Amgen Inc. (AMGN) Q3 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

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

My name is Marvin, and I will be your conference facilitator today for Amgen's Third Quarter 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 Third Quarter Conference Call. We once again delivered solid revenue and earnings per share growth, which is a good indicator of our business momentum. To discuss this and other topics, including recent and upcoming data presentations and scientific forums for some of our key pipeline products, I'm joined today by several members of our leadership team. Our CEO, Bob Bradway, will lead the call today, with providing a strategic overview. After Bob, our CFO, Jon Peacock, will review our quarterly results and update our guidance for the year. Our Head of Global Commercial Operations, Tony Hooper, will highlight our product performance, followed by our Head of R&D, Sean Harper, who will provide a pipeline update. After Sean's presentation, we'll have plenty of time for questions. [Operator Instructions] 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 email. 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. Bob?

Okay. Thank you, Arvind. Good afternoon, everyone, and thank you for joining our call. You can see from our results through the first 3 quarters of the year, our business has very good momentum, and we're executing on our strategy to grow the business and deliver for patients and shareholders. We'll talk more about strategy in our business review in February, but for now, I'd like to point out that even as we're investing heavily to develop several breakthrough therapies for the future, our currently commercialized products are providing attractive shareholder returns and opportunities for growth. The momentum we have with these products has given us confidence to increase our revenue and EPS guidance for the year, and we'll provide more detail on that shortly. In terms of our third quarter results, we again posted solid revenue and earnings growth through strong commercial execution and a focus on expense discipline. On the commercial front, we're particularly pleased with the continued strength of our Enbrel franchise, and Tony will have more to say about that in a moment. And we're excited as well about the many emerging opportunities from our pipeline, notably AMG 785 and AMG 145. The recent presentation of the Phase II osteoporosis data for AMG 785, now known as romosozumab, generated a lot of excitement at ASBMR. Similarly, we're looking forward to the presentation of Phase II data from AMG 145, our PCSK9 antibody in development for hypercholesterolemia, at the American Heart Association meeting in a couple of weeks. And Sean will have an opportunity in a few moment's time to detail recent developments from our pipeline. Before I turn it over to John to discuss our financials, I'd like to just take a moment to thank all of our staff for their dedication and hard work. It's through their efforts and dedication that we're able to deliver both important new therapies for patients and value for our shareholders. So with that, let me turn to John for the financial review.

Thanks, Bob. So as you can see from the slides, this was a strong quarter for us on revenues, on earnings and on cash flows. First of all, on revenues on Page 4, we were 10% higher, reflecting the continued strength across the portfolio. The key drivers were Enbrel, Prolia, XGEVA and our growth phase products, Sensipar, Vectibix and Nplate said. Tony will give you more color on our product sales in a few moments. Other revenues included a milestone payment received on the initiation of the Phase III psoriasis study for brodalumab, the -- and the growth in Other Revenues overall in 2012 reflects our continued focus on portfolio decisions between the molecules that we choose to wholly own and those we believe will deliver greater value through partnering or outlicensing. But overall, 10% growth in revenues for the quarter. Operating expenses were 7% up, well below the revenue -- well below revenue growth this quarter. And within this, cost of sales increased, due to the mix effect of higher Enbrel and denosumab sales, partly offset by manufacturing efficiencies. The increase in research and development cost is driven as expected by the ramp-up of the Phase III trials for romosozumab, our monoclonal antibody for the treatment of postmenopausal osteoporosis, and preparations for the Phase III trials for AMG 145, our innovative cholesterol-lowering therapy. These are due to start enrolling patients early in 2013. Selling, general and administrative expenses were flat, even with the increase in Enbrel profit share payments during the quarter. This drove operating income to $1.7 billion in the quarter, up 14% compared to 2011. Net income was $1.3 billion, up 2%. The growth compared to 2011 was impacted by higher interest expense associated with the debt funding to support our share repurchase program and by higher…

Thanks, John, and good afternoon, everyone. You'll find a summary of our global sales performance for the third quarter on Slide #9 -- Slide #7. The execution of our commercial strategy remains strong. During the third quarter, we've successfully executed several important initiatives for key brands to address increasing competition and changing market conditions. I'd like to review quarter 3 sales performance for our portfolio, beginning with the Filgrastim franchise. Remember that Neulasta represents about 80% of these sales. Sales grew 1% globally on a year-over-year basis, with Neulasta growth being slightly offset by NEUPOGEN unit decline. We're focusing on direct-to-patient and caregiver communications to raise awareness of the risk of febrile neutropenia. We believe it's important for patients to engage their health care providers in conversations regarding the risks. Let's now turn to Enbrel. I've spoken to you about our strong commitment to invest in Enbrel given our long-term patent protection and the end of our profit share agreement with Pfizer in late 2013. Last quarter, we discussed the 3 key elements of our near-term strategy: Firstly, optimizing the sales force including the consolidation of all U.S. field sales activities under Amgen; secondly, expanding our Direct-to-Consumer advertising; and thirdly, ensuring appropriate access. We've completed the sales force optimization, and we've made good progress on the other 2 fronts as well. I also mentioned our particularly good performance in the new to biologics segment. We continue to position Enbrel as the drug of choice for use [indiscernible]. During the third quarter, we saw a significant unit demand growth of 6% on a year-over-year basis. We've also seen a trend of stable value share in the rheumatology segment several quarters now. These results reinforce our conviction to our strategy. Enbrel remains, in value terms, the leading biologic in the fast-growing rheumatology…

Thanks, Tony, and good afternoon. Our ongoing clinical programs are all advancing quite well. Phase II data on AMG 785, our monoclonal antibody directed at sclerostin, now known as romosozumab, for postmenopausal osteoporosis generated much excitement at the American Society for Bone and Mineral Research meeting earlier this month. These data demonstrated that this unique mechanism produced the most impressive increase in bone mineral density over time of any agent ever introduced into clinical testing, including anabolics. Recall that we're currently enrolling 2 Phase III fracture trials in women with postmenopausal osteoporosis: one placebo-controlled, with all patients transitioned to Prolia after the first year; the other alendronate-controlled, with all patients transitioned to alendronate after the first year. Shifting to fracture healing, we've had recent regulatory feedback that longer-term data are critical. Therefore, we and our partners at UCB will now assess our Phase II program when the 12-month data are available in the first half of 2013. We will present data from our 4 Phase II studies with AMG 145, our PCSK9 inhibitor for hypercholesterolemia, at the American Heart Association meeting in November in Los Angeles. As you may recall, these studies enrolled some 1,300 subjects, including patients with heterozygous familial hypercholesterolemia and statin-intolerant subjects. We also generated data as monotherapy and in combination with other lipid-lowering therapies. We look forward to discussing these data, and we hope to see many of you at our investor event on November 6. As a reminder, the results of the Sensipar EVOLVE study will be presented at the American Society for Nephrology meeting in November as well. We've initiated enrollment in our Phase III program for AMG 827, our IL-17 receptor antagonist, now known as brodalumab, in moderate to severe psoriasis with our partners at MedImmune AstraZeneca. The par [ph] program consists of 3 Phase III studies, which use [indiscernible] and oral placebo controls. As previously announced, we have terminated our [indiscernible] program in metastatic pancreatic cancer due to futility in this recalcitrant form of malignancy. Finally, as announced, we've received FDA approval for Prolia in men with osteoporosis at high risk of fracture, a relatively small but expanding population, further evidence of Prolia's positive benefit risk profile in the setting of bone loss. I look forward to giving an overview of our R&D strategy and further insights into our pipeline at our upcoming business review in February. Bob?

Okay. Sean, thank you. I think we'll turn over the questions. I'll ask Arvind just to remind all of you of the procedure, and then we'll be happy to take your questions.

Actually, Marvin, if you can go ahead and just review the procedure, then we can open it up for Q&A.

[Operator Instructions] Our first question comes from the line of Michael Yee with RBC Capital Markets.

For the first question, you made a comment about Zometa going generic, and I know -- we know that's coming. What visibility or what discussions have you had with payers in regards to what you think the impact could be in timing? Can you just be a little more specific in terms of modeling purposes and what we know?

Thanks for your question, Michael. Tony, why don't you share your thoughts?

So all our discussions with both payers and prescribers continue to be around the clinical benefit that XGEVA brings to patients. This is clearly the focus we have both in the short term and in the long term. Based on the reimbursement methodology on the ASP, which takes into account the average last 12 months, there could be a result in a situation where some physicians might make a decision based on short-term economics. But ASP catches up on a 12-month basis. It's reported 2 quarters in arrears. So between 12 to 18 months, there could be some discussion in the marketplace until we revert back to normality. We will continue to focus on the clinical benefit and ensuring that both physicians and their patients understand the value of this drug versus anything else.

Our next question comes from line of Geoff Porges with Bernstein. Geoffrey C. Porges - Sanford C. Bernstein & Co., LLC., Research Division: A couple of questions for Sean, AMG 785 and 145. First on 785, you appear to be going ahead with the 210-milligram dose with 3 injections monthly. Could you describe the process that will be required to get to a single-injection formulation? Would there have to be an amendment after the approval or could you do it prior to approval? And then on AMG 145, Sean, could you give us some insight? There's a lot of FDA activity there in the homozygous FH category recently. And what do you take away from that in terms of thinking about Phase III trial design for 145?

Okay, Geoff, thanks for the questions. Regarding 785, we do have a 210-milligram dose monthly there. And while I don't want to get into the technical specifics, we frequently will use a different presentation format, different numbers of injections, formulations and so on, in clinical trials and what is actually used to support the marketplace. So we won't expect to be unnecessarily providing that number of injections to patients in the marketplace. With respect to 145, yes, I've seen the recent activity around that kind of a genetically predisposed patient populations. And certainly, we are going to be looking at both the heterozygous familial hypercholesterolemia and the homozygous patients with great interest with respect to PCSK9 innovation. I think that the studies in the homozygous population are at a proof-of-concept kind of stage, so we're pretty far away from thinking about Phase III designs there. But I think the Phase III approach to the heterozygous patients is really not meaningfully different than that, that we're using for the rest of the patient population who, for whatever reason, can't reach their target despite use of all available therapies.

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

The question is for Jonathan. I think for the first time, he's broken out the Enbrel for profit-sharing expense with Pfizer, and thanks for the breakout by the way. But I guess given the greater ports of this franchise is having on your future, I was hoping you could give us a little bit more granularity on how to model this seemingly $1.4 billion annualized expense coming out of your P&L?

Yes. Well, I think the thing to remember, Eric, is that while the profit share falls away in November of next year, we do have a 3-year royalty stream that then kicks in. So for the net benefit, as we've said before, in 2014, we'll be in the order of about around $800 million.

Our next question comes from the line of Geoff Meacham with JPMorgan. Geoffrey C. Meacham - JP Morgan Chase & Co, Research Division: Maybe a bigger picture one. John, you mentioned you guys will be in a net cash position next year. My question is does this change your attitude towards capital deployment with respect to acceleration of dividend or buybacks? Or, maybe for Bob, do you feel like with -- being in a net cash position, you'll view acquisitions a little bit differently looking to 2013?

Thanks for the question, Geoff. With respect to the capital structure, we've made great progress and achieving what we set out with the recap and the initiation of dividend. As we said in April of last year, our objective is to grow the dividend meaningfully. We expect also to be able to continue doing share buybacks. I don't think it has an effect on our thinking about acquisitions.

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

So you mentioned last year that you expect in 2015 70% of your EPS growth to come from net income and about 30% from share repurchases. And given that you've done a lot of share repurchases, how do I think about that going forward? Because it would imply considerable upside to your implied earnings guidance.

Thanks, Robyn. As you can imagine, we're not providing on this call perspective on long-term guidance. Again, what I would just reiterate what I said in response to Geoff's question, which is we've made good progress on the objectives that we set out in April of 2011, and we're looking forward to having opportunity to talk to you as part of our investor review next February. And to the extent it's relevant at that point to give you a longer-term outlook, we'll be happy to do it.

Our next question comes from the line of Marshall Urist with Morgan Stanley.

So, John, maybe a question for you on spending. Just wanted to get a sense in the quarter, it seemed like on -- we saw a pretty significant leverage on the non-Enbrel SG&A. Is this something that particularly as a percentage of revenue that we can sort of think about going forward -- excuse me, or are there any other -- any kind of upward bias or any sort of areas investment -- areas of investment there that we're not thinking about? And I guess related to that, are we starting to see some of the G&A leverage that I guess you guys talked about previously in the 2015 plan? Are we starting to see some of that come through?

Yes, thanks. A couple of comments. One is, I think we've been clear that we plan to keep operating expenses at or below -- operating expense growth, at or below revenue growth, and we certainly plan to hold to that discipline going forward. During this quarter, you can see that we are investing in the pipeline, as we've said we would around 785 and 145, and we are working with some mix issues on cost of sales with the increase in dmab and Enbrel sales. But we're sort of -- we're managing our operational efficiency program against all of that, and we're seeing some good gains coming through and the traction of that coming through pretty well. The main operating leverage you're going to see is through the profit share on Enbrel towards the end of next year. But you're going to see continued discipline in driving operating expenses at or below cost of sales. I think that's as specific as I can get with you right now.

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

Maybe just a follow-up to Marshall's question. To what extent have you already implemented some of the cost-cutting measures you outlined previously, and then what are some of the sources of additional cost savings as you think about the future? Are there some obvious things that we should think about, not from an increase in cost, but at this point potential cost savings?

I think -- we have broad operational efficiency programs that are getting started and under way across SG&A, cost of sales and in the R&D area. But we're also investing in a very targeted way in growing the business for the future around the pipeline, around building our biosimilars business and in building out the business internationally. So yes, you'll see increasing operational efficiencies coming through over the year or 2 ahead, but you'll also see us continuing to invest in driving strategic growth for the business for the future as well. So again, we'll keep operating expense growth at or below revenue growth, but we'll also continue to invest strategically in driving the top line.

Ian, I don't know to what extent you had the fourth quarter in mind when you asked your question. But just bear in mind, and you've been following us long enough to probably be familiar with this, but bear in mind, our fourth quarter expenses are normally a bit higher than, for example, the expenses in the first 2 quarters of the year. That reflects a variety of things, including the natural cycle of some of our promotional activities and, in addition this year, given the -- where we are with the Phase III trials for 785 and 145, we'll expect to see some R&D expense growth. And then finally, I'd note given the success we're having with investing in Enbrel and denosumab, we'll continue to be investing there in the fourth quarter as well. So to the extent that you are particularly interested in that window, add that color.

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

Just one broad question and one small question on PCSK9. But just when we think about the pipeline and your target, you've highlighted your kind of later-stage programs that you're going to be investing in. I'm just curious if there's a mandate within Amgen on the earlier stage side for particular therapeutic focus or if you just feel like your discovery engines are just much broader now because we're just seeing so many different indications coming out of Amgen? And then separately, when you think about PCSK9, just with that being an antibody and a lower price point overall, high-volume cholesterol market, I'm just trying to understand if that product is going to be consistent with current margins for the business?

Okay, Rachel, thanks for those questions. Let me take the first piece, then I'll ask Sean to respond directly to your PCSK9 question. On the first piece, we'll obviously look forward to having a chance to answer that for you in some more detail when we're together in February. That's kind of a tough one to crack in a conference call, quarterly conference call like this. But we'll be looking forward to an opportunity to share thoughts with you on the direction of the research and development activities here when we get together in February. On PCSK9, Sean, why don't you answer Rachel's question?

Regarding the -- Tony, I think, perhaps regarding the margin-type question, might be better suited to respond to that, this side of the piece.

Yes, the cost-of-sales, Rachel, for that should be -- it'll be an antibody, so it won't be very different from the cost structure we face with other of our biologic -- large biologic antibody molecules. And with respect to this -- the commercialization, sales force channels, just still awfully early days to be talking about what the cost structure of that effort will be.

Do we get the question, Rachel, that you were looking for answers to?

Yes, I guess what I was thinking though is that because the price point of this antibody is going to be so much lower than a typical antibody, that I was thinking there might be more pressure on gross margins. And definitely from a sales point, I know we've talked about those before, you're waiting to see strategically exactly what you want to do there. But, of course, I care about your thoughts on promotion as well.

Yes. Obviously, it's, again, a little early to get into that detail with you now. But down the road, we'll be happy to engage on that question. With respect to cost of sales, there's nothing we see at this point that's concerning us regarding the gross margin, Rachel. We're -- we've developed quite a bit of expertise here at Amgen in manufacturing molecules like this at scale at an effective and efficient cost, and we'll be looking to do that for 145 as well.

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 Prolia. Tony, I think you mentioned that the seasonality was seen last year, but this is the first quarter that we're looking at this drug down sequentially. So can you maybe talk a little bit about is there something else that we're missing, what's going on there? And you mentioned that the quarter, Q2 benefited or that there was a wholesaler inventory drawdown that hit Q3. Could you maybe quantify how much the second quarter number maybe benefited from the wholesaler inventory?

I don't have the exact number between Q2 and Q3 on the wholesaler inventory. But if I look at Q3 itself, it dropped gently. And I've looked back in 2011, August is never a good month for products like this. And the last 5 weeks have shown dramatic increase. If you look at those RXs by week, you'll see a dramatic jump as we pickup and drive. We also knew, going into quarter 3, that quarter 3 tends to be a bit light. And because of that, there was no DTC in quarter 3 where we were not on television. And number two, we took the opportunity to rightsize the Prolia sales organization. We ran through the entire target list, made sure we understand who the prescribers were. We reset the footprint, and we actually increased the size of the Prolia sales force by about 160 people, which actually resulted in us being able to call on about a 50% increase in target audience. So if you hear confidence in my voice about the portfolio, it's because I'm coming back strong in the fourth quarter with DTC, a revised optimized sales organization, and the first 4 weeks I've seen to-date of data are pointing towards positive growth.

Our next question comes from the line of Boris Peaker with Oppenheimer. Boris Peaker - Oppenheimer & Co. Inc., Research Division: Specifically, my question is on the NEUPOGEN and Neulasta franchise. Could you comment what your revenue is on a per-patient basis for both of those drugs? And how often the decision to prescribe one versus the other is driven by reimbursement? And what initiatives do you have to move patient towards Neulasta from NEUPOGEN in the near future?

Yes, Boris, we're not going to talk about product pricing on the call. But we'll just remind you that 80% of the revenues come from Neulasta now, and we've seen a growing share of Filgrastim in the Neulasta -- in the form of Neulasta over the last several years, and that's true globally. And Neulasta in particular I think continues to serve an important need in the marketplace. With respect to specific activities, Tony, feel free to add some comment.

I mean, we continue to promote the drugs based on the clinical data more than the economics. In fact, in the U.S., we haven't actively promoted NEUPOGEN for 8, 9 years. All our focus is obviously around Neulasta. It's been a product that's a lot easier to use both patients and physicians, and that's where we focus. Actual conversion is -- from NEUPOGEN to Neulasta is down to low single digits, and I think the products are probably stabilizing where they are at the moment.

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

I have a -- just kind of 2 questions. One, EPO continues to do better than we thought, and you guys gave guidance to be down at essentially 20% to 25% year-over-year. It looks like you're sort of tracking maybe high double digits, and I'm trying to get a sense what -- are you -- do you feel like you're beginning to see really dramatic stabilization in the product? And just -- second, just on the formulation of your PCSK9 antibody, can you give us a little bit of a sense it's between 3 and 6 CC that this used to be, and what is it now as a part of the Phase III? I'm trying to get a sense how many shots you're going to have to give.

Okay, Yaron. Let's move -- we'll respond to the EPO question. And again, on PCSK9, I think you're asking for a level of detail there that's probably not appropriate for the call. But let's talk about EPO. We have said a couple of things through time. First, that we think the benefits of EPO are well appreciated in the market, and that the profile of EPO lines up well with customer and patient needs, and I think that's part of what we're benefiting from. With respect to the specific question about stabilization, I think we have begun to see some dose stabilization following the changes in practice patterns that were particularly pronounced earlier this year and at the end of last year. And we -- the data we have, for example, for hemoglobin, as you know, is a couple of months in arrears. But based on the data that we see, there has been a stabilization in both -- achieves hemoglobin levels and in dosing.

So I would agree with that entirely, Bob. The market itself, from a prescribing perspective, appears to have stabilized. Obviously, we now have a new competitor in the market. We take all competitors seriously and difficult to extrapolate where the market will be going. But it does appear that dialysis providers are approaching utilization of new products cautiously, especially in the light of the experience with EPOGEN. To date, we had minimal impact from competition in the marketplace.

Our next question comes from the line of Eun Yang with Jefferies. Eun K. Yang - Jefferies & Company, Inc., Research Division: This is Eun Yang. Question on 145, the PCSK9 inhibitor. This is a new therapeutic category for Amgen and perhaps requiring larger sales force. So when you move -- plan to move into Phase III early next year, can you comment on your commercialization strategy?

Thanks for your question, Eun. We're excited about 145. As you know, we're reporting on 4 Phase II studies here at the American Heart Association meeting in early November, and we're looking forward to having a chance to engage with analysts and investors at that time. We're excited about all the data that we've seen about the biology so far as we understand it, and we're looking forward to advancing the product in Phase III clinical trials. It's early now to be commenting about our commercialization strategy. We're hard at work on that, as you would imagine, but I just think it's a little premature for us to start talking in any detail about how we'll go to market with that before we've even completed a Phase III trial.

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

A lot of my questions have been asked, but I thought I just ask you maybe a big-picture question. There's some speculation that dividend taxes could go up quite a bit next year. I'm wondering do you guys care at all? Does that factor really in any material way into your decision-making process about the speed with which you increase the dividend versus the share buyback? And then, just for Sean, this is super easy. I know it's a second question, but how would the PCSK9 antibody work in homozygous FH patients?

Okay. Mark, I think there are 2 clear questions there. We'll answer them both, but just for the sake of those who haven't had the chance to ask questions, let's try to keep these to one question each. Obviously, if there's a major change in tax law, we'll consider that. We gave the guidance that we did in April of 2011, knowing there was some chance there might be a change in the tax laws. So our guidance at that time was that we would increase the dividend meaningfully over time, and that's what we expect to do. But we'll watch carefully in case developments in the tax law make that a less sensible thing for us to do.

Our next question comes from the line of Josh Schimmer with Lazard Capital Markets.

This might be for Tony. I guess, we've seen in the small molecule world polymorph patents, method-of-use patents, and other structural patents extend the market exclusivity of those drugs. Should we expect to see this in biologics, and if so, why haven't we seen it yet?

Well, I think it's an interesting question, Josh. We've certainly seen what you've described in small molecules, it's obviously early days still with respect to biologics going off patent. There are, I guess, what, 16 molecules now in Europe that are biosimilar molecules. In the U.S., it's still very early days. But we expect that the nature of competition for biologics, once they're off patent, will be very different from what we've seen in small molecules. And I'm not sure we've answered that question directly, but you can follow up with us after the call if there's something implicit in what you're asking, Josh.

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

Just want to understand a bit more about a couple of one-time items. And just on EPOGEN specifically, what was the impact of the change in accounting estimates for that product? And then on Enbrel, just the increase in sales price, I'm just trying to get a sense of how much further room that you think that you have to increase price on Enbrel?

Okay. Well, John, you can answer the accounting questions on Enbrel. Again, Jim, with respect, we don't get into pricing discussions, particularly prospective pricing discussions on these calls. So let's turn to the accounting question.

Well, you get short answers to the kind of question was that, that relates, and then Q2 some rebate accrual adjustments that were made in Q2.

And it was about half of the actual decline there.

Yes.

Our next question comes from the line of Ravi Mehrotra with Crédit Suisse. Lee Kalowski - Crédit Suisse AG, Research Division: This is actually Lee Kalowski for Ravi. Just one question on the G-CSF franchise. Since the last quarterly call, we saw approval of Teva's product. Is it your expectation that they'll be launching late next year? And as we think about that, how should we be thinking about your own products? Is there anything that you might be able to do to mitigate any of the competitive pressures?

A couple of thoughts for you on that. First, with respect to what their launch strategy and plans are, obviously, that's a question that's probably better suited to Teva to answer. I -- what we do know is that there's a court injunction preventing them from launching before the end of 2013, November 2013. And I think we feel confident that they'll respect that. With respect to a competitor entering the NEUPOGEN area, we obviously have the benefit of a long established track record of efficacy and safety and detailed, deep relationships with the customers that prescribe NEUPOGEN and Neulasta. And we would expect to continue to engage with prescribers around the benefits of Neulasta and NEUPOGEN in the face of a competitor. And as we have said through time, this is still a market where not every patient who is appropriate to be treated with a growth factor like NEUPOGEN or Neulasta receives it first in every cycle. And so we'll continue to try to make sure that this product is used to patiently -- appropriately with all patients who'll benefit from it. So that's where we stand, and we'll watch obviously with interest that potential competitor and any others as well.

Our next question comes from the line of Howard Liang with Leerink.

A question on 785. Based on the biomarker data from the Phase II, what is your view on how long the drug should be dosed, and do you plan to test it beyond 1 year in Phase III?

Okay. Sean?

Yes, we've looked very carefully at a wide variety of biomarkers and BMD readouts from our extensive Phase II experience and determined with our own scientists and clinicians as well as quite a bit of input from experts in the field, that we felt that 1 year was the appropriate base treatment period and then transitioning patients to an anti-resorptive therapy. And as I mentioned in one of our Phase III trials, we're using Prolia for that. For the other, we're using landrinae [ph] was the appropriate strategy. It certainly is possible that later in the life cycle of the product, it would be reasonable to look at the potential for retreatment with this mechanism, but we don't have that currently built into our clinical development plans.

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

Bob, I respect the commentary around EPO dosing having stabilized. But with Fresenius running a pilot trial in about 100 clinics, with your competitor's product, I'm curious if strategically you can do anything given that, that pilot will be up in April of next year to minimize Fresenius from trying to expand that overall study, and maybe you can have a more forward agreement with them?

Okay, thanks for the question, Tony, why don't we answer that in 2 parts? First, as I've said before, all of our customers have the benefit of long-standing experience with the use of EPO, and they have a long-standing experience of its efficacy and safety profile. And I think that gives them the benefit and comfort of that experience. With respect to what we see happening with any one of our large customers, I don't want to get into any hypothetical response in detail. But I'd like Tony to share some general observations to elaborate on what he said earlier in his prepared remarks about the competition that we've seen so far.

So, obviously, we have a long and good relationship with FMC -- that goes back many decades. Second, we do have the nonexclusive agreement with FMC at the moment in terms of supplying their product, which is linked to they using up to 90% of our product. And third, the actual adoption by [indiscernible], including FMC to date, have been fairly small. The pilot they're running is plus/minus 5%, 6% of their patients. And even the clinical data that's been published is showing that almost half the patients are not stabilized after a month. So in a real world setting, we continue to believe that dialysis providers are concerned about moving from a well-known and trusted product like EPOGEN.

And, Marvin, as it's going on 3:00, why don't we take one last question.

Our last question comes from the line of Joel Sendek with Stifel, Nicolaus. Joel D. Sendek - Stifel, Nicolaus & Co., Inc., Research Division: So just as a follow-up to that last question. So would your conclusion be, right now for us, that we shouldn't expect for Fresenius to convert their pilot? Is that your best guess?

No, that was not what I was saying. They're entitled to run the pilots they want and to look at the conversion they want down the line. We do have the nonexclusive agreement with them, which is linked to volume usage, but we will continue to deliver the clinical value and the real-life experience of increases in dialysis units.

So with that, let me thank everybody for your participation in our conference call this afternoon. I know you've had your hands full with 2 companies reporting at the same time. If you have any other questions, thoughts, obviously, the Investor Relations team will be around for several hours, so please feel free to give us a call. Thanks again.

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