Amgen Inc. (AMGN) Q2 2011 Earnings Report, Transcript and Summary

My name is Dennis, and I will be your conference facilitator today for Amgen's Second Quarter Earnings Conference Call. [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 morning, everybody. I would like to welcome you to our second quarter results conference call. Probably the best way to characterize this quarter is solid revenue growth both in the U.S. and in international markets and good business momentum, as we embark in the second half of this year. This morning, I'm joined by our Chairman and CEO, Kevin Sharer, who will provide a strategic overview of our performance during the quarter. Jon Peacock, our CFO will then go into additional detail on our financial performance during the quarter. Our President and Chief Operating Officer, Bob Bradway, will then provide some additional color on how our products performed during the quarter, followed by our Head of R&D, Roger Perlmutter who will provide an R&D update. We'll use a handful of slides for our presentation today. These slides have been posted on our website and a link was sent to you separately by e-mail. I would like to remind you that our comments today will be governed by our Safe Harbor statement, the gist of which is that through the course of our presentation today, we may make certain forward-looking statements and actual results could vary materially. Although we'll use non-GAAP financial measures to help you understand our underlying business performance, the GAAP reconciliations are provided in our press release. So with that, I would like to turn the call over to Kevin.

Thank you, Arvind. Good morning, everyone. I know that we speak to you today in an environment, a macro environment, of substantial uncertainty and the markets understandably reflect that uncertainty. However, when I focus on our business, I see progress on literally all fronts. We'll go over that progress today in each of our separate comments. But I want to reflect back on our last conversation, April 21, when we shared our business plan and our guidance through 2015. That was just a few months ago, but many things have happened since then. And I want to reiterate my conviction about that 2015 guidance and the various business elements that we outlined in building up our conviction around why we will deliver those numbers or better. We had some uncertainties that day that are not uncertainties any longer. We'll talk about that in depth today. I know that you are interested in, and I understand why, our ESA business particularly EPOGEN. We're prepared to discuss that in depth. And while there's still a few uncertainties in the EPOGEN business compared to what I was thinking and seeing on April 21, I feel much more clarity around how that business will move going forward. Bob will share that with you. I also want to point to the 8% product sales growth year-over-year, significant numbers and I'm proud of the effort behind that, and I'm optimistic about what it foretells for the future. We're also making the commentary, given these results, that we expect our guidance for 2011 to be at the top end of the range. So when I look at Amgen today, I feel great optimism and confidence about the future. And I want to thank all of the Amgen staff, I know many of whom are on this call, for their tremendous effort in delivering these great results this quarter and everything I know they'll do for patients and shareholders going forward. So I'd like now to turn the call over to our Chief Financial Officer, Jonathan Peacock who'll give you, a more in-depth briefing on our financials and strategy. Jonathan?

Thanks, Kevin. So if we turn to Page 5 on the deck, that gives a summary of our financial performance for the quarter compared to the same period in 2010. Revenues overall were up 4%. But as Kevin mentioned, product sales grew at a much stronger rate, up 8%, driven by good performance across our portfolio, particularly from NEUPOGEN, Neulasta and Enbrel. Bob will talk more about this in a few minutes. Other revenues were down by $125 million due to certain milestone payments received in 2010 from GSK for Prolia approvals in Europe and from Takeda for the Vectibix approval in Japan. You'll see that operating expenses grew 15% or $329 million in, the quarter. This included $47 million for the new Healthcare Reform fee; $45 million for Puerto Rico excise taxes recorded in cost of sales, and for which we receive an offsetting foreign tax credit in our federal income taxes; and also $40 million increase in profit share payments to Pfizer as a result of higher Enbrel sales. Of the remaining increase of just under $200 million, $166 million, more than 80%, relates to the increase in research and development spending in the quarter. So to comment on this, in setting our guidance for the year, we highlighted 2011 as an investment year for our research and development activities. This reflected the planned transition of several molecules from Phase II to Phase III and the resources needed to support our marketed products internationally. Consistent with this, close to 50% of the increase in the second quarter is driven by the costs associated with several new late-stage programs, particularly the Phase III trials for AMG 386, 479 and OncoVEX. The balance is driven by increased support for our marketed products, including Prolia and XGEVA and several of our established products in international markets. Discovery research in our early pipeline also drove a small increase. At our business review in April, as Kevin referenced, we provided guidance that we expect R&D in each of the next 5 years to fall in the range of 18% to 20% of product sales. For 2011, we expect to be within the high end of this range. And with this in mind, we'll continue to make choices about which program to take forward and to closely scrutinize the efficiency of the spend within each project. You may recall that in April, we highlighted several projects where decisions have been made to substantially reduce or terminate planned investments, as a result of reviewing the latest program milestones. Moving to cost of sales. As I mentioned earlier, this includes $45 million for Puerto Rico excise taxes. If we exclude this charge, cost of sales would have been 13.5%, an improvement of 1.7% compared to 2010. This reflects much better utilization of our network, as a result of these restructuring actions that we've taken over the last 2 years. The tax rate in the quarter benefited from the foreign tax credits associated with the Puerto Rico excise tax. And this is partially offset by the impact of the nondeductible Healthcare Reform fee. Net income therefore declined 3% in the quarter and EPS declined slightly year-on-year from $1.38 to $1.37. You may recall in setting our guidance for the year, our stated objective was to increase EPS before the impact of the Health Reform fee. Adjusting for the fee in the second quarter, EPS grew 3%. Turning to cash flow on the balance sheet on Page 6. Our cash balances grew by $4.7 billion compared to June 30, 2010. This is also an increase of $3.8 billion from March 31 of this year, driven by our bond issue of 3-point -- of $3 billion in June, free cash flows of $1.4 billion offset by share repurchases and the Bergamo acquisition. Our debt outstanding is now $14.2 billion, resulting in a net cash balance of $5 billion. The bond issue in the quarter was consistent with a capital plan that we presented in April, and we achieved coupons of 2.3%, 4.1% and 5.65% on the 5-, 10- and 31-year maturities respectively. During the quarter, total share repurchases amounted to $700 million at an average price of $56.87. We also announced today our first dividend for the quarter at $0.28 with a payment date of September 8 for all stockholders of record at the close of business on August 18. And consistent with our guidance in April, we expect to return an average of 60% of net income each year to shareholders in the form of dividends and share repurchases. But the amount may be higher or lower in individual years. Finally, we're updating our guidance for the full year on Page 7 for both revenues and adjusted EPS. We now expect revenues and adjusted EPS to be at the upper end of the current ranges of $15.1 billion to $15.5 billion and $5 to $5.20 per share respectively. Guidance on the other metrics outlined on Page 7 remained the same. Let me hand over to Bob to give more update on the product sales performance. Bob?

Okay. Thank you, Jon. On Slide 9, we provide a summary of Global Commercial performance for the second quarter. And as noted in our press release, our Global Product sales grew by 8% versus the second quarter of 2010, reflecting momentum in each of our product categories except ESAs. Excluding ESAs, revenues grew 18% during the quarter. I'll review the business starting with Filgrastim. Our Filgrastim products grew 15% during the quarter. In the U.S., Filgrastim was up by 15% driven by Neulasta unit demand and to a lesser degree, price. Roughly 1/2 of the unit demand growth was from increased first-cycle penetration, particularly with newer, more myelosuppressive chemotherapy regimens. The remaining unit demand growth was driven by the timing of customer orders. Enbrel's 9% growth during the quarter was driven primarily by price and unit demand. Unit demand increases were driven largely by overall segment growth which was in the mid-teens on the year-over-year basis for both rheum and derm in 2011. Enbrel remains the market leader in both of these segments as of the end of second quarter. Now turning to EPOGEN. Although our EPOGEN sales declined by $114 million or 17% versus the same quarter last year, sales were actually up by $8 million or 1% versus the first quarter of 2011, an indication that our sales largely stabilized in the wake of bundling. We had previously stated that we expected a mid-teens percentage decline in dose for EPOGEN in 2011 due to bundling and that this impact would be concentrated in the first half of the year. The implementation of new protocols occurred a bit more rapidly than we expected but dose stabilized just about where we expected it would be. Now with the new label and the proposed QIP changes, we now expect year-over-year dose decline to be in the range of 20% to 25% and that, of course, will be partially offset by patient population growth and price increases. And I should stress that this range I've just given you assumes that QIP is finalized as proposed. Based on our experience with implementation of the bundled payment system, we think much of the impact will be realized in 2011, with some residual impact early in 2012. At that point, we believe practice changes will have been largely implemented by dialysis providers. Our expectations regarding the impact of label and reimbursement changes are largely informed by our extensive discussions with the nephrology community and our understanding of the relationship across dose, hemoglobin, the sub-10 population and the risk of transfusion. Through April, the mean hemoglobin level was about 11.2 grams per deciliter in the U.S., and about 12% of the patients had hemoglobin levels below 10 grams per deciliter. Now as the mean hemoglobin decreases for dialysis patients, the sub-10 population will inevitably increase. So if the mean hemoglobin level were to decrease, for example, to 10.5 grams per deciliter, then the sub-10 population would approximately triple, and we would expect to see considerably more transfusions as a result. The last time we saw hemoglobin levels below 10 was back in 1993, and we do not think physicians will accept the return to the treatment paradigm in place nearly 20 years ago. To put this in a global context, the mean hemoglobin in the U.K. was 11.3 grams per deciliter in the fourth quarter of last year and that's true across the big Western European markets outside of the U.K. as well. And in Canada, the mean hemoglobin was about 10.8 grams per deciliter earlier this year. So our expectation is that hemoglobin levels will decline from the current 11.2 but will remain above 10 grams per deciliter in the dialysis setting. During the 60-day comment period, we will be submitting our response to the proposed QIP, and we believe that the current sub-10 quality indicator should be maintained. We'll be monitoring developments on this front and, of course, we'll keep you updated as events play out. Turning now to Aranesp. Aranesp sales declined 3% during the second quarter, with sales down 10% in the U.S. Aranesp will also be impacted by the recent ESA label changes primarily related to CRI. However, as we discussed at our Business Review, pre-dialysis represented about $200 million of our U.S. sales in 2010. Shifting to Prolia now. In the U.S., Prolia grew 70% versus the first quarter of 2011. We're making steady progress on a number of fronts. Through the second quarter, over 70,000 patients have received Prolia in the U.S. As we discussed in our Business review, we planned to have part D coverage with affordable access, which means less than $100 per 6 months of treatment in place for 11 million lives by the end of the second quarter. I'm pleased to report that we secured access for more than 11 million lives by June 30. We expect catalysts in the second half for Prolia, including increased access through part D, returning patients in incremental patient awareness as a result of our print advertising. Now turning to XGEVA. XGEVA was up 74% versus the first quarter of 2011 and through the second quarter, more than 30,000 patients have been treated with XGEVA, representing rapid adoption of the product by oncologists and neurologists since our launch at the very end of last year. Importantly, we've seen solid share gains and overall segment growth. XGEVA ended the quarter with unit share of about 20%, and whereas we observed declines in the SRE segment prior to the launch of XGEVA, we are now experiencing mid single-digit growth. Clearly, XGEVA growth will rely on taking share from IV bisphosphonates. And as we discussed at our Business Review, XGEVA growth will also rely on increasing the length of treatment due to the improved renal tolerability and the ease of administration, as well as addressing the 200-plus thousand cancer patients with bone metastases who are not currently treated. The segment growth I cited gives us confidence that we're making progress on both fronts. I'd like to note that all of our products in the U.S. ended the quarter with wholesaler inventories in their normal ranges. And now let me turn to the International business. Second quarter was a record or us internationally. Sales grew in all countries except Spain. We maintained share against biosimilar competition for Aranesp and Filgrastim. Vectibix, Nplate and Prolia maintained double-digit growth rates, and we are pleased with the recent positive opinion from the CHMP for an expanded label for Vectibix. Internationally, Prolia experienced steady growth. We've now launched in markets comprising 40% of the sales opportunity internationally. And over the balance of the year, we hope to launch in additional key markets, including Italy and Spain. We're also excited about the recent marketing authorization for XGEVA in Europe, which Roger will have more to say about in a moment. In summary, we're pleased with the solid growth of our core franchises, particularly Enbrel and Filgrastim, and the ongoing successful expansion of our international operations. Roger?

Thanks, Bob. The second quarter saw the approval of XGEVA in Canada and Europe, submission of our sBLA for bone metastasis prevention in men with castrate-resistant prostate cancer and continue progress in enrolling key clinical trials and advancing important research projects. Turning to Slide 11. As most of you know, we completed discussions with the FDA leading to modification of the U.S. Prescribing Information for erythropoietic-stimulating agents in patients with chronic kidney disease. The label incorporates information from our TREAT study, which we've discussed previously, and focuses attention on the newly identified risk of ESA therapy while confirming the benefits that are well-known to physicians and to patients suffering from anemia resulting from renal disease. For Prolia, we had the opportunity earlier this week to see top-line data from our Phase III study, evaluating the ability of Denosumab administered at a dose of 60 milligrams once every 6 months to improve bone mineral density in men with low bone mass. The study met its primary and all secondary endpoints. An initial look at the safety database indicates that the findings are consistent with what we've seen in other populations. There were no new safety signals. We expect to submit the results of this study to regulatory agencies with the goal of expanding availability of the Prolia therapy to men, as well as women, with osteoporosis. As is mentioned earlier, we've received marketing authorization in Europe for XGEVA for the prevention of skeletal-related events in adults with bone metastasis from solid tumors. Also at the end of the second quarter, we submitted an sBLA to the FDA based on our favorable results from the 147 study, which were presented earlier this year. And these results demonstrated a reduced risk of bone metastases in men with castrate-resistant prostate cancer who were at high risk for these events. We expect to hear more from the FDA before the end of the third quarter regarding this review. Also, as Bob mentioned, the Committee on Human Medicinal Products of the European Medicines Agency has recommended that Vectibix be approved for use in combination with chemotherapy in patients with metastatic colorectal cancer in the first- and second-line setting. As we've previously noted, only patients whose tumors contain wild-type, that is unmutated KRAS genes, should receive Vectibix therapy. In the United States, we've just received Complete Response Letters related to the same indication. The FDA did not ask for new clinical studies but requested an updated safety analysis and additional analysis of overall survival in the 181 and 203 studies using more mature data sets. Our combination diagnostic device for KRAS gene status, which we've developed in collaboration with Kyogen [ph], must also gain regulatory approval. As noted on the slide, we've recently changed the U.S. Prescribing Information for Nplate to make plain that treatment of patients with thrombocytopenia associated with the myelodysplastic syndrome is not indicated. You will recall that Nplate is a thrombopoietin receptor agonist indicated for the treatment of low platelet counts in patients with immune thrombocytopenic purpura or ITP. The FDA has informed us that they intend to modify our Risk Evaluation and Mitigation Strategy, or REMS, to eliminate the restricted distribution component. In addition, to reduce the burden on health care practitioners, the Agency will no longer require that prescribers complete clinical assessment forms as part of the REMS. We're working closely with the Agency to ensure that patients and physicians remain well-informed about the appropriate use of Nplate. Turning now to new programs and development. I'm pleased to report that the Phase III clinical study of OncoVEX GM-CSF for the treatment of stage 3, 4 malignant melanoma has completed enrollment. You will recall that this trial is being conducted under an FDA-agreed Special Protocol Assessment with the primary endpoint of durable clinical response. And separately, we have decided not to proceed with the OncoVEX GM-CSF Phase III program in squamous cell carcinoma of the head and neck. Recent studies have demonstrated that head and neck cancers associated with prior human papillomavirus infection behave very differently from tumors with other etiologies. These observations mandate that clinical trials ensure appropriate balance in the representation of subjects with prior papillomavirus infection. Since the changes in clinical trial design required are quite significant, we've elected to halt the current study and to initiate a redesign trial at a later time. Obviously, our approach to new indications for OncoVEX GM-CSF will take into account what we have learned through the conduct of our melanoma trial. Finally, those of you who followed our quarterly summaries will know that there is typically an underlying seasonality to our expense profile. Ordinarily, expenses increase later in the year. In 2011, however, we planned for early investments in key clinical trials. It is our intention to flatten the trajectory of R&D spending in Q3 and Q4 substantially. And as Jon noted, despite the increase in expenditures that we've seen in the first half of 2011, we expect R&D expense for the year as a whole to fall within our guidance of 20% of sales. Kevin?

Okay. Thank you very much. We'd now like to turn the call over to questions, and we're happy to start that now. Arvin, why don't you supervise us?

Yes. Dennis if you can review the procedure for asking questions, please?

[Operator Instructions] The first question comes from the line of Chris Raymond with Robert W. Baird. Christopher Raymond - Robert W. Baird & Co. Incorporated: Just want to understand a little bit more about the guidance going to the upper end of the range. Specifically, in light of what Roger said about R&D spending. So you've taken up the revenue guidance and that implies, at least from my math, a little bit of upside to where people are modeling and some continued growth. But if you do the one-half '11 versus two-half '11 earnings, there seems to be a step down. So, I guess, the question is, is there some implied expenditure besides R&D that's baked into that? Or is it SG&A? Or what should we be thinking about?

Chris, let me take that one. I think the couple of things to bear in mind on the second half. There are some things in the first half of the year that won't get -- we don't expect to repeat in the second half. So with our recent bond offering of $3 billion villas [ph], we expect interest expense to be higher in the second half of the year. And also, there's some benefits in EPS from the Puerto Rico excise tax in the first half because of some of the timing issues when we receive the credit and when we take the charge, which again, we don't expect to be repeated in the second half of the year. And so those are the main factors that would drive the difference between the first and second half of the year.

Your next question comes from the line of Geoff Meacham with JPMorgan. Geoffrey Meacham - JP Morgan Chase & Co: Just, I guess, a clarification. So should we assume formally that your 2011 guidance does reflect the fact that the QIP is implemented? Or you're just bracketing where Epo could go under a range of scenarios?

No, I think the guidance that I've given fully reflects the indications that Bob has given on our new expectations for EPOGEN.

So we have given you -- my remarks on EPOGEN, Geoff, were intended to reflect what we think the impact of this QIP going forward as proposed to be, and our guidance is consistent with that.

Your next question comes from the line of Eun Yang with Jefferies. Eun Yang - Jefferies & Company, Inc.: This morning, Merck said they are planning to have a late-stage biosimilar product, about 5 of them, by end of 2012. And those include the Enbrel, NEUPOGEN and Neulasta. So my question is in terms of the biosimilars in the U.S., do you think that their pricing impact would be similar to what you have seen in the EU?

Let me comment on it. I read the Merck statement. It wasn't a surprise to me. It's consistent with what they've said all along. Certainly, we'll have a robust biosimilar environment in the United States, hard to predict exactly when, hard to predict how many. But I'd like to just reiterate that the biosimilar environment commercially is nothing like the generic pill situation. Companies have to invest in clinical trials, they have to invest in manufacturing, they have to actually sell the product, they have to have regulatory capability, et cetera, et cetera. So this is a competitive environment. I expect that the players will be commercially rational and that our shareholders will demand that they earn a good return. And so I think it will be kind of like a normal business, if you will, where there are multiple competitors. We have experience in this. We will be smart, tenacious and I believe effective competitors in the United States just as we have been in Europe. I'd rather not try to speculate at this moment on exactly what the prices are. But I think we can see and characterize from sort of a general business theory way what likely will be the competitive landscape, and Amgen will be ready.

Your next question comes from the line of Mark Schoenebaum with ISI Group.

I just want to ask, if I may, a bigger picture question. I'm not sure who it's appropriate to address the question to, so I guess anybody. But some of the big pharma companies, namely Pfizer and Bristol-Myers, over recently and over the last several years have decided to divest certain areas of their business or spin-off, and it seems to have actually helped the stock price a fair bit. And when looking at Amgen now, now that it sort of seems like, at least for EPOGEN, that the bottom is now in sight, there is some certainty, does the company believe it makes any sense to even contemplate a divesture of the EPOGEN business or would that not make sense?

Mark, that's a question shareholders have asked. I hesitate to answer a question in the context of some of the companies you just named. But I respect that they're doing their best and in some cases, have had some success in reshaping their businesses. But I'd like to state that they're coming from a very, very different place than we. We have always been, and will remain, an absolute pure-play-focused human therapeutics company. In classical business sense, I understand your question. However, we have analyzed that question and I'd like to make a few points. First of all, despite the challenges this business has provide -- presented to us and shareholders over the last 5 years, it remains a very large contributor to revenues and importantly, income. Secondly, there are going to be, at least the United States, in the dialysis business, 300,000-plus patients who really, really need this medicine going forward and they're going to need it for as long as they're on dialysis. That is not going to change. And so it would be kind of the horse has already left the barn a little bit at this point to make that move. There are also issues around taxes, operating and other legal and operational issues. So we're not wedded to any given business. We are in business. We're in business to serve patients and shareholders. Our judgment is, right now, that we best serve patients and shareholders by managing this business well. But I want to assure shareholders that we are not wedded to any given business and we do evaluate properly with outside help our strategic alternatives. So it's not a crazy question, we have thought hard about it, but I think we can see what this business is going to look like. It's fully in our 2015 guidance. And actually compared to what I was thinking about April 21, strange as this may seem for you all to hear, I feel quite a bit comforted by where we are now and our visibility and certainty about the future. So good question, and we do look at that question.

Your next question comes from the line of Josh Schimmer with Leerink.

Just wondering what your confidence is in sustaining or even accelerating the quarter-over-quarter momentum we saw across XGEVA, Prolia, the NEUPO, Neulasta and the Enbrel. Franchises, the latter, at least in light of the pending entry of SubQ Orencia into the field and kind of the visibility on that over the next 12 months?

Okay, there's a lot in that question, Josh. Obviously, we're pleased with the progress on the launch of XGEVA and Prolia. Again, XGEVA continues to do very well. We're pleased with the progress we're making both with oncologists and neurologists. We know there's a very large segment of the population that isn't being treated, and so we're doing all we can to try to grow the market as well to continue to take share with what we believe is a superior product. Prolia, as I said in April and repeated today, we're pleased with the foundation that we've built. We're pleased with the momentum we have. We think there are catalysts for the second half, so we're expecting to see a continued acceleration from Prolia in the second half. And then, on your question about Enbrel and Neulasta. An, important question, again, were pleased Enbrel remains the market leader in both rheumatology and dermatology, but as your question reflects, there is competition. We now face 7 biologic competitors in the anti-TNF arena, and so the market is growing rapidly. We're growing with that market, and we're doing all we can to continue to see that patients that would benefit from the long safety and efficacy track record of Enbrel have access and opportunity to use the product. So we're encouraged by the trends we see, but we recognize there's a lot of competition for Enbrel. And on NEUPOGEN and Neulasta, again, worldwide, we're pleased with the volume growth that we saw, particularly for Neulasta. We recognize that there are newer myelosuppressive chemotherapy regimens that are being used increasingly, and we're benefiting from per-cycle penetration of those newer regimens. And so as those continue to grow, as use of those regimens continues grow, I think there remains opportunity to grow units in Neulasta. With respect to both of those franchises, we think we have some price leverage, but it's important for us to be growing units as well.

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

I wanted to go into more detail on Neulasta, your Neulasta answer there. So specifically, can you help us with what that first cycle penetration is? How high is it? And then you mentioned the timing of customer orders is one of the drivers. I'm wondering if that's either filling in for past orders or kind of borrowing from the future. If you can describe that in better detail.

Yes. Let me start with the second half of your question, Joel. What I was trying to convey with my remark about customer signing is that 1/2 of the unit demand was underlying demand and 1/2 of it was timing-related. So that's the only point I was trying to make there. With respect to where we're getting the per-cycle increase, per-cycle penetration, there's no single regiment that I would point to, to explain where we're getting increase per cycle. I just think generally, if you look at pancreatic cancer treatment, if you look at prostate, if you look at some of the other therapies being used in those cancer settings, you'll see increased use of myelosuppressive agents and clinicians are treating their patients with first cycle Neulasta to try to prevent febrile neutropenia. We're doing all we can to try to increase first cycle penetration, not just in the newer regimens but the other appropriate regimens as well. And that's the focus of our team, as I said it would be, when we met in April and that's what we'll continue to try to do.

Your next question comes from the line of Matt Roden with UBS.

So as you think about this QIP change here, do you think that there's any reasonable hope that the changes, the proposed changes in the QIP isn't realized in the final rule, and why or why not? And then if it is realized in the final rule, Bob, I think you mentioned that you didn't think it was reasonable that the hemoglobin could drop below 10, but do you think you could drop below 10.5?

Let me try to answer that question. What we try to do here is be conservative in the way we give you our guidance. I don't want to convey to anybody that we're going to somehow give less-than-maximum effort for getting the rule in the right place for patients. I'm not going to promise anything other than maximum effort and keeping patients in mind. I would point out that we have a long history of being effective advocates in Washington, and we're going to try that again here. I'm not going to promise any given outcome, but I have confidence in our system. There are times when ideas are surfaced but in isolation might seem somewhat ill-advised, but the system does tend to work in a way that gets to the right answer at the end of the day. This is a multi-party problem and issue, and we will fully engage. And so I think there's more to play here and we'll find out. But I think we owe you, as shareholders, kind of our more conservative view. But in the public policy arena, we're going to be very energetic and constructive in trying to get this rule to be good for patients. I'd rather not speculate and parse exactly where in the 10s we are going to be. I think that Bob gave a very good summary about what's happening in other places, why we believe doctors are going to do what they're going to do and we'll probably just stand on that for today. But I think shareholders can take comfort that the guidance that we've given, both short and longer term, is conservative around what might happen in the EPOGEN space. And again, we're going to work hard for patients on this one.

Your next question comes from the line of Robyn Karnauskas with Deutsche Bank.

So it sounds like you have a lot of positive direction for XGEVA and Prolia. And I was wondering if you could give some color on whether you're beginning to capture some of the market segments in the urology sector that Zometa was not able to capture, so new markets. And I guess, maybe an update on when we could see the sclerostin data?

Okay, there are 2 questions there. I'll answer the XGEVA question and Roger can answer the sclerostin question. I think we're encouraged by the progress we're making with urologists. We have a very large share of use now in urology setting. And so we're confident that we're beginning to bring patients who weren't previously treated into treatment. And so again, the reception from urology is positive and improving with time. Roger?

Yes. On the sclerostin data, I presume you mean the sclerostin data with respect to postmenopausal osteoporosis because, of course, we're also studying it in fracture healing. We've provided top line data and the material is being assembled for presentation at an appropriate scientific meeting. We'll do that just as soon as we can, but we're not going to be able to get into the meetings in September, most likely, so it will be sometime later that we'll end up presenting those data.

Your next question comes from the line of Geoff Porges with Bernstein. Geoffrey Porges - Sanford C. Bernstein & Co., Inc.: I have a question on the settlement with Teva over the G-CSF patents. It seems clear that we should anticipate that Teva will launch their biosimilar to NEUPOGEN in November of 2013. But in your 10-K, you list a patent for Neulasta that goes through 2015. And I'm just wondering if we should interpret this to expect that there will be a biosimilar for Neulasta launched in November of 2013 rather than November of 2015, because I'm sure you're aware Teva's developing both a direct biosimilar and then also a long-acting version that is an albumin-conjugate rather than a PEGylated version.

Good question, Geoff. We are very pleased with our settlement with Teva. I would expect NEUPOGEN biosimilar, that's it, in November of '13, and we'll fight them on whatever else they come up with in the future. We will be ready.

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

I just had 2 question. One for Bob, if you don't mind. Did you see any sort of buy-in before the summer in Europe? Any sort of idea on sort of pre-summer stocking? And then if you don't mind, just secondly, if I can sneak one in on XGEVA. What's the breakdown in sales between breast cancer and prostate cancer and then other cancers?

Okay, Yaron. I'll answer both of those. The first one, you're question in Europe, the answer is no. With respect to XGEVA and the mix by tumor types, you may recall at the April meeting, I gave you the data for breast cancer, it was about 44% at that time. It's up a little bit since then. It's about 1/2 of the total volume right now. Prostate has also increased a little bit since April. That's just about 20%. So those are the 2 that have moved since we met in April, since I put the slide up that shows you the mix by tumor type.

Your next question comes from the line of Sapna Srivastava with Goldman Sachs.

I actually had 2 questions.

Let's keep it to one question.

Okay. So one on the EPO dosing. I think you mentioned that hemoglobin across European countries. And it seems to indicate that EPO dosing is roughly half there. You could give us your color on what EPO dosing in x U.S. looks like?

Yes. I wasn't intending to talk about dosing in Europe. We're outside the U.S. What I was tending to share with you is the observation that outside of the U.S., where the factors that influence practice of medicine a little bit from in the U.S., clinicians have landed on hemoglobin levels that are well above 10 and in fact, above 11. So if you look the large European companies -- countries including the U.K., you see hemoglobin averages in excess of 11 [indiscernible] or so. Across a large number of Western countries, that's the range that clinicians have settled on for their patients.

I think it's important to keep in mind that the patient mix is quite different in these different jurisdictions. And hence, EPO dosing may vary a lot because of the underlying resistance to EPO treatment. But of course, what you're trying to achieve is hemoglobin levels that are associated with benefits in terms of reducing transfusion, et cetera, in the dialysis population.

Your next question is from the line of Ian Somaiya with Piper Jaffray.

I just had a question on the EPOGEN guidance. I was just making sure I was interpreting the guidance appropriately. So it seems like at some point, you do envision an environment where EPOGEN can grow. I just want to make sure that conclusion's accurate. And then tying it back to previous statements that if there is a further decline in EPOGEN sales, you would offset the impact on earnings by managing spend. Clearly, your R&D guidance for the back of the year implies that, should we assume that's the case for 2012 as well?

Let me make a little bit of a comment. I respect and understand the interest in EPOGEN. There's been a lot of news flow. EPOGEN is a smaller and smaller part of our business proportionally. We will be able to manage through whatever the dynamic is in EPOGEN. I absolutely do not imagine that anything is going to happen in the EPOGEN business that would cause our expense guidance to be anything other than what we said through 2015. And hard to predict multi-year, but I think we've given a good guidance on EPOGEN here, and what we expect dose to be, et cetera. So we'd probably rather just leave it there and maybe feel some confidence in what the business is going to do going forward.

Dennis, in the spirit of keeping these calls brief and focused, I'll take 2 last questions.

The next question comes from the line of Michael Yee with RBC Capital Markets.

A question on inventory actually. Since EPO is actually up this quarter as well as the other products, was there any inventory fluctuations and changes in Q2 over Q1? Can you walk through inventory?

No. Inventory levels were all inside the normal ranges, and I wouldn't look there for an explanation from fluctuation from one quarter to next.

And the next question is from the line of Eric Schmidt with Cowen & Company.

A question on the QIP initiative. Could you help us understand the approach to altering the proposed rule? And Kevin, you mentioned your strong conviction that you think this is bad for patients. I guess I'm looking for a reason why you feel that way and in particular, many of us noticed that the CMS press release invoked the FDA as kind of maybe cover for this proposed rule?

I'd rather not go into exactly what the nature of the dialogue is going to be or exactly how we're going to pursue it, but we have, I think, some very good points that we want to make. This is a complicated process. It's a public process. I respect CMS' point of view, but I also am confident that we have arguments on the patient side that are important, and you could probably imagine what they're going to be. We've been at this for 20 years, and I'm not predicting any given outcome, but this isn't our first rodeo

Okay, thanks, Kevin. Let me thank everybody for your participation in our call this morning. If you have any follow-on questions, comments, I will be around together with my team for several hours, so would be happy to talk to you. Have a good day.

Ladies and gentlemen, this concludes Amgen's Second Quarter 2011 Financial Results Conference Call. You may now disconnect.