additional contracting to improve Medicare Part D patient access and affordability. At the end of the third quarter, more than 60% of Medicare patients had access to affordable, fixed co-pays of $50 or less.
Aimovig (erenumab-aooe) sales increased 59% year-over-year driven by 36% volume growth and the effect of unfavorable changes to estimated sales deductions in the prior year. Net selling price declined minimally year-over-year. Aimovig remains the segment leader within the preventive calcitonin gene-related peptide (CGRP) class with 46% share of total prescriptions (TRx) and 38% share of new-to-brand prescriptions (NBRx) in the quarter. With five-year efficacy and safety data, Aimovig is well positioned for the preventive segment which impacts more than 4 million individuals in the U.S.
Parsabiv (etelcalcetide) sales increased 17% year-over-year driven by 24% volume growth, partially offset by lower net selling price. The final rule from the Centers for Medicare & Medicaid Services (CMS) to include calcimimetics in the end stage renal disease (ESRD) bundled payment system is expected in November 2020, with implementation projected for January 2021. In anticipation of this change, we believe U.S. sales were negatively impacted late in the third quarter and we expect this trend to continue in the fourth quarter.
Otezla generated $538 million of sales in the third quarter of 2020. U.S. Otezla TRx volume growth remained strong with an 11% year-over-year increase, and NBRx volumes continued to recover from the impacts of COVID-19. Net selling price was flat year-over-year in the U.S. Third quarter year-over-year Otezla sales* were negatively impacted by lower inventory levels and unfavorable changes to estimated sales deductions. Otezla continues to lead in biologic-naïve patient share in moderate-to-severe psoriasis.
Enbrel (etanercept) sales decreased 3% year-over-year driven by lower volumes, partially offset by favorable changes to estimated sales deductions. Enbrel continued to lose share in the third quarter, and that dynamic was compounded with lower growth of the rheumatology segment due to COVID-19. Net selling price was flat year-over-year.
AMGEVITA (adalimumab) increased 31% year-over-year driven by 49% volume growth, partially offset by lower net selling price. AMGEVITA continues to be the most prescribed adalimumab biosimilar in Europe.
KYPROLIS (carfilzomib) sales decreased 2% year-over-year driven by volume declines, as fewer new patients began treatment due to COVID-19. Early indications point to a strong launch of the new once-weekly KYPROLIS and DARZALEX (daratumumab) combination regimen that was approved by the U.S. Food and Drug Administration (FDA) in August.
XGEVA (denosumab) sales increased 1% year-over-year. Sales increased 11% quarter-over-quarter, reflecting a recovery in the number of patients returning to treatment.
Vectibix (panitumumab) sales declined 2% year-over-year driven by volume declines.
Nplate (romiplostim) sales increased 9% year-over-year driven by volume growth.
BLINCYTO (blinatumomab) sales increased 5% year-over-year driven by volume growth as we continued to see broader adoption in the community hospital setting.
MVASI generated $231 million of sales in the third quarter of 2020, with 44% exit share of the bevacizumab segment in the U.S. Sales increased 34% quarter-over-quarter driven by 36% volume growth, partially offset by a decline in net selling price. Going forward, we expect the launch of additional competing biosimilars in the U.S.
KANJINTI generated $167 million of sales in the third quarter of 2020, with 34% exit share of the trastuzumab segment in the U.S. Sales increased 36% quarter-over-quarter driven by 11% volume growth and favorable changes to estimated sales deductions. Moving forward, we expect volume growth will be offset by a decline in net selling price due to increased competition.
Neulasta (pegfilgrastim) sales decreased 22% year-over-year driven by declines in volumes and net selling price due to increased biosimilar competition, partially offset by favorable changes to estimated sales deductions. Within the long-acting granulocyte colony-stimulating factor (G-CSF) segment, Neulasta Onpro continues to be the preferred choice for physicians and patients, with volume share of 55% in the quarter. CMS’s most recently published average selling price for Neulasta in the U.S. declined 19% year-over-year and declined 6% quarter-over-quarter. Going forward, we expect the pricing and volume trends to continue.
NEUPOGEN (filgrastim) sales increased 20% year-over-year driven by favorable changes to estimated sales deductions, partially offset by 19% volume decline due to competition.
EPOGEN (epoetin alfa) sales decreased 31% year-over-year driven by volume declines as well as lower net selling price resulting from our existing contractual commitment with DaVita.
Aranesp (darbepoetin alfa) sales decreased 15% year-over-year driven by lower net selling price and volume declines due to competition.
Sensipar/Mimpara (cinacalcet) sales decreased 64% year-over-year driven by declines in volume and net selling price due to generic competition.
*Third quarter 2019 Sales information derived from Celgene Corporation’s reporting for that period

Operating Expense, Operating Margin and Tax Rate Analysis

On a GAAP basis:

Total Operating Expenses increased 22%. Cost of Sales margin increased 6.6 percentage points driven by amortization expense related to the Otezla acquisition. Research & Development (R&D) expenses increased 6% driven by higher spend in support of our late-stage development programs, primarily sotorasib, our biosimilar programs and Otezla, partially offset by recoveries from our collaboration with BeiGene. Selling, General & Administrative (SG&A) expenses increased 10% primarily due to Otezla commercial related expenses.
Operating Margin decreased 5.1 percentage points to 40.2% primarily driven by the amortization of intangible assets from our Otezla acquisition.
Tax Rate decreased 5.2 percentage points primarily driven by favorable items in the quarter, including effective settlement of certain federal income tax matters and adjustments to prior year tax liabilities, partially offset by changes in jurisdictional mix of earnings.
On a non-GAAP basis:

Total Operating Expenses increased 10%. Cost of Sales margin increased 0.4 percentage points primarily driven by an increase in royalties, partially offset by favorable product mix. R&D expenses increased 6% driven by higher spend in support of our late-stage development programs, primarily sotorasib, our biosimilar programs and Otezla, partially offset by recoveries from our collaboration with BeiGene. SG&A expenses increased 10% primarily due to Otezla commercial related expenses.
Operating Margin increased 1.0 percentage point to 52.1%.
Tax Rate decreased 1.7 percentage points primarily driven by favorable items in the quarter, including adjustments to prior year tax liabilities, partially offset by changes in jurisdictional mix of earnings.
Cash Flow and Balance Sheet

The Company generated $3.2 billion of free cash flow in the third quarter of 2020 versus $3.2 billion in the third quarter of 2019.
The Company’s third quarter 2020 dividend of $1.60 per share was declared on July 23, 2020, and was paid on September 8, 2020 to all stockholders of record as of August 17, 2020, representing a 10% increase from 2019.
During the third quarter, the Company repurchased 3.0 million shares of common stock at a total cost of $752 million. At the end of the third quarter, the Company had $4.2 billion remaining under its stock repurchase authorization.
Cash and investments totaled $12.4 billion and debt outstanding totaled $34.3 billion at the end of Q3 2020.
2020 Guidance

For the full year 2020, the Company now expects:

Total revenues in the range of $25.1 billion to $25.5 billion.
Previously, the Company expected total revenues in the range of $25.0 billion to $25.6 billion.
On a GAAP basis, EPS in the range of $11.53 to $11.93 and a tax rate in the range of 9.5% to 10.5%.
Previously, the Company expected GAAP EPS in the range of $10.73 to $11.43 and a tax rate in the range of 10.5% to 11.5%.
On a non-GAAP basis, EPS in the range of $15.80 to $16.15 and a tax rate in the range of 13.0% to 14.0%.
Previously, the Company expected non-GAAP EPS in the range of $15.10 to $15.75 and a tax rate in the range of 13.5% to 14.5%.
Capital expenditures to be approximately $600 million.
Quarterly dividend maintained at $1.60 per share.
Share repurchases at the lower end of our previous guidance of $3 billion to $5 billion.
Third Quarter Product and Pipeline Update

The Company provided the following updates on selected product and pipeline programs:

Sotorasib

The Company discussed the previously announced Phase 1 data and positive topline results from the Phase 2 monotherapy study of sotorasib in patients with advanced non-small cell lung cancer (NSCLC).
Data from the Phase 2 monotherapy study in advanced colorectal cancer patients are expected in H1 2021.
A Phase 3 study comparing sotorasib to docetaxel is enrolling patients with advanced NSCLC.
7 Phase 1b combination cohorts are now enrolling patients.
Bispecific Programs

The Company expects initial data from Phase 1 dose escalation studies of the following half-life extended (HLE) BiTE constructs in Q4 2020:
AMG 701 targeting BCMA (B-cell maturation antigen) for relapsed or refractory multiple myeloma
AMG 757 targeting DLL3 (delta-like ligand 3) for relapsed or refractory small cell lung cancer, to be presented at the Society for Immunotherapy of Cancer (SITC) (Free SITC Whitepaper) Annual Meeting, November 9-14, 2020
Phase 1 development of the HLE BiTE construct, AMG 562, targeting CD19 for non-Hodgkin’s lymphoma has been stopped due to portfolio prioritization.
BLINCYTO

The Company discussed encouraging results recently published in the New England Journal of Medicine from an independent clinical study of an investigational regimen of dasatinib induction therapy followed by blinatumomab consolidation therapy in adults with Philadelphia chromosome positive acute lymphoblastic leukemia.
Tezepelumab

Data are expected in Q4 from the pivotal Phase 3 NAVIGATOR study evaluating tezepelumab in adults and adolescents with severe, uncontrolled asthma.
Data are expected in Q4 from the Phase 3 SOURCE study evaluating tezepelumab for the reduction of oral corticosteroid use in adults with oral corticosteroid dependent asthma.
Efavaleukin alfa (AMG 592)

In October, the Company announced that the planned Phase 2 study of efavaleukin alfa in patients with Systemic Lupus Erythematosus was selected for participation in the FDA’s Complex Innovative Trial Designs (CID) Pilot Program. The CID Pilot Program aims to facilitate and advance the use of novel clinical trial designs that support the development and regulatory review of new therapeutics. The FDA considers several eligibility factors when selecting qualifying programs, including the level of innovation of the trial design, and the therapeutic need.
ABP 654 (biosimilar ustekinumab)

The Company has advanced ABP 654, a biosimilar candidate to STELARA (ustekinumab), into Phase 3 development.
KYPROLIS

In August, the FDA approved the expansion of the KYPROLIS U.S. prescribing information to include its use in combination with DARZALEX plus dexamethasone in two dosing regimens—once weekly and twice weekly—for the treatment of patients with relapsed or refractory multiple myeloma who have received one to three previous lines of therapy.
MCL-1 Inhibitor Program

Phase 1 studies of MCL-1 inhibitors AMG 176 and AMG 397 are reinitiating enrollment of patients with hematologic malignancies.
Nplate

The FDA has granted priority review for Nplate for the treatment of Hematopoietic Syndrome of Acute Radiation Syndrome, with a Prescription Drug User Fee Act target action date of January 28, 2021. Research was conducted in collaboration with and support from both the National Institute of Allergy and Infectious Diseases and the Biomedical Advanced Research and Development Authority.
ABP 798 (biosimilar rituximab)

The FDA Biosimilar User Fee Act target action date for the Biologics License Application for ABP 798, a biosimilar candidate to RITUXAN (rituximab), is December 19, 2020.
Omecamtiv mecarbil

The Company discussed the topline results from the Phase 3 GALACTIC-HF trial of omecamtiv mecarbil in patients with heart failure with reduced ejection fraction.
Olpasiran (AMG 890)

The FDA granted Fast Track designation for olpasiran, a lipoprotein(a) small interfering RNA currently in Phase 2 development for the treatment of atherosclerotic cardiovascular disease.
Otezla

Otezla is being investigated as a potential immunomodulatory treatment in patients hospitalized with SARS-CoV-2 infections in multiple COVID-19 platform trials.
Aimovig

In September, a marketing authorization application was filed with the Japan Pharmaceuticals and Medical Devices Agency for Aimovig for the prevention of migraine.
In October, results from the five-year, open-label treatment period of a Phase 2 study in episodic migraine prevention showed Aimovig helped patients achieve sustained reductions in monthly migraine days and in use of acute migraine-specific medication. The safety profile was consistent with what was observed in the double-blind treatment phase of the study, with no increases in adverse event rates over five years of exposure.
COVID-19 Therapeutics

In September, the Company announced a global antibody manufacturing collaboration to significantly increase the supply capacity available for Eli Lilly’s potential COVID-19 therapies.
DARZALEX and STELARA are registered trademarks of Janssen Pharmaceutica NV

Omecamtiv mecarbil is being developed under a collaboration between Amgen and Cytokinetics, with funding and strategic support from Servier

Tezepelumab is being developed in collaboration with AstraZeneca

RITUXAN is a registered trademark of Biogen Inc.

Non-GAAP Financial Measures

In this news release, management has presented its operating results for the third quarters of 2020 and 2019, in accordance with U.S. Generally Accepted Accounting Principles (GAAP) and on a non-GAAP basis. In addition, management has presented its full year 2020 EPS and tax rate guidance in accordance with GAAP and on a non-GAAP basis. These non-GAAP financial measures are computed by excluding certain items related to acquisitions, restructuring and certain other items from the related GAAP financial measures. Reconciliations for these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the news release. Management has also presented Free Cash Flow (FCF), which is a non-GAAP financial measure, for the third quarters of 2020 and 2019. FCF is computed by subtracting capital expenditures from operating cash flow, each as determined in accordance with GAAP.

The Company believes that its presentation of non-GAAP financial measures provides useful supplementary information to and facilitates additional analysis by investors. The Company uses certain non-GAAP financial measures to enhance an investor’s overall understanding of the financial performance and prospects for the future of the Company’s ongoing business activities by facilitating comparisons of results of ongoing business operations among current, past and future periods. The Company believes that FCF provides a further measure of the Company’s liquidity.

The Company uses the non-GAAP financial measures set forth in the news release in connection with its own budgeting and financial planning internally to evaluate the performance of the business, including to allocate resources and to evaluate results relative to incentive compensation targets. The non-GAAP financial measures are in addition to, not a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.