Amgen Inc. (AMGN) Q2 2010 Earnings Report, Transcript and Summary

My name is Christian, and I will be your conference facilitator today for Amgen's Second Quarter 2010 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, Christian, good afternoon, everybody. I would like to welcome you to our second quarterly results conference call, another solid quarter behind us as we embark on the second half of this year. It's also been a year of tremendous change as many of the uncertainties weighing on our business have now been resolved. To discuss these issues in greater detail, as well as to introduce the many changes we have had on our leadership team, I'm joined today by our Chairman and CEO, Kevin Sharer. Following Kevin, our acting CFO, Michael Kelly, will both provide additional details on our second quarter financial performance. Bob Bradway, our newly appointed President and Chief Operating Officer, will then articulate his charter for our company's operations, followed by Jim Daly. Jim is our Senior Vice President of North American Commercial Operations, and he will focus on three main topics: First, our product performance during the quarter; second, an early read on the Prolia launch; and lastly, our perspective on the recent final rule for the bundled-payment system for dialysis patients. Our Head of R&D, Roger Perlmutter will conclude our prepared comments by providing an R&D update. 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. I would like to remind you that our comments today will be governed by our Safe Harbor statement. What it says in summary is that through the course of our presentation today, we may make certain forward-looking statements and actual results could vary materially. So with that, I would like to turn the call over to Kevin. Kevin?

Thank you, Arvind. Good afternoon, everyone, and welcome to our call. I'm pleased that we delivered a solid quarter. Our base business continues to perform well both financially and operationally. Internationally, we're competing effectively, continuing to compete effectively against biosimilars, and we're seeing growth through new markets and products. Research and development, as Roger will report and you've probably concluded is, firing on all cylinders, and we have a lot to be proud of and a lot to look forward to. And I'd also like to take this moment to thank all of the Amgen staff who are listening and others for all the work you've done this year to make a difference for patients and to deliver value for our shareholders. As Arvind commented, we've had quite a number of significant events this year, and before I make specific comments, I'd like to recognize some of those events, put them in context and give you my perspective on them. Just six-short months ago, we were uncertain about whether Health Care Reform [U.S. Health Care Reform Legislation] would happen, and if it happened, what might be the effect us both financially and on a public-policy sense. The progress of Prolia and osteoporosis around the world and Denosumab in cancer were not nearly so clear as they are now. A number of ESA franchise questions were outstanding, important questions that we have much more information on now. And finally, we saw Europe as a region go through, to a degree, still go through, some very significant economic uncertainties with some impact in some countries on the biopharmaceutical space. I think my summary comment is from Amgen's point of view. Each one of these major questions of say, six months ago, have been answered in ways that are either within our expectation, or in some cases, even better. So sitting here now six months later, I feel proud of what we've done and very confident about the future. Let me talk first about Health Care Reform. We'll talk more specifically later. But I think Health Care Reform has been internalized by us. We can handle it economically, and we are delighted with the public policy rules that have come about with respect to biosimilars. And I'll let Jim later on, talk a bit and Michael about the economics. But we can handle them. Let's talk a little bit about Denosumab and Prolia. We were particularly pleased to receive Prolia's approvals in both the U.S. and the EU in the second quarter. A very, very major milestone we worked 15 years to achieve. And while it's still early days from a commercial point of view to launch as are progressing both in Europe and United States as we had planned, Jim will talk about it, a bit of few highlights. The initial feedback from physicians has been positive, and with GSK, we have a strong partner in the rest of the world, so I'm feeling optimistic based on where we are today. Jim Daly will give your more input and information about Prolia with a bit of a focus on the U.S. in a moment. Recently, as you know, the FDA granted priority review designation to Denosumab for the Reduction of Skeletal Related Events in patients with advanced cancer. Prior to review, designation is granted to drugs that offer potential for major advances in treatment or provide a treatment where no adequate therapy exists. So this is a real testament to the data generated in our SRE studies, where we compared ourselves to the market leader or the current standard of care. Also at the beginning of 2010, there were a number of uncertainties that related to our ESA business. And today, many of these, if not all of these issues have been addressed, if not resolved. Just to mention a few: The ESA REMS has been finalized. Enrollment is underway and we feel positive about the state of that business. CMS held a MEDCAC meeting on ESA's in nephrology, and we felt that, that was a productive discussion. We've all seen the top line Hematide data, and we'll continue to watch its development. The final dialysis bundling the rule is now out. We believe it is within our expectations and recognizes the importance of delivering quality care to patients. Roger will have more to say about this. Overall, we have a lot more clarity as we think about the future of the ESA business, and look forward to discussing the TREAT study in more detail at an advisory committee meeting later this year. The pipeline is the driver of future growth and ours continues to deliver. We had a good ASCO last month with much interest in our pipeline, and the progress continues. We're moving two of our oncology molecules, AMG 479 and 386 [AMG 386], an important tumor types in the Phase III, Roger will comment. As you know, we look forward to the more pivotal data yet this year, including the Denosumab bone mass prevention data. Roger will discuss this as well. I'll be remiss if I didn't comment on some of the management changes that have recently happened. Companies of all managements change and strong companies replace strong management with new-strong management. I believe we have done that. Before I comment specifically, I'd like to recognize someone who is making an appearance today on the call, Michael Kelly. Michael Kelly is a distinguished and experienced financial executive, who's been our acting CFO for a number of months, and I'd like to recognize his contribution and partnership. Michael, thank you. Here is some leadership changes that we have announced and I'll comment. Bob Bradway was recently appointed our President and Chief Operating Officer. Bob's leadership and experience make him the right person for this important position. We recently announced we would be replacing Bob as permanent CFO with Jonathan Peacock. Jonathan will join us later this summer, and he brings a set of skills in international experience that will be critical as we implement our international-expansion strategy. Finally, I'd like to comment on George Morrow. It's hard to put into words what George has meant to this company for the past 10 years. He's been one of our key leaders, he's been one of my key partners, he delivered for shareholders, he delivered for patients and he built a very strong management team. In fact, two of the folks who reported to him are moving up the organization, Rolf Hoffman, has grown international; and Jim Daly, North America. You'll hear later from Jim today, as he discusses the results. We have much to thank George for, and I, here publicly, want to acknowledge that. George will be with us until early next year, and I want to assure everyone on this call that we continue to benefit from George's advice and perspective and he remains integral to us. For the rest of the year, as it is every year, delivering financially, making our products, particularly Prolia's success, advancing the pipeline, expanding internationally and creating value for our shareholders, will remain our key priorities. I'd like to now turn the call over to Michael Kelly, who will discuss our quarterly performance in more detail. Michael, over to you.

Thanks, Kevin. On Page 5, I'll take you through the adjusted P&L for the quarter. Year-over-year revenues were up 2% in the second quarter to $3.8 billion. In terms of geography, our year of sales decreased 2% to $2.8 billion for the quarter. Excluding Aranesp, which was down again this quarter, U.S. sales were up 1% on a year-over-year basis. With respect to wholesale-inventory levels, we exited the quarter in the U.S. and overall wholesaler inventory at the mid to low end of normal ranges. Second quarter U.S. revenues include a $45 million accrual for certain Health Care Reform Legislation provisions that were in effect during the quarter, partially offset by a $9 million favorable adjustment related to changes and accounting estimates with respect to accruals for U.S. Health Care Reform, recorded in the first quarter of 2010. Recall in the first quarter, we said that we expect the full year 2010 impact of Health Care Reform to be in the range of $200 million to $250 million, and that estimate remains unchanged. Jim will speak in some detail in a moment on the topic of Health Care Reform and its continued impact on our business. Shifting now to our International business, we posted sales of $826 million, an increase of 3% versus the prior year. Changes in foreign exchange positively impacted second quarter sales by $11 million. Without that benefit, International sales were up 2% year-over-year. I will have more to say about foreign exchange in a moment. I also want to note that revenues in the second quarter of 2010, benefited from milestone payments associated with certain ongoing collaborations, revenues reflect milestone payments from GlaxoSmithKline for approval and launch of Prolia in Europe and from Velcade for the approval of Vectibix in Japan. Turning now to operating expenses. On an adjusted basis, our total-operating expenses were up 4% this quarter versus last year. Our cost of sales margin increased 0.7%, primarily driven by higher bulk-material costs and less-favorable product mix. This increase was partially offset by lower royalties and lower excess-capacity charges. R&D expenses decreased 2%, primarily driven by the $50 million payment in the second quarter of 2009, to obtain an exclusive license from Cytokinetics, partially offset by lower expense recoveries associated with ongoing collaborations in higher staff-related cost. We continue to expect R&D expenses to increase in the second half of the year, consistent with our spending patterns in prior years. SG&A expenses increased 9% versus the same quarter last year. This increase includes higher staff-related costs and spending for activities in anticipation of the approval of Prolia. We expect SG&A expenditures to increase in the second half of the year, primarily driven by Prolia-related activities. Recall that in the second quarter of 2009, our Prolia sales force was not yet hired. In addition, SG&A expenses were higher in Q2 2010 due to higher mitigation expenses and higher staff-related costs, which were partially offset by expenses associated with the Enbrel profit share and expense recoveries associated with the GlaxoSmithKline collaboration agreement for Prolia. Excluding expenses associated with the Enbrel profit share, adjusted SG&A expenses in the second quarter of 2010 increased 14% versus the same quarter last year. Our adjusted tax rate for the quarter was 20% compared to 18.1% in the prior year. The increase was primarily due to the benefit of the federal R&D tax credit in the second quarter of 2009, and changes in profits associated with our Puerto Rico operations in the second quarter of 2010, versus the second quarter of 2009. Q1 2010 adjusted earnings per share were $1.38, up 7% versus prior year, and our GAAP EPS for the quarter was $1.25, unchanged from the prior year. Now turning to the balance sheet on Page 6. You should note, we ended the quarter with a strong balance sheet and healthy cash flow. Let me spend a moment to discuss some key balance sheet items. Our Q2 2010 ending global cash balance was $14.5 billion, we ended the quarter with $12.2 billion of debt. Our adjusted stock holders' equity increased by $2 billion year-over-year to $22.9 billion. With respect to our cash flow, we generated approximate $1.6 billion of cash flow from operations in the second quarter of 2010, which is down slightly year-over-year. Capital expenditures for the second quarter were $177 million. We repurchased approximately 10 million of shares during the second quarter of 2010 at a cost of $600 million, bringing our cumulative share repurchases for 2010 to 39 million shares at a cost of $2.3 billion. We had 3.7 billion remaining under our board authorized stock repurchase program as of June 30, 2010. Next, our updated guidance is on Page 7. When we updated our revenue guidance in the first quarter, the prevailing dollar-euro spot rate was in the high 1.30s per euro. The exchange rate has been in the mid to high 1.20s per euro over the past several weeks. As you know, the majority of our foreign revenue is denominated in euros. Adjusting for the impact of a weaker euro, we now expect revenue to be slightly below $15.1 billion. This guidance assumes that foreign-exchange rates remain at current spot levels for the second half of the year. Our guidance continues to reflect the expected impact from Health Care Reform of $200 million to $250 million. Let me remind you that we do not hedge revenues and operating expenses separately. We hedge our net foreign currency exposure over a rolling three-year horizon with the financial impact of our hedges reflected in the revenue line of the income statement. While foreign exchange volatility could materially impact revenue and operating expense, we do not anticipate any material impact on EPS. Our EPS guidance remains unchanged. We still expect EPS to be towards the lower end of our current guidance range of $5.05 to $5.25. This guidance considers the expected increases in R&D and SG&A in the second half of the year that I alluded to earlier. With respect to the tax rate guidance, we continue to expect that our 2010 adjusted tax rate will be in the 20% to 21% range. As a reminder, this guidance assumes that the R&D tax credit will be retroactively extended for all of 2010. Finally, we continue to expect capital expenditures to be approximately $600 million. Thank you and next to Bob, President and CEO for operations review.

Thank you, Michael. I'm delighted to have a chance to talk to you today in my new capacity, and it's indeed a privilege to have an opportunity, to help build on the foundation of operational success that our company has enjoyed. With my new role, I can assure you that we'll be focused on delivery and execution in several areas, including stabilizing and growing our core franchises of that in the phase of increased payor and competitive pricing pressures, successfully launching Prolia globally and here, I can report that every sign we see so far, confirms what we have believed about the unmet medical need that this therapy addresses, and our operations and commercial teams are right on track at this early stage of the product launch. Turning to the announcement bronchology, obviously we're excited that our file with the FDA has been granted a priority review, and we will be prepared to bring this important therapy to patients once approvals occur around the globe. Internationally, we remain committed to increasing our global sales footprint through our multi-year expansion initiative, which will increase the number of territories in which we sell our products from the current 46 to approximately 75. We remain focused on optimizing our manufacturing and supply chain through our operational excellence program, with the broad objective of continually improving on our efficient and safe supply of medicine to our patients. This area has been a core strength for Amgen and Fabrizio Bonanni and his team have made great progress in this regard. Finally, we'll continue to look for ways to achieve sustained growth through disciplined capital investing and improving utilization of our facilities. With that, I'd like to provide an overview of our commercial operations during the second quarter. So if you'll turn to Page 9. Starting with the year-on-year comparison, our global product sales declined by $21 million or 1%, which was affected by a few key factors. On the downside, our global Aranesp sales declined by $90 million or 13%, which I'll discuss in more detail in a moment, and we booked Health Care Reform accruals of about $36 million on the quarter. These downsides were partially offset by $69 million in growth across the rest of the global franchise, a 2% growth rate. Now there was in the quarter an $11 million benefit from foreign exchange, and the U.S. wholesaler inventory benefit of about $18 million. Now I know there's been much discussion about the mandatory price cuts in Europe, so I want to give you some perspective on how it affects us. First, let me remind you that our European sales are about 18% of our worldwide total sales, and we entered the year expecting that the effective price cuts across the International business would be about 3%. That 3% included our expectations for business as usual, payor-mandated price cuts, as well as competitive price cuts related to biosimilars. Now as a result of the incremental mandatory price actions announced over the past several weeks, we believe the effect on our business internationally this year will be some 4% or one percentage point worse than what we had planned for. Sequentially now, turning to global sales, you can see they grew 2% for the quarter or $85 million, and that was largely driven by seasonal increase in Enbrel demand and aided by favorable inventory effect. These were partially offset by lower sequential demand for Aranesp and Filgrastim. Importantly in the second quarter, we received regulatory approvals for Prolia in key markets and launched our selling effort. In the U.S., we were in the market with product and our sales force fully trained and deployed as of June 21. In Europe as you know, we received approval on May 28, and we've already received reimbursement authorization in Germany, and expect to receive reimbursement in another handful of countries in Europe over the course of the year. And in the meantime, we're selling into the private insurance markets. We've received regulatory approval in Australia, and we anticipate reimbursement authorization there next year, and so finally, we recorded some $3 million in sales for the quarter for Prolia, which reflects the fact that we had few selling days after the launch. Turning now to Slide 10, which graphically illustrates the components of our year-over-year growth in the second quarter for the portfolio. You can see the $90 million decline in Aranesp depicted here in the separate U.S. and International components. Both markets experienced segment decline, reflecting more conservative ESA utilization worldwide. Enbrel also experienced a modest sales decline, largely attributable to unit-demand decline, partially offset by an increase in average-net-sales price. As you can also see, the newer products, Vectibix and Nplate are growing nicely and contributed nearly $50 million of growth in the quarter. Now, I'll turn it over to Jim Daly, who will discuss each of the product results in more detail.

Thank you, Bob, and good afternoon, everyone. Let's go straight to Slide 11. Worldwide Aranesp sales declined 13% in the second quarter year-over-year. In the U.S., Aranesp sales were down 21% year-over-year, while internationally, sales were down 5%. The decline in both markets was demand driven, primarily due to segment decline. Slide 12 displays actual weekly U.S. Aranesp sales going back to 2008. As a reminder, the sharp peaks and troughs are largely a result of wholesaler-inventory fluctuations, not fluctuations in actual-patient utilization. The red trend lines indicate average-weekly sales over the past five quarters. These lines exclude returns and discount accrual true ups, as well as effects of wholesaler inventory fluctuations, which all serve to distort the quarter-on-quarter comparisons shown on the previous slide. As you can see, average weekly sales for Aranesp have declined slightly in the second quarter 2010, reflecting a trend towards more conservative use of ESA's in both oncology and nephrology. In late March, we launched the oncology REMS and CMS conducted a MEDCAC meeting on the use of ESA's in the nephrology setting. We cannot rule out a further decline in Aranesp sales, as a consequence of these events. Filgrastim is next on Slide 13. Neulasta/NEUPOGEN combined sales grew 1% in the second quarter year-over-year. In the U.S., sales grew 2%, primarily driven by inventory, price and partially offset by a decline in units. Contributing to the unfavorable unit comparison, was the impact of a late first-quarter buying by customers to take advantage of favorable contractual terms, that expired in late March of this year. Neulasta wholesaler inventory levels exited the second quarter near the midpoint of the normal range, while NEUPOGEN exit the second quarter at the low end of the normal range. Internationally, Neulasta/NEUPOGEN increased 1% year-on-year. Neulasta experienced 6% growth for the period, while NEUPOGEN sales declined 9%, due to the impact of biosimilars. Next is Enbrel on Slide 14. Net sales were down 2% in the second quarter year-over-year. The decline was primarily driven by market-share loss to new competition. Net-price growth partially offset our unit decline. On A sequential quarter basis, Enbrel net sales were up 9%. This increase was driven by demand, with growth in both Rheumatology and Dermatology. Historically, both Rheumatology and Dermatology segments have been impacted by seasonality with softness, typically seen in the first quarter, followed by strength in the second quarter as patients work through their annual deductibles and other insurance changes. In the second quarter 2010, this seasonal pattern has continued. Enbrel maintained its leadership position in both Rheumatology and Dermatology during the second quarter. Next is EPOGEN on Slide 15. EPOGEN grew by 3% in the second quarter year-over-year, driven by patient growth, wholesaler inventory and partially offset by a decline in dose. During the year, dose fluctuations may continue as providers refined their treatment practices in order to maintain hemoglobin levels in the 10 to 12 range. On The next slide, we'll address the final rule on bundling and dialysis, which goes into effect January 2011. This past Monday, CMS published the final rule. CMS also published concurrently, the ESRD Quality Improvement Program, QIP proposed rule. This proposed rule will have a 60-day comment period ending September 24, 2010, and the final rule is expected in 2011. Key provisions under these rules include the following. Anemia management. Under the QIP, beginning in 2012, facilities will be subject to a payment penalty of up to 2%, for failure to meet or exceed CMS standards. CMS proposes a penalty be based on a composite score of measures, and that the measure for hemoglobin levels below 10 grams per deciliter, constitute 50% of the weight, and the remaining measures each represent 25% of the weight. Unit of payment. CMS finalizes its proposal to continue a per-treatment unit of payment. Consistent with current policy, ESRD facilities could be paid for up to three treatments per week, unless medical necessity justifies more. Payment rate. For 2011, the base rate is $229.63, which is based on 2007 claims data and the application of several adjustors. Total spending in 2011 under the bundled-payment system is based on 98% of estimated spending, if bundling had not been implemented. Oral drugs without IV equivalents. CMS finalized the definition of renal-dialysis services, to include oral-only drugs, for postponed payments for such drugs until January 1, 2014. Oral-only drugs such as Sensipar and phosphate binders, will remain under Medicare beneficiaries, prescription-drug benefit and paid for under Medicare Part D until 2014. Amgen is supportive of policies that improve the quality and efficiency of healthcare delivery, as well as preserve patient access to imported medicines for patients on dialysis. The ESRD final rule demonstrates CMS' strong commitment to these principles. We are continuing to review the final rule to better understand the potential impact on patient access and quality of care. Now let's move to Sensipar performance on Slide 17. For the second quarter, Worldwide Sensipar sales grew 3% versus last year, primarily driven by demand. In the U.S., inventory decreased in the second quarter this year compared to an inventory build last year, partially offset by demand. International growth was 11%, driven by demand. Next is Vectibix on Slide 18. U.S. Vectibix sales grew 21% versus the prior year, primarily due to demand, while International sales grew 34% in the second quarter. On Slide 19, we provide an update on our overall Health Care Reform impacts. As the slide indicates, we have already booked $69 million in accruals this year for the three components of Health Care Reform that are currently in effect, circled here in red. As you can see, we will be accruing for these three components in the third quarter. And by the fourth quarter, the AMP calculation charges will also become effective. Finally, we're maintaining our estimated range of $200 million to $250 million impact for Health Care Reform in 2010. Slide 20 summarizes our International performance. Internationally, sales grew 2%, excluding the effects of foreign exchange. Growth was driven by new product launches and expansion to new territories, offset by a decline in Aranesp sales. On the next few slides, we'll look at the share data for Aranesp Nephrology, followed by share for the Filgrastim franchise. Consistent with previous quarters, Aranesp Nephrology share remained steady as Biosimilars continue to take share from Epo alpha and Epo beta, and Mircera growth continue to drive largely from NeoRecormon. Slide 22 provides comparable data for the G-CSF market. Again, we see very consistent trends despite Biosimilar presence in our major markets. On my final slide, we'll provide a Prolia launch update. In both the U.S. and the EU, we are on track with our launch plan and encouraged by the early market reaction to Prolia. In the U.S., physicians are trialling the product in some of their most difficult-to-treat patients, while assessing reimbursement and patient affordability. Nearly 90% of Prolia sales to date have been accessed via "buy and bill" reimbursement. 50% of patients have had a co-pay of zero to $15. And for the remaining 50% of patients, the co-pay remains modest. It may be useful to you for me to take a minute and outline the “buy and bill” process in just a little more detail. Step one is clinical agreement, in which the physicians identify appropriate patients based upon the Prolia prescribing information. Typically, these are postmenopausal women with a history of fracture or multiple risk factors for fracture or who have failed other therapy or who are intolerant of other therapy. Overall, our early experience is that physicians are readily able to identify appropriate patients for Prolia in their practice. Step two is coverage confirmation. The physician's office staff submits an insurance verification requests, or IVR, to our reimbursement hub called Prolia plus. Within a day or two, the office staff receives back a summary of benefits, which is what the payor will reimburse and what, if anything, the patient must pay. The staff discusses this with the patient and then orders Prolia from their wholesaler. Step three, the patient returns to the office and Prolia is administered. Step four, the office submits the claim and reimbursement is paid, generally, within 14 to 30 days, assuming a clean claim. With new products, it's not unusual for a payor to request additional documentation. To date, many claims have been submitted, and we expect the bulk of them to be start being paid in August and September. Once offices have received paid claims, we expect they will continue to identify additional patients appropriate for Prolia. This process is the basis for our sales forecast ramp in 2010. In early 2011, we expect utilization of the pharmacy benefit under Medicare Part D to increase as prescription drug plans make their formulary decisions. Turning to Europe. Germany is our first major market, with reimbursement received on July 1, and we're off to a strong start. We're also encouraged by the positive preliminary NICE recommendation for Prolia, Prolia reimbursement in the U.K., and expect to see sales ramp in the fourth quarter of this year when the recommendation becomes effective. Reimbursement and launch in additional major markets, including France and Spain, is expected in early 2011. We look forward to providing you with more detailed information on the Prolia launch on our third quarter call. Now over to Roger.

Thanks, Jim. Well, as Kevin mentioned, the second quarter of 2010 was an extremely important one for Amgen's Research and Development group, and especially for our Global Regulatory and Safety Surveillance organization. Slide 25, documents that we are pursuing Prolia regulatory approval around the globe. And again, as Bob indicated, our first approval came in Europe from the European Medicines Agency at the end of May, followed almost immediately thereafter by U.S. FDA approval. We also have approval in Australia, and we are expecting approval in Canada and in Switzerland during the third quarter of this year. I wish also to mention that we are in the process of preparing more than 30 filings around the world in collaboration with our partners, GlaxoSmithKline. So in short order, we will be pursuing Prolia launches throughout the globe. Turning to Slide 26. Prolia is Denosumab administered at 60 milligrams once every six months. But Denosumab can also be administered in a more intensive schedule at 12x the exposure, which is at a 120 milligrams every month in the setting of advanced cancer. I've spoken previously in a variety of settings about the importance of Denosumab in the setting and reducing or delaying the appearance of skeletal-related events in patients with bony metastasis, and we have submitted our file to the FDA and to other regulatory authorities for that indication. As Kevin mentioned, the U.S. FDA granted priority review, with a PDUFA date of November 18, 2010, and we're working closely with the FDA in evaluating our data set. Also, the review by the European Medicines Agency is proceeding with the usual cadence. Filing has also been completed in Canada and Australia and our partner, Daiichi Sankyo, expects to file for approval in Japan for the skeletal-related events indication in the third quarter of this year. Other filings around the world will be pursued in collaboration with GlaxoSmithKline. I should mention that in addition to Denosumab as Prolia and also in the more intensive schedule for skeletal-related events, we are expecting a lot of important new data, which will arrive later this year. And turning to Slide 27. There are several key events that I wish to highlight. First of all, during the third quarter of this year, we will obtain data on the use of Vectibix in the setting of refractory relapse or metastatic squamous cell carcinoma of the head and neck, and these data should be available relatively shortly. We also will gain data from an important Phase III study of Denosumab for the prevention of bony metastasis in patients with prostate cancer at high risk for bony metastasis, so cold '147 study, and these data will be available in the fourth quarter of this year. As Kevin mentioned, we have initiated our -- or we will initiate our first Phase III study for AMG 386, and we are expecting to have patients with relapsed refractory ovarian cancer joining the study in the fourth quarter of this year. And we do intend also to advance the AMG 479 study into Phase III, so likely the first patient will not be admitted to these studies until the beginning of 2011. Additional Phase II data sets from our AMG 386, AMG 479 and from the AMG 827 programs will also become available later in this year, and we'll have the opportunity to share those with you at future earnings calls. Arvind?

Excellent. Thank you, Roger. I think we have covered a lot of ground there. Christian, why don't we go ahead and invite some questions from our listeners? If you can go ahead and review the procedures for asking questions, please.

[Operator Instructions] Our first question comes from Geoff Meacham with JPMorgan. Geoffrey Meacham - JP Morgan Chase & Co: Kind of a multi-part on bundling. What is your assumption for the providers phasing in over four years versus opting in. Does the composite rate create any sort of incentive? And then what could the strategy be that you guys use to make EPO utilization declines a little bit more smooth?

Geoff, thanks for that question. It's really early for us in trying to predict exactly what our partners in the dialysis supply chain are going to do. It's a little bit difficult. I'd like to just make a couple of comments though. First, this bundling rule is within our expectation, and so anything we've said before about our view of the likely effect of bundling is operative. We also are pleased to note that the CMS has recognized quality of patient care, and that the uncertainty is around what exactly would happen when orals go in the bundle eventually. So we're pleased that, that recognition happened. I think I'll turn it over to Jim to make a few comments on how he sees this playing out. But I want to emphasize that it's very, very early and we'll have more to say as events actually unfold. Jim?

Sure. Well, Geoff, I think you put your finger on the core issue, which is these new rules could apply to anywhere from 25% of Medicare dialysis patients all the way up to 100% depending on whether providers decide to opt in 100% or phase in 25% a year. Now CMS interestingly made an assumption of about a 43% opt-in rate. Right now, we're working very close with our customers to understand what they anticipate doing. They have until November 1 to decide one way or the other. So I think this is a situation of stay tuned, and clearly, we will be very close to our customers. In terms of the second part of your question, what impact will this have on utilization? Well, certainly, there's a couple of things we do not anticipate happening. One, we do not anticipate wholesale moves to subdue administration for a number of reasons, including the fact that our label recommends against it and also the fact that patients do not like it. And also, the clinical data is somewhat dubious in terms of what type of dose savings you can actually realize over an extended period of time. So we don't see that as a major drag on utilization. We don't see IV iron creating a major drag on utilization. Most patients, 85% are iron replete, so we don't see that as being a major issue. Where we're modeling right now potential utilization impact is on hyporesponder patients. Right now, if you define a hyporesponder as we do in our label, patients who fail to achieve 10 up to 12 weeks. That's about 1% of patients who represent about 3% of utilization.

Our next question comes from Yaron Werber with Citi.

A question about Prolia, can you give us a little bit of a sense as to of the $3 million booked in the quarter, just a little bit kind of I'm trying to understand the -- how should we look at the price in Europe? I know you're kind of looking at maybe between EUR 200 and EUR 400 being in the competition. So maybe how should we think about the price there relative to that? And also, a little bit of a sense as to how do you see ramp happening in the U.S. relative to Europe? I'm just trying to understand a little quantitatively how we should look at modeling this.

We price Prolia at a 15% to 25% premium to branded bisphosphonates in Europe. That puts the price at about USD $550 to USD $600. Second, on the rollout of REMS, I...

No, the ramp in the U.S. versus Europe.

Oh, I'm sorry, the ramp in the U.S. versus Europe. I think it's two different situations. If you contrast Germany, which once you have government reimbursement as we received on July 1, German physicians are free to prescribe for virtually any patient. And as a result, we are seeing very nice uptake of the product in Germany, which is consistent with our expectation that there is a relatively large population of patients who will benefit from Prolia. In the U.S., you have a rate-limiting step, which is reimbursement. Right now we're focused on the medical benefit, and physicians are reluctant to put a large number of patients on the product until they have greater confidence that reimbursement will be adequate, timely and the patients will not have an exorbitant out-of-pocket costs. So I think you're going to see a faster ramp in European markets where we've secured government reimbursement.

I think that, Yaron, just and everybody, I know we're all really understandably interested in the Prolia progress. Nobody more than us, that is for sure. I think at summary point of view from our position is so far so good. It is very early. The reimbursement issues in the U.S. need to be worked through. We're optimistic. Germany, where we have, as Jim said, a clean reimbursement situation proceeding well. The other countries in Europe will roll out based on their own individual reimbursement dynamics. It's early days, but so far so good.

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

First, it looks like you're reducing the guidance principally because of the FX changes that have occurred over the last three months. Can you tell us what the quarter-on-quarter FX impact was to revenues in Q2? And then second, what share count is implied in the assumptions for EPS guidance?

This is Michael. In terms of the FX, we've assumed essentially that we are planning on sort of the existing spot rate, which today is sort of around the $1.29s, $1.30s. And in terms of the share count, the share count that we're assuming is in the 960 million range as opposed to previous year of over 1 billion.

And Eric, you're right, the answer to the first question is yes, we're reducing guidance very, very slightly in the revenue line overwhelmingly because of the euro.

Our next question comes from Geoffrey Porges with Bernstein.

Just Jim, if you give a little bit more color on Prolia. First, could you talk a little bit about what reimbursement you're seeing. Do you have a temporary code for reimbursement from Medicare? And what sort of restrictions are being imposed by the commercial payors? Is it prior auths right now? Or is a step therapy required? I mean, what's going on there? And then could you just talk a little bit about the number of physician offices that you're actually seeing ordering and what sort of trajectory that's on.

We'll answer those two questions, Geoff. But it's interesting, we didn't say that there would be one question each, and I can see the wisdom of saying there'll be one question each. But those are both good ones. And so Jim, why don't you take them on?

Sure. Geoff, we'll consider that a two-part on reimbursement. In terms of do we have a code? Yes, we do. It is the miscellaneous J-Code 3490. Some max will also use J3590. In terms of what type of reimbursement we're seeing on the medical side from carriers, we only have a handful of claims to date of paid claims. And basically, they are what you would expect, which is WAC, wholesaler acquisition costs, plus 6%. On the commercial pharmacy side, what we're seeing is a whole range of reimbursement situations going from relatively low patient out-of-pocket with virtually no prior authorization or a step edits, all the way up to a coinsurance of 20% or 30% with prior auths required. So there's a wide range right now on the commercial pharmacy side.

Our next question comes from Jim Birchenough with Barclays Capital.

I'm just wondering if you could maybe expand on your global build strategy, what the impact would be of getting from 45 to 75 countries with your current products and whether, strategically, you can do something to get there quicker with the cash you've got on hand.

Yes, thanks for your question, Jim. Of course, as you'd expect, we'll look at ways of getting there more quickly through strategic transactions. That's no change for us. We've been looking at that for some time. The program I referred to, Jim, gets us to 75 countries over the next several years. This year, we're expanding into four new countries. And so we're not providing guidance about what the incremental revenue effect would be from entering these new countries, but we're excited about the potential for it to add to our growth rate over the long haul.

Our next question comes from Eun Yang with Jefferies. Eun Yang - Jefferies & Company, Inc.: Given the proximity between the timing of a PDUFA day for SRE indication and a prevention of bone mets in prostate cancer study data, do you think that the FDA may want to wait to see the data before making a decision on SRE indication?

Eun, this is Roger. I don't think so. Of course, it's always hard to speculate, and the Agency in reviewing the file could decide that there is something that they want to look at in more detail. But SRE file stands on its own. Keep in mind that there are in the order of 7,000 patients, 7,000 subjects in the SRE file. It's very complete. There are three Phase III studies that are active comparator-controlled head-to-head studies in breast cancer and in solid tumors and multiple myeloma and prostate cancer. So there's a lot of data there to review. And the timing is such that I suspect they will have completed their review and because they need to in order to get all the documents put together if they are looking at a November 18 PDUFA date. So it really does stand on its own, I think.

Our next question comes from Josh Schimmer with Leerink Swann.

Actually, a question for Roger. As I guess I think of Oncology development, I typically think of programs that you don't know if they're really going to work or not until you get the Phase III data, but then every once in a while, a BRAF inhibitor kind of product comes along with great monotherapy activity. So how do we think about Amgen's Oncology pipeline? Are there programs in here that have BRAF potential, and which ones might they be?

As we've talked about, we had the opportunity to present these programs in some detail at the ASCO Meetings, Josh. The data for AMG 386 and for AMG 479 from the Phase II studies are pretty impressive. Now for 386, you have data in the ovarian cancer setting in which there is -- it's placebo-controlled data that we actually are doing a direct study of chemotherapy plus AMG 386 versus AMG chemotherapy alone. And if there is a dose-response curve, so that the 10-milligram per kilogram arm was more impressive than the 3-milligram per kilogram arm, which in itself still demonstrated a response compared to chemotherapy alone. And the data showed that not only could you see an effect with respect to the tumors themselves, but there's also a quantitative effect with respect to, in this case, a biomarker for tumor mass CA-125. So all of that tends to give you more confidence that, in fact, you will see a treatment effect that duplicates that in the Phase III study. Of course, the magnitude could be different, the extent to which overall survival might be prolonged. In such a study, it could be different, but it gives you more confidence. And similarly, the magnitude of the treatment effect and the fact that there is an exposure-response relationship with the AMG 479 study in pancreatic cancer also gives you some confidence. You can never be sure. Just as you say, you have to see the Phase III studies. But the data sets are really quite impressive in Phase II and more robust than most that you usually see. We've got a lot of other things going on in the cancer area as we talked about at ASCO, and we can get to that some other time. But I would point out those two studies that we've taken into Phase III are really quite powerful.

Our next question comes from Michael Yee with RBC Capital Market (sic) [Markets].

A question on bone cancer. Are you guys preparing or expect an FDA advisory panel for that before the PDUFA?

Michael, of course, the FDA can decide at any point that they'd like to seek the advice of an advisory committee. We're working closely with them. And at that such time they want to do that, of course, we would want to engage with them on that. It's really up to them. We're just working to try and make sure that they have all the information that they need in order to meet their PDUFA date of November 18.

Our next question comes from Mark Schoenebaum with ISI Group.

Jim, it's good to hear you on the call, so I thought maybe I'd ask a question directed to you. I thought I heard you say that NEUPOGEN x U.S. was down 9% year-on-year due to Biosimilars. I was wondering if you could help us understand that impact. How much of that was volume versus price? And did you see any impact on Neulasta? Has Neulasta's price been impacted?

Thanks, Mark. Right now, I'm looking at the total NEUPOGEN sales components of growth and demand is down 2%. We had other, which is largely priced 1%, this is worldwide. Mark, we'll get back to you and pull out the Rest of World NEUPOGEN components of growth.

Mark, I'll come back to you with that breakdown.

Our next question comes from Joel Sendek with Lazard Capital Markets.

I have an Enbrel question. You mentioned that the drug is losing share to some newer agents. I was wondering if you could talk a little bit about that. What agents are those? And what are you trying to do to counter that?

Sure. I think for the Enbrel situation, really break it down rheumatology and dermatology. In rheumatology, we have now seven Biologic competitors. And over the past year, our share has gone from 36% down to 33%, which I think is strong performance in the face of seven Biologic competitors. We continue to reinforce the efficacy and safety profile of Enbrel. On dermatology -- and so if you ask where did that share go, it was divided amongst a bunch of new competitors that are picking up 1% or 2% share overall. So you're looking at Simponi, Actemra, Cimzia. So it's inevitably lose some level of share as the market leader. Now in dermatology, I think it's a little different. The share loss is primarily going to STELARA, which is a new market entrant. STELARA has a 13% share, and we've seen our market share go to 49%. Now the reassuring thing is that the STELARA share has stabilized at 13% quarter-over-quarter. So I think there was a bolus of patients who were refractory to TNF inhibitors. They have moved to STELARA, and we're looking forward to stabilization in STELARA share gains at the expense of Enbrel.

Our next question comes from Ian Somaiya with Piper Jaffray.

Just one question on the, and just really more of an opinion, on the approval of generic Lovenox and what it might mean for Biosimilars or path for Biosimilars in the U.S.?

Again, that's for Roger on the technical side. I think from policy side, it's not a harbinger for Biosimilars. I think we're going to have to work that pathway out. But I'll let Roger comment on some of the technical aspect.

Yes. Ian, as you know, it's pretty different product from what you could see in the Biosimilar. You have the same starting material for Lovenox as you do for the Momenta product. And you're simply asking the question of whether you can characterize the degradants to such a point that you believe that they have something in common. In a Biosimilar case, you don't have the same starting materials. And in addition, there's enormous complexity, just but you can recognize just on the difference in the molecular size of these species. There's enormous complexity in a Biosimilar that's not as easy to characterize. And as a result, it's hard to predict what the clinical performance will be, and that has been in the past what has been such a great concern, both from the perspective of immunogenicity as well as from the perspective of overall efficacy. So I don't think you should look at this as a harbinger for the way in which the Agency would handle Biosimilars. I think it is an understandable development in a regulatory analysis that's been going on for the last nearly five years with respect to low molecular weight heparins.

Our next question comes from Jason Zhang with BMO Capital Markets.

First is you had about $191 million other revenue. Could you provide a little more color? And then, for your SG&A, where do you see -- have you finished your building up of the infrastructure for Prolia? Or do we see some additional increase going forward on the SG&A side?

Jason, this is Michael Kelly. In the other income, that was principally driven by milestone payments from GlaxoSmithKline of $75 million and Takeda for Vectibix in Japan of $45 million. So those were the principal drivers. Relative to SG&A, the biggest piece is last year, we didn't have the sales force. And now we're anniversary-ing that costs, and we're going to continue to build out our large platform for Prolia. So we would expect to see some continued increases in SG&A to support Prolia.

Our final question comes from Rachel McMinn with Bank of America Merrill Lynch.

I just wanted to ask on the, two questions if I can, on Prolia, can we assume that the $3 million is all end-user demand? Or is there some inventory builds? And then, I wanted to get your perspective on France. There is some commentary in the press talking about reductions in Erythropoietin spend, and curious what your perspective is there.

On the Prolia U.S. sales of $3 million, you should assume that there's some inventory build in that.

We'll have to look into that question about France. We have a strong business in France. It's a good environment for us. So we'll get back to you on that.

Okay. Thanks, Kevin. Let me thank everybody for your participation this afternoon. If you have any follow-on questions, comments, feel free to call us. The Investor Relations team will be standing by for some time. Have a good day.

Ladies and gentlemen, this does conclude today's conference call. You may now disconnect.