Amgen Inc. (AMGN) Q1 2008 Earnings Report, Transcript and Summary

Ladies and gentlemen, we greatly appreciate your patience. My name is Shenal, and I will be your conference facilitator for today's Amgen First Quarter 2008 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 end of the conclusion of the speakers’ prepared remarks. [Operator Instructions]. I would now like to introduce Arvind Sood, Vice President of Investor Relations. Mr. Sood, you may now begin.

Okay, Shenal. Thank you. Good afternoon, everybody. First of all, let me start out on behalf of our entire management team here with the proponent apology. Apparently, British Telecom had a problem with one of their bridges at the last minute and we lost everybody. So thank you very much for your patience. We really appreciate your interest. Here I'm just going to go ahead and turn the call over to Kevin right away. And before we get started, I would just like to remind you that through the course of our presentation today, we are going to make certain forward-looking statements and of course, actual results can vary materially. So with that let me go ahead and turn the call over to Kevin.

Thanks, Arvind. Thanks everybody for your patience. This I think is my 63rd quarterly call and this is the first, I'll hope it's the last. Thanks for joining us. My comments will be a bit longer than normal today given all that's going on at Amgen, and the fact that we now have a more complete view of 2008 with a third of the year under our belt. First, I'd like to talk about the quarterly results and what underlies them, as well as trends we see now and expect to develop. Revenue first. While reporting a revenue decline is painful and knock our history or future expectation, it is a consequence of a tough year over year comparison. I know taking the numbers at face value, particularly in the ESA franchise raises questions. George will therefore go over product-by-product, the revenue in more detail than usual. However, as I look at the underlying drivers and trends and what we see right now, I am confident we will deliver revenues solidly in the guidance range. We also compete in a number of arenas, including biosimilars now in Europe, and while it's early in the biosimilar front, in all of our competitive situations I'm pleased so far. Let's now turn to R&D and our investment in R&D. the reported numbers show a large decline from first quarter '07. As Bob and Roger will describe, this decline is due to a number of factors including the effects of our recent deal with Takeda. I want to emphasize, we expect to invest heavily in the pipeline and will spend approximately the same amount in 2008 as 2007 in R&D, which is at the high end of our industry peers as a percent of sales. While we have and continue to work hard to identify efficiencies, save our Japanese decision, we have not changed our R&D strategy of innovation, use of multiple therapeutic modalities, aggressive in-licensing and focus on four therapeutic areas. We have advanced a large number of molecules into Phase II, are planning to increase that number over time. We also continue to support an aggressive Phase III program. We will not compromise our long-term strategic objectives or investments to hit an annual earnings number. The other number I want to comment on is SG&A. It went up after restructuring, which certainly raises questions. Again, the underlying story is more complex and is consistent with our objectives. Wyeth profit shares in the SG&A number and accounts for much of the increase. We have protected our field facing capability, but trend marketing cost compared to last year a bit. There are also some moving parts… other moving parts that Bob will cover. We will achieve our SG&A objectives of similar levels of spend to 2007, less the Wyeth payment. We have also launched a multi-year program led by Tom Flanagan, our Senior Vice President and CEO staff member and assisted by a cross functional group of experienced Vice Presidents to look for more opportunities to streamline operations, improve decision-making and identify opportunities for efficiencies. We will have more to say about this later in the year, but I am optimistic this effort will, over the coming years, identify large opportunities for resource reallocation to help fund our innovation efforts and bring our products to patients. We do not foresee a need for a large company-wide restructuring similar to 2007 but becoming more efficient is a continuing objective and need. Given the above points, we also expect EPS to be solidly in our guidance range. Let me comment on a few specific issues, big items, if you will, namely denosumab first, obviously, a large multi indication opportunity. We're proceeding according to plan and we are ready to analyze and act on the data when it becomes available. There is understandably real interest in our PMO safety and efficacy data. The clinical data to date is encouraging, but we must wait for the definitive data to reach conclusions. Again, we will make PMO-related distribution decisions and investments after the data is available for analysis. Another major area is our ESA Franchise and ODAC. I am proud of our team's efforts at the March ODAC and the company's performance. Nplate was well received and we are proud of our work for the past 15 years to bring this important new innovative therapy to the FDA. We are optimistic that the FDA will approve the drug later this year. We are now on ESA label discussions with the FDA and these discussions are ongoing, so we're not in a position to speculate on their outcome. However, we as always seek to strike the right balance between benefit and risk. Next, the Roche patent case, I am very confident we will prevail and Roche will not launch in the U.S. ahead of our patent expiry. The next key event is the outcome of Roche's appeal of the preliminary injunction. The final thing I would like to touch on before I turn the call over to Bob and my colleagues is our business review. It's planned for June 6th. I’ve had a chance to visit with many shareholders over the past few months. In those discussions it has become clear we will not have the data in June to provide answers to the key shareholder questions related to the ESA franchise, denosumab or our long-term outlook. Rather than have a meeting with little new news, we will postpone the meeting. I regret the need for this decision, but it is sensible given the pace of key events. We will do the review as soon as we have the facts we need to have the most productive discussions. Now I will turn the call over to Bob, George and Roger to go over our quarter in more detail and I will come back at the end of the call with a few closing words.

Okay thank you, Kevin. If I can direct your attention to page 5, I will walk you through our adjusted income statement for the first quarter. I’ll try to focus on some highlights and I would direct you to the press release for additional detail. Let me start briefly with product sales, which as you can see were down 1% on the quarter. And George will provide you much more detail on that in a moment. In terms of the geographic split of sales, the first quarter US sales totaled $2.8 million, which represents a 3% decrease over the prior year. In the first quarter our international sales were $749 million which represents an increase of 10% and these sales were positively impacted by $72 million from foreign exchange fluctuations. Excluding these foreign exchange movements, our international product sales decreased by 1% in the quarter. I would like to provide some brief color on our other revenues in the quarter, which include primarily royalty income and corporate partner revenues. For example, from our appropriate royalties. As you can see, our first quarter other revenues were down versus the same period from last year owing largely to the decrease in our ESA franchise in the quarter. We believe that the first quarter results a good run rate for the second quarter and indeed the balance of 2008 to the extent that we don't receive any milestone payments during the course of the year. So in terms of total revenues, as you can see, for the first quarter total revenues decreased 2% from about $3.7 billion to approximately $3.6 billion. Moving on to operating expenses which are discussed… presented on an adjusted basis. Let me first touch on the cost of sales for the quarter, which as you can see decreased by 3% and this decrease was primarily driven by our lower sales volumes in the first quarter of the year. Now, R&D is down on the quarter, so I want to provide you some perspectives here. We remain committed, as Kevin indicated in his remarks, to maintaining R&D spending at industry-leading levels. The 18% year-over-year decline in R&D expense this quarter does not mark a departure from this commitment, rather when compared to last year the R&D expense in the first quarter of 2008 benefited from a number of items. Approximately half of the total year-over-year reductions is driven by lower staff related costs and other expense reductions resulting from our previously announced restructuring plan. The combination of efficiencies in our clinical manufacturing network and our optimization of the R&D facility footprint comprised over half of these reductions or approximately one-quarter of the overall total. The remainder of the $142 million year-over-year decrease in R&D expenses is nearly evenly divided between cost recoveries from our licensing transactions with Daiichi Sankyo and Takeda in Japan, and lower clinical trial costs. Now, recall that we had initiated a number of mega studies in or before 2006. So during the first quarter of 2007, we were in the enrollment phase for ten of these studies, and as you are perhaps aware, significant costs are incurred with site initiation and patient enrollment at the early stages of these studies. In contrast, during the first quarter of 2008, we were still in the enrollment phase for only four of these studies and so our development spend reflects that in the quarter. For the full year, we expect adjusted R&D expense dollars to be similar to 2007, as we will record $100 million upfront payment for our recent Kyowa Hakko collaboration as an expense in Q2 and we expect to initiate a number of clinical trials in the second half of the year. Now turning to SG&A, as you can see, SG&A expenses were up on the quarter. Higher Wyeth profit share expenses make up three-quarters of the increase in our SG&A expense, and Wyeth profit share expenses were approximately one-third of total SG&A in the first quarter of 2008 as compared to a slightly lower amount of 30% in the first quarter of 2007. Excluding these profit share expenses, our SG&A in the quarter increased by 6%. And if you turn to the next slide, I will provide some additional detail on these SG&A expenses. Represented on slide six, the major components of our SG&A expenses. As you can see, the Wyeth profit share is up substantially as a result of the additional ENBREL sales in the quarter, and this is the largest portion of the year-over-year increase. And in terms of sales and marketing expenses, and corporate expenses, as you can see, our sales and marketing expense was down slightly year-over-year and the decrease is split equally between staff-related cost and other programs. The staff reductions are from home office efficiencies, as a result of our restructuring announced last year. We intentionally kept the levels of our field placing personnel intact, as Kevin remarked earlier. As regards corporate functions, you can see our corporate functions are also showing a cost decrease in the quarter. Our restructuring has generated substantial savings that more than offset the naturally occurring increases that take place year-over-year for such things as labor, inflation and new assets placed in service. In total, for these major areas, we’ve reduced staff headcount by approximately 600 through the period beginning with our restructuring last year. We're seeing a slight increase year-over-year in our IS costs as a result of the completion of our Enterprise Resource System or our ERP program that we’ve talked about for the last several quarters. The initial phases of our go live in the ERP have been successful and we anticipate further efficiencies in the coming years as a result of this initiative. Finally you will see that there is a… there is a year-over-year variance due to true-ups in SG&A this quarter. As you are aware, every company makes a number of estimates throughout the year to properly account for expense that may not get fully paid until the next year. Common examples for us are employee benefits and staff bonuses, and in the first quarter of 2007, we had a true-up for these types of estimates, which we made in 2006 that benefited our expenses in 2007. In other words, resulted in a reduction of expense in 2007. In 2008, on the other hand, our estimates from 2007 was slightly low and as a result our true-up in 2008 increases our expenses, and that's the difference as represented in the last bar on the slide. And most importantly, let me underscore that we are confident that the actions we've taken enable us to control costs in SG&A and we expect that our SG&A expenses excluding the Wyeth profit share would be similar at the full year in 2008 to what they were in 2007. Now if you’ll turn to page seven, let me just highlight quickly the tax rate. For us the tax rate in the quarter was 22.4%, which represents an increase from the prior year primarily due to the expiration of the Federal R&D tax credit. Finally, as you can see, adjusted earnings for the quarter were $1.12, which is an increase of 4% over the prior year. And in the first quarter of 2008, adjusted earnings were -- including stock option expenses were $1.10, which is an increase of 5% compared to the $1.05 that we earned in the first quarter of 2007. Turning now to page eight, presented the key balance sheet and cash flow metrics for the quarter. As you can see, in the first quarter, our cash balances were $8.6 billion. As you can see, our debt in the first quarter… total debt outstanding was $11.2 billion and this is an increase of $3.9 billion over the first quarter of 2007 primarily due to the issuance of $4 billion of debt in the second quarter of last year, offset by a repayment of $100 million of debt in the fourth quarter of 2007. On our capital expenditures for the quarter, you can see our capital expenditures were lower than the prior year. We spent $170 million in CapEx in the first quarter of 2008 and that reflects savings from our previously announced restructuring plans. Finally, with respect to share repurchases, we did not repurchase any stock during the first quarter of 2008. And just to remind you, we currently have approximately $6.4 billion remaining under Board authorized share repurchase programs. Now I'll turn over to George, who will provide us more perspective on the product sales.

Okay. Thanks, Bob. Let's go right to the commercials highlights on slide 10. Product sales declined 1% year-over-year with the US declining 3% and international growing 10%. Netting out foreign exchange gains, international declined 1%. US Aranesp declined 38% and EPOGEN declined 11%, while the rest of the US portfolio grew 14%. The next slide graphically illustrates the components of year-over-year growth in the first quarter. As you can see, a significant US Aranesp decline was largely offset by ENBREL growth. ENBREL, however, benefited from the switch to wholesaler distribution in the first quarter. Next, I'll discuss each of the product results in more detail starting with Aranesp. Slide 12. Worldwide Aranesp sales declined 25% in the first quarter versus last year. In the US, Aranesp sales declined 38% overall, and nearly 50% in oncology. Overall segment share declined by less than a point versus fourth quarter '07. Internationally, Aranesp sales declined 3% overall, and 12% in oncology. Overall segment share remained flat versus last year, reflecting the fact that biosimilars and peg-EPO had little impact on patient share. An obvious question is what is the trend in utilization of Aranesp in the US market, which I'll address on the next slide. This slide displays actual weekly US Aranesp sales for the last six quarters. The short peaks and troughs are largely a result of inventory buildups and depletions, not fluctuations in actual patient utilization. The red trend lines show average weekly sales for the fourth quarter '07 and first quarter '08. They exclude return in Medicaid discount accrual true-ups, which along with the typical fourth quarter inventory buildup followed by a first quarter depletion served to distort the quarter-on-quarter comparison shown on the previous slide, and here I'm specifically talking about the $827 million in the fourth quarter '07 versus the $761 million in quarter one '08. We think those numbers are misleading. So net-net, as shown with the red trend lines, we realized a slight decrease in true underlining demand fourth quarter '07 versus the first quarter '08 when the weekly average net sales went from $31.7 million per week to $30.5 million. And I might add that this trend has been consistent throughout April. But I should also point out that this is about half the weekly run rate as compared to fourth quarter '06. Most of the drop-off in utilization has been driven by label and reimbursement changes that occurred late first quarter '07 through mid third-quarter '07. So US Aranesp sales are relatively stable as we engage FDA in post-ODAC label discussions. Next slide. Another obvious question is what effect ODAC recommendations and subsequent potential label changes will have on Aranesp utilization going forward. Recall that ODAC voted in favor of restricting ESA treatment in a curative setting as well as breast and head and neck cancers. The chart on slide 14 provides a most up-to-date ESA utilization data by tumor from the tandem order. This order is a patient-based patient record or paper-based patient record locks 25 from a chemotherapy patient record per month from 426 physicians and covers a time period January through December 2007. Data is projected to reflect oncology treatment universe roughly 70% clinic and 30% hospital patients, is naturally representative of practice type, treating specialty and geographic region and captures current stage, line of therapy and treatment intent. So for example, according to the audit, breast cancer accounted for about 20% patient share during the specified time period. Regarding curative intent, Roger will comment on our thinking during his section. Next is EPOGEN. EPOGEN declined 11% in the first quarter of 2008 versus the first quarter of 2007 driven roughly equally by a decline in demand as a result of erosion in dosing utilization, unfavorable inventory changes and unfavorable dialysis spillover adjustments. These were partially offset by annual patient growth. The reduction in dose in the first quarter is related to the ongoing response to EPOGEN label changes and the EPO monitoring policy or EMP. Just as a reminder, in January, SeMet implemented another update to the EMP, which includes further restrictions on reimbursement for patients with high doses and these are monthly doses above 400,000 international units or have... who have persistently high hemoglobin measurement above 13 grams per deciliter, three or more months. On previous occasions when the EMP was modified, the effect was most severe in the quarter, the new rules were implemented and then it abated somewhat and stabilized. So in thinking about the full year outlook, we estimate that patient group of 3% to 4% will be offset by a decline in dosing utilization resulting in an overall slight decline in year… full year sales versus 2007. Next to slide 16. NEUPOGEN and Neulasta combined grew 7% first quarter '08 versus first quarter '07. In the US, sales increased by 2% driven by demand, partially offset by inventory reductions with inventories exiting the first quarter at the low end of the normal range. Internationally, Neulasta and NEUPOGEN grew 22% year-on-year, 10% excluding foreign exchange effects. In the US, our promotional focuses on the timing and consequences of febrile neutropenia and how the appropriate use of Neulasta allows physicians to approach chemotherapy with confidence by reducing the risks of febrile neutropenia. This new promotional platform was launched in February and the initial feedback has been positive. While units increased only slightly year-over-year in the first quarter, on a full-year basis we still expect combined US Neulasta/NEUPOGEN demand to benefit from patient and unit growth as well as improvements in net realized price. In the international setting, the benefit of Neulasta over daily G-CSFs was reflected in two ways. At first quarter, Neulasta share of 54%, up 4 percentage points year-over-year as well as a conversion from NEUPOGEN of 66%, up 3 percentage points year-over-year. In February, 4g CSF biosimilars received positive opinions and are expected to launch in quarter two which will make Neulasta's recognized clinical benefit increasingly important in the future. ENBREL is next on slide 17. In the first quarter of 2008, we experienced growth of 30% versus the first quarter of 2007. 16% was driven by the one-time impact of changing our distribution model from drop ship directly to customers to distribution via wholesalers. 14% was due to continued solid demand growth. As you may recall from our 2007 fourth quarter call earlier this year, we estimated that the impact of the distribution model change would be roughly ten days of sales as wholesalers initially built their inventory levels. Now that inventory levels are stabilizing it appears that actual inventory added to the channel due to the distribution model change will be 11 to 14 days or roughly $100 million to $130 million slightly above our original estimates. The corresponding one-time impact in the first quarter was approximately 13 days of net sales or $120 million. Both the rheumatology and dermatology segments had double digit demand growth versus the first quarter of '07 despite increased competition. In late January, in the dermatology segment, we saw new competition enter the market with the launch of Abbott's HUMIRA. By the end of quarter one, HUMIRA was capturing about 20% share of new prescriptions. However, the source of HUMIRA’s growth appear to be a combination of expansion of the dermatology biologic segment as well as displacement from existing products, including some switches from ENBREL. ENBREL continues to get the majority of first-line biologic use for psoriasis in a dermatologist office and it is holding more than a 70% dollar share in the dermatology segment. On to Sensipar on slide 18. For the first quarter, worldwide Sensipar sales grew 27% versus the first quarter of 2007. Demand remained strong with the field organizations continuing to deliver our important Sensipar message to the US nephrology customers made a second wave of BSA scrutiny with 21% year-over-year sales growth. International sales grew even stronger at 43% or 32% excluding the impact of foreign exchange. Next is Vectibix. Weekly Vectibix sales have stabilized. Future growth is highly dependent upon label expansion into first and second-line metastatic colorectal cancer incorporating our new information on KRAS and the addition of combination chemo safety data and KRAS efficacy data is expected to be available in the second quarter of 2008. The KRAS biomarket data holds the potential to redefine the risk benefit profile of the class by identifying metastatic colorectal cancer patients who are more or less likely to respond to treatment. On the next slide, we've added product level details for our international business. Aranesp was down 3% overall, 12% excluding foreign exchange. Oncology was down primarily due to segment contraction related to safety issues while nephrology was down largely due to pricing concessions as we balanced efforts to maintain a price premium to the first-generation EPOS with the need to stay competitive from a value perspective. I'd also like to point out that our international team has done a terrific job of expanding distribution into new territories and that although on a relatively small base, growth rates such as plus 47% in Central and Eastern Europe, plus 60% in the Middle East and plus 31% in Turkey served to mitigate modest declines in larger markets. And I'll just finish up with a few comments on Nplate. Amgen has been researching in the area of blood platelets and the role of thrombopoietin for almost 15 years. In the way of background, platelets are required for blood clotting. If you have low platelet counts you are at risk of serious bleeding events. In the fourth quarter of 2007, we filed a BLA for Nplate in the autoimmune disease of Chronic Immune Thrombocytopenic Purpura or Chronic ITP. ITP is a condition where the body's immune system greatly accelerates platelets' destruction and new platelets are not produced fast enough to offset the lost platelets. If approved, Nplate will be both the first peptibody and a first-in-class treatment for ITP. Current treatments focus on slowing down the immune system's destruction of platelets. These treatments include high doses of steroids, surgical removal of the spleen and other immune modulating agents. All of these treatments have significant risks and potentially toxic side effects. If approved, Nplate would be the first therapy to increase platelet production potentially reducing the need for these other therapies. There are approximately 140,000 treated Chronic ITP patients in US and Europe. In March, an ODAC panel was convened to discuss Nplate, and unanimously recommended approval. We are currently working with the FDA on the label in an appropriate risk management program. We hope to launch Nplate in the US in the second half of 2008 and in the first half of 2009 in Europe. Roger?

Thanks, George. On slide 23, I've noted key topics for our discussion this afternoon. During the first quarter, we had the opportunity to present new information to the Oncologic Drugs Advisory Committee regarding both ESAs and our new product candidate, Nplate or romiplostim. We also made substantial progress in advancing late-stage clinical trials for Vectibix, Sensipar and Denosumab and we made good on our strategy to seek a partner for commercialization of new products in Japan with the completion of a very broad agreement with Takeda. We also identified a new product opportunity from another Japanese company, Kyowa Hakko. Slide 24 provides an update on regulatory interactions with respect to the ESAs. As you are aware, label updates for ESAs highlighting potential safety concerns in this therapeutic class became available in early March. At the ODAC review on March 13th, we together with our colleagues at Johnson & Johnson had the opportunity to discuss the available data in more detail. We are now working productively with the FDA to make further changes in the ESA labels. We're focused in particular on the development of risk evaluation and minimization strategies for these drugs along the lines of what we presented at the ODAC meeting. All parties agreed that the best outcomes are achieved when patients and physicians are fully informed regarding the benefits and risks of ESA therapy. In the non-oncology setting, the Data Safety Monitoring Committee for the TREAT study, which you’ll recall as a randomized controlled clinical trial on more than 4,000 patients with Type II Diabetes and renal insufficiency not on dialysis. Testing whether the treatment of anemia improves cardiovascular outcomes conducted an interim analysis at the point when 60% of the pre-specified events had accrued. The Data Safety and Monitoring Committee found no cogent reason to modify the trial. The TREAT study has now accrued more than three times the number of events that were examined in the so-called CHOIR study in which an adverse effect on cardiovascular outcomes were seen in similar patients. It is worth mentioning that because of the very stringent stopping rules that govern this study, the recommendations by the Data Safety and Monitoring Committee to continue TREAT permits as to conclude with 95% confidence that the true hazard ratio for the outcome of ESA therapy in the study lies below the point estimate that was observed in CHOIR. And indeed, the point estimate for the hazard ratio in TREAT must now be below 1.13 for the comparison with placebo. This is very reassuring. Our Data Safety Monitoring Committee also completed review of the RED-HF Trials in which Aranesp was employed to treat anemic heart failure patients in this group of patients those obviously at high risk for adverse cardiovascular events. The DSMC found no cogent reason to amend the study. Turning now to other marketed products on slide 25. During the first quarter, we completed enrollment in our large Phase III studies of Vectibix in the first and second line treatment of metastatic colorectal cancer. After discussion with the FDA, the statistical analysis of these studies was modified to focus first on those patients with tumors bearing wild-type KRAS genes. In the first quarter, we also received Canadian approval for Vectibix in the third line colorectal cancer setting for tumors going wild-type KRAS. Our manuscript describing the importance of KRAS mutations and determining responsiveness to Vectibix was published in the Journal Clinical Oncology this quarter. Editorials in the JCO and elsewhere have commented on the power and importance of these results. Indeed as I've indicated, KRAS mutational status ranks among the most important prospective stratification factors for a therapeutic regimen that has ever been identified and could be taken as an important step down the road towards more personalized cancer care. During the first quarter, we completed enrollment in the Sensipara outcome study called EVOLVE, a very large trial testing whether satisfactory control of secondary Hyperparathyroidism in dialysis patients yields benefits with respect to mortality and cardiovascular mobility. In addition to presenting to the ODAC on ESA safety, we also had the opportunity on March 12 to describe Nplate as George and Kevin have mentioned, and Nplate is our new peptibody that stimulates platelet production. As noted on slide 26, the ODAC expressed the unanimous view that the benefit risk profile for Nplate use is favorable in the setting of Adult Chronic Immune Thrombocytopenic Purpura. The FDA is reviewing our BLA for Nplate and has set a new PDUFA data of July 23, based on our submission of a REMS, a Risk Evaluation and Mitigation Strategy for this product along the lines of what we presented in March at ODAC. Our discussions with the agency on both the labeling language, as well as the risk management approach are proceeding well. In the first quarter, we made substantial progress in our denosumab registration programs as noted on Slide 27. In the postmenopausal osteoporosis setting we've now completed three Phase III studies that we expect will be included in Biologics Licensing Application. These address the use of denosumab to improve bone mineral density in women with non-metastastic breast cancer receiving Aromatase inhibitors and in non-osteoporotic women with low bone mineral density . We also completed a large study involving more than 1,100 women with postmenopausal osteoporosis, in which denosumab was found to be superior to alendronate with respect to its ability to increase bone mineral density. We remain on track to have in hand all of the data necessary for evaluation of the utility of denosumab in the PMO setting, including the pivotal three-year fracture reduction study during the second half of this year. On the oncology side, slide 28, we've now completed enrollment in two of our three studies evaluating the ability of denosumab to reduce skeletal-related events in patients with bone metastases. Both the breast cancer SRE study and a second study including patients with other types of solid tumors or with multiple Myeloma have completed enrollment. These are large event-driven trials, but they are proceeding very well. Our prostate cancer SRE study is also proceeding well. We've elected to increase enrollment in the study to accelerate the time to completion of the program. As it's typical for large studies of this type, we have in place a Data Safety Monitoring Committee that reviews the program on a regular basis. During the first quarter, they completed another such review looking at records for more than 6,000 patients with metastatic disease or enrolled in denosumab trials, they found no basis for amending any of these studies. Turning now to other aspects of our pipeline, slide 29 previews the large set of presentations that we'll make at the upcoming annual meeting at the American Society for Clinical Oncology in June in Chicago. We expect to present interesting data on the potential utility of denosumab and the treatment of giant cell tumors of bone as well as data on Vectibix is a potential therapy for patients with squamous cell carcinoma of the head and neck. In all, 30 abstracts will be presented. Our colleagues from the German AGO Group will represent an update on the PREPARE study, which evaluates the impact of Aranesp used in the neoadjuvant setting for patients with breast cancer. This study was highlighted in the recent ODAC review of ESAs. The ASCO meeting will also provide an opportunity to explore our very active program in oncology, which is presented diagrammatically on slide 30. This slide is intended to convey our strategy in the oncology field. We have taken a mechanistic approach to cancer therapy identifying opportunities that targeted tumor cells themselves as well as agents that are directed at the tumor stroma cells that are not themselves malignant, but which are required for malignant behavior. In the latter category, our angiogenesis inhibitors like motesanib diphosphate, which is being studied in the large Phase III trial in non-small cell lung cancer and AMG 386. Slide 31 tabulates the status of five molecules that have shown evidence of efficacy in targeting tumor cells themselves. You can see that we've listed 15 Phase II studies that we're currently pursuing with these agents. More information will be provided on each of these molecules at the ASCO meeting. I'm certainly pleased with the progress that we've made in developing new cancer therapies, but I can't fail to mention that in the first quarter we also made substantial progress in other therapeutic areas. Slide 32 outlines some features of the emerging pipeline in inflammation, metabolic disorders and general medicine. First, we completed a large Phase II study of AMG 108, an extremely potent IL-1 antagonist given once monthly by subcutaneous injection in rheumatoid arthritis. While AMG 108 produced statistically significant improvements in the signs and symptoms of rheumatoid arthritis and was well tolerated in the study, we regard the degree of therapeutic benefit conferred by this agent as inferior to that same using ENBREL. We are therefore focusing on other potential opportunities for this molecule. AMG 222 is a DPP-IV inhibitor, which we are developing with our partners at Servier. We expect to see Phase II data in Type 2 diabetic patients in 4Q '08 or 1Q '09 for completing a large Phase II dose ranging study for AMG 223, the non-absorbable phosphate binder that we acquired from Ellipsa last year. Based on these data, we expect to begin Phase III studies at the end of this year. Also in the fourth quarter, we will see data from a very large Phase II study of AMG 317, an antibody directed against the common compound of the IL-4 and IL-13 receptors that blocks the actions of both cytokines. Administered by subcutaneous injection, we hope to demonstrate that this drug improves pulmonary function in atopic asthmatics. Obviously, favorable results in this study would have a large impact on our future plans. Also in the asthma area, during the first quarter, we acquired the rights to develop another antibody AMG 761, which is a potent cytotoxic directed against the CCR4 molecule that is present on certain lymphocytes known to be involved in inflammatory diseases. In summary, during the first quarter, the Amgen R&D organization made great strides in building a broad portfolio of important new therapies, which I have highlighted for you today. Kevin?

Okay. Thanks, Roger. Let me summarize a bit and look to the future before we turn it over to questions. We are managing our business thoughtfully with a balance between delivering results in the short and long term. We are confident in our strategy and while we will continually seek opportunities to be more effective and efficient, there are no shortcuts to success. We are now more and more focusing on growth as the effects of our ESA matters reach a new steady state later this year. I'm optimistic about the growth potential of our in-line products and what the pipeline can deliver. Finally, I would like to thank my colleagues at Amgen for all their hard work on behalf of patients and shareholders during these challenging and exciting times. Thank you. Now we'll take your questions.

Operator, why don't we go ahead and open it up for the Q&A session, if you can go ahead and review procedure for asking questions. For the participants, I would just like to request just to make sure that everyone has a chance to ask a question that if you can limit yourself to just one question, please. Operator? Operator, are you there? Question and Answer

[Operator Instructions]. And your next question comes from the line of Michael Aberman. Please proceed. Michael, your line is open.

Okay, go on to the next one.

And your next question comes from the line of Joel Sendek. Please proceed.

Hi. Can you hear me?

Yes.

Okay, great. I have a question on the Aranesp weekly net sales. So you gave a great analysis there of the weekly sales and I think you mentioned that the trend was consistent into April, and if I just do the math on the 31.7 down to 30.5 that's about a 4% decrease. Is that what you're saying, because last quarter you said there was a plateau. Should we see… Okay.

Yes about a 4% decline, exactly right.

And we should expect that to continue at that rate through the second quarter?

The second quarter, as we're only few weeks into it. I'm just saying right now the… what we've seen in April is consistent with what we saw in the first quarter.

Okay. Thank you.

And your next question comes from the line of Geoff Meacham. Please proceed.

Hi, can you hear me?

Yes.

A question for you about pricing in Europe just in light of biogenerics? What if anything have you guys done to protect the EPO share via pricing and then what are your expectations for Neupogen in the back half of this year?

Okay. So, what we've done in Europe so far with Aranesp, remember, we don't have biosimilar competition against Aranesp. It's really the first generation, more specifically Epoetin alfa that’s getting biosimilar competition. But it does affect the marketplace. So what we do is we feel there is a price premium that is warranted by Aranesp by virtue of the fact that we think it’s a better product, and so do our customers. So, when, for example, in Germany competitor starts at lower prices in bidding situations or even in the retail sector, we will respond to maintain that… that price premium. And so I [inaudible] results and then I think about a 9% reduction in price in Germany in the resale market. And frankly, so far we haven't seen any deterioration in share to either peg-EPO or to the biosimilars and so that's… that will be our stance going forward. Too soon to tell what will happen with the G-CSF coming into the marketplace, we do expect them in the near future. We haven't seen any pricing yet. But we [inaudible] will probably take a similar attack, in that, we have a sense of what price premium is warranted and we will make sure we are competitive but also maintain that premium.

Okay, thank you.

And your next question comes from the line of Steve Harr of Morgan Stanley. Please proceed.

This is for George and Roger, could you just give us a little bit of discussion on what you expect the FDA label to include or discuss around curative intent, and then what percentage of your current use really falls underneath that umbrella, ex the breast cancer, head and neck study.

Yes, Steve, it's Roger. And first of all, I think if you… if you were there at the ODAC or if you've looked at the transcript, you know that there was a lot of discussion about what was meant by treating with curative intent. The question was intended as a philosophical question and I think that the panel members struggled trying to understand it. We certainly have heard a lot from physicians and from patients who are concerned about this expression because it is unfortunate of the case as we all know that most patients who present to oncologists with cancer unfortunately cannot be cured. Yet nevertheless, even though the percentages are low, a physician is very, very much want to try to implement therapies that are curative, and in that sense have curative intent and so it becomes a very difficult kind of calculation to do. I can't really comment on our discussions with the FDA, I mean clearly we're going to try and do everything that we can to emphasize the important thing, which is that patients and physicians be able to have the discussion correctly about the benefits and risks of ESA therapy. I think that's the best we can do.

George?

Yes, and so Steve, just add to that, I totally agree with Roger, obviously. If you look at by tumor stages for settings like new adjuvant… adjuvant metastatic, you really can't say stage one to three is curative, stage four is palliative or new adjuvants are curative and adjuvant may be in metastatic. So you really… you really get sort of hung up in thinking through this, and so I think we have, let's wait for Roger to have a constructive dialog with the FDA to really begin to get a sense of how this is going to affect the business going forward.

Okay. It sounds like you guys have troubles as much as we have. Thanks.

Yes, absolutely.

And your next question comes from the line of Yaron Werber of Citigroup. Please proceed.

Hi, good afternoon. This is actually Richard Yei [ph] calling for Yaron. On the Phase III prostate cancer SRE study, you mentioned that you’ve increased the size of the study, and can you talk about any reason behind that increasing size? Are you now foreseeing a separation occurs so that you are increasing the POWER study? And in addition can you comment on how many more patients you are enrolling and how much longer it's going to take to finish enrollment? Thanks.

Yeah, we are increasing the size of the study so that will be done sooner. And the reason that that's true is because it's an event driven study and so what happens is that it will accrue more events sooner, and we are doing that in part because we are having... we did exactly the same thing with the breast cancer study. There of course we also were interested... we wanted to ensure what our event rates were. Now, we're very sure what our event rates are. And so, we did exactly the same thing, and with the increment in terms of enrollment, will end up being around 15% to 20%. But it's just a positive. It's not... it doesn't reflect anything other than an acceleration and improvement in getting to the event target.

Thanks. So how many more patients here, including --?

As I said, we are going to increase it by 20%.

Oh, 20%. Okay. Thank you.

And your next question comes from Jim Reddoch of FBR. Please proceed.

Hi, thanks. You did a nice job of laying out the impact of breast metastatic and adjuvant, if that were to be taken off the label. But what would the impact be of requiring patients to be ten or under in terms of the hemoglobin levels? Thanks.

Jim, I don't have that math in front of me, although, we did take everyone through that on our previous conference call, I think probably the last October. So I think maybe Arvind we can follow up and resurrect that data and share that again.

In the private pay group out there what's the average hemoglobin level for the average patient that starts therapy?

I don't have that average, but I can tell you that most of the payers will ask the hemoglobin to be below 10 before they initiate with the ceiling of 12 And that hasn't changed in some time now.

And by the way, Jim, that's what we had suggested at the ODAC panel in terms of our recommendations going forward.

Yes, I remember that, okay. Thank you.

And your next question comes from Blake Arnold of Robert W. Baird. Please proceed.

Thanks. It's actually Chris Raymond here. Can you hear me?

Yes.

Hi. Just a simple question. I am just kind of curious noticing your gross margin, I apologize if you covered this already, but it clearly one up quarter-on-quarter, but the mix was more heavily favorable to ENBREL, I would have expected the opposite. Can you maybe talk about the drivers there?

Yes. The driver primarily was the decrease in volume awareness and that’s what accounts for the decrease. We haven't changed guidance across the sales for the year. And therefore we confer this quarter across the sales margins a little bit lower than what we had given you in previous guidance. So we'll wait and see whether we are able to preserve some of those savings in the second quarter before changing guidance.

But, if I'm not correct, I think gross margin actually went up?

Yeah, I'm referring... yes I did, I'm referring to cost of sales going down.

Okay. So cost of sales went down because… I guess I would have expected the opposite. If you have a mix more heavily favorable to ENBREL you would have expect your cost of sales to go up.

Correct. ENBREL is more expense to make, but it's more than offset by the decrease in volume produced for [inaudible].

Okay. Got you. Thanks.

And your next question comes from Michael Aberman. Please proceed.

Can you hear me this time?

Yes.

Thanks. So, I guess what… it sounds like a lot of people trying to get at with different question on different products. You have Aranesp potentially having 20% decline… further decline just from breast cancer, let alone other label changes. ENBREL demand, if you can take away the 120, is going down. You’ve got Neulasta and NEUPOGEN had quarter-over-quarter decline and it's hard to come with a 14.2 number that you come up with, given these trends from first quarter and going forward. So at the same time you're arguing you're not going to decrease any further R&D spend, and so I guess I’m less... scratching my head and maybe you can give more color on how you are doing the math here, what... where is the surprise to the upside in the future quarters?

George go ahead and… that's the obvious question that I refer to when I talked to the front end. Just talk through what you think again in a highlight way is going to happen to the products. The question, basically is why we're still confident in our revenue guidance.

Well, you said ENBREL's demand is going down. So let me start there.

Yes, the quarter-over-quarter.

But, we don't pay a lot of attention to quarter-over-quarter, Michael, for obvious reasons and we can take that offline sometime.

Okay.

But when I say 14% ENBREL growth I feel that's pretty solid right now. So if you are confident about that. NEUPOGEN, Neulasta, we feel that there is a lot of potential for growth in these markets. We think we've been under this sort of a… that the whole reimbursement anxiety out there and so hopefully we can get that back growing, where we would like it to be, and we also think there will be some contribution to price. So we feel that franchise is going to be a strong contributor. Sensipar, a strong contributor right now. I think the biosimilars are probably not taking as a big bite of the marketplace as we thought. peg-EPO, we don't see in Europe as well. So perhaps we have a little more confidence in Europe going forward. And lastly, Aranesp, we feel right now, what we're saying is it's stable all the way through current weeks in April, and we just have to see, where Roger ends up in his discussions with the FDA, and then we’ll come out and tell you what we think the inflection point might be a bit.

So your guidance includes a significant decline in Aranesp assuming the label changes?

We have an internal estimate on Aranesp that we haven't made public and we don't expect Aranesp will be unaffected by the new label, the uncertainty is one when will the label happen, and what will the effect be. And then we have to think about the CMS decision after that. This will play out over a number of months before we start seeing that effect. And the way that we think about revenue and we have some data here, you don't, we shared some of it with you. Here is how I look at it and we have done it this way for a long time and I think it's proven to be an accurate reliable approach. We take it product by product and do a trend line analysis, which is informed heavily by the most recent data. We then ask ourselves, what is the most recent period of time on a weekly sales basis that is what number do we have to hit for the week to hit the year-end number. And we watch it and see are the trends above or below what we need, we aggregate all of that together, we project it forward and say where we are going to be. Then we ask ourselves a question, what are the potential discontinuous events, there might be a label change, there might be a new product. There might be competition, there might be price. Factor that in and then we store it all up and we come out with a position. And the way we run the company is to let revenue lead expenses. And I want to give investors confidence that we all pay very, very close attention to this data on a weekly basis and have a sophisticated and experienced team in analyzing it. Basically what we showed you today was some of that in the Aranesp area and I'm highly confident in our ability to project these numbers. Although I can appreciate from just a one quarter snapshot. It's not always easy for investors to come up with the same degree of confidence we have and that's unfortunate, but it is sort of transitional time in the company's development, understandable. So maybe that's a long-winded way of saying trust us.

Let me just add one thing, Kevin, going back to ENBREL. Last year, if you look at quarter-on-quarter growth for ENBREL, 8% decline in the first quarter, 13% increase in the second quarter, 0%, third quarter, 4%, fourth quarter for an average of 11%. So quarter-on-quarter comparisons yet to be very careful that they tend to be very choppy, again there are some reasons for it, which we don't want to go into right now necessarily, but I just don't think you can project also that.

All right. Thanks.

And your next question comes from May-Kin Ho of Goldman Sachs. Please proceed. May-Kin Ho – Goldman Sachs: Hi, Roger. In the recently published study DEFEND, which is the preventing osteoporosis study, is numerically in the denosumab group there was an increase in infection actually as well as cancer, but then the investigators concluded that those were not due to the treatment. Can you expand a little bit on that how can one be sure that they are not treatment related?

Yeah, May-Kin, of course you can never know for sure, but let me start at the top and just say that of course we've been interested as you know I have discussed previously, we've been interested in the question of whether there were certain adverse events that might occur with increased frequency in denosumab treated patients and because RANK Ligand, the target of denosumab is present on immune cells particularly, in the mouse and there are findings in rodents where RANK Ligand has been disrupted that we're concerned. This has been an area of special interest to us for a long time. When you look at the totality of the data and we've had the opportunity to ask our data safety monitoring boards to look at this across now, studies that involve more than 18,000 patients, there isn't anything of that is of concern with respect to infections. And in particular if you look at those data that you referred to in women with non-osteoporotic low bone mineral density. Many of those infections, first of all they didn't have the characteristics of opportunistic infections and many of those infections were things that are not typically what one would see in a community-acquired infectious environment, appendicitis, an infectious episode that didn't require antibiotic treatment and the patient was released the next day, those kinds of things, which were… which inform the physicians who make the decisions as to whether or not they think these are drug related. So in aggregate we have a lot of confidence really that we're not seeing any trend in terms of serious adverse events for infections. And of course you will note that the overall infections rates across all these studies are the same. As an example, if you look at the overall infection rate in our study comparing alendronate with denosumab, 1,180 patients, there was no difference. May-Kin Ho – Goldman Sachs: On the cancer.

Yeah. And the same thing applies in terms of malignancy, we don't see any difference. May-Kin Ho – Goldman Sachs: Thank you.

And your next question comes from the line of Jim Birchenough. Please proceed. Jim Birchenough – Lehman Brothers: Yeah. Hi, guys. Roger, just wondering if as you think about the potential label going forward, if you expect some discretion to be allowed to physicians or whether you expect complete contradiction? And second to that just wondering what you are doing currently for patients where physicians believe they should have some discretion, patients that can't get a transfusion needing ESA, what are you doing to help physicians get reimbursement?

Well. First of all with respect to ESAs, I think, we are at a point where we are having discussions with the agency, but a full range of options is open after all the, the advisory committee struggled with each one of these questions, I think, that was strong support for the indication in chemotherapy-induced anemia and a feeling that this option should be made available and there was a lot of commentary at the ODAC about the need to have physician discretion. I think there is much more focus on making sure that patients and physicians are adequately informed and that there is a program in place that make certain that that sort of a dialog has gone on between patients and physicians and we are focusing a lot on that kind of REM strategies. So that's our principal focus. I don't think and if memory serves, Doctor Pazdur said specifically at the ODAC meeting that he was not talking about a contraindication and certainly, that's not something that I think would be appropriate in a case like this. I think, it's exceedingly important that physicians actually have discretion with respect to the reimbursement issues that you describe. I don't know of circumstances like that where there has been a need that has been expressed. George, have you had encountered that? George Morrow – Executive Vice President, Global Commercial Operations: No. So I think the… for the Medicare population, which is about 40% of the overall population, the NCD really does describe, who is going to get paid, who is not going to get paid and that will probably evolve as the label evolves. On the commercial side, things really haven't changed significantly and I think there is much more flexibility right now for patients to get reimbursed. Jim Birchenough – Lehman Brothers: And I guess what I am thinking about is that the patient who may be in heart failure, compromised cardio… cardiac status can get a transfusion, needs an ESA and they get declined. Is there anyway that Amgen can help with the appeal process at the local carrier level?

For Medicare patients, we probably couldn't and I don't know that that's happening to a large extent right now. Doctors may be going ahead and giving those patients the ESA that they need now and showing at an exception for them, I am not sure. George Morrow – Executive Vice President, Global Commercial Operations: This was one of the circumstances that was pointed out by our panel member at ODAC and there are those patients, but I certainly have not been getting calls from physicians who are concerned about that. Jim Birchenough – Lehman Brothers: Okay, thanks.

And your next question comes from the line of [indiscernible]. Please proceed.

Sure, hi. I have a pricing question. How much do price contribute to your results this quarter and then when thinking about your entire product portfolio and in regions where you can't increase prices, should we start to think about a more aggressive pricing posture from the company? George Morrow – Executive Vice President, Global Commercial Operations: Well, let me take the second question first. If you can increase price and I don't know how we would increase price and that's not misunderstanding the question. Typically in Europe, we don't really have price increases, after all your increases are typically volume related and I don't have a breakout far better if you do of the overall contribution of price to, I don't have it in front of you, George. We can come back to you on that.

Okay.

Let me talk about the strategy of price. We don't see inappropriate to change our pricing strategy from historical norms. Obviously, we face a competitive situation and as George referred to in Europe as biosimilars come on market and we certainly will be priced strategically appropriate there. But I don't see a big change in patterns of the company's behavior in this regard. George Morrow – Executive Vice President, Global Commercial Operations: In general, most of our price increases are well within inflation.

Yeah, yeah.

Okay. Thank you.

And your next question comes from Mike King of Rodman & Renshaw. Please proceed. Michael King - Rodman & Renshaw: Thanks for taking my question. I wanted to just explore the strategy with denosumab, and can you comment as to whether you're going to go with sort of all in one registration strategy or will there, would you be willing to compromise because clearly PMO and cancer metastasis have vastly different risk benefit profile. So I'm wondering if you might be able to discuss that with us?

I think that Mike, it was a lot of questions about denosumab understandably that we just have to wait, we have the data to get the answer, the cancer studies have been driven. So you can't be certain when that's going to be done, we're not sure what the 216 data is going to reveal and this isn’t a specifically responsive to your question but we're going to do what the data tells us we have to do and right now kind of speculating what that might be just isn't going to getting us there, I'm afraid, don't rule anything out, we'll try to do what smart given what the data says and when we get it.

Operator, as we're going on top of the hour, why don't we take two more questions, please?

Sure. And your next question will be coming from Eric Schmidt of Cowen and Company. Please proceed. Eric Schmidt - Cowen and Company Thanks. A question for George on ENBREL sort of a follow-up to Michael Aberman’s question, can you give us a little more detail about where do you think this franchise is going in the long term? We are in a much more competitive environment in psoriasis, you might… since we’ve had a pretty good launch, more about just coming in already. What kind of market growth and share trends are you projecting going forward? George Morrow – Executive Vice President, Global Commercial Operations: Yes. We don't give forecast on share trends, Eric. But I can tell you that... I think a lot hinges on due the new competitors expand the market and that’s why we're actually pleased that HUMARA coming in is actually, we think it's going to accelerate the growth of the market about what it would have been without it in the marketplace. And I think when the market is expanding, then it is okay to lose... little more okay to lose share, because you continue to grow. And so I think the way we feel about ENBREL is we still think ENBREL has the best balance of safety and efficacy of any product out there, that’s particularly important in the dermatology segment. And so we think that will continue to carry the day for us, and we will continue to point that out to physicians certainly. So we're ready for the new competition, if it expands the market that's going to be great, if the market doesn't expand with new competition then it gets into some pretty tough tit for tat marketing battles, and hopefully we can avoid that because both markets rheumatology and dermatology had tremendous room for growth with the biologics. And I think every new one coming in gives another sort of improvement that these products are safe and effective for the long-term use. Eric Schmidt - Cowen and Company And long term on ENBREL, do you see much risk, so you are getting fully US rights back five years from now?

We can't speculate on that right now. But obviously we're going to follow what the contract says, and we just…. we'll talk about that later. I don't have a definitive view right now. Eric Schmidt - Cowen and Company Okay.

And your final question comes from Mark Schoenebaum of Bear Stearns. Please proceed.

Thank you very much for fitting me in. I appreciate it. I want to come back to the topic of Aranesp and the FDA if you allow me. I remember in your briefing document, in your presentation to the FDA, you have a good, quite a few studies that I believe FDA staffers during the meetings have they hadn't yet had a change to review. And so, Roger, I’m wondering are they undertaking a formal review of those studies prior to making any label changes. And then just on the slide that George showed on the CIA breakdown. Those are patient shares. Are they similar to dollar shares or is there some sort of difference there that we should bear in mind? Thanks.

So, Mark, let me say first that the agency pointed out as the ODAC, if you recall that they were and received a tens of thousands of pages of data, because... of course we and our colleagues at J&J completed a lot of post marketing commitments. They will get through those data eventually but there is a lot of other work that they have to do, and so that we have been working closely with them to kind of point out those things that are most important to review. And we expect that there will be an opportunity to look at those things. I think it will take some time before they have a chance to go through everything, but as I say our discussions with them have been very good to this point and we're moving along quite constructively. I'll let George take on the question of patients versus all on his chart? George Morrow – Executive Vice President, Global Commercial Operations: Yes, Mark, so it's a patient share so to the degree that the use of ESAs would vary by chemo, by the different tumor types, you could see some differences, I don't it would be particularly major but maybe you can follow up, Arvind on it and get some more specific on it.

Okay, thanks, George.

Thank you.

Thank you. Let me thank everybody for their participation in our call this afternoon, and once again my apologies for the interruption that we had earlier. If we didn’t get to you, if you had questions or comments please feel free to call me, and the investor relations team, of course, we'll be around for some time. Just a reminder that we're going to be presenting on many of our key products at the upcoming ASCO. So, over the next few days, I'll send out a notification for that. Once again, thanks for your participation.

Ladies and gentlemen, that concludes the presentation. Again, thank you for your participation. Have a great day.