Amgen Inc. (AMGN) Q4 2010 Earnings Report, Transcript and Summary

My name is Christian, and I will be a conference facilitator today for Amgen's Fourth Quarter and Full Year 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.

Okay, thank you, Christian. Good afternoon, everybody. I'd like to welcome you to our fourth quarter and full year 2010 results conference call. Unlike most reporting quarters, we are the first to go this year ahead of other Bio Pharma companies. The objective of this call is to review our solid performance last year despite the impact of U.S. Healthcare Reform. We'll also provide a perspective on the growth outlook for 2011. 2010 was truly a notable year as we received approval for and launched two very important therapies, Prolia and XGEVA. You'll hear more on these launches during the call together with updates on progress we have made towards advancing our pipeline. As we did for the third quarter call, we'll follow a streamlined format for our prepared remarks. I think this formant was well appreciated, as I received many favorable comments after our last call. In other words, we'll focus only on those comments that provide added clarity on issues outlined in our press release. So with that, I would like to introduce our presenters. I'm joined today by our Chairman and CEO, Kevin Sharer, who will lead the discussion by providing a strategic overview of our business, as well as comments on the acquisition of BioVex that we announced today. Following Kevin, you'll hear from our CFO, Jon Peacock, who will highlight key aspects of our financial performance during the quarter, as well as provide guidance for 2011. Our President and Chief Operating Officer, Bob Bradway will then give you a high level of summary of our global commercial sales, as well as a report on full-year commercialization. Our Head of R&D, Roger Perlmutter will conclude our prepared comments by providing a regulatory and pipeline update. As is the case of such calls, our comments today will be governed by our Safe Harbor statement. What it states 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.

Thanks, Arvind. Good afternoon, everyone. It's Good to be with you. Before I share my thoughts about our 2010 results and 2011 prospects, I'd like to just take a minute to reflect. Each year, any large global company in virtually any industry faces a number of uncertainties and last year was especially fraught for us as we think about just ae year ago. I'm especially proud and pleased to say that Amgen met our challenges successfully and set the stage for a promising future. Here are just few of the highlights: Prolia and XGEVA were approved after 15 years of effort, over $1.5 billion of investment and the tireless work of uncounted members of our team. We're proud of these result. I think it's biotechnology at its best, and we look forward to helping patients enjoy the benefit of this set of innovations. The bone mass prevention study we announced the results of toward the end of last year, or so called 147 study, added to the benefit of XGEVA. Roger will talk more about our regulatory prospects and plans there, but clearly, this is a landmark result. We're proud of it. Three, we delivered financially even in the face of tremendous health care reform and reimbursement headwinds around the world. We effectively and thoughtfully represented patient interest at a variety of public government-sponsored reviews of aspects of our ESA franchise. That continues this year, as we'll talk about in a minute. We advanced our pipeline in many ways. We made significant management changes in naming a new Chief Operating Officer and a new Chief Financial Officer. We maintained the highest compliance standards and performance in an increasingly challenging environment. And finally, we successfully again represented and defended our intellectual property. 2010 was a superb operational year for Amgen, and I want to thank Amgen's staff worldwide for their efforts. It was truly exceptional. Our focus on 2011 is easy to describe, but as always, challenging to execute. First, we can't take our eyes off and we won't take our eyes off the core business in all of its aspects. The recent MEDCAC discussions made me proud of our work for patients. We need to and will advance Prolia and XGEVA. Prolia is a promising therapy for osteoporosis that is growing. However, predicting the ramp rate of any new technology in any business is challenging. However, our efforts and enthusiasm both are very high. XGEVA is off to a strong start, and we're very optimistic with the 147 study, only increasing our confidence. We need to and will advance, enlarge and enrich our pipeline. Today's announcement of our BioVex acquisition is indicative of our objectives. Good company, good science have potential advance for patients with grievous illness with few good treatment options. We were also thoughtful about using shareholder dollars in this acquisition and balancing risk and reward. By the way, the buybacks acquisition-related costs in 2011 are reflected in our guidance that we'll share in a moment. Next, we're going to grow shareholder value by keeping our financial promises, executing a smart strategy well, thoughtful use of our cash and making our pipeline even stronger. We are hopeful this year as the major overhangs or the mega-overhangs of the past recede, this will be possible. While we will never be without challenges and uncertainties, I like our prospects. We look forward to on April 21 in New York City at a business review, sharing more with you about our plans and prospects, and we'll reach out soon to large shareholders to be sure we meet your needs and expectations for that meeting. Jon, I'd like to turn it over to you now.

Thanks, Kevin. Turning to Page 5 of the presentation, you'll see that in the fourth quarter, revenues were 1% higher, operating income grew 4% and adjusted earnings per share was up 11%. We'll take you through the highlights on product sales in a few minutes. Other revenues during the quarter benefited from a milestone payment received from Takeda on initiation of AMG 386 Phase 3 trial for ovarian cancer. Operating expenses were 1% lower in the quarter versus a year ago. There were a number of factors contributing to this: First, cost of sales were higher by 6%. This was primarily due to inventory write-offs from the Enbrel voluntary recall and some higher bulk material costs flowing through inventory. Research and development costs were 5% lower, primarily due to licensing fee payments to Array BioPharma that we paid in the fourth quarter of last year. SG&A was held broadly in line with 2009. The adjusted tax rate was 15.5% compared to 18.8% for the year. This was due to the full-year benefit of the R&D tax credit that was enacted late in the year and fully recognized in the fourth quarter. The low tax rate that you see in the fourth quarter 2009 was due to a change in revenue and expense mix during that quarter. Adjusted earnings per share $1.17 was up $0.12, helped by share buybacks. In our GAAP earnings, you'll see we also took an impairment charge of $118 million, related to the transfer of our Fremont manufacturing facility to Boehringer Ingelheim. Bob will talk more about the operational impact of this transaction. Turning to the full year on Page 6, total revenues were 3% higher compared to 2009. Other revenues grew 35% primarily, due to milestone payments received from GSK for the Prolia approval in Europe and from Takeda for Vectibix approval in Japan. Operating expenses increased 4% compared to 2009. The main drivers here were cost of sales, which again were up 6% from the year, primarily due to higher inventory write-offs from the EPOGEN, PROCRIT and Enbrel recalls and from some higher bulk-material costs. SG&A costs were 5% higher due to our investment in the Prolia launch during the year and some high litigation costs. Research and development costs were broadly in line with 2009. The adjusted tax rate on the year was 18.8% compared to 16.9% in 2009. Last year's rate benefited from tax settlement that were concluded during the year. Adjusted earnings per share was $5.21, up $0.30 or up 6%. The key balance sheet and cash flow movements are shown on Page 7. Our cash balance increased by $4 billion to $17.4 billion. Our net cash balance increased by $1.5 billion as we issued debt of $2.5 billion during the year, in anticipation of paying down a $2.5 billion convertible, which matures in February. In 2011, the acquisition of BioVex that Roger will talk more about, will result in a payment of $425 million to buyback shareholders on closing. Further payments of up to $575 million will be made upon the achievement of certain defined regulatory and sales milestones in future years. Cash flow from operations was $5.8 billion for the year compared to $6.3 billion in 2009 . This reduction was predominantly due to the timing of U.S. tax payments over the two-year period. Capital expenditures were held at $600 million, slightly above 2009. And finally, the total cost of shares repurchased in 2010 was $3.8 billion compared to $3.2 billion in 2009. The benefit of this program can be seen in our adjusted EPS results for the year. Page 8 provides our guidance for 2011. We expect to deliver revenues of between $15.1 billion and $15.5 billion. Our plan is assumed a Euro-U.S. dollar exchange rate in the low 130s, and we're not assuming any significant movement from this. We expect adjusted EPS to be between $5 and $5.20. This reflects total U.S. Healthcare Reform costs, which we estimate at $400 million to $500 million in 2011, and that includes the new federal excise fee, which we estimate will be between $150 million and $200 million. This compares to total Healthcare Reform costs in 2010 of approximately $200 million. Our guidance overall reflects a plan to grow adjusted EPS before the impact of the federal excise fee. One other factor in our guidance is an expectation that we will invest more in research and development in 2011. This reflects an increased number of Phase 3 programs, the BioVex acquisition that we announced today and a step up in our discovery research investments. This will be partly offset by an expected improvement in cost of sales in 2011. Our 2011 adjusted tax rate, we expect to be between 19% and 20%. And finally, we expect capital expenditures to be approximately $600 million similar to the last year. And so now, I'll hand it over to Bob to review commercial operations.

Okay. Thank you, Jon. I'll provide a high-level of summary of our global commercial performance for the fourth quarter and the full year, followed by some high-level comments on a number of prospective issues. Consistent with our third quarter call, the product-by-product details are contained in our appendix in the press release, and I'll not present that material here, but Jim Daly and I are available to answer questions about the product specific slides during the Q&A period. For the year-on-year fourth quarter comparison, our global product sales remained relatively unchanged, which was a function of several offsetting factors. First, in U.S., Enbrel and Filgrastim delivered 3% and 4% growth respectively, and globally, our more recently launched products, including Sensipar, Vectibix, Nplate, Prolia and XGEVA grew $82 million or 29%. EPOGEN sales declined by $112 million or 16% during the quarter. Within the EPOGEN decline, there are several important factors however to bear in mind. First, it's worth pointing out that roughly half of the sales decline was due to the non-demand related items such as changes in wholesaler inventory levels and changes to accounting estimates. The remainder of the sales decline was due to demand, reflecting the decline in dose utilization, partially offset by patient population growth. As we shared with you on our third quarter call, we expected to see this dose decline as providers began in the fourth quarter to refine their treatment practices ahead of the implementation of the ESRD bundle, which went into effect at the beginning of this year. For the full year, our global product sales grew by $309 million or 2%, which was mainly due to growth from our newer products, which grew by $278 million for the year and from increased Filgrastim sales. I'll make one final comment on our 2010 performance, which is to note that U.S. Healthcare Reform decreased sales by $65 million for the quarter, and $198 million for the year. Looking ahead to 2011, you've just heard Jon provide revenue guidance. It's important to note that we're anticipating several factors will shape product sales in 2011. We can't rule out further impact to Aranesp from the ESA REMS, and I'll speak more about that in a few minutes. With respect to EPOGEN, we expect further moderate dose declines, as providers refine their treatment practices to maintain hemoglobin levels in the 10 to 12 range. As we've stated before, we believe the ESRD quality improvement program is important in preserving access to important medicines for patients on dialysis and demonstrates a commitment by CMS to these principles. Our 2011 guidance assumes a moderate impact on EPOGEN dose, front loaded to the first half of the year, and what we are seeing today is consistent with that assumption. Our guidance does not reflect the dramatic change in utilization for EPOGEN or Aranesp as a result of any major new regulatory or reimbursement changes. I know there's a great deal of interest in this, and we'll obviously keep you informed on utilization patterns as the year progresses. And finally for 2011, were excited about the Denosumab opportunity. Turning to Slide 11, I'll speak more about the Prolia and XGEVA launches. We continue to make steady progress with Prolia, and we're encouraged by the trajectory, particularly that we saw in November and December. In the U.S., we estimate that approximately 9,000 physicians have now ordered or prescribed Prolia, and 40% of these have placed additional orders. Primary care physicians represent about 60% of our total prescribers, and it's worth noting that approximately 2/3 of our targeted rheumatologists have prescribed Prolia at this point. Both specialist and primary care physicians are predominantly using “buy and bill” fulfillment to provide Prolia with low patient out-of-pocket costs. We expect that the primary care prescribing base will expand as various prescription drug plans announce their Medicare Part D coverage for Prolia, and we expect this to happen -- to be announced in the first quarter and to be implemented in the second quarter of this year. Outside of the U.S., we launched and secured full reimbursement in nine countries in 2010, including the U.K. and Australia, which are known for their rigorous reimbursement policies. In 2011, we expect an additional 19 launches to provide growth outside of the U.S. Turning to XGEVA, we're excited about the opportunity this important medicine provides for patients, and we're seeing usage come both from oncologists and urologists and we're encouraged by the early signs from the launch. As you know however, we had only a few days in which to promote the product in 2010, so naturally, we'll have more to say about this in April with our first quarter results. Turning now to Slide 12. This slide displays our actual weekly U.S. Aranesp sales going back to 2008. As a reminder, the sharp peaks and troughs in blue are largely a result of wholesaler inventory buildup in depletion not fluctuations in actual patient utilization. The red lines indicate average weekly sales, and these lines exclude returns or discount accrual true ups, as well as effects of wholesaler inventory fluctuations, which serve to distort the quarter-on-quarter comparisons. The drop in weekly average sales for Aranesp from 2009 to 2010, as I'm sure you're all aware, is due primarily to a decline in the overall ESA segment, reflecting more conservative use of ESAs in both ontology and Nephrology. As you can see, the average weekly sales for Aranesp stabilized in the sequential quarters of 2010, as the impact from the more conservative use of ESAs was fully incorporated into treatment practices. However, we can't rule out a further decline in Aranesp sales going forward as a result of the REMS rollout or from any major new regulatory reimbursement changes. Finally, to comment on manufacturing, we announced earlier this month that we had entered into a transaction with Boehringer Ingelheim, through which they have acquired our manufacturing facility in Fremont, California. This move is consistent with our off-stated desire to optimize our manufacturing supply chain and to improve our efficient and safe supply of medicines for patients. This move is made possible by productivity improvements across the rest of our network. With that, I'll turn it over to Roger, who'll talk about research and development progress in the quarter.

Thanks, Bob. Well as Kevin has already noted and as shown on Slide 14, the fourth quarter was an especially important one for Amgen Research and Development with the approval of XGEVA for the treatment of patients with bone metastases from solid tumors. This approval was based on three large randomized blinded active comparator controlled studies, that showed that XGEVA, administered once monthly by subcutaneous injection was superior to the then standard of care, Zometa, in reducing the frequency of skeletal-related events in patients with bony metastases, secondary breast and prostate cancer, and was not inferior in reducing the frequency of these events in patients with other solid tumors, but with multiple myeloma. XGEVA was approved by the FDA on a priority review basis, just six months after filing. The XGEVA file is also under review by the European Medicines Agency and in other jurisdictions worldwide. All of these reviews are proceeding appropriately. In December, we also obtained topline results from our 147 study, which asked whether administration of XGEVA reduced the risk of skeletal metastases in patients with prostate cancer who are at high-risk of sustaining a first metastasis to bone. The successful completion of this study provides for the first time to my knowledge, clinical evidence supporting the view that tumors must activate the RANK Ligand access to optimally penetrate bone. There's still a great deal to learn about the results of the 147 study. However, our more detailed analysis, which includes a variety of sensitivity studies, confirms and extends what we have seen in the top line data summary that we disclosed last month. We will meet with the FDA to discuss this study in the very near future, and at present, expect to file for approval of this new indication in the first half of 2011. Of course, we're continuing to study Denosumab in variety of other settings, both in patients with cancer and in those with other forms of bone loss. I'll have more to say about these studies during future earnings calls. During the fourth quarter, we also completed our filing for Vectibix in the treatment of patients with metastatic colorectal cancer, in combination with other chemo therapeutic agents in the first and second line setting. These filings include specific reference to the importance of limiting therapy to those patients whose tumors contain only wild type, that is un-mutated, versions the of the KRAS gene, and were timed to permit simultaneous filing of a diagnostic tests for mutations in KRAS, which we completed with our partner Kyogen. The data from our filings are already under review in other jurisdictions. Also noted on Slide 14, we have revised our view of the timing of completion of the Sensipar EVOLVE study based on additional scrutiny of event rate data. You'll recall that the EVOLVE study assesses long term Cardiovascular outcomes in patients with secondary hyperparathyroidism who are treated with Sensipar from Mimpara in Europe as compared to those receiving placebo. Extrapolation of the current event rate for this fully-enrolled trial indicates that we will not achieve a sufficient number of events until 2012. As shown on Slide 15, we also made substantial progress in the fourth quarter with respect to the advancement of our mid-stage pipeline. We enrolled the first patients in our Phase 3 study of AMG 386, an angiopoietin antagonist peptibody for the treatment of advanced ovarian cancer. Promising Phase II data in the same setting were discussed at the American Society for Clinical Oncology meetings last June. We also began initiating sites for our Phase 3 study of AMG 479 and IGF-1 receptor antagonist antibody, used in combination with gemcitabine, in the setting of pancreatic cancer. Phase II data for this program were also presented at ASCO last year. Also on Slide 15, I note that we now expect to complete the Phase 3 MONET-1 study in the first half of this year. You'll recall, this study asks whether daily treatment with Motesanib, an oral multi-kinase inhibitor, improves overall survival in patients with non-small cell lung cancer, who are simultaneously receiving paclitaxel and carboplatin therapies. Lastly, on Slide 16. Today we announced that we have reached a definitive agreement to acquire BioVex, a small privately held company based in Woburn, Massachusetts. For more than a decade, BioVex has pursued the development of a cytolytic live virus vaccine called OncoVEX GM-CSF, based on molecular modification of a proprietary strain of Herpes Simplex Virus Type 1. The virus has been engineered to permit relatively selective replication in cancer cells, and has also been modified to defeat a crucial mechanism that Herpes Simplex Virus uses to evade immune detection. And this change, coupled with the expression of an embedded GM-CSF cassette, improves immune recognition of tumor cells in and around the cyto virus injection. Clinical studies have demonstrated that injection of this virus into tumors causes direct tumor cell lices, and also stimulates immune destruction of distant tumor cells. These observations led to the initiation of two Phase 3 studies, both under special protocol assessment with the FDA. One in patients with malignant melanoma and the second, in patients with head and neck cancer. The melanoma study in particular is more than 90% enrolled. I will have a great deal more to say about this program and about many of our other programs during our business review meeting in April. Kevin?

Okay. Thank you very much, everybody. We'd like to turn it over now for question and answer opportunities. So, Arvind if you could kind of lay out the ground rules there, that will be good.

Yes, absolutely. Why don't we go ahead and open it up for Q&A, if you just want to review the procedure.

[Operator Instructions] Our first question comes from Chris Raymond with Robert Baird and Company. Christopher Raymond - Robert W. Baird & Co. Incorporated: Just a question on OncoVEX, obviously, you have not had a lot of time to look at this BioVex. But cursorily looking at clinical trials, it looks like the melanoma trial has a response rate primary end point. And again, just thinking about the other therapy, in that setting that's used, I think overall survival is the primarily end point. Can you maybe talk about your thoughts as you look at this asset on the viability of the end point that they're using, and how you kind of are looking at this going forward?

Chris, it's Roger. The response rate is actually a durable response rate. That is, a response rate that's maintained either partial or a complete response over a period of six months. This was a response, an endpoint that was agreed to after discussion with the FDA under special protocol assessment. It's important to note that the patient population being studied here is quite different from patient populations that are being studied with other agents that you're referring to. And as I say, we'll have a lot more to talk about after this deal formally closes, and when we discuss it at the Business Review. But suffice it to say that the results of administration of this vaccine are very impressive from the Phase II studies. We don't know of course about Phase III. BioVex has presented some of these data in public forums. And as you kind of look at it, I think you'll probably get comfortable with the fact that there really is a dramatic effect on tumors, both proximal and distal lesions, as a result of administration of this virus. With time, we'll find out how significant that really is.

Our next question comes from Eun Yang with Jefferies. Eun Yang - Jefferies & Company, Inc.: The pricing of Prolia is substantially cheaper in Europe compared to the U.S. Can you comment on XGEVA pricing assumptions, whether you would have a similar pricing power in the U.S. or is it going to be similarly discounted, such as Prolia?

We're not expecting to be launching XGEVA in Europe. There's still several quarters, Eun, so we'll reserve comments on pricing until we get nearer to the date of launch. But suffice it to say, we expect like with Prolia, for it to be priced at a premium to bisphosonate therapy that's available in Europe.

Our next question comes from Mark Schoenebaum with ISI group.

Roger, I have to ask you, if you might, what did you mean that the data on the Dmab prevention trial "confirm and extend top line data?” Was there systematic benefit or not? Is that something you'd be willing to help us out with at this point?

Mark, it's understandable when you go in and get the top line data, you have just the results of the primary, key secondary endpoints and a few of the adverse experience reports. As you dig more deeply into the clinical study, and prepare the final clinical study report, you get a lot of information that looks at the sensitivities, geographic regions, that looks at different characteristic of the patients. And of course, that looks at various aspect of clinical presentation, including some of those that you have mentioned, and we'll have a chance to talk about those in great detail. Needless to say, I don't want to jeopardize publication of a front-line journal by presenting data in advance. But I did want to make it plain to everyone that what we see is more than supportive of what was released on the top line.

Our next question comes from Josh Schimmer with Leerink Swann.

The 2011 EPS projections will include future share repurchases, if any are expected, and what is the impact of the Puerto Rico tax rate that whether you got clarity as to the impact on your tax rate overall?

To answer to your first question. Yes, the EPS guidance does anticipate the buybacks that we plan during this year, which will be certainly at a lower level than 2010. And secondly, we have estimated at this point what we believe will be the impact of the Puerto Rico tax legislation. It's reflected in our guidance overall. We don't think it will be material to our financial results. But at this stage, I think as you probably know, the creditability ruling by the IRS has not yet been issued. But we are assuming that the impact will not overall be material and it is reflected in our guidance.

Our next question comes from Geoff Meacham with JP Morgan. Geoffrey Meacham - JP Morgan Chase & Co: Question for you on EPO, obviously the sequential trends in fourth quarter do reflect lower utilization. It would be helpful if you could review some of the offsets of the decline that you think will help moderate the franchise in 2011, with respect to maybe pricing or market growth, or even sort of minimum thresholds for purchasing for some of the providers?

Geoff, this is Jim. I would just first reiterate what Bob indicated, that half of the 16% is unrelated demand. So we're looking at business adjustments and inventory changes. So really, the demand portion is really quite consistent with what we anticipated. As we indicated in the third quarter call, we had about 4% year-over-year decline. We think we probably had a high single-digit decline in the fourth quarter, and as we look at the external Street consensus for EPOGEN, it implies a mid-teens decline in dose, offset partially by growth in patients and growth in price. And historically, we've seen our patient growth rate of about 3% and we've been taking about a 2% price increase. So as we look at that consensus, as we also look at what our large customers are indicating about their intentions, our internal plans are generally consistent with the Street consensus.

Our next question comes from Matt Roden with UBS.

Also on EPOGEN, it looks like this is the first year in five years that you haven't taken a price increase on EPOGEN at this point in the year. I'm wondering if you can tell us whether or not this represents a departure in terms of your EPO-pricing strategy. And if you can give us any parameters about what to expect in the future?

It's really not constructive for us to speculate on the coming of price increases. But as you can imagine, we are watching how the reimbursement changes play out, and obviously, our pricing strategy will reflect what we see in the marketplace.

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

I wanted to ask more of a strategic question on cash deployment. I guess first off, could you clarify under cash balance, what percent is ex-U.S.? And can you talk a little bit more about your ex-U.S. M&A strategy, whether the potential for repatriation will cost you to think differently?

I'll let Jon talk about your second question. Let me take the bigger one on. We think that cash stranded offshore does not help the U.S. economy, if that's part your question. Certainly, if repatriation happened at some acceptable consideration, that would be positive from our point of view. However, given that the likelihood of that is probably not high, we anticipate that the offshore cash will remain. We're trying to buy, as I think BioVex demonstrates, high quality companies. We're not trying to buy high-quality companies any certain place per se. However, obviously if all of the stars lined up just right in having an offshore company that met all of our standards, that would be financially attractive, given where the cash is. But I don't want you to imagine that our M&A strategy is guided by fundamentally, a geographic test. It's not. It's guided by trying to find companies that are for product opportunities that have the kind of characteristics that BioVex does. Sometimes those will be in the United States, sometimes otherwise, but we're trying to buy the right product opportunities here. And Jon, you might comment on the percent cash offshore in U.S.?

I mean, I think without giving you specific numbers, the large majority of our cash is clearly held offshore, and we try to use the U.S. cash efficiently to both return cash to shareholders and to reinvest it in the business. I think you should assume that the large majority of the cash that we retain on our balance sheet is offshore cash.

Our next question comes from Ravi Mehrotra with Credit Suisse. Ravi Mehrotra - Crédit Suisse AG: Psychologically, how do you view utilization of free cash flow beyond 2011? Concomitantly, could you say first this Amgen's five-year average historically utilization of free cash flow for share repurchases, as a ballpark proxy or a return of shareholders to cash to shareholders going forward?

I think what we have done in the past is to maintain our balance sheet within the constraints of an A rating, a single A rating at least. I don't see that changing in the foreseeable future. And we'll maintain our cash to ensure we have the flexibility we think we need to make acquisitions like the BioVex acquisition, but also within the constraints of a single A rating, we'll continue to return cash to shareholders. So the form in which we do that, we'll review and we'll get back to you in due course on that point of buybacks and dividends. But overall, the mix between reserving cash to retain strategic flexibility to grow the business in a good way, and the balance we return to shareholders don't expect to a major change in that.

I want to reiterate what Jon just said. We seek to use our balance sheet flexibility to grow the company by making intelligent acquisitions when they become available. It's not that the money is burning a hole in our pocket, it is not. But obviously, the highest and best strategic use of that cash is to redeploy it in the end-license M&A and the pipeline enriching and top line growing sphere. The facts are, that those kind of opportunities are not many in number, and they happen in lumpy kind of ways. But I want to assure all the shareholders that we are more than thoughtful and aggressive in trying to be in that mode. And I think BioVex is relatively small, but significant as an indicator of the kind of thing we're trying to do.

Our next question comes from Geoffrey Porges with Bernstein.

I have a question about Prolia. Could you talk a little bit about what changes you might anticipate in the marketplace after you get Medicare Part D reimbursement? Specifically, would you envision that either pharmacists would be able to administer the drug or that you could change the label, such that patients could self-administer the drug? And also, how do you think it will be distributed to the patients, through a traditional retail pharmacy or specialty pharmacy?

Geoff, this is Jim. Geoff, we would imagine that the vast majority of patients who received the product under Part D, would pick up Prolia at the pharmacy and bring it back to the physician's office for administration. That's the way that the product has been studied clinically, and we think that's the most prudent way to administer. Now as you indicate, we do have several large retail chains who are interested in administering Prolia at their facilities, and we're working very closely with them to enable that. But in terms of the major change we expect to see from the Part D coverage is a greater expansion of primary care prescribing. As Bob indicated, we have 9,000 total prescribers About 6,000 of those are primary care doctors. And we will see Part D offering opportunity for more primary care physicians to make Prolia available to their patients.

Our next question comes from Yaron Werber with Citi.

Just because we're getting these questions now routinely, just help us understand how do you think about when is the appropriate time to provide a dividend versus using the cash for stock buybacks? At what point and maybe if you can, help us understand what are the drivers, which will ultimately lead you to believe that it's time for dividend a?

Yaron, this is Kevin. I understand the question, has been asked lots and lots of times over the years, and all I'll say today is, that we remain committed to returning cash to shareholders in the most intelligent way. And we're listening to shareholders now as we have, and in due course, we'll have things to say about that. I wouldn't get ahead of the headlights there. I'm happy with the way we've used our cash in the past, and I think this is not a new issue for us.

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

Questions on R&D spending. If I have followed the guidance for bottom-line earnings appropriately, I'm looking at an increase in spend in R&D. I'm wondering, one, if you can provide some brackets on what spending might be in 2011? And two, It looks like 2011 may be the first year, in maybe the last five or six, that Amgen's actually increasing spending. Can someone talk about broadly your thoughts on R&D investment relative to other things you can do with cash?

Let me talk again, then I'll turn it over to Roger specifically. That's pretty good quick math. And you're right from an intellectual and factual point of view. First of all, highest level. We have a belief that if you don't invest enough money in R&D, you can't succeed in this business. We also say that simply investing money in R&D doesn't guarantee anything either, but not investing enough will put you in a bad spot. So that's first. Second, we have had a very productive over the last 10 years, research and development function. Any way that we want to measure it, numbers of products, innovation, number of molecules, advancing into human subjects. We also noticed that after we had the challenges of 2007 and the ESA, we've tended to leave the Discovery Research area a bit less well-funded than we otherwise would have, given the amount of money that went into clinical trials. And Roger and I both believe that we need to make a meaningful increase in Discovery Research. It's not the major part of the R&D line items, so a relatively small amount of money can make a big difference. So we're absolutely committed to innovation, and R&D is the heart of the company, and we're going to continue making strong investments. Roger, you're the guy who's going to spend it. That was just the banker's view.

The bankers is pretty close to the R&D guys' view. Eric, an important thing to remember is that we've had some pretty large Phase III studies that have delivered important results, but those studies don't immediately go to zero. There are open-label extensions associated with these studies. There are large pharmaco business programs. So we are continuing to support those products, for which we've already gained registration, but we're also advancing in a number of really important Phase III programs, new molecules that I highlighted a little bit on the call, and we'll talk about more in April. So that adds quite a lot to the expense. We think it's extremely well justified. We're doing the right thing in terms of trying to really make meaningful impact on patients who suffer from grievous illness. And as Kevin mentioned, it's important to make sure that Discovery and Research is adequately funded, so that we'll be in a position to pursue a next set of important clinical trials in years down the road. So that's where we stand. There is a significant increase this year. We're pleased to be able to do it and we think we can really, really use that investment.

Our next question comes from Jim Birchenough with Barclays Capital.

Just wondering in terms of XGEVA and its current utilization, can you say whether bone scans are being required in advance of XGEVA use? We've heard that, that isn't always being required? And just wondering whether the 147 Beta could position the drug under the current label for patients in terms of SRE prevention, if there's not a requirement of a bone scan. The short question is really patients with rising PsAs where you presume there are micromets, could they be encompassed within the current label?

Roger, why don't you start with the second part of that question.

Well, I think from a regulatory point of view, you tend to get, of course, exactly what you studied in your Phase III trials. And what we studied for 147 were patients who were at high risk but did not yet have clinical metastases. Now any patient who already has evident metastasis judged by bone scan or other criteria, is at risk for skeletal-related events. And in that population, we've already demonstrated that we can dramatically reduce these skeletal-related events, and there's already an indication for that. So the sense is that the 147 data, and again, it must be reviewed by the agency, will simply expand the group of patients for whom XGEVA is an appropriate therapy. Obviously, there are a lot of both regulatory-impaired groups that need to opine. But that's the general sense that one gets from looking at the total set of data.

And Jim, obviously it's still early days. But so far, the vast majority of patients have not required bone scans.

That's correct. The reimbursement landscape for XGEVA is outstanding. On the Medicare front, 100% of Medicare major carriers have confirmed coverage on Part D, 91% commercialized have coverage. We reported only three plans with prior authorizations that are more restricted than the label, and that is a failure on IV bisphosphonate. And no reports of requiring a bone scan, although that would not be a huge barrier to access to the drug.

Our next question comes from Michael Yee with RBC Capital Markets.

Just digging down more in the EPO, you're 24 days into bundling. Can you give any more specifics about what you're seeing? Either regimen changes or types of utilization changes? Either big centers or small centers? And then as you think about potential NCDs and just not in your guidance or changes in the reimbursements, how you're thinking about those scenarios?

Michael, as I said in my remarks, the guidance that we provided reflects a couple of things. First, that we expect to see changes noted to the first half of the year. But second, as you point out, still very early days. And so we don't see anything so far which is different from what we've embraced in the guidance we've provided you and in the comments that we've made in the past about bundling. So we're expecting a further modest decline in those. I think we'll know much more about it when we're together in April, and certainly, by the July earnings call, I think we should have a better sense so we can characterize it for you at that time.

Our next question comes from Maged Shenouda with Stifel Nicolaus. Maged Shenouda - Stifel, Nicolaus & Co., Inc.: You had a relatively strong quarter for Enbrel. Can you just speak to the dynamics behind that? And how you're thinking about this franchise in 2011?

Enbrel has a lot of momentum right now. We saw nice growth in the Rheuma market, 15% growth. Enbrel holding shares at 34%. We have 12% growth in the Derm market. We are losing here year-over-year, largely to STELARA. I think the good news on that front is STELARA has for the most part, plateaued over the last six months. So we are very encouraged with the momentum we're bringing into 2011 with Enbrel.

Our next question comes from Robyn Karnauskas with Deutsche Bank.

So just speaking about your April 21 meeting, and one of the things you've talked about in the past is maybe using your excess manufacturing capacity and maybe going into biosimilars. How much capacity do you have remaining post to divestiture? And maybe you can give us some specifics as to how much color you expect to give the Street on your April 21 business review?

We still have some excess capacity in our manufacturing network. We continue to try to optimize that, Robyn. I don't know that we're going to be any more specific about what our current utilization is when we're together with you in April as regards, things that we may do to improve that. Again, we'll talk about them when they happen.

Our next question comes from Joel Sendek with Lazard capital.

I have another question on the transaction. I'm wondering if, for OncoVEX, is there any controlled Phase II data? I couldn't find any just here the web? And what is your level of confidence in success in the melanoma trial that's ongoing right now?

Joel, this is Roger. It's hard to control these kinds of studies because it's almost a procedure. You inject the virus directly into the tumor. In part, the Phase 3 study was designed to address that problem by controlling with GM-CSF systemic administration. Again, remember the virus has a GM-CSF expression cassette embedded within it. In terms of confidence, well again, the BioVex group has had the opportunity to present a lot of their data in a number of different public forums, including most recently, at the JP Morgan meeting in San Francisco. I think when you look at patient responses there, these are not tumors that go away by themselves. What we can't know is the magnitude and durability of the effect over the long-term, and that of course is what's being addressed in Phase III. I'll tell you my sense is, I'm extremely optimistic, and that's of course an important part of why we proceeded with the transaction.

Our next question comes from Ian Somaiya with Piper Jaffrey.

Just a follow up on Bob. Your comments on XGEVA that it's going to be a meaningful contributor in 2011. Just wanted to get your comfort level relative to Street expectations for the drug. Now are there any lessons we could learn or apply from the Prolia launch, or is this just completely different settings of markets?

I don't want to comment on the Street consensus at this point for XGEVA. But I think it's important to note that very different disease states a very different clinical profile. We're very pleased with the label that we have for XGEVA. We're delighted with the clinical results which Roger alluded to earlier. Superiority, demonstrated in Phase 3 pivotal clinical trials, and we're very encouraged with the reception so far in both the oncology and urology communities. So again, I know there's a lot of interest in this topic, and we look forward to being able to give you a little bit more detail, when we're together in April. But off the back of very few days in 2010, it's probably premature to make too many claims for XGEVA at this point.

Our next question comes from the Sapna Srivastava with Goldman Sachs.

Just quickly, we saw that you had recently changed the co-pay assistance program for Neulasta. Could you help us understand what drove the decision and what impact do you expect from it going forward?

Actually, we based the co-pay assistance program for Neulasta, Nplate and XGEVA, where we have capped the patient out-of-pocket at $25. We think that's the right thing to do to ensure broad access for very important products.

Christian, why don't we take one last question.

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

I want to come back to XGEVA. So from your current market dynamics, can you tell if the use of the drug today is mainly in breast-cancer or prostate cancer? If it is used for prostate cancer patients, are those mainly given by urologists or mainly still referred to hematologists? Because typically, the urologists don't really treat SRE. I wonder whether because of the drugs, the world administration whether urologists have started to embrace this drug.

Look, it's still very early days. So again, at this point, it's probably premature to get into too much detail. But I tried to give you a sense from my remarks that we're pleased by the reception, both from the oncologists and urologists. And you're right to note that urologists haven't had an alternative like this available historically, and I think that's part of why they've embraced it as readily as they have. But again, as we get into the business review in April, we look forward to providing for the appropriate detail of what we've learned by then in the first four months of the launch.

Thanks, Bob. Well let me take this opportunity to thank everybody for your participation in the call this afternoon. If you have any follow-on questions of course, we'll be standing by for the next several hours. Thanks again.

Ladies and gentlemen, this concludes Amgen's Fourth Quarter and Full-Year 2010 Financial Results Conference Call. You may now disconnect.