Amgen Inc.

My name is RJ and I will be your conference facilitator today for Amgen's first quarter 2022 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. To ask a question, please press star, then the number one on your telephone keypad. To withdraw your question, please press the pound key. I would now like to introduce Arvind Sood, Vice President of Investor Relations. Mr. Sood, you may now begin.

Okay, RJ. Thank you. Good afternoon, everybody, and welcome to our Q1 call. I think our performance in Q1 exemplifies our continued focus on execution while staying on track to deliver against our long-term objectives. So let's get started. Slides have been posted. Quick reminder that we'll use non-GAAP financial measures in our presentation, and some of the statements will be forward-looking statements. Our SEC filings identify factors that could cause our actual results to vary or differ materially. So with that, I would like to turn the call over to our Chairman and CEO, Bob Bradway. Bob?

Okay. Thank you, Arvind, and hello, everyone, and thank you for joining our call. When we last spoke in February, we told you that we'd be focused on execution and that we have a number of opportunities in place that should enable us to deliver long-term attractive growth. In the first quarter of the year, we executed well on these many opportunities, delivering 6% revenue growth and 15% earnings per share growth. We achieved this performance despite the effects of COVID during the first two months of the year, currency headwinds, and of course, net selling price declines. The innovative brands that we highlighted in February continued to generate strong volume growth in the first quarter, including Repatha, which was up 49%, Prolia, up 10%, Vanity, up 59%, and Otezla, up 7%, as well as several of our oncology products, which also generated attractive volume growth in the quarter. Our two newest innovative medicines, Lumicras and Tespire, are off to a strong start. offering compelling new treatment options for patients suffering from non-small cell lung cancer and severe asthma, respectively. We're also pursuing significant new indications for both of these products. Let me just say, with respect to the five high-quality biosimilars we have on the market, that they're performing well and in line with our expectations. As we've noted previously, growth for the portfolio of biosimilar products over time will come through the steady introduction of new products. including the U.S. launch of Amgivita, our biosimilar to Humira, in January of next year. Amgivita is the first of six new biosimilars that we expect to launch by the end of the decade. International growth is an important component of our long-term strategy, and we saw strong volume growth outside the U.S. of 15 percent in the first quarter and nearly 30 percent volume growth in the Asia-Pacific region. Turning to our pipeline, We're advancing, as you're aware, a number of mid- to late-stage, potentially first-in-class opportunities in inflammation, oncology, and general medicine, while continuing to invest in our innovative marketed brands and biosimilars. Since our business review, we've had important data readouts for Lumicrast, Repatha, and AVP654, which is our Phase III biosimilar candidate to Stelara. We have several more data milestones to come through the remainder of the year. Looking to the longer term, we continue to thoughtfully invest in an integrated set of discovery research capabilities, including human data and generative biology, as we look to significantly expand the number of targets we can pursue, reduce cycle times, and increase the probability of our success. As to our commitment to innovation, we're committed to pursuing the best innovation available, whether it comes through our own efforts or is sourced externally, and our strong balance sheet and cash flows will enable us to continue to invest in innovation, again, both organically and through business development. Our work to serve patients comes at a time when society is confronting many challenges. We're doing our part to address these, as we have throughout our history, with a focus in four areas. Removing barriers that limit equitable access to health care, working toward a more just society, minimizing our environmental impact, and ensuring that our actions and culture reflect Amgen values. If you're interested in learning more, our latest environmental, social, and governance report was published earlier today and is available on our website. Before I turn to Peter, let me just thank my Amgen colleagues around the world for their commitment to serving patients and to outstanding execution. Now, Peter, over to you.

Thank you, Bob. We're pleased with our execution and growth this quarter as we drive towards our long-term goal. I will walk through our first quarter financial results before discussing our 2022 guidance. The financial results are shown on slide five of the slide deck. The first quarter marked another period of solid execution with year-over-year revenue growth of 6% and non-GAAP EPS growth of 15%. For product sales, strong volume growth of 9% was driven by Repatha, Prolia, and Avenity. Volume growth was partially offset by declines in net selling price and foreign exchange headwinds. Our established portfolio comprised of Epigen, Aranesc, Elastin, Upigen, Sensipar, and Parsaviv generated almost $1 billion of product sales and continues to deliver strong cash flows. Transitioning to our biosimilars, Amgivita remains the most prescribed adalimumab biosimilar in Europe, and looking forward, we will leverage this successful experience as we prepare to launch and grow this product in the United States in January of 2023. For Ambassi and Congente, as anticipated, we experienced year-over-year declines driven by net selling price reductions, and we expect this trend to continue for these products. Murdo will discuss product sales in more detail in his remarks. Other revenues of $500 million increased 64% year-over-year, primarily driven by our COVID-19 antibody collaboration. First quarter, total non-GAAP operating expenses increased 2% year-over-year, as we invest in our pipeline, execute product launches, and drive digitalization across the company. On a non-GAAP basis, cost of sales as a percent of product sales increased 1.1 percentage points on a year-over-year basis to 16.6%, primarily due to higher direct manufacturing costs, COVID-19 antibody manufacturing costs, and increased royalties and profit shares. Non-GAAP R&D spend in the quarter decreased 1% year-over-year, Recall that Q1 2021 included $53 million related to our acquisition of Rodeo Therapeutics. Excluding the $53 million for Rodeo in 2021, non-GAAP R&D increased 5% year-over-year. Non-GAAP SG&A expenses in the first quarter declined 1% year-over-year. We continue to focus on prioritizing key investments and activities and driving productivity. Non-GAAP other income and expenses were a net $413 million expense in Q1. This line item is driven by interest expense, and our share of Beijing results is a result of our use of the equity method of accounting. We have a strong balance sheet, generate significant cash flow, and retain excellent financial flexibility to evaluate strategic business development opportunities. We continue to execute on our capital allocation priorities. First, investing in the best innovation, internal and external. Second, investing in our business through capital expenditures, including for our new environmentally friendly facilities under construction in Ohio and North Carolina. And third, returning capital to shareholders through growing dividends, including $1.94 per share in the quarter, representing a 10% increase from Q4 2021. And fourth, opportunistic share repurchases, including 24.6 million shares of common stock in the first quarter, which included 23.3 million initial shares received and retired under the accelerated stock buyback agreement. Turning to the outlook for the business for 2022, we're pleased with our growth to date in 2022, and we're tracking to our 2022 plan. Accordingly, we're reaffirming Our 2022 guidance with a revenue range of $25.4 billion to $26.5 billion and a non-GAAP EPS range of $17 to $18. This non-GAAP EPS guidance does not include upfront expenses that may occur from certain types of transactions in the future. Similar to our peers, we have updated our non-GAAP policy to no longer exclude such expenses from our non-GAAP results in accordance with guidance recently issued by the SEC. For reference, the only impact as we recast 2021 to incorporate this change is that our non-GAAP operating expenses will now include two items that were previously excluded in 2021. First, $1.5 billion recorded in acquired in-process R&D associated with the five prime acquisition in Q2 2021. And second, $400 million recorded in research and development. related to an upfront payment to license rights to AMG 451 from Kiowa Caring Corporation in Q3 2021. Important additional points to consider for the remainder of 2022. Foreign exchange had an adverse impact on our Q1 2022 sales and based on current rates, it is expected to create headwinds to our reported product sales of approximately $400 million year over year and has been included in our guidance. Note that while the results of our hedging program are reported in product sales, our hedging program is designed to partially mitigate the foreign exchange impact on our net income over the full year. In total, our 2022 non-GAAP EPS guidance includes a negative impact from foreign exchange of approximately 2% or approximately 35 cents. We continue to expect other revenue for 2022 to be in the range of $1.4 billion to $1.7 billion. Q1 included a majority of our full year's projected revenue from our COVID collaboration and recall that these revenues in 2021 were recognized across Q2 to Q4. Our COVID collaboration revenue outlook depends on the state of the pandemic and continued government support. Our expectations for total non-GAAP operating expenses for 2022 are unchanged from the last time we spoke. However, When comparing against our recast 2021 results, total non-GAAP operating expenses will now reflect a low double-digit decrease year over year. We continue to expect 2022 operating margin as a percentage of product sales to be roughly 50%. We continue to expect cost of sales as a percent of product sales to be 15.5% to 16.5%. Our expectations for non-GAAP R&D expenses in 2022 remain unchanged. Based on our recast 2021 results in response to the SEC guidance mentioned above, which increased non-GAAP R&D expense in 2021 by $400 million, our expected 2022 non-GAAP R&D expense now equates to a decrease of 4% to 6% year over year. We continue to expect SG&A spend to be flat year over year as a percentage of product sales. And we now expect other income and expenses to be in the range of $1.6 billion to $1.8 billion, reflecting increasing interest rates and our share of Beijing's results. This is a change from our previous range of $1.4 billion to $1.6 billion. And for the full year, we anticipate a non-GAAP tax rate range of 13.5% to 14.5%, up from our prior guidance of 13% to 14%. you've had an opportunity to read the update to our litigation and dispute with the IRS over the proposed adjustments for the period from 2010 to 2015 included in the press release. We firmly believe that the adjustments proposed by the IRS for that time period and the penalties proposed by the IRS for the 2013 to 2015 period are without merit. Further, the amount of the adjustments proposed by the IRS for 2010 to 2015 period overstates by billions of dollars the magnitude of the dispute. We filed a petition in the US tax court in July 2021 to contest the adjustments previously proposed for the 2010 to 2012 period. And we plan to file another petition in the US tax court to contest the adjustments proposed in the notice for the 2013 to 2015 period. The dispute is expected to take several years to resolve. Amgen believes the IRS assertion of approximately $2 billion in penalties for the 2013 to 2015 period is wholly unwarranted. We've applied a consistent transfer pricing methodology since 2002. We've documented that transfer pricing methodology is required under relevant tax regulations and have extensively discussed that methodology with the IRS across multiple tax audits over multiple tax years. The IRS has never previously proposed transfer pricing penalties. Amgen also believes, based upon the positions advanced by the IRS, that the IRS adjustments for the 2010 to 2015 period are overstated by approximately $2 billion due to the IRS failure to account for certain income and expenses. Amgen has reported its income and expenses in a consistent manner for many years, and the IRS has appropriately accounted for the company's income and expenses in all prior audits. Any additional tax that could be imposed for the 2010 to 2015 period would be reduced by up to approximately $3.1 billion of repatriation tax previously accrued with respect to the company's Puerto Rico earnings. Amgen previously made advanced tax deposits to the IRS, totaling $1.1 billion for the 2010 to 2015 period. These deposits would further reduce any additional cash tax that could be imposed. The IRS is currently auditing the 2016 to 2018 period. We expect the audit to continue for several years. and it is possible that the 2010 to 2015 dispute will be resolved before the conclusion of the 2016 to 2018 audit and administrative appeals process. Any transfer pricing adjustments the IRS may propose for this period will be lessened by the change in tax rates resulting from the 2017 tax reform law, which reduces the difference between the tax rates applicable in the U.S. and Puerto Rico by approximately two-thirds beginning in 2018. We are highly confident in our positions in the litigation and dispute. We are grateful to all of our highly skilled colleagues in Puerto Rico and their important and ongoing contributions to Amgen's mission of serving patients. And now back to the mission of serving every patient every time. Our confidence in the long-term growth of Amgen remains strong given the strength of the business and our outstanding and dedicated team of 24,000 colleagues that deliver every day for patients. This concludes the financial update. I'll now turn it over to Murdo.

Thanks, Peter. First quarter product sales increased 2% year over year. We continue to progress our volume-driven growth strategy, which led to a 9% volume increase globally in Q1. We delivered record quarterly sales for Repatha, Avenity, and Blancito, and double-digit volume growth for several additional products, including Prolia, Kyprolis, and Amgevita. In the first two months of the year, COVID-19 affected our business in the US and around the world as the Omicron variant led to diminished capacity in the healthcare sector and reduced working days for our own sales forces. In March and continuing into April, the impact of Omicron in the U.S. receded, which allowed us to engage in increased face-to-face customer interactions. Provider and patient activity have also increased, leading to improvements in demand for our products. Now let me review some product details, beginning with our general medicine portfolio, which includes Prolia, Avenity, Repatha, and Amovic. Overall revenue for our general medicine portfolio grew 19% year-over-year, with 23% volume growth. In bone health, Prolia sales grew 12% year-over-year. Volumes grew 10%, fueled by an increase in both new and repeat patients. Avenity, which complements Prolia in our bone portfolio, had record sales of $170 million for the quarter, driven by strong volume growth across our markets. Moving to Repatha, the global leader in the PCSK9 class, Repatha sales increased 15% year-over-year, driven by 49% volume growth. and in the US we saw 41% volume growth. Net selling prices declined as we offered higher rebates to support broad Medicare Part D and commercial patient access. Outside the US, sales grew 12% with strong volume growth coming from the inclusion of Repatha on China's national reimbursement drug list beginning January 1st. We remain focused on increasing Repatha market penetration globally to address the significant unmet medical need in treating high-risk cardiovascular patients. Moving to our inflammation portfolio, Otezla delivered 7% year-over-year volume growth in the first quarter. In the U.S., we saw strengthening of the market with Otezla remaining the market leader, achieving a 30% share of patients who are new to systemic agents for psoriasis. Otezla's recently expanded label has been well received by payers, providers, and patients. We're seeing early signs of physicians using more systemic treatments for mild psoriasis patients, and the majority of dermatologists anticipate increasing the use of Otezla for mild psoriasis. Globally, Otezla sales decreased 5% year over year due to net price declines and lower inventory levels in the U.S. across wholesale and specialty pharmaceutical channels. Otezla net price declines in the U.S. were driven primarily by enhancements to our copay and bridge programs to support new patients starting treatment. Looking forward, we expect lower year-on-year price erosion for the remaining quarters of 2022. We also expect continued volume growth driven by broader adoption of Otezla, given our unique broad indication, regardless of the severity of psoriasis. Enbrel, sales decreased 7% year-over-year for the first quarter. driven by declines in net selling price and inventory levels. Year over year, volume remained flat in the first quarter, supported by Enbrel's long track record of efficacy and safety. Our launch of test buyers off to a strong start, with $7 million in sales in the first quarter. Initial feedback from payers, providers, and patients is very positive. Physicians' unaided awareness increased to greater than 65% since launch, supported by our disease state education programs. On the access front, Tespire is a medical benefit product for which we expect permanent reimbursement coding as of July 1st of this year. Both allergists and pulmonologists acknowledge Tespire's unique differentiated properties and its broad potential to treat the 2.5 million patients worldwide with severe asthma who are uncontrolled or biologic eligible without any phenotypic and biomarker limitations. Moving to the hematology and oncology business, our six innovative products grew 17% year-over-year with 11% volume growth. We saw strong volume growth from Kyprolis, N-Plate, and Blensaito, which we expect to continue throughout this year. Xgeva sales grew 7% year-over-year, while volumes declined 2%. Our launch of Lumicraz is progressing well with revenues of $62 million in the first quarter. representing 38% quarter-over-quarter growth. In the U.S., Lumicraz has been prescribed to approximately 2,500 patients by over 1,500 physicians in both academic and community settings since launch. While approximately 80% of patients in the U.S. are tested for their KRAS G12C status, the test result is not always available and or reviewed when the patient progresses beyond first-line therapy. The opportunity to improve care is to ensure the KRAS G12C status is available in the patient chart or electronic medical record and reviewed by the oncologist to ensure that Lumicraz is discussed as an option for the patient. Lumicraz has strong payer coverage in the US with 93% of patients having formulary access. Outside the US, Sotiracib has now been approved in nearly 40 countries around the world. with recent reimbursement approvals in the United Kingdom and Japan. Sales of our oncology biosimilars declined 25% year-over-year. While our biosimilars in VASI and Congenti both hold leading shares, we expect continued net selling price deterioration and volume declines driven by increased competition and ASP erosion. Over time, we expect long-term growth in our biosimilars business to be driven by the addition of new molecules and additional launches, beginning with Amgevita in the United States in January of 2023. Overall, we're executing well against our growth strategy with strong volume trends across our portfolio.

With that, I'll turn it to Dave. Thanks, Murdo. Good afternoon, everyone. First quarter was one of continued execution in R&D, where we focused on progressing our robust, innovative clinical pipeline comprised of many potential first-in-class opportunities. Beginning with inflammation, we initiated two additional studies with TES-SPIRE in severe asthma, the Wayfinder Phase 3b study, designed to demonstrate a reduction in oral corticosteroid use in adult participants on long-term oral corticosteroid therapy, and the Passage Phase 4 Real-World Effectiveness Study, designed to evaluate TES-SPIRE in adult and adolescent participants, including underrepresented populations, such as Black Americans, smokers, and patients with asthma COPD overlap. Phase 3 planning continues for rocatinlamab, formerly AMG451, an anti-OX40 monoclonal antibody being investigated in patients with heterogeneous moderate to severe atopic dermatitis. Rocatinlamab binds activated pathogenic T cells expressing OX40. Through its unique mechanism of action, rocatinlamab inhibits and prevents the expansion of activated pathogenic T cells and reduces their number. Thus, rocatinlamab has the potential to lead to profound disease control. In addition, this provides a rationale for longer dosing intervals with the prospect of achieving disease modification. ROCKiT, the comprehensive rocatinlamab phase 3 program, remains on track to initiate in mid-2022. In our biosimilar portfolio, last week we announced preliminary results from a Phase III study evaluating the efficacy and safety of ABP654 compared to Stelara, ustekinumab, in adult patients with moderate to severe plaque psoriasis. The study met the primary efficacy endpoint, demonstrating no clinically meaningful differences between ABP654 and Stelara. Now turning to oncology. Earlier this month, we presented data at AACR on outcomes from a two-year analysis of the Lumicrast CodeBreak 100 trial, which demonstrated the long-term clinical benefit, including overall survival of patients with KRAS G12C-mutated advanced non-small cell lung cancer treated with Lumicrast. These data showed that roughly a third of patients were still alive at two years, and that prolonged tumor response was at 41 percent objective response rate by central review. While this was a single-arm trial without a control arm, the efficacy data compared favorably with anticipated outcomes in this patient population based on historical data. There were no new safety signals reported over the course of this two-year follow-up analysis. We have submitted data from the Lumicrast PD-1 combination and SHIP-2 combination cohorts to a medical congress taking place in the late summer. While top line results from the Lumicrast confirmatory phase three study versus docetaxel and the dose comparison study are on track for Q3 and Q4 respectively. Also in the lung cancer setting, we have submitted updated phase one data of tarlatumab, our DLL3 targeting half-life extended bite molecule being used in patients with relapsed refractory small cell lung cancer to a medical congress taking place in the late summer. And we plan to initiate Delphi 303, a phase 1B study testing tarlatumab in combination with standard of care in first-line small cell lung cancer this quarter. Finally, in squamous non-small cell lung cancer, we are enrolling patients in a phase 1B study of bimerituzumab, a monoclonal antibody directed against FGFR2B. Turning to gastrointestinal cancers, we presented data at the ASCO plenary series in February where Lumicrast demonstrated a centrally confirmed objective response rate of 21% and disease control rate of 84% across 38 heavily pretreated advanced pancreatic cancer patients. We continue to explore the benefit of Lumicrast as a monotherapy and when combined with other agents in this setting. In third-line colorectal cancer, a Phase III study of Lumicrast in combination with Vectavix is enrolling patients. In gastric cancer, a phase 1B study of the pomerituzumab plus oral chemotherapy regimens in tumors with FGFR2B overexpression has been initiated. In general medicine, we were pleased to announce the results from two Repatha open-label extension trials, the Fourier OLE studies designed to assess the long-term safety and tolerability of Repatha in more than 6,600 high-risk adults with clinically evident atherosclerotic cardiovascular disease unstable effective statin therapy. In the OLE studies, patients received Repatha for approximately five years, with some patients receiving Repatha for up to eight and a half years in aggregate across the Fourier and OLE studies. The combined results from these studies reinforced the long-term safety and tolerability of Repatha in lowering LDL cholesterol. We are extremely encouraged by the sustained benefit of this medicine in patients with cardiovascular disease who still struggle to get their LDL cholesterol level below the recommended targets. These extended results for patients on RAPATH are consistent with what the healthcare community has learned over the past seven decades about the benefits of lowering cholesterol. That is, robust and sustained LDL cholesterol reduction affects the spectrum of important cardiovascular outcomes. We look forward to sharing these data at a medical congress later this year. In conclusion, we continue to execute crisply across our innovative and biosimilar portfolios and look forward to sharing new data from a number of our programs throughout the rest of the year. With that, I'll turn it back to Bob for Q&A.

Okay. Thank you, Dave. RJ, could you remind our callers of the process for submitting a question? We're happy to answer questions now.

Yes, sir. As a reminder, to ask a question, please press star followed by the number one on your telephone keypad. Again, that is star one. To withdraw your question, please press the pound key. Please stand by while we compile the Q&A roster. The first question comes from the line of Michael Yee from Jefferies. Your line is open.

Hey, good afternoon. Can you hear me okay?

Yes, Mike. Go ahead.

Very good. Hey, question for Dave. Obviously, the KRAS field is quite competitive, and you have a very important Phase 3 Lumicrast confirmatory study reading out. I just wanted to know your confidence around the expectation for a positive result there against docetaxel, how fast you could file that, and whether that changes the paradigm for accelerated approvals for competitors around you. So maybe just comment on that study and the ramifications. Thank you.

Yeah, I mean, what, you know, if we replicate what we've observed so far with Lumicrast, I think, Mike, we would be quite confident in the likelihood that the Phase III trial against docetaxel, you know, which of course has been around for decades, will be positive. You know, we would of course discuss with the FDA and other regulatory bodies how to file these data and move forward. with full approvals. In terms of, you know, effects on the competitive landscape, you know, I'll leave that to, you know, others to comment on. But, you know, we're very confident in Lumicrast at this point. We're approved in roughly 40 countries around the world. The program is moving forward very briskly, and that's our focus right now.

Your next question comes from the line of Jay Olson. from Oppenheimer. Your line is open.

Oh, hey, thanks for the update and thanks for taking the question. As you continue to generate important new clinical data for Repatha, you have data coming for Opaciran, AMG-133. I saw you recently published data for AMG-986 for heart failure. It seems like you're building an increasingly strong cardiovascular portfolio. Can you just talk about your strategy and cardiovascular disease, and what are the large opportunities there, and are there any gaps in your cardiovascular portfolio where you may want to pursue business development opportunities? Thank you.

Why don't I take the last piece of that, and Dave, why don't you respond first, or I'll start. I think Myrtle wanted to comment as well. Good.

Jump in. Thanks, Jay. I think you raise an incredibly important question. As you're all aware, Cardiovascular disease is one of our three principal areas of therapeutic areas for research. It remains an area of focus for us going forward. It remains the number one public health burden in terms of morbidity and mortality across the globe. And that in part is what spurs our commitment here with Repatha. Murdo will comment in a minute, but we believe there is, you know, tremendous opportunity to serve patients on a hypothesis that's probably the best proved in medicine in terms of LDL cholesterol. You mentioned the LP little a program, Opaciran or AMG 890. Just to remind everyone, LP little a is probably the single most important driver outside of LDL cholesterol in terms of the pathogenesis of atherosclerotic cardiovascular disease. As I noted, we're looking forward to, over the next couple months, Phase IIb data and those programs, and our goal would be to transition to Phase III as quickly as possible if those data replicate what we saw in Phase I. In addition, we have a very active preclinical research portfolio, I think indicating our ongoing strategic commitment to this area. Murdo, maybe I'll turn it to you next, and then Bob can talk about the business development.

Thanks, Dave. Underpinning, obviously, the huge unmet medical need of cardiovascular disease is our ability to reach that global population of patients, and we've built the medical and commercial capabilities and global footprint to support that business. We reported 49% volume growth on Repatha, 15% sales growth year on year. So we clearly have momentum now and we continue to feel that there's more for us to do for these patients. We're also very clear that we're focused on improving the affordability of our medicines for these patients and I think that that's another area we've made great progress. So adding to that portfolio with our own internal pipeline is a welcome thing and I think Dave's team is working very hard not only on the pipeline assets, but also to improve the profile of Repatha with the Basilius trial, which is ongoing, and of course the recently announced long-term follow-up trials that were continued. So the profile of Amgen in cardiovascular disease is strong, and I'll turn it over to Bob on the business development.

Yeah, and there it's very simple, Jay. We've challenged our business development and research teams to find attractive innovation externally that we can add to our portfolio. So we're looking for things that we can add value to every day in cardiovascular disease as well as in inflammatory diseases and in cancer.

Super helpful.

Thank you very much.

Our next question comes from the line of Jeff Meacham from Bank of America. Your line is open.

Hey, guys. Thanks so much for the question. Peter, a lot more commentary on the tax dispute with the IRS. on this earnings call, you know, compared to when you first talked about it last year, I think probably a higher number of, you know, than the investors expected. So the question is, you know, has there been a recent discussion with the agency or the service that prompted broader language today? And I know it's going to take years to fully resolve, but would you expect your tax reserves to change over the course of that discussion, or is that just something that's going to be a stagnant number, and then when you fully resolve it, then you'll appropriately make that change. Thanks.

Yeah, Jeff, thank you for the question. Look, we wouldn't, you know, we're in litigation, so we wouldn't comment on discussions with the IRS first. And then secondly, on reserves, as you can understand, we don't comment on where we're at in terms of the size of the reserves, other than we would just simply say that we're very confident in our position and the level of reserves that we've established. And, you know, as we said, this is about Puerto Rico and the allocation of profits between the United States and the U.S. territory of Puerto Rico, where we perform a majority of our global manufacturing. Puerto Rico is home to our flagship manufacturing complex, 30-year presence, 2.4,000, 2,400 highly skilled employees, over $4 billion in capital investments. And as we said, you know, we believe that the IRS positions are without merit. We're going to vigorously contest those adjustments proposed for 2010 through 2015. Okay. Makes sense. Thanks.

Your next question comes from the line of Salveen Richter from Goldman Sachs. Your line is open.

Good afternoon. Thank you for taking my question. On LumaCrafts, what steps can you take to ensure that G12C status is recognized by physicians to drive prescriptions here, and could you also frame the outlook for the combo study with Keytruda that's reading out in late summer?

Thanks, Sylvine. Maybe I'll start and then turn it over to Dave on the data question. We're obviously working extremely closely with all of the oncology providers to improve their own internal systems whereby they have that KRAS G12C status, which literally fingertip ready for making treatment choices for their patients. What we are seeing is a little bit of a COVID hangover effect. Many of these large oncology networks in the U.S. are short-staffed and constrained in the resources that they can deploy against things like EMR enhancements, against things like better workflows for diagnostics and biomarkers, particularly new biomarkers. So we are working literally account by account across the country. We've made huge improvements, and we've seen some very large community oncology networks, which is where 80% of the patient base is treated. They're treated in the community centers. I think in the academic institutions, the testing is very strong, robust, the care is clear, and the test results are available for patients who progress. So it's really in the U.S. community setting where we're working. As we look ex-U.S., We see a different pattern by country. So countries that have advanced biomarker technology and very clear systems like Germany and France, we expect good uptake there and we're already seeing early indicators of that. France, as you may recall, has an early access program called an ATU program where we can actually charge for the product and it's being used already fairly broadly. And in Germany, we're just launching and are a few weeks old. as we are in Japan. So I think it's a network by a network project that we're working intensely with our medical colleagues, with our commercial teams, to make sure that no patient slips through. Dave.

Great. And, Solveig, thanks for the question. In terms of data availability, as we noted, you know, we've submitted the data for one of the summer oncology conferences. We, you know, are looking at both combination and sequential approaches. with PD-1 inhibitors. I'd also point out that one of the things we're beginning to examine is the whole population of patients with non-small cell lung cancer. You can divide them roughly into thirds. A third are PD-L1 negative tumors, a third have low to intermediate PD-L1 expression, and a third have high PD-L1 expression. In the PD-L1 negative population, for instance, The effect of checkpoint inhibitors is quite modest, and that's an area where we are looking at combinations of Lumicrast with straight chemotherapy. So one thing to keep in mind as this field evolves is that depending on PD-L1 expression, the approach clinically may vary as well, and we are crafting our development program accordingly.

Your next question comes from the line of Matthew Harrison from Morgan Stanley. Your line is open.

Great. Thanks. Good afternoon. I was hoping a question for Murdo. Murdo, can you just maybe comment? I know you commented at Business Review around your thoughts around contracting and specifically similar contracting as we think about both the Humira launch and some of the other products. Any updated thoughts in terms of how that's going or Your expectations on specifically Humira for 2023 versus 2024? Thanks.

Thanks, Matthew, for the question. No, I don't really have a lot of new information to update you on. We continue to feel like we're extremely well positioned for the opportunity to be among the first, if not the first, and potentially only biosimilar for a period of time in the market in 2023 as of January 31st. We like our profile competitively given that we, as you'll recall, we use the existing inflammation commercial organization that currently commercialize Enbrel and Otezla that have relationships intact with rheumatologists and dermatologists. We actually have a GI footprint as well supporting Afsola. We feel that we've got the customer relationships. We definitely have the payer relationships. We have obviously 40 years of biologics manufacturing and supplying every patient every time to provide the confidence for pharmacy benefit managers to make the decision to make our product available as early as possible. So, you know, we're excited about the opportunity and then of course after the launch of Amgevita in the U.S. We have several other launches, Stelara, ILEA, Solaris, and then additional launches thereafter, so six new biosimilars coming into the market. So this is an area where we're very focused. We've invested in this area. It's important to us for our long-term growth, and we have the capabilities in the market to ensure success. Let's go with the next question.

Your next question comes from the line of Yaron Werber from Cowen and Company. Your line is open.

Great. Thanks for taking my question. I guess, Peter, maybe for you and for the rest of the team, I guess, Peter, for you first, the tax rate is increasing incrementally this year. Is that relating to the ongoing litigation with the IRS, or is that for a different reason? And then maybe, Murdo, for you, in the U.S., LumaCraft is growing, but it's growing probably a little bit lower than we expected. Are you expecting XUS to be bigger or similar in size to the U.S.? Thank you.

Yeah, let me jump in first here. I don't think Murdo wants to take the tax part of that. So, look, we're only moving it up by 50 basis points here on. It's not related at all to the tax litigation and Just maybe that highlights a point that I should make in response to Jeff's good question a little bit earlier, which is, you know, why more commentary now? I think this is exactly why, because this is a complicated area for all of you, for the analysts, and we want to make sure you understand our position. We think that it's been a struggle to understand for folks this on prior conference calls, so we just want to be more specific on it. But in the case of that question itself, it's not related at all. And again, Jeroen, thanks for the question. We're confident in our position and the level of reserves where we're at, but we're wanting to provide some more background for you on it. So hopefully that's helpful. And now I'll turn it over to Murdo to get back to business. Thanks, Peter.

Jeroen, I would say in the U.S., what we're seeing with Lumicraz is when that a KRAS G12C status is known at the point of progression from first-line treatment to second-line. We're getting over 80% of those patients to be treated by Wimicraft. So we're penetrating the population when the identification of the KRAS G12C status is there. So that's clearly the lever that we need to ensure is improved. And as I answered Sylvine's question earlier, This is really an account by account book of work, and we're doing it with urgency because we really can't have patients progressing from first line to second line and not have the choice of Lumicraft. So this is really important work that we're doing for patients. When we look at the epidemiology of disease in the U.S. versus ex-U.S., I would say that the overall incidence of non-small cell lung cancer is similar between the U.S. and Europe in terms of size. Now one thing just to think about as you go into Asia is the incidence of KRAS G12C mutational status is a bit lower. If you take Japan as an example, it's about 4% of patients who have non-small cell lung cancer that also have a KRAS G12C mutation compared to 13% in the U.S. So the mutational epidemiology does change a little when you go outside of U.S. and Europe. So we would expect the business to be slightly bigger in the U.S. than it will be in Europe and the rest of the world. Let's take the next question.

Your next question comes from the line of Umar Rafat from Evercore ISI. Your line is open.

Hi, guys. Thanks for taking the question. I guess two, if I may. First, perhaps on KRAS, there's an interesting disclosure on the slides on how 2,500 patients have taken it in U.S. commercially. And third-party data sets would suggest perhaps 1,200 patients were on the drug in March. And I'm trying to square those two. If about 1,200 patients were on therapy in March and 2,500 as total exposure, crude math would suggest that duration of therapy has tracked five-ish months or so. Is that consistent with your observation? And then secondly, Peter, on the tax court side, can you guide us through what the timelines could look like? Because I feel like this is one of those topics. Now there's a two sets of liabilities that people will put in their model somehow at certain probability, and having a sense for what the timelines could look like for resolution, or at the very least on when a hearing is or when a key court date's coming up on the tax court. That would be very helpful. Thank you.

Yeah. Perhaps on the first question regarding patient numbers and duration of therapy, I think it's a little bit premature to be able to draw conclusions from numbers on drug versus numbers treated to get to DOT or duration of therapy. What you need to understand, I guess, in the 2500 patients is we've got a combination of patients who were very late stage disease, third line and beyond potentially, who were challenged with the product and didn't do very well, whereas the steady state will be more second-line patients having experienced maybe one prior line of therapy who could do quite well as indicated by the long-term follow-up data that we just put out at AACR where you see about a third of patients being alive at the two-year follow-up mark. I think it's too early to infer from existing in-market patient numbers to understand what the effective duration of therapy will be. And, in fact, you know, I often say this is you really actually need 24 months in market to understand what your look-back period is, to understand what your duration of therapy is. So it's going to be quite some time before we know what our real-world duration of therapy will be. Peter?

Peter here. So on the tax side, thank you. In terms of next steps and timeline, we will be filing a petition with the U.S. Tax Court within 90 days. And as I mentioned, we will vigorously contest the 2013 through 2015 notice through the judicial process. We plan to see consolidation of the 2013-2015 period. but the ongoing 2010 to 2012 tax court case. And as I said, it'll take several years for this to resolve itself. So that's the current time frame as we see it. Thank you.

Our next question comes from the line of Carter Gould from Barclays. Your line is open.

Good afternoon. Thanks for taking the question. Maybe to focus for a second on Tess Spire was looking to get a little bit more color there, specifically how you think about the importance of the J code there and the extent that could drive an inflection in sales and, I guess, the extent that's been an impediment to date. And then, obviously, you started Wayfinder recently. In the past, you guys kind of talked down the importance of the source results. So as we think about Wayfinder, is that sort of critical in addressing that gap or simply nice to have some color there would be helpful? Thank you.

Thanks, Carter, on the question regarding test buyer. We're really excited about the market response to test buyer having such a novel, unique product where the profile really simplifies the treatment of severe uncontrolled asthma, particularly for pulmonologists who have so much else to do that they're looking for a simple solution that can treat their patients without being limited by phenotypic or biomarker status. Overall, we think it's going really well. It's clearly a benefit to have a permanent J-code in the market, which, as I mentioned, will be coming July 1st. That gives confidence to providers and to their billing staff that they can code the product appropriately and have a high degree of assurance on reimbursement. I think they know the reimbursement is happening now, but it's also time to reimbursement for some of these practices. some of them run pretty tight cash flows and knowing that the permanent J code should expedite the time to reimbursement will actually help. So, yeah, I'd say it's going to be helpful, but I would say that the in-market response currently is really good. And, you know, we're clearly providing product to patients who are going through that reimbursement step and that process so that they can get on therapy and have access to the medicine. But, yeah, we'd be looking for additional resources sales force, sales growth in the back half of the year.

Yeah, Carter. And in terms of Wayfinder, you know, this trial we believe will address some of the methodological limitations we believe we saw in the source trial. The sample size is much larger. It's a single arm trial. Sample size over 300 patients. Patients can be on a higher dose of steroids. There can be a more rapid corticosteroid taper. and we're looking at the effects at earlier time points. All of these, I think, give us confidence that we will see effectiveness of TESPIRE in the setting of lowering oral corticosteroid use. In addition, we presented recently at the Quad AI meeting updated data from Navigator and other trials showing a very profound reduction in exacerbations in patients on oral corticosteroids. Again, I think this is going to be a really important drug for the treatment of asthma across a range of phenotypes, and we're quite confident in the development program going forward.

Take the next question.

Our next question comes from the line of Robin Garnoskis from Truist. Your line is open.

Hi. Thanks for taking my question. So just a couple on Repatha. Just your thoughts on Inclisterine with a permanent J code coming in July and your thoughts on the impact on Repatha in the second half of the year. And then just a second, you have impressive growth with Repatha. Maybe you could give a little bit more color on script trends by doctor. Are you seeing more scripts by cardiologists? What are some trends that give you confidence that that growth can continue as far as who is prescribing the drug versus, I think, previously in the early days, it was lipidologists mainly, I think,

Thanks, Robin. We are pleased with the evolution of Repatha. The growth is actually fairly consistent across the broad cardiology community. So it's not just your epidemiologist variety of cardiologists. We're seeing general community cardiologists. We also have a large effort focused on integrated delivery networks and hospital systems where we have been successful in establishing a more standardized way of treating the some 25 million high risk ASCVD patients in the US that end up in an acute care facility for their MI or other event that they've been admitted for. And unfortunately, many of them don't even get a lipid panel and many of them get discharged without appropriate recommendations or initiation of treatment. So we've stepped that up quite a bit. and we're seeing improvements in quality of care. And those patients are being discharged then to the community cardiologist and or primary care physician with clearer intent on more aggressive lipid-lowering therapy or cardiovascular risk reduction. So that's definitely helping. For future growth, we're obviously going to continue that effort, and we're going to continue to expand that IDN work that we're going to do in the U.S., but we're also going to invest incrementally in primary care, given that we're seeing some spontaneous prescribing with primary care. So we're very pleased with the growth of Repatha. Ex-US, the other thing I would mention is we got the Jan 1st listing for Repatha in the China National Reimbursement Drug List, which has been a good launch for us there. And our team in China is doing a nice job of ensuring that Repatha is an option for high-risk ASCVD patients in that country. So, you know, really, I think we've got a large amount of headroom for growth on this product. There's a large patient population, and we've got good momentum now in cardiology, and we need to continue to build that into primary care and around the world. With respect to Inclisarin, obviously, they're a competitor in the market, but given that they don't yet have event reduction data, even with reimbursement coding, I think they're still limited in what they can promote. But again, there's tons of patients out there that need more aggressive lipid lowering therapy and more aggressive cardiovascular risk reduction. And we see that the market can bear a lot of people talking about this severe disease, number one killer in the world for everybody that's concerned about patients and what we can do about it. So overall, we're still very bullish.

RJ, I know we've got several callers still hoping to ask questions and I just want to give the callers a heads up that we'll probably go a few minutes over the top of the hour. So why don't we take the next question, and we'll do our best to get to everybody. And if we're unable to do that, then obviously Arvind and his team will be available later. But let's take the next question.

Your next question comes from the line of Mohit Bansal from Wells Fargo.

Your line is open. Great. Thanks for taking my question. Maybe a question on test fire. Given that right now it needs to be administered by a provider, what kind of reservation do you expect from the doctors at this point in terms of prescribing the agent given that DUP is available for self-administration? And the question is, is there a possibility in the future that you could come up with a self-administration injection which could actually help it become a self-administered at-home product? Thank you.

Thanks, Mohit. Unfortunately, because severe asthma, especially uncontrolled severe asthma, is such an acute condition, many of these patients are under frequent care of a pulmonologist or an allergist. And so they're seeing their physician on a very regular basis. And I think given our very convenient once-month dosing, it's seen as a fairly easy product to administer. And of course, it's early days in the launch, but the feedback has been that the physician administration is not a barrier to initiation of test spire. And allergists in particular are used to physician administered products. What I think the benefit side of this is really playing out is that they have much less work to do on the biomarker side or the phenotypic assessment side. And so we've simplified their workflow in that regard. I do think over the long haul, we'll continue to evaluate what we need to do to ensure that there's convenience and maintenance for patients. And, you know, obviously we're looking at other indications and other lifecycle opportunities for test buyers. So we'll continue to assess whether or not we want to provide a self-administered option. I mean, clearly the product could be developed that way, and we continue to look at that.

Thank you.

Okay, RJ, let's go to the next caller. Your next question comes from the line of Dane Leon from Raymond James. Your line is open.

Thank you for taking the questions, and congrats on the quarter. One question for me. Presuming the dose equivalency study of Lumicrast actually demonstrates that 240 milligram Q days is equivalent to 960, how are you playing on managing that transition at the end of the year? And the reason we get this question a lot from investors is obviously that will coincide with a presumable launch of a competitor in the KRS-G12C space. Maybe to frame it, you know, just from a script being given, a 30-day script being given at the end of the year, if this dose equivalency does show that lower dose is equivalently effective, that 30-day script turns into a 120-day script. How is your team thinking of managing this, and is there any expected change to pricing that would be enacted if the lower dose is seen as equivalent? Thank you.

Yeah, it's a pretty detailed hypothetical. What I would say is, first off, we remain confident that the 960 milligram dose is the right dose, and clearly the safety and efficacy benefit of that product looks very good, and given the long-term follow-up data, clearly it's a high bar for us to be able to see if it can be approved upon at a lower dose. So that's the one question that remains to be answered. The way, I guess, I can't directly answer your question because there's so many different complicated variables to it, but what I would say is we continue to look at the best way to provide the right treatment for continuing patients. So if you're a second-line non-small cell lung cancer patient, you've been prescribed Lumicraz at 960, you're taking it, you've responded, and you're stable, I'm not sure any oncologist is going to want to lower your dose if you're a continuing patient. Now, we've seen that in other disease areas where there might have been a dose change either to go up or to go down, where patients who are on a stable dose usually stay on that. So that would be my one bit of additional commentary to your question, but we'll wait and we'll see the data and we'll handle it according to what the data say and what the FDA guides us to do. Very helpful.

Thank you. Thank you. I'll take the next question.

Our next question comes from the line of Evan Siegerman from BMO Capital Markets. Your line is open.

Kyle, thank you for taking my question and squeezing me in. I wanted to ask one more on Tesla now that we have the full label or kind of the full spectrum approval as of last December. So have you seen any sort of barriers for the more mild patients? Do these patients need to go through any sort of step edits or are they able to get it pretty freely? Do you expect that to change over the course of the year? I'd just love to get some color on how you're pushing it or marketing it in those patients. Thank you.

Thanks for the question, Evan. No, we're really pleased with the response from payers and PBMs to ensuring that they expanded label now regardless of severity of psoriasis that patients can have strong access and good affordability for the product. In fact, we've actually improved access this year versus last year. So we've been able to use some of the prior authorization criteria things like percentage of body surface area there are there are some medical policies prior authorizations where that's described as a percentage we've had many of those removed so we've actually opened up access for those patients and i think that it's easier to prescribe otesla for that milder patient i was at the american academy of dermatology meeting in march and spoke to many dermatologists and asked them what their their prescribing experience was like and what the reimbursement experience was, and I think many of them played back to us that Otezla was easier than it had been in the past to prescribe for that milder patient. The other thing we did was we enhanced our copay assistance and our own bridging programs to ensure that that launch would go well. So, so far so good, off to a good start, but I don't anticipate access being an impediment.

Hey, RJ, in consideration for the folks on the East Coast, you know, it's past the hour, so why don't we take two more questions, please?

Your next question comes from the line of Corey Casimong from J.P. Morgan. Your line is open.

This is Gavin on for Corey. Thanks for taking our question. I just had a follow-up from a question earlier in the queue on Lumicraft-Pembroke combo data late in the summer. I guess just of the lung cancer patients, Can you remind us if this is predominantly second line plus or will there be sufficient patients in the front line to assess a pathway or a path forward? And then should we also look for multiple doses and or different dosing administration? I think you've discussed in the past sequential dosing versus other strategies. Thank you.

Yeah, thanks, Corey. Most of those patients will be second line and beyond. There is a limited experience in first line. And we are looking, you know, across a range of doses with both combination and sequential therapy. So you can expect to see all of that when the data are presented.

Let's take one last question, RJ, and after that, Bob's just going to make a couple of concluding comments.

Your next question comes from the line of Colin Bristow from UBS. Your line is open.

Good evening and thank you for squeezing me in. I'll keep this quick. Just quickly on the tax issues, could you just talk about whether we should view this as being essentially limited to 2015 or is there scope for this really to permeate through to effectively 2021? And then just quickly on Lumacrest, there was a small investigator-led dataset presented at ELCC a few weeks ago. We saw some relatively high rates of LFT elevations with Lumacrest dose-enclosed sequence with PD-1. I'm just curious how this compares to your own experience with the combo versus sequential dosing and anything else you can say about the path forward there. Thank you.

Colin, thank you. Look, on the case, We're very confident in the position we've had and our structure and how we've allocated profits between Puerto Rico and the United States. So we're very confident in those reserves. If you did think about going forward, I did suggest in the press release articulated that the IRS is currently auditing 2016 through 18. If they did propose any transfer pricing adjustment, the magnitude of those adjustments will be lessened by the change in tax rate from the 2017 Tax Act, which reduced the differences between the tax rates applicable in the United States and Puerto Rico by approximately two-thirds beginning in 2000. But once again, we're very confident in our structure and we're very confident in the level of our reserves, and so we don't anticipate any changes going forward.

Dave, you want to cut to the second piece of that?

Yeah, in regards to the ELCC data, these were uncontrolled data from an investigator in France, patients receiving monotherapy potentially after checkpoint inhibitors. I can tell you that the rates of hepatic toxicity were higher than we've observed in our clinical trials program and through our ongoing pharmacovigilance efforts. I'm not sure why that was the case, but it was a heterogeneous, unselected group of patients. It's hard for us to comment any further on those data. Bob, do you want to comment?

Let me just thank all of you for dialing in. We appreciate your support and your interest in the company. As we've tried to convey through this call, we feel we're executing well here into the 2022 calendar year, and we look forward to being back together with you after the second quarter to report on our progress through the midyear. Thank you. Sorry, we went a few minutes over. Thanks. Thank you, everybody.

Ladies and gentlemen, this concludes today's conference call, and we thank you all for participating. You may now disconnect.