Amgen Inc. (AMGN) Q2 2012 Earnings Report, Transcript and Summary

Arvind Sood - Vice President of Investor Relations Robert A. Bradway - Chief Executive Officer, President, Chief Operating Officer and Director Jonathan M. Peacock - Chief Financial Officer and Executive Vice President Anthony C. Hooper - Executive Vice President of Global Commercial Operations Sean E. Harper - Executive Vice President of Research & Development

Marshall Urist - Morgan Stanley, Research Division Matthew Roden - UBS Investment Bank, Research Division Yaron Werber - Citigroup Inc, Research Division Navdeep Singh - Deutsche Bank AG, Research Division Ravi Mehrotra - Crédit Suisse AG, Research Division Eun K. Yang - Jefferies & Company, Inc., Research Division Eric Schmidt - Cowen and Company, LLC, Research Division Jim Birchenough - BMO Capital Markets U.S. Rachel L. McMinn - BofA Merrill Lynch, Research Division Mark J. Schoenebaum - ISI Group Inc., Research Division Geoffrey C. Meacham - JP Morgan Chase & Co, Research Division Geoffrey C. Porges - Sanford C. Bernstein & Co., LLC., Research Division Michael J. Yee - RBC Capital Markets, LLC, Research Division Christopher J. Raymond - Robert W. Baird & Co. Incorporated, Research Division M. Ian Somaiya - Piper Jaffray Companies, Research Division Joel D. Sendek - Stifel, Nicolaus & Co., Inc., Research Division Boris Peaker - Oppenheimer & Co. Inc., Research Division Charles Anthony Butler - Barclays Capital, Research Division

My name is Marvin, and I will be your conference facilitator today for Amgen's Second Quarter 2012 Financial Results 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, Marvin. Good afternoon, everybody. I would like to welcome you to our second quarter conference call. We posted solid revenue and earnings per share growth which provides yet another indication of how we are successfully executing on our growth strategy. To discuss this and other topics, including our increasingly visible pipeline opportunities, I'm joined by several members of our management team today. This is Bob Bradway's first conference call with investors as our CEO, so he will lead with providing a brief strategic overview. Following Bob, our CFO, Jon Peacock, will review our quarterly results and update our guidance for the year. Our Head of Commercial Operations, Tony Hooper, will highlight our product performance, followed by our Head of R&D, Sean Harper, who will provide a pipeline update, including top line data from our PCSK9 program for hypercholesterolemia. After Sean's presentation, we'll have plenty of time for questions. I'm sure you have reviewed our press release, and I hope you found our new user-friendly format useful. We will use slides for our presentation today. These slides have been posted on our website, and a link was sent to you separately by e-mail. Our comments today will be governed by our Safe Harbor statement, which, in summary, says that through the course of our presentation today, we may make certain forward-looking statements, and actual results may vary materially. So with that, I would like to turn the call over to Bob.

Thank you, Arvind. Good afternoon, everyone. Thank you for joining our second quarter conference call. As you can see from the results, our performance in the first half of the year was very strong. Our results reflect broad momentum on the top line for both our established and newly launched products. Amongst our established products, Enbrel performed particularly well in the second quarter as we benefited from our ongoing investment in the brand. I'm pleased as well with the progress of XGEVA and Prolia, which continue to gain favor with patients and physicians as we launch these brands globally. In addition to strong revenue, we enjoyed operating leverage through the first half of the year, and together with the benefit of last year's buyback, this has enabled us to deliver very strong earnings per share growth through the first 6 months of 2012. Based on our strong first half and the momentum we have in the business, we are raising 2012 guidance for revenues and earnings per share, and we'll cover the details of that with you in a moment. I'm encouraged not only with the operating results for the first half of the year, but also with the progress we are making in our R&D portfolio. I would highlight 2 novel molecules in particular that help position us for attractive future growth. First, together with our partners at UCB, we're excited to be enrolling patients in a Phase III study of our sclerostin antibody for osteoporosis, or AMG 785. There remains a clear medical need for a systemic anabolic agent that helps osteoporotic women build bone, and we're excited about our sclerostin antibody's potential to address that need. Similarly, with a benefit of strong Phase II data, we're excited about advancing our PCSK9 antibody, or AMG 145, to help treat patients who are not otherwise able to manage their LDL cholesterol level to acceptable levels. This, too, represents an important new opportunity for us. While talking about R&D, I would note that following on the inflammation partnership we formed with AstraZeneca last quarter, our recently amended Takeda agreement is another step in the direction of freeing up R&D resources to focus on our most important programs. Strategically, we are executing well on our agenda. Our acquisition in Turkey established a strong position for us in a fast-growing region of the world for biopharmaceuticals. We acquired an innovative cancer company, Micromet, in the first quarter and our more recent acquisition of KAI brings us a novel medicine in the dialysis field, where we expect to be able to add value as well. Financially, our company is in a strong position, and our commitment to returning capital to shareholders is reflected in our growing dividend and the considerable progress we've made against our $10-billion buyback program. Finally, I know a number of our staff are listening into this call, and I want to take a moment to thank them for their exceptional efforts and accomplishments through the first half of this year. Our focus here at Amgen is on growing the company and delivering for patients and shareholders. We're off to a good start, and I know I can count on our staff to keep delivering through the balance of the year. Now let me turn it over to Jon, who will review the details of our financial performance. Jon?

Thanks, Bob. As you can see on Page 4 of the presentation, this was a strong quarter for us. We grew revenues 13% and adjusted earnings per share 34%. Product sales grew 8% compared to 2011, reflecting continued strength across the portfolio. Tony will give you more perspective on the individual product performances shortly. On a geographic basis, our U.S. business grew by 9%, and the rest of the world, predominantly Europe, for us, by 3%. And compared to the first quarter, our rest of world sales, again predominantly Europe, grew by 5%. Other revenues increased by $200 million versus a year ago. This was the result of our agreement to grant Takeda worldwide rights to develop, manufacture and commercialize Motesanib, a multi-kinase inhibitor for cancer, in return for agreed milestone payments and royalties. In 2008, we'd entered into a global codevelopment and profit share agreement for Motesanib and granted exclusive rights to Takeda in Japan. The agreement to grant worldwide rights triggered the revenue recognition of a payment previously received from Takeda at the time of signing the original codevelopment agreement. And as Bob has highlighted, this also allows us to free up resources and focus on our most important R&D programs. Sean will talk more about this later on. Operating expenses was 7% higher compared to 2011, slightly below product sales growth. Cost of sales were up 17%, and that included the higher Puerto Rico excise taxes. Since this tax initially passes through inventory and it was introduced in January of last year, the charge was lower in the first half of 2011. If I exclude the effect of Puerto Rico taxes, operating expenses grew by 6% in the quarter versus a year ago. Research and development costs overall were flat and SG&A costs were up 8%, and this was driven a combination of higher Enbrel profit share payments and investments in international expansion. Adjusted earnings per share grew by 34%, and that was driven by strong operating income growth of 23% and the 16% lower share count, partially offset by higher interest expense and a higher tax rate. The higher tax rate was primarily driven by the expiry of the U.S. federal R&D tax credit at the end of 2011. And at this point, the credit has not been renewed for 2012. Turning to Page 5. Free cash flow in the quarter was $2.2 billion, and that was up $800 million compared to the second quarter of 2011. In addition to the strong operating performance, this increase was driven by the termination of fixed to floating interest rate swap contracts on our debt portfolio, and this realized U.S. cash of $400 million. It was also driven by the collection of $200 million of overdue receivables in Spain under the government's recent funding program. We raised an additional $3 billion through our U.S. bond offering in May, completing the financing of our $10-billion share repurchase program. Uses of cash in the quarter were primarily share repurchases of $1.2 billion, dividend payments of $300 million and the consideration for the acquisition of MN Pharmaceuticals in Turkey for $700 million. Payment for the acquisition of KAI Pharma of around $315 million was made just after the end of the quarter. And so at the end of June, we held cash balances of $22.5 billion and total debt of $24.5 billion. Our debt portfolio has an average maturity of 14 years and an average coupon of 3.8% pretax. Following the termination of the swap contracts noted above, the interest terms are now 100% fixed, and given the maturity and the rates on these bonds, we feel very comfortable with this position. Year-to-date, we've repurchased shares at a total cost of $2.6 billion, and at an average price of $68.55. And this brings the total cost of shares repurchased under our $10-billion share repurchase program to $7.6 billion and at an average cost of $62.75 a share. So turning now to Page 6. Based on the strong first half year, we're updating our guidance for the full year. We now expect full year revenues of between $16.9 billion and $17.2 billion and we expect adjusted earnings per share of between $6.20 and $6.35. Our guidance on the full year tax rate and on capital expenditures remains the same. The EPS guidance reflects the onetime upfront and milestone payments received from Takeda, AstraZeneca and Astellas in the first half of the year, and it reflects an expectation of higher clinical development costs in the second half as we ramp up the Phase III trials for AMG 785, our sclerostin antibody for osteoporosis; and in accelerating our Phase III program for AMG 145, our PCSK9 antibody to lower LDL cholesterol. Sean will talk more about both of these programs. I'd also note that I expect cost of sales to be slightly higher in the second half and for the full year, as denosumab and Enbrel growth continues in the mix. Overall, though, we plan to maintain the discipline of keeping operating expenses at or below revenue growth on an annual basis. So I'll now hand over to Tony to take you through more details on our commercial performance.

Thank you, Jon. Good afternoon, everyone. You'll find a summary of our global sales performance for the second quarter on Slide #7. First, let me say I'm very pleased with the execution of our commercial strategy. Our team is focused on appropriately maximizing the value of all our brands across both our portfolio and our geographies. Let me start with the Filgrastim franchise, where Neulasta represents about 80% of our sales. In the U.S., we continue to drive Neulasta unit growth by maintaining our emphasis on first and every cycle treatment as the best way to reduce the risk of febrile neutropenia in appropriate patients. In Europe, Neulasta unit demand remained relatively stable. But Neupogen, which accounts for about 20% of the franchise, lost some share to biosimilars due to pricing pressures. Let's now turn to Enbrel. I've spoken to you for a couple of quarters now about our strong focus on this product and about our commitment to investing in Enbrel over the long term. You may also recall that our patent protection has been extended until 2029 and our profit share arrangement with Pfizer ends in October 2013. This will result in dramatically improving the profitability of our product. Our recent focus for Enbrel has been on optimizing the sales force, expanding direct-to-consumer advertising and ensuring appropriate access. We have completed the consolidation of all U.S. field sales activities under Amgen and we've made a small expansion to the sales force. This has allowed us better coverage and frequency on both rheumatologists and dermatologists. We're also very pleased with the results of our DTC and access initiatives. All of these efforts have led to a stabilizing trend in our share for both the rheumatology and dermatology segments. More importantly, we've seen significant increase in our new-to-biologics segment prescriptions. Enbrel remains, in value terms, the leading biologic in the fast-growing rheumatology and dermatology segments. Aranesp sales grew by 3% on a quarter-over-quarter basis. We've seen fairly stable usage patterns for several months in the U.S, consistent with our expectations regarding changing practice patents. We believe the majority of these practice patent changes have now been realized. Internationally, Aranesp unit growth was partially offset by price declines. EPOGEN quarter-over-quarter sales were up 18%, mainly due to customer and wholesaler buying patterns. But I am pleased to report that we saw a 2% growth underlying unit demand in the quarter. Hemoglobin levels reported up to April seem to settle at about 10.7 grams per deciliter. Average dosing has also been less volatile than what we saw in several previous quarters. We've seen limited impact on EPOGEN sales from new competition. However, we continue to expect some volatility in EPOGEN sales as a result of the overall dynamics of the market, but we are confident in our ability to compete strongly with this brand. The execution of our strategies for our growth-phase products, Sensipar, Vectibix and Nplate resulted in double-digit demand increases for each of these 3 brands. Now turning to denosumab. We are confident in the strategies we developed to drive long-term growth for both Prolia and XGEVA. XGEVA growth continues to be driven by share gains and overall SRE segment growth. Our primary areas of focus for XGEVA have included emphasizing the product's superior clinical profile, increasing share of voice by way of more sales force focus and direct-to-patient programs. For Prolia, I am pleased with the progress we've made with this brand. A key part of our strategy is to encourage patients to initiate a dialogue with their physicians. Our direct-to-consumer television campaign in the U.S, featuring Blythe Danner, has created a marked increase in these dialogues. We also see an increase in unaided brand recognition by patients and a continued increase in website traffic. On the access front, our efforts have driven a reduction in the reimbursement projection rate at pharmacy for the brand, and on the sales force front, we've made a targeted increase in our sales force to ensure we reach high-volume osteoporosis general practitioner prescribers. In markets outside the U.S., we continue to see excellent uptake in countries where we have already launched, and we continue to make progress on pricing and reimbursement in countries where we have not yet launched. In summary, I am pleased with the competitive strategies that our team have developed and our focused execution against these strategies. I'm confident in our commercial team's ability to face the challenges that lie ahead as we continue to bring vital medicines to patients. Now let me pass you on to Dr. Sean Harper.

Thanks, Tony. Good afternoon. Our clinical programs are all advancing quite well, including our Phase III oncology programs: AMG 479 in pancreatic cancer, AMG 386 in ovarian cancer and T-Vec in melanoma. We have initiated enrollment with AMG 785, our monoclonal antibody directed against sclerostin in our second, in this case alendronate-controlled, Phase III study designed to reduce fracture risk in women with postmenopausal osteoporosis with our partners at UCB. We anticipate initiating Phase III enrollment for brodalumab, our monoclonal antibody inhibitor of the IL-17 receptor, in moderate to severe psoriasis with our partners at AstraZeneca, MedImmune this year. Blinatumomab, our monoclonal antibody inhibitor of HGF, the ligand for the MET receptor, garnered a lot of attention at the American Society of Clinical Oncology this year due to the impact on survival in gastric cancer patients who have high MET expression in their tumors. There is great unmet need in gastric cancer, particularly in emerging markets such as China. This program is now in Phase III planning. As you know, we received a complete response from FDA on our application for an XGEVA sBLA for bone metastasis-free survival in patients with prostate cancer and rapidly rising prostate-specific antigen levels. We have recently filed an sBLA application with the EMA, focused much more on the subset of patients with very rapidly rising PSA, who experience the greatest degree of benefit in our study. We recently closed our acquisition of KAI Pharmaceuticals. KAI's lead program is a calcimimetic agent, KAI-4169, for the treatment of secondary hyperparathyroidism that can be intravenously administered during standard 3x weekly hemodialysis regimens. In the context of the recent results of the EVOLVE study, our Phase III cardiovascular outcome study of Cinacalcet, our takeaway from ongoing discussions with nephrologists continues to be that an IV therapy administered coincident with dialysis would provide an opportunity to be assured that the patient receive the drug as intended. Phase II data for KAI-4169 are very promising, and we're planning an efficient Phase III program based on biochemical endpoints. Bob and Jon have mentioned the new deal structure with our partners at Takeda regarding Motesanib, a multi-kinase inhibitor for cancer. We feel that it makes great sense for Takeda to take the lead on developing this asset, specifically for Asian populations, based on a subset analysis from our global trial in non-small cell lung cancer. This arrangement allows us to redirect significant resources into some of our other innovative development programs and to continue to seek to optimize return on our R&D investment. Finally, our large Phase II program with AMG 145, our monoclonal antibody inhibitor, PCSK9, continues to great -- generates great interest due to the large number of patients in clinical practice who cannot reach their LDL cholesterol goals despite currently available therapies. We have completed the primary analysis of approximately 1,300 patients in our studies, exploring the efficacy of AMG 145 as monotherapy or in combination with statins in statin-intolerant patients, and in patients with heterozygous familial hypercholesterolemia. These studies met all of their key endpoints. The majority of the patients in these studies were rolled into an open label extension study, which will provide critical long-term safety data for our filing. We intend to submit our Phase II data for publication and presentation in an upcoming medical conference. No matter how we have examined these results, they have provided us with compelling efficacy and safety data that have allowed us to commit to Phase III, which we plan to initiate early in 2013. Our program has also provided the richness of data necessary to optimally determine the dose for both every 2-week and every four-week subcutaneous administration schedules. Bob?

Okay. Thank you, Sean. Arvind, let's open it up for questions. And perhaps you could remind our friends of the guidelines for the Q&A session?

Yes, absolutely. Marvin, would you go ahead and review the procedure for asking questions, please?

[Operator Instructions] Our first question comes from the line of Marshall Urist with Morgan Stanley.

Just on a -- just a couple of financial questions on what looked like a strong quarter. Could you help us just to quantify some of the benefits of the accounting changes on the anemia franchise that you mentioned, that you called out in the press release. It would be helpful in just trying to get a little bit better sense of the quarter. And then again, I know you referenced it on the guidance raise, could you help us just to think through in terms of how much of the incremental profitability that you see in the second half of the year that you are going to reinvest in the business? Where is that going to go as we think about numbers for the second half of the year?

Sure, Marshall. Maybe I can take the second piece of that question, and then Jon can answer your specific question about the ESA reference. With respect to the second half, Marshall, remember in the first quarter we said, and on this call we've reiterated a couple of things about the second half: first that we're excited about the opportunity to be investing in the second half on a couple of innovative important pipeline programs that are advancing to Phase III. So that includes AMG 785, and then you've heard our remarks now as well on AMG 145. In addition, bear in mind when you think about the second half that Enbrel is performing very well this year. And as you know, the margins on Enbrel are different from some of our other products. And so that will be reflected when you look at the margins in the second half. But we continue to invest in Enbrel. We feel we are earning an attractive return on that, and in addition, we're pleased with the progress and the returns that we're earning on the denosumab launch globally. So we're excited about the first half of the year. We like the investment opportunities that are available to us and we're excited to see the momentum continue in the second half. Jon, do you want to address Marshall's specific questions on the accounting?

Yes, and maybe I'll just also just remind Marshall that with our $3-billion debt offering in May, there will be a sort of an effect on interest expense in the second half of the year from that. But again, I'd just reiterate the comment that we will continue to maintain the discipline of ensuring that operating expenses grow at or below the level of revenue growth. On the question on EPOGEN in particular, I think we, in the press release, talked about the drivers of EPOGEN's performance during the quarter. There was some adjustment to Medicaid rebates. It was -- I think we mentioned 3 factors: our customer buying patterns and a low-single-digit point growth and underlying demand, but there was some Medicaid rebate adjustments. And that's something we do periodically. It wasn't a major factor for EPOGEN in the quarter, but it was part of the overall performance. But dose utilization, the reduction in discounts from the new contracts were the main factors, and the accounting estimate change was probably the smaller of those 3.

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

On AMG 145, Sean, I presume the initial Phase III investigation will be in special populations such as those studied in Phase II? Is that correct? Or do you view this as a broader-base replacement for statins as lipid-lowering agent? And then related, can you talk about the endpoints under consideration for Phase III? Interested not only from a clinical perspective, but also trying to understand the length of time before you might be able to file a BLA.

So I appreciate the question. I think that the 145 program is one that is, of course, a very competitive space right now. And so we're not wanting to provide just yet a lot of detail around the Phase III program in terms of things such as endpoints and exact timing. I would answer your first question by saying that we really see the opportunity for this product being very squarely in the space of patients who, despite all available therapies, are not reaching their LDL cholesterol goals, and therefore, are walking around with markedly elevated cardiovascular risk. So I think it's hard to imagine why one would step away from, in many cases, a generic, very effective statin therapy if that were treating a patient sufficiently. But as you probably know, there are very large numbers of patients who are not getting to their goals despite the availability of such therapies.

Our next question comes from the line of Yaron Werber with Citi.

I'm sorry if you covered it, but I'm not sure you did. I just was hoping you can give us the current inventory in -- across your major products? And Bob, just for you, just give us a little bit of a sense kind of, how do you see where you're going to be spending OpEx? I mean, it looks like you've been leaving -- making a lot of room to invest in 785 and PCSK9, which are going to be significant investments for you guys. So R&D, you're going to have your hands full. What about SG&A? Is there anything you could do to actually streamline operations or improve margins?

Okay. Thanks for the questions, Yaron. I know you've got a couple of different questions in there. We'll -- I'll ask Tony to address the inventory question in a moment. But with respect to OpEx, we did cover some of this, Yaron. I'm not sure whether you were on at the beginning of the Q&A. But looking to the second half of the year, you're right, we do expect to -- we're excited about the investments that we're going to make in 785 and 145. And in the first half of the year, obviously, our investment in R&D was lighter. That's consistent with traditional patterns for us as well. With respect to SG&A, bear in mind that Enbrel's performing particularly well. And as Enbrel performs well, you'll see that reflected in SG&A. But productivity improvement has become a way of life here, Yaron, and we're going to continue to look for productivity improvements across all of our businesses, so you should expect that to be a feature of the second half and beyond here. Tony, do you want to offer any comments to Yaron on the inventory for the quarter?

So I think, as is always the case, Yaron, individual product movement can create noise on either a year-by-year or quarter-by-quarter basis in terms of grades. However, our wholesale inventory for our products in aggregate had no significant impact on our business in quarter 2.

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

It's actually Navdeep substituting in for Robyn. Thanks for taking my question. Question on your pipeline now. You've highlighted your PCSK9 antibody in your introductory comments, and I was wondering how your molecule compares to the regenerants in alfa [ph] molecule? And are you expecting AMG 145 to be a monthly or biweekly? And a final part to that question is, are you expecting FDA or the EMEA to require cardiovascular trials?

Okay, there are a lot of questions wrapped up in that. And as Sean said earlier, the 145 -- AMG 145 or PCSK9 field is very competitive right now. There's a lot of interest in developments. We like the data, as Sean said, however we look at it. We feel compelled by the safety and efficacy data that we've seen in our large Phase II program. Sean answered a couple of the things that you asked in your question, so he can touch on those, I think. So, Sean, why don't you...

Yes, I mean, it's obviously not possible to make comparisons between these agents that haven't been tested head-to-head against each other. The Q2 weekly and Q4 weekly program for our molecule is something that we anticipate carrying from Phase II into Phase III, and we think that's an important option for patients to have. The filing plans for the product at the present is to file based on LDL lowering as a surrogate endpoint. We also are anticipating a large cardiovascular outcomes trial to demonstrate the value of the product at the level of outcome.

Our next question comes from the line of Ravi Mehrotra with Crédit Suisse. Ravi Mehrotra - Crédit Suisse AG, Research Division: For Bob or Jonathan: Going back to April, when you laid out your capital redistribution policy, you talked about dividend being smaller elements of the return, but growing, you obviously made 1 set there. Can you just update us on the thoughts on how you want to grow that [indiscernible] in the medium term?

Yes. Ravi, as I said in my remarks, we're pleased with the progress we're making on our capital plan. As you know, we've increased the dividend. We're committed to continue to increase that dividend. And in addition, we're well into the $10-billion buyback that we announced as part of that program now last year. And so I expect we'll continue to make progress on the buying back front and then through time again, you should expect the dividend to increase.

Our last question comes from the line of Eun Yang with Jefferies. Eun K. Yang - Jefferies & Company, Inc., Research Division: A question on Sensipar. Now Mr. Seamus [ph] is proposing to implement hypoglycemia monitoring and also the performance of scores are going to be used to determine payments to dialysis centers. Do you think there's a very good chance that Sensipar may be excluded from oral bundling starting in 2014?

Eun, it's Bob. We had a little trouble hearing your question. I certainly caught the tail end of it, which was, you're asking whether we thought there was a chance that Sensipar could be excluded from the bundle. I think -- what we know is that Sensipar is an important medicine for patients on dialysis who are suffering from secondary hyperparathyroidism. It's a differentiated product, a product whose efficacy and safety profile I think is well understood. We don't know, at this point, so it would just be speculating hypothetically about how this may play out and whether it will be and when it will be included in the bundle. So rather than entertain that hypothetical question, why don't we wait and see how it plays out through time?

Our next question comes from the line of Eric Schmidt with Cowen and Company.

I guess it's a good problem to have, but it seems like you're getting perilously close to achieving your 2015 top line guidance and almost the bottom end of your bottom line guidance here, right this year, Bob. So in the absence of long-term estimates from the company, should we just continue to extrapolate at this rate? Or what are you thinking about the long-term? And when will we get an update on that guidance?

Thanks for the question. Obviously, we're not providing long-term guidance on this call. We did provide the updated guidance for 2012. We are making progress against the objectives that we established at our last Investor Day. And we'll look forward -- we're working with Arvind to find a date that works for all of you and for us, so we'll have an opportunity to refresh you on the goings-on at the company and the pipeline and the strategy and so forth. So for now, Eric, I'd say we're pleased with the progress that we're making against the 2015 objectives, and our guidance for 2012, now, I think for the second half of the year is also clear.

Our next question comes from the line of Jim Birchenough with BMO Capital.

2-part question, just on XGEVA, I'm wondering if you could size the opportunity in the prevention of SREs? And how far penetrated are you in that opportunity? And then the second part is just for the anti-sclerostin antibody, how do you see that positioning relative to Prolia and XGEVA?

Okay, Jim, thanks for the questions. We'll answer those. Let me ask Tony to talk to you about XGEVA. And then, Tony, perhaps, you'd like to pass to Sean to comment on the fit between sclerostin and Prolia?

Okay, thank you. So XGEVA does, in fact, continue to be viewed as a very important and differentiated product by the oncology community, and its growth continues to be driven by both share gains and the overall SRE segment growth. In the U.S., the SRE market growth is about 27% year-on-year. And when I look at the second quarter, the XGEVA dollar share was about 50% and the unit share was about 33%, showing about a 3-point increase in market share quarter-on-quarter. Sean?

Yes, I think from a medical perspective, what we're hoping for here with sclerostin is to fill a very important need, and that is for a bone anabolic agent that could be used in patients who have severe osteoporosis and are at high risk for fracture, followed then by an anti-resorptive therapy strategy with an agent such as Prolia. So we feel that these agents will be essentially complementary to one another. And imagine patients being treated with the anabolic therapy and then the gains that are rapidly accrued from that intervention being maintained by use of potent anti-resorptive agents such as Prolia.

Jim, as I've said before, one of the things that impresses us when we're engaging with physicians who are treating osteoporotic women is the degree of interest in an effective systemic anabolic agent. And so, we're excited about the Phase III trial that we have underway and excited about the data that we can generate to try and meet that unmet medical need.

Our next question comes from the line of Rachel McMinn with Bank of America.

Just on PCSK9, can you talk about strategically whether you'd be looking for a partnership or is that something that you plan to market alone, just thinking about the long term? And then just briefly, in terms of your funding, will you need to -- they said you've got a big debt you're maturing next year, so is that something that you need to fund with new debt?

Okay, thanks, Rachel. With respect to PCSK9, we -- we're very confident in the biology, very confident in the molecule that we developed, excited about the data we've seen. And so, we look forward to developing this molecule and helping it reach patients who need a therapy to help them get their LDL and cholesterol levels to -- within an acceptable range. So this is a molecule that we're excited about. We're prepared to bet on the biology behind it and I think our development plans are very clear. With respect to the funding, Jon can talk specifically about the maturing convertible that I think you're referring to.

Yes, we have a convertible that matures in February of next year. It's likely that we will refinance that convertible and we have a number of different routes to doing that and we'll be looking through the options over the next several months. But you should expect that we will be going to the market in some form to refinance that convertible by February of next year.

And I'm sorry, Bob, just on PCSK9, I was asking more about your commercial strategy, not your development strategy. Is it...

We're not commenting on that now, Rachel. Again, what we're focused on is developing this molecule. We think the scientific and commercial opportunity are very attractive here. So right now we're focused on helping this product get through the clinic.

Our last question comes from the line of Mark Schoenebaum with ISI Group.

My question -- I'd like to ask something on your most important franchise, that nobody seems to actually ask about anymore. That's on your G-CSF franchise. Do you guys believe that Teva's lipeg- filgrastim, their long-acting G-CSF program, infringes on any of your patents? Or do you think that Teva has freedom to operate? And then just second question, I'd love to hear your updated thoughts on the dividend. Obviously, as your stock's gone, done so well this year, your yield has, of course, declined and many people now compare you to a large pharmaceutical group, which has a yield of around 4%. So I know you made some general statements about the mix there, but I'd love to hear your updated thoughts about how you're thinking about taking the dividend up over time?

Okay, Mark, again, 2 questions there, but we'll try to answer those for you. With respect to dividend, the remarks that we've made previously, I think, are the remarks we want to stand by, Mark, which is that we're managing the aggregate payout to our investors and we're delivering that payout through a combination of dividend and buyback. We're not trying to manage to a particular dividend yield, but our dividend has increased and we expect that we will continue to increase that dividend through time. With respect to G-CSF, you're right, that is an important franchise for us and an important franchise for patients. We're focused on continuing to grow the franchise, particularly with Neulasta. We're very focused on the competitive -- of the outlook for competition for that franchise, not just here in the U.S., but globally. As you know, we are -- we have consistently demonstrated that we have the will and the skill to defend our intellectual property, and you should expect that we'll do that with respect to our G-CSF franchise as well as our other franchises. And finally, I would just remind you, Mark, that Neulasta is about 80% of our worldwide Filgrastim business.

Right. And their G-CSF is long-acting.

Correct, yes.

Is -- does that infringe on your patents?

Well, as I've said, Mark, we -- you should expect that we will assert our IP rights, and to the extent that they infringe, you should expect that we'll deal with that through the appropriate channel. [Operator Instructions]

Our next question comes from the line of Geoff Meacham with JPMorgan. Geoffrey C. Meacham - JP Morgan Chase & Co, Research Division: Bob, on your long-term guidance, with regard to your OUS or emerging market presence, you guys have done a few deals of late. I'm just curious what the level of comfort with your exposure is today. Are you still looking at having a significant presence by 2015? And do you think your prior strategy of smaller deals will fit going forward, as your revenues is, obviously, going to go a lot higher by then?

Sure. I'll answer that, Geoff, and I'll ask Tony to offer a few thoughts as well. Our objective by 2015 is to have a direct operating presence in 75 markets and we're well on our way to achieving that. And now we're in some 56 markets, I guess. Today, we identified a few of the emerging markets, in particular, as being important strategically to us and markets where we would entertain the prospects of acquisitions like what we've done in Brazil and Turkey. And those markets included Brazil, Russia, where we've entered into a partnership with a local entity to manufacture a product there and then the other important markets: China, Turkey, Mexico, South Korea and India. And so we'll continue to look for opportunities. I think it's likely that if we do anything strategically, it will be along the lines of what we've done with Bergamo in Brazil and Mustafa Nevzat in Turkey. Tony, do you want to add any color to our longer-term prospects and objectives internationally?

All right. Just to confirm that in Brazil and Turkey, we've more than quadrupled our presence based on the acquisitions. The acquisitions are not only valuable for the market themselves, but for the surrounding regions as well as we establish our presence. Having just spent some time in the Far East, again, just reconfirming that we have huge opportunity for growth from a baseline of nothing in both Japan and China. So we'll continue to focus our efforts on these large markets to drive the top line and to establish our presence outside U.S. and outside Europe.

Our next question comes from the line of Geoff Porges with Bernstein. Geoffrey C. Porges - Sanford C. Bernstein & Co., LLC., Research Division: Enbrel, could you just give us a breakdown? Strong sequential growth in year-over-year. On the growth versus prior year, what percent was volume, price and how are you doing on share?

Sure, Geoff, thanks for the question. Tony, why don't you give that response to Geoff?

Okay. So let me just start by reminding you again that after 14 years of being in the market, Enbrel, in dollar terms, continues to be the market leader in both rheumatology and dermatology. Our price has been a significant contributor to our growth in the next -- last year or so. The markets, however, are growing fast, and what I see as very exciting, based on the increased investment we have, is the constant increase in the market share of new -- or patients new to biologics, both in the dermatology area as well as the rheumatology area. And new patient acquisition, to me, is the future where the brand is growing, so I'm delighted to see that pickup and to see that growth. As you know, we've also strengthened our sales force support by consolidating the sales forces in the U.S. under the Amgen umbrella. We've expanded our team effort and our DTC campaigns with Phil Mickelson, together with our new-launched dermatology campaign, continue to show increase as we go forward. Geoffrey C. Porges - Sanford C. Bernstein & Co., LLC., Research Division: Sorry, Tony, was it all priced in or was there volume increase in that 10% year-over-year?

There was a small volume increase, but predominantly price.

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

A question on Epo. When you look at the numbers this quarter, you did suggest that there was actual volume growth as well as obviously a lot of buying pattern changes. But if you -- if there was really volume growth quarter-over-quarter, do you basically think that we've essentially hit the bottom? And I'm looking at -- consensus numbers are all over the place, but generally down. So do you think we're near or at the bottom?

Okay, Michael, I understand. It's an interesting question. But Tony, why don't you talk a little bit about what we see on dosing and try to help Michael get a sense for the dynamics of the Epo market right now?

Okay. So as I've said in my introductory remarks, the quarter-on-quarter growth is confusing. But when we look underneath that, we actually see an underlying unit growth of about 2%. We do see that H1B has settled at about 10.7% for the last 2 months or so. I look at March and April. We're waiting for the May data now. And we also see less variability in the actual dose itself over time. It's difficult to predict whether this is where the market will land, but it has been stable for a couple of months now.

Michael, there's been some focus and some writing in the analyst community about the increased rate of transfusions. And I know some folks on that via regulators and payers as well. And while none of us have the data yet, clearly, we think that part of the rebound we saw was a response to the fact that hemoglobin levels were dropped and transfusion rates were increasing in some places, and so, our current dosing seems to have been stabilized following that trend in the first quarter.

Our next question comes from the line of Chris Raymond with Robert Baird. Christopher J. Raymond - Robert W. Baird & Co. Incorporated, Research Division: Just one question on -- also on EPOGEN. Just kind of curious if you could maybe give us a little bit more color on exactly what this Medicaid rebate artifact was in the quarter? And what's the last thing of factor, is there any sort of thing you have to think about in terms of a reversal or anything in the impact in the second half? That'd be great.

Yes, maybe I'll just pick that one up, Chris. I think what we did say was that the overall trend was driven by predominantly dose utilization and the pricing changes that we put in place at the beginning of the year. And there was some impact from this, what we referred to as accounting estimate. We estimate the Medicaid rebates that are due and accrue those on a quarter-to-quarter basis. As those claims come in, we adjust our accrued rebate based on the actual claims that come in. So we adjust as we go. The amount was not significant in context of the other drivers and we'll continue to adjust up or down based on the experience that we see in terms of the actual claims coming in, but this should become smaller and smaller as our experience of the actual claims build.

Our next question comes from the line of Ian Somaiya with Piper Jaffray.

I just had a question on the -- on Enbrel and maybe a larger question on the autoimmune franchise. Can you just give us your thoughts on the impending competition from orals and how you plan to offset that? Is the strategy, continue to be reliant on Enbrel? Are there oral development candidates that you have in-house or are there ones that you have identified potential licensing opportunities?

Sure, Ian, I'll take the question. We're obviously excited about the performance of Enbrel. We're encouraged by the 14-plus-year track record that Tony referred to, which enables us to have a very clear safety and efficacy track record for the product. We expect to continue to compete against other anti-inflammatory agents, whether they're injectable, infusible or oral. I think you're probably referring to the prospect of an oral jack being approved later in the year. Rather than talk hypothetically about competition from AKKA [ph] that hasn't yet been approved, what I, again, would reiterate is that we remain encouraged about the long-term outlook for Enbrel and for the benefit that it provides the patients who are suffering from inflammation. More generally, Ian, as I hope you would expect, we are very active on the business development front, continuing to look at and have looked very closely historically at anti-TNFs -- and again, oral and a wide range of different products. And as we've said on many occasions, the bar established by Enbrel is a high one and we have found it difficult to find molecules that offer superior efficacy and prospect of superior safety as compared to Enbrel. But we are and we will continue to look for ways to extend our leadership in the anti-inflammatory space.

Our next question comes from the line of Joel Sendek with Stifel, Nicolaus. Joel D. Sendek - Stifel, Nicolaus & Co., Inc., Research Division: I had a question on the EPOGEN franchise also. I'm just wondering how much of a threat you view the Amantys [ph] drug to be? And if they do manage to take some share, would you be prepared to discount in order to retain the share that you have?

Joel, thanks for your question. Obviously, we're very conscious that the competitive landscape for EPOGEN is evolving, and as with Enbrel, where we have a long established track record, we have an even longer established track record with EPOGEN. We think EPOGEN serves well the needs of the dialysis community, both from the standpoint of providers and patients. But we take seriously the prospect of any competition, and that includes the recently approved product that competes against EPOGEN. So we continue to watch developments in this market very carefully. But having said that, we also feel confident about what we offer patients and payers and customers with our EPOGEN product. Tony, do you want to add anything to that?

No, I think the only thing I would add was, I can say, after 20 years of being in the market, working together with the dialysis providers to ensure we provide optimal care to patients on dialysis, it's the clinical value of the product, it's the experience of the product and that is where we focus in terms of defending our brand.

Our next question comes from the line of Boris Peaker with Oppenheimer. Boris Peaker - Oppenheimer & Co. Inc., Research Division: I just had a general question. You mentioned that you benefited from DTC advertising in the quarter and I think across several of your products. How much room do you see there is to grow your advertising campaign, and particularly, that some of your competitors are also going through the DTC route in the rheumatoid arthritis space as well as maybe some other spaces?

Okay, Boris. Yes, we've been obviously investing, and we're pleased with the returns we're seeing for Enbrel and Prolia. But, Tony, if you want to offer any specific comments to Boris' question, go on and jump in.

So ultimately, the success of all our DTC came -- campaigns is measured through sales growth. In the case of Enbrel, where we've been doing some DTC for some time, we are confident that they're impactful and we see the impact in their share trends as well. So as we evaluate the ROI on an ongoing basis, we're consistently looking to tweak and to adjust and to make sure we're maximizing the return on investment.

Okay, Marvin, let's take one last question.

Our last question comes from the line of Tony Butler with Barclays Capital.

Very simple one. Sean, you may have said it, and I apologize, but the -- at ASBMR, can you discern what you will -- what you believe you will present on 785? I assume the PMO data will be there, but what I'm most interested in is fracture healing. Will that also contain Phase II data there at that meeting?

Yes, the Phase II PMO data will be at the fall ASBMR. I actually don't know the answer to whether we're intending to have any fracture healing data there. I do not believe so, but I'd have to check with the team to be sure.

Okay. Thanks, Sean. Listen, let me thank everybody for your participation in our call this afternoon. If you have any questions, comments, obviously, myself and the rest of the Investor Relations team will be around for the next several hours. So I look forward to having that discussion. Thanks again.

Ladies and gentlemen, this does conclude today's Amgen's Second Quarter 2012 Financial Results Conference Call. We thank you for your participation. You may now disconnect.