Amgen Inc. (AMGN) Q2 2008 Earnings Report, Transcript and Summary

My name is Dennis, and I will be your conference facilitator today for Amgen's Second 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 conclusion of the last speakers' prepared remarks. [Operator Instructions]. I would now like to introduce Arvind Sood, Vice President of Investor Relations. Mr. Sood, you may now begin.

Thank you Dennis. Good afternoon, everybody. I would like to welcome you to our second quarter results conference call. A lot happened during the second quarter, but perhaps the most notable event being the availability of important new data on denosumab. Our Chairman and CEO, Kevin Sharer, will lead out the discussion today, with both a strategic and operational review of our business. Our Chief Financial Officer, Bob Bradway, will then provide some additional details on our performance in the second quarter, with a particular focus on how the trends observed through the first half translate into expectations for the rest of the year. George Morrow, our Head of Commercial Operations, will then discuss our product performance in the U.S. and international markets, both in the context of the second quarter and expectations for the remainder of the year. Roger Perlmutter, who as you know is our Head of Research and Development, will then provide a description of the recently disclosed data on denosumab, together with a brief review of our emerging products pipeline. We will be using slides for our presentation today. These slides have been posted on our website and a link was sent to you separately by email. Before I turn the call over to Kevin, I would like to remind you that through the course of our presentation today, we'll make certain forward-looking statements and of course, actual results can vary materially. So with that, I would like to turn the call over to Kevin.

Thanks, Arvind. Good afternoon. We have much to report and discuss with you today, with undoubtedly and understandably a major focus on our Denosumab program. I will comment today on the Demab program after our report and before your questions, but not now. I would first like to thank all Amgen staff for their hard work, creativity, and dedication in dealing with a very significant set of challenges these past 15 months. We're not totally through this phase, but the worst is clearly behind us and the future looks very bright. I would like to point out a number of things I see as particularly significant. First, our overall financial performance is stronger than we expected and our new revenue and earnings guidance range suggests a strong possibility, we will actually grow this year compared to 2007. A remarkable accomplishment in the face of the ESA situation, and one neither we nor observers, would have been possible a year ago. Second, we're in discussions with the FDA regarding a new label for Aranesp, and the outcome will almost certainly be within our expectation range and is taken into consideration in our new 2008 guidance. We expect to enter 2009 at a new steady state ESA level that while lower than current levels we can handle, leaves Amgen positioned for good future overall top-line growth. Three, our non-ESA top-line growth is notable, particularly our very strong performance in Europe, in the increasingly competitive biosimilars market. Fourth, the peg-EPO patent victory settling the J&J lawsuit and the recent ESRD legislation largely remove a number of major overhangs and makes the future clear. Fifth, we can effectively manage costs while still investing aggressively for the future, and believe we have more cost management opportunity over coming years as we continue to seek improvement across the board, particularly in our manufacturing network. Finally, our pipeline continues to advance and grow. We will have invested about $17 billion in the research and development over the past eight years, with $11 billion in the past four alone. As our Nplate and Denosumab programs both illustrate, bringing a product through Phase 3 trials from inception can take as long as 15 years. In fact 10 years would be a very, very short for this work, so I am very pleased with our R&D progress in developing a large pipeline, bringing multiple medicines through Phase 3 and growing the top line by over $11 billion or almost a factor of four in six years. This gives me confidence in the future. I would like to now turn the call over to my colleagues, to discuss the quarterly results and I'll be back just before question time with some thoughts on the Denosumab and Nplate programs. Bob?

Okay, thank you Kevin. If I can direct your attention to page five, I'll walk you through the adjusted income statement for the quarter. As you can see, revenues for the second quarter increased 1%, from $3.7 billion to $3.8 billion. And I'd highlight in terms of product sales that while our anemia franchise was down 8% during the quarter, the rest of our products increased by 11% during the same period. Wholesaler inventories of our major products ended at or below the low end of the normal ranges, with the exceptional ENBREL which ended in the middle of our expected range, for which we'll have more detail for you in a moment on our products. If you look at geographic sales; in the U.S., sales totaled $2.8 billion for the quarter, which represents a decrease of 1% versus last year. Internationally, our sales were $849 million in the quarter, which represents an increase of 70% versus last year. These sales were positively impacted by $93 million from foreign exchange fluctuations. Excluding those foreign exchange fluctuations, international products sales increased 4% during the quarter. Now turning the operating expenses, which are presented on an as-adjusted basis. Let me start with cost of sales; cost of sales for the quarter decreased by 6%.This decrease was primarily driven by lower cost ENBREL and lower inventory reserves. If I start with inventory reserves, just recall for a moment that in the second quarter last year, we had an increase in inventory reserves due to expiry risk associated with declining demand and excess inventory for certain of our products. By comparison, our reserves were lower this quarter. Now, as regard to of ENBREL in the quarter; let me just also point out that ENBREL is manufactured at three different sites. Each has a slightly different efficiency and cost structure. So there is a fluctuation in the cost of ENBREL depending on the mix of supply from each site. This quarter, it benefits from a very favorable mix and the result is that ENBREL has an improved gross margin and this has an impact on the Wyeth profit share, which I will discuss in a moment. Trying the research and development; R&D expenses were relatively unchanged year-over-year, primarily due to the benefits derived from our out-licensing deals in Japan with Daiichi-Sankyo and Takeda as well as lower aggregate clinical trial costs and lower staff-related costs, resulting from the 2007 restructuring program. This favorability was offset by the $100 million upfront payment associated with our licensing agreement with Kyowa Hakko, a collaboration which we referred to in our conference call. SG&A expenses increased 6% over last year. Excluding Wyeth profit share, SG&A expenses increased 4% year-over-year and I will give you a bit more detail on the next slide. Total operating expenses increased 1% in the quarter. And turning to our tax rate; you can see our adjusted tax rate for the quarter was 22.2%, which is an increase from the 19.5% that we had in the prior year. The increase from Q2 '07 to Q2 '08 is primarily driven by the expiration of the federal R&D credit in 2008 and the impact of a favorable tax settlement that we benefited from in the second quarter of last year. Turning to earnings per share, adjusted earnings per share for the quarter were a $1.14 up 2% over the last year. Second quarter 2008 adjusted earnings per share including stock option expenses were a $1.13 a share, which is an increase of 4% compared to the $1.09 that we reported in the second quarter last year. Turing to page six, as I mentioned earlier; SG&A expenses were up 6% year-over-year. The Wyeth profit share is the largest portion of the year-over-year increase and is up substantially as a direct result of the additional ENBREL sales and the lower cost of those sales in the quarter. Let me say a few words about the Wyeth profit share. The calculation our profit share is based primarily on ENBREL gross margins and to a much lesser extent, the settlement of other partnership obligations. So, while ENBREL sales were up 2% year-over-year, Wyeth profit share expanses increased 13% to $283 million in the second quarter of 2008 versus $250 million in the second quarter of 2007. This difference is due to the improvement in ENBREL gross margins driven by lower ENBREL cost to sales. Wyeth profit shares expenses for the first half of the year 2008 were $589 million. And as I said earlier, SG&A expenses excluding the Wyeth profit share was up 4% year-over-year and we're seeing some year-over-year increase as planned in our IS costs, as a result of higher depreciation and other expenses related to placing our Enterprise-wide Resource System or ERP program into service this quarter. Turing to sales, marketing and corporate expenses; as you can see, our sales and marketing expenses were up slightly year-over-year and to read [ph] out the SG&A picture, our corporate functions were showing a slight cost decrease in the quarter. Turing to page seven, I'll give you some highlights from our balance sheet and cash flows. Cash in the second quarter of 2008, the global cash balance was $8.5 billion as you can see. And the debt at the end of the second quarter was $11.2 billion, essentially flat of where we were this time last year. If you look at our cash flow, you'll note that we continue to generate a strong cash flow from operations, which is up year-over-year at $1.6 million. Our capital expenditures for the quarter were approximately $165 million, and we are lowering year-over-year primarily due to cancel or postpone projects related to our 2007 restructuring. As you may recall, in August last year, we told you that we would lower our CapEx in response to our restructuring efforts and in turn, we will be increasing cash flow and you can see some of that improvement here. Our free cash flow in the quarter is up $500 million versus last year to $1.5 billion for the quarter. In terms of share repurchases, we've repurchased $33 million shares during the second quarter of 2008 for a total cost $1.5 billion. We currently have $4.9 billion remaining under our Board authorized stock buyback program. Turning the page eight, we have raised both revenue and adjusted earnings per share guidance for 2008. With respect to revenue, we now expect 2008 revenue to be in the range of $14.6 billion to $14.9 billion, up from the previously reported range of $14.2 billion to $14.6 billion. Similarly earnings per share, we have raised our earnings per share expectations. We now expect adjusted EPS to be in the range of $4.25 to $4.45, excluding stock option and certain other expenses and that's up from the prior range of $4 to $4.30. This increase is based on our sales momentum as well as lower operating expenses due to continued efficiencies. Finally, if you turn to page nine, let me just highlight two aspects of our P&L, which has changed since we last provided you guidance. In particular cost of sales; we are now expecting cost of sales to decrease slightly as a percentage of sales, versus where we were in 2007. And also let me touch on SG&A. Excluding the Wyeth profit share, we now expect our SG&A expense excluding Wyeth to be slightly higher versus 2007. So those are the highlights from the changes to our key assumptions. And with that, let me turn over to George, who will walk us through the product highlights.

Okay thanks, Bob. Let's go right to the commercial highlights, shown on slide 11. Products sales increased 2% year-over-year, with the U.S. declining 1% and international growing 17%. Yet again foreign exchange gains, global sales were flat and international grew 4%. The U.S. Aranesp decline of 26% was largely offset by gains from the rest of the U.S. portfolio which grew 5% year-over-year. Internationally our Europe segment continues to compete exceptionally well against biosimilar competition, growing our business even excluding the effects of foreign exchange. The next slide graphically illustrates the components of the year-over-year growth in the second quarter. As you can see, U.S. Aranesp was the only major component of our product portfolio to decline and was offset by good growth in several products. Next, I'll discuss each of these product results in more detail, starting with Aranesp. Worldwide Aranesp sales were a decline of 13% in the second quarter versus last year. In the U.S., Aranesp sales declined 26% overall driven by a 29% decline of the ESA oncology segment. Overall, Aranesp segment share has been relatively stable for the past year. Internationally, Aranesp sales grew 7% overall, with a 5% decline excluding foreign exchange gains. While the oncology and nephrology segments have both declined primarily due to pricing pressures, oncology segment share remained flat versus last year and nephrology share grew slightly, reflecting the fact the biosimilars and peg-EPO had little impact on patient share. On the next slide, I'll update you want on the trends in utilization of Aranesp in the U.S. market. This slide displays actual weekly U.S. Aranesp sales going back to fourth quarter 2006. As a reminder the sharp peaks and troughs are largely a result of the in inventory build ups and depletions not fluctuations in actual patient utilization. The red trend line show average weekly sales for the past three quarters. They exclude returns in Medicaid discount accrual true-ups, as well as the effect of inventory fluctuations which serve to distort the quarter comparisons shown on the previous slide. So and shown with the red trend lines, we have maintained roughly the same sales run rate for the last three quarters. The new risks benefit information on ESA that appears to have been incorporated into clinical practice patents resulting in fairly stable weekly sales. Next slide; EPOGEN was flat in the second quarter 2008 versus the second quarter of 2007, driven by a modest downward dose decline versus the prior year and that's due to label and EMP changes offset by annual patient growth. Quarter-on-quarter, EPOGEN sales growth was driven by a modest sales rebound driven by physician efforts to achieve and maintain Hemoglobin between 10 and 12 as expected, a small favorable quarter-on-quarter change in inventories and favorable dialysis spillover adjustments in quarter two compared to unfavorable adjustments in quarter one. We expect nephrologists to continue to refine their treatment practices in order to maintain patients in the hemoglobin range of 10 to 12. Next slide; Neulasta and NEUPOGEN combined grew 15% second quarter '08 versus second quarter '07. In the U.S. sales increased by 12% driven by demand, primarily priced into a lesser extent units. Internationally, Neulasta and NEUPOGEN grew 24% year-on-year, 10% excluding foreign change effects. In the U.S. year-over-year second quarter unit growth of Neulasta was 5%, some of which we believe is attributable to customers buying entity... end of the quarter ahead of a price increase. Our new promotional platform rolled out in February continues to be well received in the marketplace. This platform focuses on the consequences of febrile neutropenia, which impacts patient care and optimal chemotherapy delivery. In the international setting, Neulasta continued solid growth. This is reflected by our second quarter Neulasta share of 55% in Europe, up 4 percentage points year-over-year, as well a convergence of NEUPOGEN of 68%, up 5 percentage points year-over-year. I will talk about the outlook regarding potential new biosimilar entrants in a moment in the international section. ENBREL is next on slide 17. In the second quarter of 2008, we experienced growth of 2% versus the second quarter of 2007. 4% was due to continued demand growth, which was partially offset by 2% unfavorable change in wholesaler inventory levels. You'll recall, ENBREL grew 30% last quarter as compared to 2% this quarter. Roughly 20% of the 28% decline is due to the wholesaler inventory load in first quarter and subsequent pullback in the second quarter. The remainder of the decline is due to share impact from new competition as well as the timing of price increases. On the rheumatology side, ENBREL maintains its position as the Biologic of Choice for Rheumatologists, and continues to lead the class in segment share. In addition, the publication of data from the COMET Trial was recently announced, which demonstrated that half of the patients treated with the combination of ENBREL and methotrexate achieved clinical remission and nearly all had no progression of joint damage. These findings were published online on July 15th by the Lancet. In the dermatology segment, ENBREL continues to get the majority of first-line biological use for psoriasis and maintains a strong position in the segment, holding approximately 70% dollar share during the quarter. Finally in July, the FDA Advisory Committee recommended to approve ENBREL for the treatment of chronic-moderate-to-severe plaque psoriasis in children and adolescents. If approved by the FDA, this expanded indication for ENBREL would address the unmet medical need in this small underserved pediatric psoriasis patient population. Now to Sensipar on slide 18; for the second quarter, worldwide Sensipar sales grew 39% versus the second quarter of 2007. Demand continues to be the key growth driver in the U.S. with the field organizations delivering a solid 34% year-over-year sales performance and the first $100 million order [ph] of sales. International sales grew 50% and that's 34% excluding the impact of foreign exchange. Additional primary hyperparathyroidism marketing authorization was granted in the EU on June 24th. Turning to Vectibix on slide 19; as you may recall from the last quarter, I mentioned that potential of the KRAS biomarket data to redefine the risk benefit profile of the class by identifying metastastic colorectal cancer patients who are more or less likely to respond to treatment. Additional confirmatory KRAS biomarker data was released at ASCO in June. Also at ASCO, negative results from Erbitux's Cairo II study confirmed the earlier findings from our PACCE study, which we disclosed in June of 2007 and that is that dual biologics plus chemo do not add benefit... incremental benefit beyond the current standard of care. Future growth is highly dependent upon label expansion into second and first-line metastatic colorectal cancer, incorporating our new information on KRAS. Internationally, Vectibix is launched in 10 countries with solid initial update, and Roger will have more to say on KRAS and Cairo in a few moments. Next slide; internationally while Aranesp was down 5% overall excluding foreign exchange, growth across the rest of the portfolio contributed to a record quarter from our international team. This performance reflects steady segment share for Aranesp and increased share for Neulasta. The next slide looks specifically at new competition in Europe in these segments. As you can see from this slide, most ESA competitors and biosimilars have been launched in Europe in some major countries and the other country launches are on the horizon throughout the major of 2008. For G-CSF biosimilar, the first launches are expected in the second half of this year. I will finish up with a look up at the international segment share for Aranesp in nephrology on the last slide. As you can see, Biosolicidate [ph] had taken share from EPO-Alfa and EPO-Beta but not Aranesp. It appears that physicians recognize the value of our second-generation product Aranesp and that we have actually expanded Aranesp share in nephrology while the share in oncology has held steady. Although, there has been some pricing erosion, roughly 10% to 15% in nephrology and about 5% in oncology, we have maintained a price premium of the order of 15% to 30% to the first generation EPOs. In May, peg-EPO had a 2% segment share across Europe, mainly coming from Germany and overall recent Roche lost 2 share points since the MIRCERA launch. Our view is that customers are willing to pay a premium for Aranesp due to combination of dosing efficiency and flexibility. Roger?

Thank you, George. Slide 24 provides an overview of the topics that I will cover this afternoon. First we are in the midst of productive discussions with the FDA with respect to ESA labeling. We and the agency share the goal of ensuring that ESAs are used appropriately and wish to make certain that both physicians and patients are well informed about the risks and benefits of ESA therapy, especially in the chemotherapy-induced anemia setting. Along these lines, in Europe, we expect that the EMEA will ratify new labeling language for the ESA-class by the end of this year. We have also interacted productively with the FDA with respect to the use of ENBREL in the setting of moderate-to-severe psoriasis in pediatric patients. The agency has requested additional information about our risk evaluation and mitigation strategy, so called REMS for ENBREL and pediatric psoriasis, which we expect to be able to provide to them in the very near future. As has been discussed in many trade publications, the establishment of REMS programs is becoming increasingly important in our interactions with the FDA. Along the same lines, we are continuing to work with FDA to assist them in the completion of the review of romiplostim or Nplate for the treatment of immune thrombocytopenic purpura. Here too, the assessment of our risk evolution and mitigation strategy has been a special focus of our interaction with the agency and I am optimistic we have reached good alignment. From the development perspective, we have made substantial strides in our Therapeutic Oncology program, many of which we reviewed at the American Society for Clinical Oncology Meeting in June. At that meeting, the importance of the KRAS biomarker as a means of identifying patients who could benefit from Vectibix's treatment was again highlighted. Also in June, we presented data from our Phase 2 step study, in which we evaluated for the first time, the use of pre-emptive treatments to mitigate the skin toxicity associated with potent blockers of EGF receptor signaling. In this study, pre-emptive treatments with a combination of skin moisturizers, sunscreen, topical steroids and oral doxycycline reduced the incidence of grade 2 or greater skin toxicities by more than 50%. We are adjusting our therapeutic programs to make better use of this pre-treatment regimen going forward. During the second quarter, we also completed several important studies in the Denosumab program, as shown on slide 25. As you know, we have pursued a broad set of clinical trials designed to demonstrate the efficacy of Denosumab in blocking bone resorption in different clinical settings. Slide 25 shows that we've have completed the enrollment of virtually all of our first wave of clinical studies for denosumab. Same for the enrollment of the study designed to explore the effect of denosumab on skeletal pathology in patients with prostate cancer that has metastasis to bone. And a related study, designed to test for the denosumab can prevent the appearance of bone metastasis in patients with prostate cancer who are at high risk for such events completed the enrollment during the second quarter, and hence is boxed in red, on slide 25. During the past two weeks, we announced the results of two pivotal studies designed to test whether denosumab reduces the risk of fracture and patients made more susceptible as a result of excess bone resumption. Slide 26 highlights the results of our pivotal phase 3 study in women with post-menopausal osteoporosis. The study was a large international trial that compared the efficacy and safety of denosumab administered subcutaneously 176 months with that observed using for in situ injections. In all, nearly 8,000 women participated in this study. As noted on the slide, denosumab treatment resulted in a statistically significant reduction in the incidence of new vertebral fractures as compared with placebo treatment. Moreover non-vertebral fractures and more specifically hip fractures were also reduced in frequency and these reductions were statistically significant. This study was so large and occupied fully three years of treatment. We have the opportunity to review a really comprehensive statement dataset. It was extremely gratifying to see that adverse events in general and serious adverse events in particular were well balanced between the denosumab and placebo groups. Since our announcement of these results last Friday, I have received many questions regarding the relative efficacy of the denosumab as compared to existing anti-resorption agents, especially the placebo. To provide a context for this discussion, let me be clear that it is inappropriate to compare results across study. And we thank here the conclusion from Catherine MacLean's systematic review that was published recently in the Annals of Internal Medicine. She said although good evidence suggests that many agents are effective in preventing osteoporotic fractures, the data are insufficient to determine the relative efficacy or safety of these agents. Clearly, without head-to-head studies, it is impossible to compare to denosumab with other treatments, which themselves cannot be compared with one another. This said, we have previously reported the results of our head-to-head study of twice yearly denosumab treatment as compared with weekly treatment with alendronate at the labeled dose. Here we show that denosumab was superior to alendronate with respect to its ability to increase bone marrow density. Indeed, denosumab is the most potent anti-resorptive agent that has ever been introduced into clinical practice. What was unclear previously was one of these increases in bone marrow density, which are associated with improved bone strength in pre-clinical studies would translate into reductions in osteo-porotic fractures in people. We now know the answer. I have to say that I am extremely excited about the results of this study, which frankly exceeded my expectations. The complete dataset will be presented in about six weeks at the Annul Meeting of American Society for Bone and Mineral Research, which will give a broad group for experienced and bone experts, the opportunity to placed these results in an appropriate clinical on scientific context. During this month, we also announced the results of the 138 study in men undergoing androgen-depravation treatment for prostate cancer. You can think of this is a companion study for the post-menopausal osteoporosis study, in this case in men with hormone depletion. Here too, as noted on slide 27, denosumab therapy, in addition to increasing bone marrow density was associated with a statistically significant reduction in the incidence vertebral fractures. In every case, we have found that the effects of denosumab are rapid and sustained. For example, as noted on slide 27, a review of the long-term extension of our Phase 2 study, demonstrated sustained increases in bone mineral density over a five-year treatment interval, and a pilot Phase 2 study shows that denosumab stimulates increases in cortical fitness radius and tibia, as compared to either placebo or alendronate treatment. We do expect additional results from important clinical studies in 2008 as shown on slide 28, including our Phase 2 study of AMG 317, our antibody which blocks the activity of both interleukin 4 and interleukin 13 in the treatment of asthma. Looking forward still further, we will examine the efficacy of a number of new approaches to cancer therapy in 2009, including of course the ability of denosumab to improve outcomes in patients with metastatic bone disease. I'll look forward to updating this chart at our Business Meeting Review later this year. Kevin?

Thanks Roger. We just shared a detailed review of the quarter. Now let me comment on both Nplate and denosumab. While neither of these potential medicines are yet approved and one is not yet filed, I think it's appropriate to pause and reflect. We have much hard work ahead to secure appropriate regulatory approvals. We well understand and embrace the regulatory review process we will and should face. But, I do want to give you a sense of the enthusiasm that we hold for both Nplate and denosumab, but especially denosumab and its innovative characteristics, and the new hope we believe it offers for patients. Our mission is to serve patients, and to do that, we focus on elucidating novel biology and using those insights to target disease mechanisms that will result in innovative medicines to dramatically improve the lives of patients, with grievous illness and few or no good treatment alternatives. This is demanding, time-consuming, risky, and expensive work. Nplate and denosumab, denosumab in both bone cancer and osteoporosis, have the potential to be approved and bring a promise of biotechnology to patients in real need. I am enormously proud of the innovation, perseverance, appetite for risk, creativity and just plain hard work that got us where we are today. There are many questions and challenges ahead for both of these potential medicines. But, I'm confident that we will make the right choices to benefit patients and shareholders in ways that will make staff proud. Now, we would like to take your questions. Question And Answer

Dennis, let's go and open it up for questions. To our participants, I would like to request that you please limit yourself to just one question, so everyone has an equal chance of asking enough of the questions. Dennis, go ahead please.

Thank you your first question will come from the line of Jim Birchenough with the Lehman Brothers.

Yes, hi guys. Can you here me?

Yes we can here you, just fine Jim.

Yes, so congratulations on the quarter and the denosumab data. I have got a question on Aranesp labeling. Just wondering if you've reached any agreement with FDA on what the definition of a curative patient would in an oncology setting and if, with that definition you could may be quantify what could be at risk with the upcoming label amendment?

Jim, it's Roger. We're still engaged in discussions with the agency. We've had a lot of productive interactions trying to better understand the appropriate patient population. So, we'll have to wait to see what the actual final labeling language is with respect to that issue and other issues, but I think we're moving along pretty well.

Yes, so what we said before it approximately 20% of CIA patients are treated with ESAs are breast cancer patients. Approximately 60% of ESA patients are truly classified as Stage IV or metastatic and approximately 40% patients are defined as having Stage I, II, III tumors and within this group, a patient receiving either neo-adjuvant or adjuvant; so some fraction of this will be curative.

Your next question will come from the line of May-Kin Ho with Goldman Sachs. May-Kin Ho - Goldman Sachs & Co.: Hi Roger. Now that you've seen the data of 216 and also some of the other studies, how are you thinking about the probability of success for denosumab in the upcoming trials for skeletalrelated events?

Well May-Kin, we have previously presented Phase 2 data in the skeletal-related event setting in patients so with breast cancer and also in patients with other metastatic disease in which we have demonstrated that as compared with Zoledronate, we see improvements in outcomes, both with respective to shutting off the excessive born tumor that's characteristic of patients who have metastatic disease in bone and as well certainly that decamps in the combined study more than that, that denosumab is more effective at blocking these kinds of skeletal-related events. So the fact that we now have data from our post-menopausal osteoporosis study from our study in men's androgen-deprivation showing that, that increase in bone mineral density is associated with the reduction in fracture propensity, just makes me more confident than ever that we'll see an effect that is at least non-inferior to the Zoledronic acid in these studies of skeletal events. Now we keep in mind, these are very large studies involving between 1500 and 2000 patients in every case and looking a number of different tumor settings is going to be really exciting dataset, really looking forward to seeing it. But I'm pretty optimistic about what we are going to get.

Your next question will come from the line of Mark Schoenebaum with Deutsche Bank.

Okay thanks. I would just like to extend my congratulations to the management team. Well done Demab. Roger, I was intrigued by your comments that you stated today, I think you also quoted, I think that the Demab data quite exceeded your expectations. The last time heard the company say I think was genetics Avastin data. What were your expectations?

Well, when you go into a large study like this Mark, you are certainly hopeful that you'll meet all your primary and secondary endpoints. But you know of course that the chance always plays a role and particularly that's true when you speak about hip fractures in the post-menopausal osteoporosis population, as an example. You know that that not every disfoxinate has been able to demonstrate efficacy in hip fracture and that even for alendronate, there was not a uniform demonstration there. So there is always concern about that, I've often talked about it. And the fact that we saw statistically significant reductions across all primary and secondary endpoints was really very impressive. And I also say that when you look at the safety database and again you have nearly 24,000 patient years of experience here, so it is far greater than anything else that we have to look at. The fact that the safety profile is so balanced as compared to placebo was extremely encouraging, just extremely encouraging.

Your next question that will come from the line of Eric Schmidt with Cowen and Company. Eric Schmidt - Cowen & Company: Yes, question for Kevin, on denosumab; now that you've seen the full dataset from the 216 trial. Are you more or less likely to partner this drug in the U.S for the PMO opportunity?

That's... we get a lots of questions about denosumab and osteoporosis. We certainly will assess our options here. This data certainly makes us more confident in our ability to launch ourselves, but it certainly doesn't preclude the necessary work we will do to see what our options are and I'm confident that we'll make the right choice and surface the right options. But certainly in a directional sense this... as Roger has said is a very positive step for us.

Your next question will come from the line of Yaron Werber with Citi.

Yes. Hi, thanks for taking my questions. I just wanted to maybe to follow Eric's question and maybe for both Kevin and George. Can you give us a sense if you were to launch the product you sell for in the U.S. for PMO, how big of the sales force would you need and conversely, if you decided to partner it, what would... give us a little bit of sense as to, what the... unless you can't discuss some of the costs or how big are the sales force you may need under a partnering arrangement? Thanks.

I know these are important questions and may... they bear on the financial performance of the company, the amount of risk we've taken. I kind of rather not get into kind of hypothetical speculation. I'm just going to say that our view is that we have got really strong data here. We are going to have to take this data, look at it carefully, see what physicians think. But I just wanted to assure our shareholders that we are going to make a full and complete analysis and surface the right set of options and I am confident, we'll pick the right ones. It's just premature right now to try to get into highly, highly speculative kind of conversations. But, certainly we see this medicine with its high science component as being something that will take the kind of high science and medicine approach that we have historically taken. So, we do not see this as a, if you will, sort of normal general practitioner kind of sales product that just throw in the bag.

Your next question will come from the line of Michael Aberman with Credit Suisse.

Hey guys, let me add my congratulation. I want to follow up on a comment Kevin made about managing costs. The ability to continue to manage costs and on a comment you made last quarter about Amgen striving to maintain R&D spending at industry leading levels. Some would argue that R&D spending shouldn't be your goal and perhaps there is a lot diminishing return. Can you talk about whether... when you talk about management... managing costs, R&D is going to be a part of that or is it just cost of goods and SG&A?

No, I think it's a trade-off. We don't spend a certain percent of R&D independent of anything else. It just turns out that when we look at our opportunity set and our pipeline, we see many opportunities to invest and that's a good sign. The other thing that clearly is going to put pressure on the R&D line is the new environment of post approval for safety monitoring, post approval trials that's certainly going to increase the expense in the R&D line absolutely. R&D is the most judgmental of all of the cost lines, but I just think there is no substitute for putting significant investment against good biology. We could all debate, whether one number or couple of percent less is the right number. But, we have to balance R&D with delivering good strong earnings per share growth. When I commented on expense opportunities, I means across the broad. There are certainly opportunities in R&D to do things more efficiently, so that the dollars we spend have a bigger impact and I think a normal company you have to have a constant tension on costs. Our industry has not compared to other industries has spent particularly well known for that over time. And I think the experience we just had in this restructuring tells us that we can manage costs effectively here and I think we've got the ways to go. So that's a kind of a longwinded answer, but I think it's a complicated and important question.

Your next question will come from the line of Geoffrey Porges with Sanford Bernstein. Geoffrey Porges - Sanford C. Bernstein & Co., LLC: Thanks very much for taking my question and congrats again on stabilizing the business and of course the data. A question for your Rogers, just to clarify; did you say that that in the 216 trial you met all primary and secondary endpoints? And then to add to that you referenced the Phase 2 head-to-head study versus alendronate, and in that study there were numerically more fractures in the denosumab and alendronate, and obviously you didn't have any thing like the past. So could you comment on if you were to make that same comparison across trials that you alluded to, whether your efficacy against the primary endpoint was better, equivalent to or less than you would have seen with alendronate?

Geoff, this is Roger. You know, again I think it's inappropriate to try and make comparisons between one anti-resorptive agent and another, unless you do an adequately powered head-to-head study for fractures. And we've only done a study that looked at bone mineral density. And there as you know that denosumab is much, much more effective at increasing bone mineral density. I don't think you'll learn much from looking at the individual handful of fractures in one arm versus another in that small one-year study, comparatively small one-year study that we did that was head-to-head on bone mineral density. And again, the 216 study, we met all primary and secondary end points and the results are statistically significant across all fracture endpoints, namely at vertebral and non-vertebral and specifically at hip. So, yes, we did meet all those endpoints, thanks.

I want to Geoff directly comment on the note you put out today or yesterday, about the Friday afternoon release being bad news. I want to assure you nothing could have been further from the truth, this was good news and positive information. We thought it was important to get in the hands of the marketplace and I think it was the right decision. I understand your concern about Friday afternoon news. It often is that way but in this case that clearly was not.

Your next question will come from the line of Geoff Meacham with JPMorgan.

Hi guys. I also wanted to offer my congratulations on Demab and the results of the quarter. Question for you on Demab, with the patent challenge just launching on re-class, how do you guys view the PMO opportunity after Friday, but also potentially with the two generics in the market when you lost the drug? Thanks.

Okay, the first thing, let me just address something after early bad, our ability to launch commercially. One of the things that I am really proud of is that the commercial team we have assembled. Most of the people on the senior team have at least a decade if not more of pharma experience where they have been marketing to primary care physicians as well as six to eight years of biotech. And that's a pretty unique combination. So these people know how to do what we have to do. Whether that we should have partnered? That will be considered in that context. But we have a very experienced team. So let me go to your question Geoff. First, PMO is a large and underserved market. There are 60 million women globally who suffer progressive bone loss. There are about 20 million people or women who are globally treated, so there is a lot of people who should be treated that are not being treated. One in two women over 50 will suffer fracture in their life time, so huge unmet need there. This is the following piece of data is from our market research, but I know a number of you have been doing some polling as well and you find pretty much the same thing and that is 80% of physicians feel a need for a new therapy in this area. And you might ask why? Well I think there are few reasons; first of all, more than 50% of osteo patients discontinue their oral disfoxinates within a year. And obviously, if you're not taking a medicine, you're not getting helped. So doctors are looking for more control that will lead to better outcomes, certainly. PMO patients are asymptomatic before fracturing, so anything that affects them from a tolerability or safety standpoint is a problem in terms of compliance. Docs want minimal safety and tolerability issues. And then lastly, 14% of fractures occur to hip, 27% at the spine, and 60% in other largely cortical sites. So doctors want broad skeletal protection in the agents they are using. So I think three really good reasons. Than I think, when you look at the current opportunities that it consist of under treatment and some competitive weaknesses. And so I think that's a pretty right situation to go into. Now as far as Demab is concerned, it was designed to be both potent and precise in its mode of action. The clinical program was structured to provide physician end payers high-quality relevant data upon which to make treatment and reimbursement decisions. So we look forward to sharing the results of those trials, beginning at ASBMR. We've also studied patients' response to the Demab profile in terms of preference and satisfaction and will share that you at ASBMR as well. So you can make your own judgments about the uniqueness of this potential treatment. I do want to underscore that many physicians these days basically give the patients... often they will describe the products and ask which one they will prefer and we are feeling increasingly confident that that's going to bode well for denosumab.

Your next question will come from the line of Ian Somaiya with Thomas Weisel.

Thank you. Just one question; is this data in your opinion enough for denosumab to be used first line? And if not, then what additional data do you think will be required?

Yes Thomas [ph], a lot of people talk about our first line, second line as if it was binary, if it is to going to this or that. And the reality is, this I think this emerging profile. We have to see what happens with the FDA. Clearly, many doctors are going to view this as the best way to treat individual patients and so it will be first line in that respect. A lot of patients by the way have failed as disfoxinates can't comply. Those first line or second line I guess, we'd call them second line but they are... right now they are not being treated in the marketplace. So I think, doctors treat individual patients based on the individual needs and I think my sense is if this profile continues to emerge the way it has been, that a lot of doctors will choose to use first line. That's not to say that given that there is a cheap generic available, there are managed care organizations that will try to position it in the second line but I seriously think that that will be universal.

Your next question will come from the line of Steve Harr with Morgan Stanley.

Hi, Kevin, obviously a very large got lot of primary care infrastructure in the pharmaceutical industry. So, obviously think about whether or not you would target potentially taking that out, one of these infrastructures in mass or potentially look at consolidating either as a buyer or the seller, given the ongoing, or emerging consolidation where do have in our industry?

Bob that's usual thought. I can't imagine, buying a company to get a sales force. That's inconceivable.

Your next question will come from the line Maged Shenouda with UBS.

Sure. Hi, thanks for taking my question. I also have a question on denosumab. I know it's a bit early but can you comment on the pricing flexibility in the PMO market?

I think it's premature to talk about pricing. I'll just say we'll be competitive and we would certainly be fair.

Your next question will come from the line of Shiv Kapoor with Morgan Joseph.

First, let me add my congratulations. I have a question for Roger, on the lesser known osteoporosis program that you have. At last year's ASBMR, interesting Phase 1 data was reported on your anti-sclerostin antibody AMG 785. Can you provide an update and comment whether your experience with denosumab in long-term studies helped solidify the prospects of that program?

Yes. Shiv, thanks for the question. We love AMG 785, it's a completely novel mechanism. It opens the anabolic windows, so it increases bone mass. It looks terrific as you saw from that presentation; still a long way to go to understanding exactly how best to use it, and in what setting, to get lot of additional exposure. But, so, far so good and we're doing additional studies to better characterize its parameters and to see how to move forward with the studies. I guess I would say the only program I see as a really competitive backup to denosumab is AMG 785, I mean it just looks terrific.

Your next question will come from the line of Alex To with Natixis.

It's not a denosumab question. Any comment on generic filing of Sensipar?

I'm confident that our patent position will be sustained and will be fine.

Your next question will come from the line of Adam Walsh with Jefferies. Adam A. Walsh - Jefferies & Company: Thanks. My question has been answered.

And your next question will come from the line of Andrew Berens with Merrill Lynch.

Thanks. There have been a lot of questions about the cost of comparisons for Demab and PMO. I assume we shouldn't read too much into the body language. I just wanted to hear your thoughts about whether to research the conditions will assess the relative efficacy of the PMO agents when selecting which agent is?

Yes, absolutely. They'll look at the data, they'll look at the different patient population study, then they'll make some judgment. I think they'll turn to the key opinion leaders, who will really study this state intensely again beginning at ASBMR and I think primary care physicians will be guided... very much served by the keeping and there's point of view on this.

[Operator Instructions]. And your next question will come from the line of Joel Sendek with Lazard Capital.

Hi, thanks. I have a question on the revenue guidance and Kevin, your opening comments. Did I hear you correctly that Aranesp sales trend line would entered '09, at a run-rate lower than current levels meaning the guidance factors in lower Aranesp sales in the second half?

Yes, it does. As I said in my comments that we expect to have a new Aranesp label some time this year and we'll exit this year at a lower rate with Aranesp in oncology and therefore overall than we have now. But yes that is factored into our comments and our guidance.

Dennis, as we getting to the top of the hour, why don't we take one last question please.

Thank you sir. The final question will come from the line of Bill Tanner with Leerink Swann.

Thanks for taking the question. George, just a question for you on ENBREL; I know that you've talked previously about the growth really coming from the derm market. Looks like the most recent quarter things have been pretty well. How do you kind of think about 1275 once it comes to the market, just in terms of it, would it be familiarity with ENBREL that would keep that... keep the drug hopefully as one of the preferred agents?

Yes, that's a good question. I think the thing you need to recognize about dermatology is that there is obviously safety over efficacy when selecting a product for a lot of reasons. And so I think to 1275 has got a long way to prove itself from a safety perspective in comparison to ENBREL, which has been on the market for a long time. It's a known entity and we think has a probably the best combination of safety and efficacy in the business.

Thanks George. Let me thank everybody for your participation in our call this afternoon. If you have any follow-on questions or comments of course the Investor Relations team will be available. Thanks again.

Ladies and gentlemen, this does concludes Amgen's second quarter 2008 financial results conference call. You may now disconnect.