Amgen Inc. (AMGN) Q3 2008 Earnings Report, Transcript and Summary

My name is Dennis and I'll be your conference facilitator today for Amgen's Third 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 after the conclusion of the last speaker's prepared remarks. In order to ensure that everyone have a chance to participate, we would like to request that you limit yourself to asking one question during the Q&A session. [Operator Instructions]. I would now like to introduce Arvind Sood, Vice President of Investor Relations. Mr. Sood, you may now begin.

Thank you Dennis and good afternoon everybody. I'd like to welcome you to our conference call. Today we'll focus on our performance for the third quarter and the outlook for the remaining of the year. We also hope to see in New York in a couple of weeks on November 7th, for our business review meeting, where we intend to share our initial thoughts on commercializing denosumab together with an update on our early disease pipeline. As a result, I expect that our prepared comments today will be rather brief, although we should have ample time for your questions at the end. Leading the discussion today is our Chairman and CEO, Kevin Sharer, who will provide a strategic review of our business. Our Chief Financial Officer Bob Bradway, will then provide some additional details on our performance in the third quarter and highlight the rationale for improved growth outlook on a full year basis for 2008. George Morrow, our Head of Commercial Operations, Global Commercial Operations rather, will then discuss our product performance in the U.S. and the international markets. Roger Perlmutter, our Head of Research & Development will then provide a very brief R&D update on select marketed and pipeline products. The reason I said brief is because we expect to engage in a more expansive dialogue with you on November 7. 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 will make certain forward-looking statements and of course actual results may vary materially. So with that, I would like to turn the call over to Kevin.

Thank you Arvind. Good afternoon and thank you for joining us. Today I would like to make a few comments before I turn the call over to my colleagues for a detailed review of the quarter and the balance of the year. I will comment on two topics. First, my assessment of Amgen's performance and prospects and then second our November 7 business review where we look forward to talking with and hearing from many of you. So, first, Amgen's performance and prospects. In summary, I'm very pleased with our performance to-date and I've never been more energized and enthusiastic about our prospects. Here are some of the reasons for these views. One, the results that we reported today are very strong in revenue, expense management and earnings and let us to once again raise guidance for the year and position us well for 2009. Next, our inline products taken as a whole have meaningful growth prospects and manageable risks. Three, our attractive pipeline continues to grow and evolve. While not every drug will advance to the market, the launch of Nplate and strong denosumab clinical results are real testimony to our ability to innovate and advance science and medicine for the benefit of patients. We had historically invested heavily in research and development both inside and outside Amgen and we will continue to do so. Next, our balance sheet and strong cash generating ability positioned as well to navigate in these challenging times and not be captive to the difficult credit markets. Six, we have been tested by the past 18 months and our stronger fourth, our ability to adapt to a very challenging environment and demonstrate resilience giving me more confidence than ever in our strategy, staff and ability to execute. Next, the federal district court in Boston's recent issuance of a opponent injunction against Roche affirms the strength of our intellectual property. Eight, our continued intense focus on prudent expense management, coupled with top line growth will allow us to grow earnings, successfully launch the denosumab and find and grow the pipeline. And finally, last but certainly not least, the promise of denosumab to help large numbers of patients. I'd like to take this opportunity to thank Amgen's staff for their excellent performance during these challenging times. I could not be more proud of you. Now I would like to comment on our November 7th business review. As Arvind said, we plan to focus on one, plans to commercialize denosumab; two, our inline products, three, our pipeline and R&D strategy and finally four, some general strategic and financial comments. There's understandably great interest in these topics and I would ask that we today focus on 2008 and wait for the approximately two weeks before November 7th to cover these four areas in more depth. Two, we plan to issue 2009 guidance for our normal pattern in January 2009 during our fourth quarter `08 conference call. And finally in addition, we do not plan to issue specific long term financial guidance on November 7 but we will give you as much perspective as we can about our plans and expectations to allow investors to make informed judgments about our future prospects. Now, I would like to turn the call over to our Chief Financial Officer Bob Bradway.

Thank you, Kevin. if I can direct your attention to page 5, I'll walk you through our third quarter adjusted income statements. As you can see for the quarter, revenues grew 7% from $3.6 billion to $3.9 billion. The wholesaler inventories of our major products ended in the middle to upper end of our normal ranges, and George will give you more detail on that by product in a moment. Looking at the U.S., our third quarter sales totaled about $2.9 billion which represents an increase of 4% over the prior year. U.S. Aranesp sales for the third quarter include benefit of a $54 million receivable change in the estimate for product sales return reserves. And If you were to shift that $54 million out, our U.S. sales are still up 2% for the third quarter. Internationally our third quarter sales were $855 million which represents an increase of 20% over the prior year and these $855 million include the positive impact from foreign exchange in an amount of $78 million. Excluding that foreign exchange impact, our sales for the quarter internationally were up by 9%. Now turning to operating expenses which I will review on an adjusted basis. Let me start with cost of sales. As you can see, cost of sales for the quarter were up 1%, and this increase was primarily driven by the higher sales volumes that we had for our products offset by efficiencies throughout the manufacturing supply chain, including lower excess inventory write-offs, lower excess capacity charges and the fact that we were selling lower cost Enbrel during the quarter. Turning to R&D, our R&D expense relatively unchanged year-over-year. Working upward in expenses were staff related costs as well as clinical trial spend for our emerging pipeline, and these increases were offset by lower clinical trial costs for denosumab registration studies, which were maturing during the period and the benefits derived from our out-licensing deals in Japan with Daiichi-Sankyo and Takeda. Turning now to SG&A, as you can see in the quarter SG&A expenses increased to 11% over the prior year, reflecting the higher Wyeth profit share expenses as well as staff-related costs which in turn were offset by lower litigation expenses in the quarter. Excluding the Wyeth profit share, our SG&A expenses increased 6% year-over-year. Total operating expenses for the quarter increased, as you can see, by 4% enabling operating income to grow by 11% for the third quarter. Our year-over-year net other income and interest expense... sorry, other income and expense improved by $18 million to a $3 million net expense. This reflects the fact that our interest income is higher in the period as a result of our larger asset base which is partially offset by lower asset returns. And it also reflects the fact that our interest expense is lower as a result of in particular floating rate LIBOR rates being lower in the third quarter of '08 than they were for us in the third quarter of '07. Turning to taxes, our adjust tax rate for the quarter was 22.7% which is an increase from the 21.4% that we recorded in the prior year and this increase is primarily due to the expiration of the federal R&D tax credit in 2008 which is, as you're aware, will be retroactively extended into fourth quarter. Earnings per share for the quarter were $1.23, up 14%. Note that the third quarter of 2008 adjusted EPS, including stock option expenses, were $1.21, represent an increase of 14% compared to the $1.06 that we reported on this basis in the third quarter 2007. Turning now to page 6, I will go through some highlights from the balance sheet and our cash flows. As you can see cash in the third quarter 2008, our cash balance was $9.8 billion. Of this amount, approximately $2 billion was in the United States. I'd like to say a few words about our corporate investment portfolio. Our portfolio is conservatively invested and at quarter end about half of our portfolio was invested in U.S. Treasury and Agency Securities. A further quarter of the portfolio was invested in money market instruments, whose underlying securities are primarily treasury and agencies and the remaining one quarter of the portfolio are invested in a combination of corporate bonds as well as stronger or highly rated commercial paper investments. And our portfolio has no exposure to sub-prime mortgages, auction rate securities or CDOs and as I said earlier, conservatively managed throughout. Turning now to debt in the third quarter, you can see our third quarter debt outstanding with $11.2 billion. This is a decrease of about $100 million over the third quarter of 2007 due to repayment of $100 million of debt in the fourth quarter last year. Based on our current cash positions, we have more than sufficient liquidity in the U.S. to repay our $1 billion of floating rate notes which are due in November of this year. We continue to generate strong cash flow from operations. As you can see cash flow from operations in third quarter were $1.4 billion and this is down slightly versus the prior year reflecting the amounts that we expensed in legal settlements in the third quarter of 2008. Our capital expenditures for the quarter were approximately $159 million and that were lower year-over-year. As you may recall, in August of 2007, we told you that we would lower our capital expenditures in response to our restructuring efforts and in turn that we would increase cash flow and you're seeing the continued improvement in that respect here. Looking at free cash flow, our free cash flow was down about $100 million year-over-year to $1.2 billion. Shifting to share buybacks, we repurchased no shares during the third quarter of 2008, and we currently have $4.9 billion remaining under our Board authorized share repurchase programs. And going forward, we'll seek to be opportunistic in buying stock and when we find the price of our shares to be attractive, while at the same time seeking to preserve the strength of our balance sheet and our credit rating. Now turning to page 7, as you can see on page 7 we're raising both revenue and adjusted earnings per share guidance for 2008. With respect to revenue, we now expect 2008 revenues to be in the range of $14.9 to $15.2 billion, up from the previously reported range of $14.6 to $14.9 billion. In terms of earnings per share, we now expect 2008 adjusted earnings per share to be in the range of $4.45 to $4.55, excluding stock option expense and certain other expenses and that's an increase from the prior range of $4.25 to $4.45. This increase reflects the sales momentum that we had in 2008 as well as lower operating expenses due to continued efficiencies. Finally, if I can direct you to page 8, let me just take you through some of the key assumptions underlying our guidance for 2008. In terms of cost of sales, we now, as you can see from the slide, expect cost of sales as a percent of sales, to be approximately 15% for the full year of 2008. In terms of research and development, we now expect research and development expenses to be slightly lower in absolute dollars compared to 2007, and I would note that consistent with historical spending patterns, we would expect an increase in our fourth quarter R&D expenses versus our third quarter 2008 expenses. In terms of SG&A, excluding Wyeth profit share, you can see no change to our previous guidance similarly with respect to our guidance on Wyeth profit share, no change with respect to tax rate. We now believe the full year tax rate will be similar to 2007, as the federal R&D credit has been retroactively extended for the fourth quarter of 2008. Capital expenditures are trending lower than the previous guidance we provided for you. We now expect capital expenditures to be in the range of about $750 million for 2008, and again with respect to share repurchases, we'll continue to be opportunistic throughout the balance of the year. Now, I'll turn over to George who will give you more detail on products.

Thanks Bob, and let's go right to the commercial highlights on slide 10. Product sales increased 7% year-over-year with the U.S. growing 4% and international growing 20%. As Bob mentioned, U.S. Aranesp benefited on a one-time returns reserve adjustment of $54 million. Netting out foreign exchange gains and the Aranesp returns reserve adjustment global sales grew 4% and international grew 9%. The U.S. Aranesp decline of 12%, again excluding the return reserve adjustment, was largely offset by gains from the rest of U.S. portfolio which grew 5% year-over-year. Internationally, our Europe segment continues to perform well against biosimilar competition growing their business 9% excluding effects of foreign exchange. The next slide graphically illustrates the components of year-over-year growth in the third quarter, excluding the Aranesp return reserve adjustment and foreign exchange gains. Aranesp was the only major component of our product portfolio to decline and was offset by solid growth in other products. Next, I'll discuss each of these product results in more detail, starting with Aranesp. Worldwide Aranesp sales increased 3% in the third quarter versus last year. In the U.S. Aranesp sales were relatively flat year-over-year with oncology sales down 5%, offset by an increase in nephrology. Overall segment share for the U.S. Aranesp decreased by 3 points versus the third quarter of last year. However, almost all of this share decline is attributable to two factors. The timing of appropriate price increases and a large oncology clinic buy-in at the end of the second quarter. This buy-in inflated second quarter share while the subsequent burn-up depressed third quarter share. Internationally, Aranesp sales declined 2%, excluding the impact of foreign exchange, reflecting a decline in overall oncology and nephrology segments. Aranesp share held steady year-over-year. I'll provide more details on biosimilars in a few moments. Next slide. 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 inventory build-ups and depletions, not fluctuations in actual patient utilization. The red trend line show average weekly sales for the past four quarters. They exclude returns and discount accrual true-ups, as well as effect of wholesaler inventory fluctuations which serve to distort the quarter-on-quarter comparisons shown on the previous slide. Smoothing out the inventory kings would reveal three distinct step downs from the $58 million per week in fourth quarter of '06, to $30 million per week in third quarter '08. Those step changes were caused by a combination of label and re-imbursement changes, each having a 10% to 20% impact. Embedded in this timeframe was a period of relative stability, that's the fourth quarter of `07 through August of 2008, when the latest ESA label revision was issued. In September, we began to see the early effects of the new label on utilization patterns. Going forward, we have new contracts and ESA REMS and potential additional reimbursement changes, so it is possible to have another step down of the same magnitude we experienced previously. Longer term, our goal is to grow at the rate of patient and price growth. Next slide is slide 14, EPOGEN grew 5% in the third quarter of 2008, versus the third quarter of 2007, driven by net price growth, a slight inventory build and positive spillover over results. Patient population growth was offset by a decline in dose and utilization in certain settings. EPOGEN quarter-over-quarter sales growth of 2% was driven by slight increases in patients, price and a small inventory build offset by slight declines in dose in certain settings and spillover results. We expect health care providers to continue to refine their treatment practices in order to maintain patients in the 10 to 12 hemoglobin range. Side 15 covers Neulasta and NEUPOGEN. In the U.S. sales growth of 3% was driven by demand due to net price gains. There was a 5% decline in units primarily as a result of customer buy-in at the end of the second quarter, requiring a burn-off of customer inventory during the third quarter. In the international setting, Neulasta continued to drive growth. This was reflected by our third quarter Neulasta share of 56% in Europe, up 5 percentage points year-over-year as well as a conversion from NEUPOGEN of 69%, also 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 16. In the third quarter 2008, we experienced growth of 9% versus the third quarter of 2007. Approximately 7% to 8% was due to continued demand growth, while roughly 1% was due to a combination of changes in wholesaler inventory levels and a favorable one-time adjustment related to prior period managed care discounts. With respect to demand, the 7% to 8% year-over-year growth for the quarter is a combination of patient growth and price growth. On rheumatology side, ENBREL maintains its position as the biologic of choice for rheumatologists and continues to lead the class in segment share. Over the next six to nine months, three new drugs will enter the RA segment making it increasingly competitive. However, we are comfortable that ENBREL's vast experience and long history of safety in the class will allow us to maintain our market leadership position in the face of this new competition. In the dermatology segment, ENBREL continues to get the majority of first line biologic use for psoriasis and maintains a strong position in the segment, capturing about two thirds of the dollar share during the quarter. As many of you are aware, Centocor's CNTO-1275 will likely launch during the first half of 2009 and compete with ENBREL on the dermatology space. We continue to believe that it will take numerous years to characterize the safety profile of CNTO-1275 and that ENBREL's history experienced another positive product attributes make it a drug with the best combination of safety and efficacy available in the class. On to Sensipar on slide 17, for the third quarter worldwide Sensipar sales grew 32% versus the third quarter of 2007. Demand continues to be the key growth driver in the U.S. with the field organizations delivering a strong 26% year-over-year sales performance in the second consecutive $100 million quarter of sales. In fact, Sensipar in the U.S. has also reached the cumulative $1 billion net sales milestone. Internationally, sales grew robustly at 47%, 32%, excluding the impact of foreign exchange. Next slide number 18, third quarter Vectibix sales were $41 million which benefited from recent launches in a number of new countries. Future growth is highly dependent upon label expansion into second and first line metastatic colorectal cancer incorporating a new information on KRAS. Our promotional focus is on identifying specific and appropriate EGFR eligible patients based on our existing label and highlighting the key benefits of Vectibix as compared to the competition. In the international setting, Vectibix is now launched in Canada, 17 countries in Europe and was recently approved in Australia. Next slide, internationally, Aranesp was down 2% overall, excluding foreign exchange while strong growth in our other product resulted in overall growth of 9%. 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 we can see on the slide, most ESA competitors in biosimilars have launched in Europe and some major countries and other countries launches are expected in the fourth quarter. But G-CSF biosimilars, the first launches are also expected in the fourth quarter of this year. On the next slide and my last slide, we look at international segment share for Aranesp in nephrology. On our last quarter's call, we showed you that biosimilars are taking share from EPO-Alfa and EPO-Beta but not Aranesp. This remains the case as indicated by the share graph. We continue to believe that physicians recognize the value of our second generation product Aranesp and that we have actually expanded its share in nephrology while the share in oncology has held steady. We've also maintained a pricing agreement of some 15% to 30% to first generation EPOs. So, that's it for me. Roger?

Thanks George. For Amgen's research and development organization, a substantial fraction of our effort in the third quarter focused on completing the analysis of denosumab clinical trial data, the data which we announced in July. Recognizing that I'll have the opportunity to present a comprehensive review of R&D activities at our investor meeting in two weeks, I have only two slides to present this afternoon. First, we obtained approval for Nplate, the first peptibody ever introduced into clinical practice in both the United States and in Australia. As you know Nplate is also the first treatment for immune thrombocytopenic purpura that acts by directly simulating platelet production. Needless to say we're enthusiastic about the potential of this new treatment approach for patients with low platelet counts, additional data in both the ITP setting as well as in patients with thrombocytopenia associated with therapy for myelodysplastic syndromes will be presented at the American Society for Hematology Meeting in December. Earlier this quarter, we announced that top line information had become available from the Cochran collaboration meta analysis of single patient level data on the use of erythropoiesis [ph] stimulating agents in the treatment of anemia in the cancer setting, it is expected that we will receive the complete analysis sometime before the end of the year. Of course, this information will be communicated to regulatory agencies as soon as it becomes available. Also, with respect to Aranesp, we expect that interim data on the use of Aranesp to treat chemotherapy-induced anemia in the setting of adjuvant treatment of breast cancer from the ARO plus study and investigator sponsored protocol will be presented to the San Antonio Breast Cancer Symposium. I mention this study in particular only because it forms part of the pharmaco-vigilance program that was initiated more than four years ago and which continues to deliver important results regarding the safety of Aranesp in cancer patients. In the third quarter, we also obtained interim results from the first Phase II study events AMG 317, a fully human antibody that inhibits the action of both interleukin 4 and interleukin 13 in patients with moderate to severe asthma. Treatment with AMG 317 clearly demonstrated biological effects in this patient population as compared to those observed with placebo treatment. However, the effect size was disappointing and did not meet our expectations. The study will be completed later this year, and we will then have the opportunity to scrutinize the results in more detail. As I indicated, however, an appreciable fraction of our work this quarter focused on denosumab, for which the first wave of registration enabling studies is nearing completion as shown on slide 24. In September, results from the FREEDOM study in women with post-menopausal osteoporosis were presented at the ASBMR meeting in Montreal. Based on these results as well as supporting data from other Phase III and Phase II trials, we expect to be able to complete our BLA data package in the very, very near future. Of course, the precise character of the initial file depends upon discussions with the FDA which I should say are proceeding extremely well. We've completed enrollment of most of our denosumab oncology studies in this first wave as well, and I wish to emphasize that these are event-driven trials. Nevertheless, we expect to have the opportunity to review data from the first SRE studies in the first half of 2009, and we're certainly looking forward to that. In summary, we continue to make very good progress in advancing important new therapies for grievous illness. Kevin?

Okay. Thank you very much. We would like now to take your questions. And Arvind, I'll turn over to you to mange that.

Dennis, would you go ahead and review the procedure for asking questions please? Question And Answer

Yes sir.[Operator Instructions]. And your first question will come from the line of Geoffrey Meacham with JP Morgan.

Hi guys, thanks for taking my question and congratulations on a good quarter. Question for you on Aranesp, I guess for George. On slide 13, you mentioned the step-down of a same magnitude, looking forward for weekly sales of Aranesp. Just wondering if you can go over some of the drivers there. Are you seeing any impact yet from private pay with respect to the new labeling for Aranesp? Thanks.

Okay. As I mentioned on the call, we've seen a slight decrease from the pretty stable rate that we saw for almost a year. And it's probably due to label changes. I don't think this will be a sharp step changes as we've seen in the past. One of the label changes is the late [ph] curative intent. And we've only seen three commercial payers so far, put any provisions out to guide how to reimburse for all those patients. And they're not particularly strong provisions, they're more sort of cautionary. So, I think, we're beginning to see the effect. It's very hard to gauge right now. How much of an effect the label and the other changes I spoke of will impact the product and we'll keep you apprised as we learn more.

Your next question will come from the line of Jim Birchenough with Barclays Capital.

Yes hi guys. Just want to follow up on the strategy of price increase. You've got several matured products and you've driven growth in part by price increases. Just wondering, how you think about that going forward as a vehicle of maintaining growth during this transition period before denosumab?

So I think as just a general policy, we try to keep our portfolio price increases well within inflation and we've been successful doing that for many years. We think that's the right thing to do as a company. Certain products may not be strictly inherent to the inflation numbers. So I think overseas, you can pretty much guarantee if anything prices will go down and in the U.S., I think you're looking at for the most parts something less than inflation as a portfolio.

Dennis, let's take the next one.

The next question comes from the line of Ian Somaiya with Thomas Weisel Partners.

Sure, thank you. I'm sure you want to leave the denosumab commercialization questions for the meeting. But I guess sort of as a prelude, can you just talk about what factors we should be aware of, we should think about when we think about the commercialization strategy of denosumab?

You're right Ian. I know there's intense interest on that question. It's a complicated, broad and exciting set of challenges and opportunities. And if you can just bare with us, I think in New York, George will really be able to answer that question really in a fulsome way. And so if you just bear with us, say two weeks, we will not disappoint you in our answer and it's completeness or thoughtfulness. But for today we'll take a pass. Thank you.

Your next question comes from the line Michael Aberman with Credit Suisse.

Hey guys. Thanks and congratulation on a good quarter. I guess looking at R&D for the second, you really did... seems like a job of reining in that expenses somewhat. And if you can talk about how you're thinking about that going forward in terms of now that most of the large phase reprogram [ph] for denosumab is over. Is this something you think... you got enough efficiencies to do what you need to do with this kind of spending base as well as you look forward to '09 planning?

I'll make a few Michael comments, then turn it over to Roger. In research and development, we've historically been at about 20% of sales plus or minus. Their views that say you should more, their views that say you should expand less. And so that's sort of a judgment call I guess. I think that, in general, what I try to do at my level at least is make sure that we've got substantial resources available on research development, both to advance the pipeline and look outside the company for opportunities and we are in an advantaged position, I guess that we have more things to fund than we have the money to fund. That's a good place to be but the actual separation of those dollars as between discovery research, mid-stage clinical work and late stage clinical work. That's where real challenge is, devil in the details. But I'm really pleased with how Roger has led the organization and shaped those investments, and the objective of getting more and more efficiency just isn't going to end although I will say I am pleased with how we are now. And Roger, you might want to comment on kind of how you feel about the resource level and where your pressures are.

Well, Michael I think Kevin said it all really, you have to keep in mind that we are in a long cycle business that there is a lot of our expense that goes on for a long period of time once we start a clinical trial and we are maintaining funding for many years through the enrollment period and the time we obtain results. And often thereafter as we continue to provide drug quotations after many of these large trials. So, very substantial fraction of our budget is already committed. What we can do, however, is we can rein in additional expense around that and we have done that. I would say that it is not easy because we have, we have a lot of... we got a lot of children, we like them all to go to college but some of them just have wait for a little while and get red shorted, and that's what we do. And so, we go through that analysis very carefully and we expect to be able to maintain an acceptable cost basis going forward.

And one thing it is a important question, I know there is a link to the answer, but it is a important question. We've made a strategic decision, that there is directly on this research and development expenditure question, which was our partnership with Takeda in Japan and the fact that the few molecules that we thought were in better hands, elsewhere, we acted on that. So, we're very mindful of being thoughtful about, how we use shareholder resources and research and development investment.

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

Yes, hi. Thanks for taking my question. I had a question for Roger about, there is lot of focus obviously right now, the next catalyst from you guys aside from the November 7 day is the demab data on oncology. And can you share with us to give management a lot of credit? You weren't all that bullish as far as we could read you on demab in osteoporosis and that worked out great. But you seem to have been a lot more optimistic, I should say, about the opportunity on oncology and your belief that you can beat demab data [ph]. Can you give us a sense aside from the fact that the studies are grossly overpowered, what really gives you confidence in the preclinical data or in your Phase II data that you are ultimately going to be able to succeed there? Thanks.

As management let me respond to one part of your characterization, then I'll turn it over to Roger. We are always hopeful about clinical trials but I learned a long time ago that predicting or promising any given result is not helpful to anybody. So as far as oncology goes, I am hopeful about it and there is lots of reasons to believe that it will be positive data as you point out. But I just wait until Roger walks into my office and tells me what the answer is before I get too excited. So I just want to kind of share that perspective but I understand how you characterize it and Roger, you might talk about your views of the program.

Yes, Yaron, thanks for the question. I think what's different about the oncology program, first of all, is that the end points in the Phase III studies are like the endpoints in the Phase II studies. And that makes you feel better about the way in which the studies are proceeding. You already know that Phase II data and the way in which denosumab performed in patients with metastastic bone disease as compared to intravenous bisphosphonate. And what we've shown, and we know this of course is that, you said denosumab is the most potent anti-absorbed agent that's ever been introduced into clinical practice. And that decline in bone resorption is associated with an improvement in bone strength as judged by reduction in fractures. And we've shown that in men in depravation therapy and we've shown that obviously in post-menopausal circumstance with women. So that gives us encouragement that we will see a similar kind of effect for the sorts of magnitude that we saw in the Phase II studies in our now very large Phase III studies in a variety of different tumor types. But to Kevin's point, you got to see the data. We haven't seen the data yet. We're anxious to see it. It will take a while once these studies have reached there, their event endpoints, the number of events that have been accrued to clean the file and make sure that we pull the data together. And as soon as we have them, you'll now about them. I'm encouraged by what we see to this point. I'm optimistic but we don't know what the answer is going to be.

Your next question will come from the line of Joel Sendek with Lazard Capital Markets.

Thanks. I have question on EPOGEN, I'm wondering if you can quantify that favorable inventory change. And when you said there was a decline in utilization and dose, I'm wondering if that's temporary or permanent.

Let me go to the dose first. What we have seen is that the customers are basically trying to modulate doses and hemoglobins to be in compliance with the new reimbursement rules. And so there is a little bit of trial and error, so they're bouncing around, it was low in the first quarter, came back a little in the second quarter, seemed to stabilize in the third quarter, except in some smaller segments, certain types of hospitals for example. With EPOGEN, let me just look at my chart here. The inventory is down versus the third quarter last year and up versus the second quarter this year. But in a minor way one or two days.

Your next question will come from the line of Eric Schmidt with Cowen & Company. Eric Schmidt - Cowen & Company: Good afternoon. Another question for George on this potential future step down in Aranesp, could you quantify for us what sort of left remaining for Aranesp in CIA both in the U.S. and Europe? Thanks.

I don't have that number on the top of my head, but I can certainly get it to Arvind and we will share that I believe on the 7 as well so I just don't have the number on top of my head.

Your next question will come from the line Geoffrey Porges with Bernstein. Geoffrey Porges - Sanford C. Bernstein & Co., LLC: Thanks a lot for taking the question, congratulations on a great quarter. A request first, November 7 call is another important date on the calendar and perhaps you could use it as an opportunity to talk about your exposure to sort of political changes generally and changes in government policy. I think it is probably better to talk about that then than now but more immediately George, could talk about the consumer sensitivity of your product portfolio and perhaps just sort of try and help us see us tease them apart and say which product you think have had elements that might be sensitive to changes in either co-pays or consumer spending and ones that are pretty resilient? Thanks.

Yes, Geoff we were just talking about the New York Times article today before we went on the air here. And thus far we haven't detected any impact, I think if there were to be an impact we probably felt most in product like ENBREL where you have a bigger patient out of pocket. So but as I said we haven't detected anything yet and will... I am not sure if it.. unless it's pretty profound, we'll be able to tease that out from a number of variables that could affect the product. But I certainly will keep our ear to the ground. We will probably get qualitative information from our field force that they will get from some offices they call on before anything, but I wouldn't expect the other products which are usually more fully funded through various Medicare programs and medical side of the benefit in commercial payers. I wouldn't expect those to be as susceptible to economic conditions.

And Geoff we will have a point of view after the election but in Canada, really generalized way, we feel major effects right now, no matter kind of who gets elected, one is payers around the world more than ever are asking for value. We have to show safety, we have to show efficacy, we have to show real value. I think that pressure is going to be there no matter who is in charge, and I also think that just the general budgetary pressures are going to be there. We will comment more specifically on the winning candidates health care proposals on November 7. But I kind of think the pressure to show value is inexorable and does not matter who gets elected and we are trying really, really hard to answer that request. It's a society appropriate request.

Your next question will come from the line May-Kin Ho with Goldman Sachs.

Hi. A question about the share repurchase program. This quarter you didn't purchase any shares and if one were to look at your share price, one could deduce that it's a pretty low level. What is your plan or rationale for repurchase program? And are you thinking about the debt level, not just this November but also next November?

Sure, May-Kin. A couple observations for you, first in the third quarter this year given all of the data that was coming out of the denosumab programs, you might appreciate that we had very few days where we weren't restricted and blacked out of trading. So just bear that in mind when you observe that we didn't buy shares in the third quarter. As I said earlier, we'll seek to be opportunistic, so when we can buy shares at prices we consider attractive we'll try to do that. Yet we want to maintain the strong rating that we have and we want to preserve flexibility in our balance sheet. So we're walking that fine line between the returning capital to our shareholders but maintaining flexibility going forward.

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

Hey Roger. Thanks for the question. And thanks for the quarter just like it's 1999 again. The... on the cancer data, I know those trials are event driven and some of them enrolled, you've enrolled more patients than you originally planned, and you've enrolled in some cases I think a little faster than you planned. Is there any chance that we could get cancer data this year?

I'd said Mark that irrespective of the... when we hit the event trigger, that the time required to actually clean these files, do all the parity checks and make sure that in fact there's a line in between the reported event and what really happened and that all sort of thing. It's now almost November, it just takes a long time to get that done. So I don't see that happening. Our expectation is that we can always be behind in terms of the way in which we're following these events. And certainly we realize that we're further along in events. But it will just take so long to clean it up, so I'd say no.

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

Just give us a nice overview of what your FX exposure is on the top line. Can you give us an idea what your ex-U.S. OpEx is as a percentage which you have as a natural hedge, as well as you have synthetic hedges and how long they might last?

Steve, I'm not sure you get several questions there. What we're trying to do with our hedging program is to hedge our net exposure offshore. And so as you're aware we have a rolling 36 month hedging effort, and we disclosed the impact in the top line. But we don't break down the impact of FX fluctuation.

Your next question will come from the line of Bret Holley with Oppenheimer.

Yes. Thanks for the taking the question and congrats on the quarter. I was curious about the detail that you're seeing from Roche with near term in the EU [ph] and how you might be countering that detailing?

What I referred to the last chart in my presentation, that yellow line very close to base line it's in my favorite sales take-off. It hasn't been particularly a good one Roche I'm sure. And right now we're just continuing to basically position Aranesp as the product that, probably best threads and needle between a longer dosing interval and being efficacious sand controllable. And that position has been working very well so far. So they're still launching in some certain countries. So we're not declaring total victory but so far, we're very pleased with our performance versus Mycera.

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

Hi, I just wonder if you could comment on the Nplate launch and just what are your current thoughts on market opportunity there, given the premium pricing, is this $1 billion product or much less?

Yes, so we don't make forecast about new product. What I can tell you there are about 130,000 to 140,000 patients with ITP between U.S. and Europe. Many of them were well controlled on steroids and some other products like Rituxan. And so naturally when you launch a product like Nplate, what you're going to get all the patients who are most difficult to treat. The patients frankly have been failures on lot of other therapies and sometimes that surgeries, splenectomy. So those are the patients who are getting... we're tracking exactly to our forecast right now which probably doesn't help you a lot. Because you know what our forecast is but it's proceeding as planned. And I think the big question is, given the realms and the competition, can we continue to build on that experience base to patients comeback and reinforce feelings of how well this product works and do the doctors then see clear to put more and more patients on the product. And we're cautiously optimistic about that.

Hey Dennis, why don't we take a couple of more questions?

Yes sir. Your next question will come from the line of Shiv Kapoor with Morgan & Joseph. Shiv Kapoor - Morgan & Joseph: Hi, thanks for taking my question. From what I've heard in the call, it seems like the primary use of cash will likely be share buybacks at opportune moments. My question is, given the opportunities that the macroeconomic environment may present and given the strength of your business and your balance sheet, does it make sense to be a little less defensive and more aggressive in certain areas like in licensing and acquisition of technologies or products?

We've historically had I think an aggressive acquisition in licensing program. I think in the last eight years we've spent more than $20 billion on those activities, and our acquisition in in-licensing appetite remains high remain. What we look for is quality opportunities and I think that continues to be what we're going to look for. The good thing is now quality opportunities are probably a bit on sale compared to what they were before but it's not a quality opportunity, there isn't a price that really makes a lot of sense to pay. So, we've always been aggressive in acquisition in licensing. We remain so, and I'm sure that we're going to use some of our cash over time to advance those interests. About half of our pipeline has and has historically come from those kind of activities and I think that's a healthy mix.

Your final question will come from the line of Chris Raymond with Robert W. Baird.

Hi, thanks for squeezing me in and I have a question on Europe and the stuff that's going on there with biosimilars, George pointed out I think in the slides that looks like biosimilar impact in the ESA space, recent terms of your share has been pretty minimal. And we got some feedback that there are some safety fears out there relative to biosimilars specifically PRCA fear and stuff like that. Can you maybe point to some other drivers that you could sort of identify that's been responsible for maintaining that share? And then also describe why do you think there would be potentially or why not maybe a similar or parallel situation in the GCSF space?

I think there are two other factors. One is, there have been three brands competing pretty aggressively for a number of years. And so in the more price sensitive tender markets, the price has been driven down pretty low. So it wasn't as much of an opportunity to come in with a price play. I think the other big factor is that these products are for the most parts throughout EU not substitutable. So a physician has to decide to switch a patient from say EPREX to one of the biosimilars and I think given the safety concern, that's part of the way that's playing out. With regard to GSCF, again there has been competition, price competition in this market. So there is not a tremendous amount of headroom for lower prices. But again we think with Neulasta, we've got a much better product, much better value proposition. And so we'll see probably not the same safety concerns with GCSF as that were with the EPOs given the PRCA situation. So we'll see what impact safety had as we begin to battle the biosimilars.

Okay thanks George. I would to thank you all for participating in our call this afternoon. We look... first look forward to seeing you on November 7th. If you have any other questions or comments, of course the Investor Relations teams will be around this afternoon. Thanks again.

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