Amgen Inc. (AMGN) Q1 2012 Earnings Report, Transcript and Summary

My name is Marvin, and I will be your conference facilitator today for Amgen's First Quarter Earnings Conference Call. [Operator Instructions] I would now like to introduce Arvind Sood, Vice President of Investor Relations. Mr. Sood, you may now begin.

Thank you, Marvin, and good afternoon, everybody. I would like to welcome you to our first quarter conference call. We are off to a strong start in 2012, and we are looking forward to the many opportunities ahead. I'm joined today by several members of our leadership team, including Bob Bradway, our current President and CEO-elect; our Chief Financial Officer, John Peacock; Tony Hooper, our Head of Global Commercial Operations; and Sean Harper, our Head of R&D. This quarter represents milestones in many ways, with record performance for both revenues and adjusted earnings per share, and notably after 2 full decades, first as President and then as Chairman and CEO, Kevin Sharer will preside over his last call as our Chief Executive Officer. Kevin is with us this afternoon, but before I turn the call over to him, I will just provide our customary reminders. We will use slides for our presentation today. The slides have been posted on our website and a link was sent to you separately by e-mail. Our comments today will be governed by our Safe Harbor statement, which in summary says that through the course of our presentation today we may make certain forward-looking statements and actual results may vary materially. So with that, I would like to turn the call over to Kevin.

Thanks, Arvind, and good afternoon, everyone. As Arvind mentioned, this is hard to believe, my 77th and last Amgen quarterly conference call. I will make today a few comments, then step out of the room to leave Bob and his team to discuss the quarter and answer your questions. You may have noticed in the newspaper that our first CEO, George Rathmann, passed away over the weekend. I want to make a few comments about George. I can't say that I knew him well, but I did know him. He was certainly the most intense interviewer when I came here 20 years ago. And from that very first interview, his passion about biotechnology, his focus on the future and his love of Amgen all came through. We can't overstate his contribution to Amgen. What you read in the newspaper was accurate, but incomplete. His contribution centrality and enduring influence on us are everywhere. And his science base, his desire to make big bets on big products that can move the needle, his team leadership, his energy will always be part of us. In fact, today, Bob and I went out in front of the George Rathmann Laboratory where his statue stands and took some pictures. We'll miss George, but he'll always be here. Now I'd like to talk to my Amgen colleagues. As I do on each one of these calls, I want to thank you for delivering yet another excellent quarter. The results in revenue, net income, pipeline progress, business development and operations are all strong, thanks to your efforts. And I'd also like to say it's been a privilege to be your colleague and, for a while, to have a leadership role in this great enterprise. I'm deeply grateful for the opportunity and the experience. And to our colleagues who write about us, thank you for your interest, your effort, your perspective and your objectivity. While I did not always agree with all you said, I always respected you and you collectively have made us better. Thank you. And finally to our shareholders, we've always known who owned the company and who we worked for and who we're ultimately responsible to. We always try to listen, be transparent and fully trustworthy while delivering on our promises. Especially for those of you who have been with us for the long haul, we deeply appreciate your guidance, support and encouragement and sometimes patience. I've always felt we were partners. The company today is strong, capable and well positioned with a new team and leader who will lead us forward with the same sense of purpose, shared values, aspiration and effectiveness that have since George Rathmann's day characterized us and distinguished us. In Bob, you'll have a superb human being and dedicated leader. I leave Amgen in a good place and good hands. Thank you, and my best to you all. Bob, it's all yours. Well, in 29 days it will be, but you can take the call.

All right. Thank you, Kevin. And as you've seen from our first quarter, the company is in a very strong position. And as this is Kevin's last full quarter as CEO, I want to take a moment to thank and congratulate him on his success here at Amgen. We've grown significantly under Kevin's leadership, and I look forward to building on this as Amgen's next CEO. Our transition is proceeding smoothly with the new team in place. And in that context, I'm delighted to welcome Sean Harper to this call as the Head of Research and Development. You'll hear from him after Jon and Tony have delivered their remarks on the quarter. The 4 of us and the other members of the senior leadership team are squarely focused on delivering growth, and we look forward to engaging with you as we progress on this path. In terms of our results, the first quarter is an indication that 2012 is off to a strong start with record performance for both revenues and adjusted earnings per share. Product sales growth was driven by broad momentum in our portfolio. Our Neulasta, NEUPOGEN and Enbrel franchises showed solid gains in Q1. Prolia and XGEVA continued their strong growth, and our other growth phase products grew more than 20% year-over-year. Declines in our ESA business, which is now a much smaller proportion of our overall sales compared to 5 years ago, were more than offset by revenue gains of newer products. With respect to our pipeline, we're making good progress. I'm sure many of you saw the data that were presented at the American College of Cardiology meeting last month for our PCSK9 inhibitor, AMG 145, as well as the results of our Phase II psoriasis study that were published recently in the New England Journal of Medicine for AMG 827, our IL-17 receptor antibody. We also announced, along with our partners at UCB, the Phase III enrollment has begun for AMG 785, an anabolic agent for the treatment of postmenopausal osteoporosis. We're excited about the potential of these programs, and Sean will have more to say on them and other developments in R&D in a few minutes. With respect to transaction activity, following on our earlier acquisition of Micromet, we have remained busy. Our multiproduct partnership with AstraZeneca leverages their strong experience in inflammation and enables us to focus decisively on other attractive opportunities in our pipeline. Our planned acquisition of KAI Pharmaceuticals will enable us to expand our expertise in therapies for chronic kidney disease and particularly patients suffering from secondary hyperparathyroidism. Before I turn over to Jon to review our Q1 results, I'd like to conclude with 2 closing thoughts. First, I recognize that many of our staff are listening in, and I'd like to express my appreciation to them for their commitment to delivering for patients and for our shareholders. And second for the investment community, as I embark on my new role, I want to underscore my commitment to maintaining an open dialogue with all of you. And with that, let me turn over to Jon to review the first quarter results.

Thanks, Bob. So as you will have seen, the headline on the quarter is that we grew revenues by 9% and adjusted EPS by 20%. Product sales grew by 8% compared to 2011, reflecting broad strength across the portfolio. Neulasta, Enbrel, Sensipar, Vectibix and Nplate continued the momentum that we saw in the fourth quarter of last year. And XGEVA and Prolia also delivered combined sales of $241 million compared to $69 million a year ago. The overall growth of 8% was despite the 14% decline in our ESA franchise, and Tony will give more color on our product sales in a few minutes. Other revenues increased by $59 million versus a year ago. This was primarily due to a $50 million payment received from AstraZeneca on signing our inflammation partnership, as well as the $22 million milestone from Astellas on the approval in Japan of AMG 223, a phosphate binder for patients on dialysis with chronic kidney disease. Turning to operating expenses, these were 9% higher compared to 2011, in line with revenue growth. Now within this, cost of sales were up 23% and that reflected higher Puerto Rico excise taxes, and to a lesser extent, an inventory write-off taken on product held for a third party. Since the Puerto Rico tax initially passes through inventory and it was introduced in January of last year, the charge was much lower in the first quarter of 2011. And if we exclude Puerto Rico taxes, cost of sales were 15% of product sales in the quarter. On the other expense lines, one point that I should note is that our R&D expenses in the second half of this year will be affected by the Phase III trial that we expect to start and that Sean will talk about later. Adjusted earnings per share grew by 20%, building on the operating income growth of 10%. This reflects a 15% lower share count, partially offset by higher interest expense. Our tax rate was also one point lower than a year ago. Turning to the balance sheet on Page 2. We held cash of $19.4 billion and debt of $21.5 billion at the end of March. Uses of cash in the quarter were primarily for our acquisition of Micromet, share repurchases and our quarterly dividend. Our debt portfolio has a weighted average maturity of 13.5 years and a weighted-average coupon pretax of 3.7%. Our shareholders' equity was 24% lower at $18.8 billion, reflecting the capital that we return to shareholders, which is also improving our return on equity. Free cash flow was down by $100 million versus 2011. This was driven by U.S. tax payment in the quarter and an increase in capital expenditures consistent with our guidance for the year. We continue to buy back shares in the quarter, and by the end of March, we purchased 21 million shares with an average price of $67.92. At the end of the quarter, we have $3.6 billion remaining on our $10 billion share repurchase authorization, and we plan to continue buying shares in the open market in the balance of the year. Finally, we paid a dividend of $0.36 a share on the quarter, a 29% increase over the quarterly dividend paid in 2011. So overall, we're well on track towards the guidance that we provided in January. In summary, we expect to deliver revenues of $16.1 billion to $16.5 billion, adjusted EPS of $5.90 to $6.15 and an adjusted tax rate of between 14% and 15%. So let me hand over now to Tony for a more detailed look at our commercial performance. Tony?

Thank you, Jon. On Slide 8, you'll find a summary of our global sales performance. We are indeed off to a solid start for 2012. We continue to drive strong performance in our largest core franchises and we made an excellent progress on some of our newer franchises. Let me walk you through our product portfolio beginning with Neulasta NEUPOGEN. The 9% growth in our worldwide franchise was driven by both price and unit growth. I'd note that Neulasta represents about 80% of the franchise. Although price contributed about half of the 15% growth in Neulasta in the U.S., we also had very good unit growth as we maintain our emphasis on first and every cycle treatment as the best way to reduce the risk of febrile neutropenia in appropriate patients. We saw good unit growth in Neulasta in Europe and experienced a slight increase in our market share compared to the fourth quarter of 2011. NEUPOGEN, on the other hand, lost some share to biosimilars as well as conversion to Neulasta. Turning to Enbrel. We are focusing on both the short-term and the long-term opportunity of this important product. We continue to hold market leadership positions in both rheumatology and dermatology, and we are committed to investing the product over the long term. During the first quarter, we ensure that insurance reverifications were executed more efficiently. This is reflected in our results. We've also been very pleased with the results we've seen from our TV campaign featuring Phil Mickelson. In particular, over the course of the last year, we are increasing bio-naive share, especially in the rheumatology segment. Bio-naive share is the share of patients that are new to biologics. And in the case of rheumatology, our bio-naïve share during 2011 has been well above our overall share. We believe this is a strong leading indicator for the product and bodes well for long-term performance of Enbrel. Given the upcoming expiration of the Enbrel co-promotion relationship in late 2013, both Amgen and Pfizer have agreed to consolidate all U.S. field sales activities under Amgen effective July 23, 2012. The unified Amgen sales force will cover both rheumatology and dermatology. The consolidation of all field sales activities under Amgen, as well as the small expansion of the sales force do not change the terms of the co-promotion agreement, and both Amgen and Pfizer will continue to share the agreed upon sales and marketing expenses. Aranesp sales declined by 4% on a quarter-over-quarter basis, driven by a drop in unit demand. As we mentioned last quarter, we expect stabilization in practice patterns by the middle of this year. During the latter part of the quarter, we have already seen unit demand steadying in the U.S. Internationally, Aranesp sales were flat quarter-over-quarter as price decreases were offset by the favorable impact of foreign exchange. With regards to EPOGEN, this is a business in transition and predicting usage over the past 18 months has proved difficult. Volatility in this business had been attributable to bundling, revisions to the label, reinvestment changes and dose reductions from new treatment protocols in reaction to these changes. We also saw volatility in buying patterns driven by our new contracts with DaVita and Fresenius. In quarter 4, these factors contributed in a drop in average hemoglobin level from 11.2 to 10.9. As there's a lag of several months in the availability of our hemoglobin data, we don't have data for Q1 yet. But we believe that the hemoglobin levels might have dropped slightly again. We do believe, however, that any further significant declines in hemoglobin levels would meaningfully increase the need for patient transfusion. We now also have new competition with the launch of peginesatide. We take all competitive launches very seriously, but we are confident in our ability to compete in the marketplace. I would note that we have a 7-year exclusive contract with DaVita and a multiyear nonexclusive contract with Fresenius. These 2 providers represent nearly 70% of our EPOGEN business. Taking all these factors into account, we've come up with a range of EPOGEN outcomes that are reflected within our guidance, and we are confident that we will deliver results in line with those guidance. Our growth rate products, Sensipar, Vectibix and Nplate each had record quarters, and our solid strategy and execution delivered 22% year-over-year growth, driven by double-digit demand increases for each of these 3 products. Turning to our global launches of dmab, both Prolia and XGEVA continuing to grow. XGEVA growth continues to be driven by share gains and overall SRE segment growth. Unit demand growth in the U.S. was 20% for the fourth quarter. On the international front, XGEVA is progressing very well in countries in which we have launched, Germany, Australia and a few smaller markets. In these countries, our uptake has been stronger than the initial uptake of Zometa. And in both Germany and Australia, we have already achieved double-digit percentage unit share. We expect launches in key Southern European market later in 2012 to contribute significant growth. Payers and physicians continue to recognize the unambiguous benefits that XGEVA delivers. Prolia growth continued in the first quarter as the team worked to ensure appropriate patient access in the U.S. as insurance plans reset. We're encouraged with the demand trends exiting the quarter. We're also seeing an expansion in the breadth of prescribing with more than 1,100 new prescribers during the month of March. During the first quarter, we also launched our new TV campaign featuring Blythe Danner. This campaign is designed to educate PMO patients about Prolia and initiate the dialogue between them and their physicians. Reports from our field service team indicate it's making an impact, and we know the number of patients visiting our Prolia website has increased sixfold. Internationally, Prolia is now reimbursed in 28 countries in Europe and Australia. In Germany, for example, Prolia's value share is nearly 10%. Our uptake is strong in the markets where we have reimbursement, and we hope to launch in additional markets including France later this year. Turning now to international business. We continue to make progress in expanding our geographic footprint and despite economic pressures in biosimilar competition, we continue to see unit growth and pricing in line with recent experience and our expectations. For the U.S., I note that our product portfolio ended the quarter with wholesale inventory in the normal range. In sum, I'm very pleased with the strong start to this year as we both maintain and build momentum. I'm confident about our abilities to succeed in an increasingly competitive marketplace. I'd now like to turn the call to my colleague, Dr. Sean Harper, welcome him to the call, and I look forward to partnering with him as we build Amgen to even greater heights. Sean?

Thanks, Tony. Good afternoon. I'm obviously extremely pleased to be here to represent Amgen R&D, and I'm looking forward to spending more time with all of you talking about our many opportunities to enhance and extend the lives of patients with serious unmet medical needs. Our late stage clinical programs are all advancing very well, and we're looking forward to seeing results with several key data sets this year. These include results from our large Phase II program with AMG 145, our monoclonal antibody inhibitor or PCSK9, in patients with hypercholesterolemia. We recently presented our Phase I data at the American College of Cardiology meetings where there was great interest in this access due to the large number of patients in clinical practice that cannot reach their LDL cholesterol goals despite currently available therapies. We have completed enrollment of approximately 1,300 patients in our studies exploring the efficacy of AMG 145 as monotherapy or in combination with statin in statin-intolerant patients and in patients with heterozygous familial hypercholesterolemia. These studies will provide the richness of data necessary to optimally determine dose, schedule and other factors for Phase III. We've initiated Phase III enrollment with AMG 785, our monoclonal antibody directed against sclerotin in our program designed to reduce fracture risk in women with postmenopausal osteoporosis with our partners at UCB. And this year, we'll see Phase II results of studies with AMG 785 in patients with fractures that tend to be difficult to heal. We also expect to see midyear the results of the EVOLVE study, our Phase III cardiovascular outcome study of Cinacalcet in the treatment of dialysis patients with secondary hyperparathyroidism. So I'd like to provide a little background. As Slide 12 illustrates, Sensipar/Mimpara has been adopted in this setting based on the ability to manage key biochemical parameters, including calcium, phosphorus and parathyroid hormone levels. However, it is widely hypothesized the control of this biochemical abnormality should reduce inappropriate calcification of soft tissues, and perhaps by reducing arterial stiffness, reduce the high rate of cardiovascular events seen in this population. Slide 13 is a high-level schematic of the study. Approximately 3,800 patients were randomized with a standard of care versus standard of care plus Cinacalcet. There's a composite cardiovascular primary endpoint. This important study will test the hypothesis that the value of Cinacalcet may extend beyond currently established benefits to reduce cardiovascular events in these high-risk patients. By the way, this kind of study designed to demonstrate the value of our medicines at the level of critical patient outcome is absolutely the right thing to do. Even in the absence of benefits regarding cardiovascular risk, we anticipate that the established benefits of Cinacalcet will be reaffirmed. We expect to have the complete analysis of the primary endpoint, as well as overall survival from our Phase III study of T-Vec in patients with metastatic melanoma in 2013. I'd like to clarify here that we will perform an internal prespecified interim analysis of the primary endpoint of durable response by this year's end, however, we do not plan to share these data externally in the context of an ongoing Phase III study, but rather at study completion in 2013. Our Phase II data from AMG 827, our monoclonal antibody inhibitor of the IL-17 receptor, now known as brodalumab, in moderate to severe psoriasis was recently published in New England Journal and has created a lot of excitement in the field due to the level of clearing of affected skin. We expect to initiate Phase III enrollment in this program with our colleagues at AstraZeneca, MedImmune in the near future. We're working together as well on the entire set of inflammation assets included in our recently announced partnership. This arrangement allows us to redirect significant resources into some of our other innovative development program. Given our wealth of pipeline opportunities, you can expect to continue to see us be decisive about pipeline management and to seek to optimize a return of our R&D investment. As you know, we recently announced our plans to acquire KAI Pharmaceuticals, a privately held biotechnology company. KAI's lead program is in calcium medication, KAI-4169, for the treatment of secondary hyperparathyroidism that can be intravenously administered during standard 3x a week hemodialysis regimen. While there are currently several approved therapies for the treatment of SHPT, significant unmet medical need remains. Our takeaway from ongoing discussions with nephrologists is that an IV therapy administered coincident with dialysis would provide an opportunity for health care providers to be assured that the patient receive the drug as intended. Phase II data for KAI-4169 have been very promising and KAI are planning an efficient Phase III program based on biochemical endpoints. Our integration of Micromet is proceeding very smoothly, and the more we learn about the science and technology the more excited we are about the potential of this acquisition. We're currently engaged in moving the lead molecule, blinatumomab, ahead as rapidly as possible in relapsed/refractory acute lymphoblastic leukemia, as well as in populations of patients with non-Hodgkin's lymphomas. Bob?

Okay. Thank you, Sean. Now, Arvind, let's open it up for Q&A. And if you could just remind those who dial in of our customary procedures, we'll get started with Q&A.

Yes. Marvin, let's go ahead and open it up for Q&A, and if you can just review the procedure.

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

A question on the EPO [EPOGEN] franchise in the business. Obviously, you're talking about increased risk of transfusions as dose goes down. Are you tracking data? Do you have external or internal data, and what are you tracking and what can you do with this data?

Okay. Tony, why don't you field that question?

So we have anecdotal data to date about potential transfusion increase. Some of the related data showed about a 20% increase. We're waiting to see more finite and definitive studies to be able to discuss this further, but we haven't seen more at this stage.

Our next question comes from the line of Chris Raymond with Robert W. Baird. Matthew C. McAviney - Robert W. Baird & Co. Incorporated, Research Division: This is actually Matt in for Chris. Just had a question on the EPS for Q1. I was just looking -- if you annualize the quarterly run rate, it seems to be a bit higher than your guidance, so I was just wondering if you could give me a little color on what to expect on that.

Yes. So first comment is overall that we're well on track towards the guidance that we provided in January. And obviously, we'll keep this guidance under review as we go through the year. But a couple of comments on Q1. One is, there were a couple of onetime events in our other revenue line that I mentioned earlier on. And also as Sean referenced, we'll have some Phase III trials getting started in the back end of the year. So overall, we're well on track and we'll keep it under review as we move into the second quarter.

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

I guess my question is more of a general and perhaps for Bob. Bob, there's been a little bit of investor speculation, I don't think you ever confirmed or denied, by Amgen that once you take the helm, you may entertain some -- you may look -- you may reevaluate the business and perhaps cut costs basically or change the way Amgen thinks about cost, what the right operating margin is, what the right R&D margin is, et cetera. I was just wondering in general, I know you're not going to give long-term guidance but just in general, is there something that investors should be thinking about? Or is this something that at this point you'd be discouraging us from considering and rather you'd just kind of stay the course for now?

With respect to my focus, Mark, clearly, it will be on growth and in particular on driving growth through innovation, whether that innovation is the product of our own research and development as in the case of PCSK9 or as in the case of sclerostin or whether that growth is from business development activity like that which we announced for Micromet or like that which we announced with KAI. So we'll be looking to drive the business by bringing forward innovative medicines that make a difference for patients that are seriously ill. And in addition, be looking to grow the business internationally. Now we'll be seeking to do that while earning an attractive return on our invested capital. We recognize the importance of being able to do that for our shareholders, and I think that will require us to continue our focus on productivity, and we look forward to doing that across the business. And Mark, more generally, obviously, I look forward with the new team to have an opportunity to engage with you and all of our shareholders at the appropriate time to talk about what we're going to do in order to achieve those objectives that we have for growth of the company.

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

Enbrel has obviously held up really well here as has Humira. So it doesn't seem like it's a 0 sum game here in the inflamed market. Can you tell us what you're seeing in terms of sustained market growth, pricing power and any other aspect you think is driving the performance and whether or not those are sustainable? And then related, Tony, as we look to the [indiscernible] system panel here in a couple of weeks, how do you think about the various commercial scenarios that can play out? How do you think about positioning yourselves with a potential oral medication entering the market?

Okay. There are a couple of questions there, Tony, but why don't you go ahead and try to take both of those questions.

Okay. So Enbrel has been on the market now for about 14 years and we have seen continued sustained gentle growth in the number of patients getting access to these products. As we've seen, the new entries come in, so the education has increased. And we've seen some expansion in the actual number of patients. We've clearly have priced these products in line with the therapeutic value they bring to patients who are living much more extended and healthy lives. And I think if you look at the growth of our product, it's clearly around driving the new bio-naive patients. So physicians and patients themselves have seen the need to move to Enbrel first. And when you look at some of the DTC data that about 70% of the time that patients ask for drug, they get a drug. You can see why it's so important for us to have the right DTC campaign going to educate our patients properly. To your last question about the new competitors coming, given the efficacy and safety of currently available treatment options, long-term safety is going to be a key for any new agent coming to market. So until we see what the safety is like of this new agent, if I'd just remind you again that Enbrel has 14 years of a really good experience with safety as well as efficacy from a durable basis.

Maybe one thing just quickly to add on Enbrel. I know you're familiar with it Matt, but perhaps some of those who follow us and don't know the company as well. Of course, we look forward to ongoing intellectual property protection for Enbrel. Enbrel is a franchise that we've enjoyed successfully for the past 14 years, and we're looking forward to a number of more years of Enbrel as the market leader in this category.

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

I wanted to ask a little bit more about the deal that you signed with AstraZeneca. I guess with 827, it showed really impressive psoriasis results and arguably it could be Amgen's one of more interesting late stage products. So I guess I'm just trying to understand why you would give away half the profits for the R&D benefits you're going to see short term? And just maybe when we think about this deal, should we think about other similar types of deals that you kind of hinted at that in your prepared remarks?

Yes. I think the big picture, Rachel, is that we're looking to optimize our portfolio. This is a multiproduct deals, so it's more than just a deal around 827, and Sean can talk to you about the specifics of your question behind 827. But generally, as we have opportunities to advance exciting biology like some of the molecules included in this partnership, we'll look for opportunities to do that decisively. And where we can reprioritize in our pipeline, we'll also look for places to do that. So Sean, feel free to comment about 827 or any of the other molecules in the partnership.

Yes, I think these are all very interesting assets. I think we found this to be a particularly attractive win-win sort of a relationship with AZ MedImmune to be able to get the ability to redirect some resources and do things that we were -- we found particularly compelling within our own innovation space. And this, obviously, worked very well for AZ, MedImmune as well. So I think this particular deal is kind of reflective of the way in which we're trying to optimize the overall return on investment for the money that we invest in R&D.

As we said in our prepared remarks, the partner that we chose obviously has expertise in inflammation, in particular in asthma and GI. And so the portfolio of products that we're seeking to develop are ones that we think our skills are complementary with each other.

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

I guess, this is maybe best directed to Jonathan. We're accustomed to seeing Q1 as the weakest product sales quarter for Amgen. Any reason that won't be the case again this year? And then given the strong start to the year and the shrinking share count, can you help us understand a little bit more of the targets for SG&A and R&D in 2012? Any guidance there?

No. And I think I'd just reiterate, but I think we're off to a good start to the year. If we exclude ESA, the trajectory in Q4 and the rest of the portfolio was 13% growth year-on-year. In Q1, it was 17%, so we're seeing some good momentum. And Tony has given you some sort of -- some of the detail around what's driving that momentum. So I think, yes, this quarter is a strong one relative to Q1. It's normally one of the lighter quarters in the year, so that makes us feel good about the year ahead. And then on the cost structure, I think you can -- we've talked about cost of sales, there's a Puerto Rico impact, so the underlying cost is 15%. That was also a onetimer in terms of an inventory write-off. And then on R&D, I think there we've talked about the impact later in the year from the Phase III trials. And SG&A, we've been investing this quarter in SG&A in the DTC programs, both around Prolia and around Enbrel. We've continued to invest commercially in rolling out the business internationally. And as you probably saw in our press release, we had some benefit from an adjustment to the federal health care reform fee during the quarter. But overall, I feel we talked about keeping our costs in line with revenue growth over the year, and so far so good on that. And overall, we're well on track.

Tony, maybe you'd like to add a couple of thoughts, particularly about the trends in the first quarter sales.

I would say when you look at the first quarter sales, there are a couple of things that one should actually keep in mind. Number one, we exited 2011 with a pretty good trend rate, which was as a result of the good marketing plans and the DTC programs that were in place, so there's a clear extrapolation of the good trend line running. Number two, a continued digging down into deep customer insight which has allowed us to really understand where to move the needle in terms of prescribers. And third but not last was a better and clear understanding of the need to effectively move through the reverification of insurance very quickly late in the fourth quarter into the first quarter, which resulted in a much lower slowdown of seasonality of our business as we go forward. So I think it's a combination of strategic execution, customer insight and really understanding the access environment a bit better now.

[Operator Instructions]

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

I actually had a question on XGEVA. I just wanted to understand your comfort level with the guidance that you've given earlier on being $3 billion to $4 billion denosumab franchise and if you feel still comfortable with that looking at how Prolia and XGEVA are tracking.

Yes, let me -- it's Bob. I'll take the first part of that and then ask Tony to share his thoughts. Sapna, we're pleased with the progress that we're making generally with denosumab and more broadly pleased with the progress we're making towards the guidelines that we gave you last April. But rather than jump into specific guidance questions, maybe Tony you can give Sapna some perspectives on what you see with XGEVA here still on the early days of the launch.

So let me talk to you about both these dmab products, and first of all, as I spend time with the oncology community, it's clear to me that the oncologists see XGEVA as a very important and differentiated product. And when I look at the actual growth, the growth is coming from both the growth of the SRE market of about 34% and XGEVA itself growing at about -- and owning about 47% of the market. So our growth of both the product and the market continues to deliver on our expectations. And all the feedback we've got from our physicians has been on track. As you know, we are in infancy in terms of our execution and launch in the international markets where we expect to see that happening later in 2012. Prolia continues to show dramatic growth in both the breadth of prescribers, as well as the depth of prescribers. And the new advertising campaign continues to deliver there. So as we continue, we're confident about the programs executing in the marketplace and confident about our ability to drive share and usage in the marketplace.

Our next question comes from the line of Geoff Meacham with JPMorgan. Geoffrey C. Meacham - JP Morgan Chase & Co, Research Division: Got one for Sean or Tony. So with the EVOLVE study and the KAI Pharma deal, you guys are investing pretty heavily in the renal space. And so 2 questions, one, should we continue to expect further investments in this space, either through deal wise or through internal? And then second, how big of an opportunity do you really see from the EVOLVE results, either in dollars or in patient numbers?

It sounds to me like there's a question in there for Tony. So Tony, why don't you respond?

So we've obviously established on the last 20 years a very strong business in this particular therapeutic area. So we will continue to maintain our business as best we can and continue to look for opportunities to drive the franchise in this particular area. As regards EVOLVE, I think any product that shows cardiovascular endpoint improvement would be a dramatic opportunity for anyone in the marketplace.

I'd just add, recall that there really have not been any product classes which convincingly have that effect in this population. For example, statins have never been able to show this kind of effect almost uniquely. They don't show it in this population. So it's a very high bar. If one were to actually get over that bar, it would certainly drive some interest in further utilization population.

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

So it's a question for Bob. Just to help us understand a little bit, how do you look at the international opportunity for Amgen? And kind of as you look at the strategy going forward, is there any specific market that you still are seeing an opportunity to bolster your presence or you're pretty comfortable with where you are so far?

International expansion is an important opportunity for growth for us. We've outlined our objective to be in 75 countries by 2015. We're in some 54 to 56 countries now. We have found that there is demand in those countries, as well as in the ones that we're seeking to enter prospectively for our innovative biologic medicines, and we're looking for attractive ways to enter this market. You noticed or you saw what we did last year in Brazil with the acquisition of Bergamo. We're pleased with the results there, pleased with the progress that we've made in launching our own proprietary medicines following the acquisition of that entity. So that's the type of deal that we think makes sense. Not surprisingly, when we look at the emerging markets that we've yet to establish a big presence in, they include the BRICS, with the S being South Korea, and then we include Turkey and Mexico as 2 that we think are important for us to have a presence in before we get to 2015. So Brazil, Russia, India, China, South Korea, Turkey, Mexico are key markets for us. In addition, unusually for a company of our size and scale, we don't have our own direct operating presence in Japan. We've had some very successful partnerships there through time. We have 3 partnerships there today, and we have some innovative medicines that we have not yet committed to any of those partnerships. And we're looking for the sensible ways for us to enter that market. We ran the experiment of trying to build the business organically in the past. We think there are some better ways to do that through creative partnerships. And the one that we struck with Takeda is an example, but we'll be looking for ways to develop our business in Japan over time as well. So again, international expansion and the delivery of innovative medicines in those markets is an important part of what we're going to try to achieve here over the next several years.

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

I was wondering if you could just provide maybe a little bit more clarity around ESA weakness this quarter. When do you expect ESA to stabilize? It looked like they're continuing to fall pretty rapidly. And did the EPO launch trigger any changes that might have contributed to the weakness?

Tony, why don't you share your thoughts?

So as I've said in my prepared remarks, the EPOGEN business is left out in transition and it's been difficult to predict. But we do believe that any dramatic further decline in the hemoglobin levels will result in increased transfusions. I think we'll continue to be impacted adversely by label and reimbursement changes and, of course, peginesatide launches today, so we should continue to see some volatility. But I would mention that we are cautious of new competition, but ready to compete in the marketplace as the new products come in. I think we have confident about the established track record of EPOGEN and believe its dosing frequency is well suited to the dialysis setting. In addition, EPOGEN has established a safety profile, developed over more than 20 years of experience and 1.8 million patients. I'd remind you again that we have long-term contracts, an exclusive one with DaVita for 7 years and a nonexclusive contract with FMC. And these 2 providers account for 70% of our EPOGEN business.

Our next question comes from the line of Eun Yang with Jefferies. Eun K. Yang - Jefferies & Company, Inc., Research Division: I want to ask you a question again on EVOLVE studies. So it seems to me the focus is really the [indiscernible] improvement that we are looking at. So my understanding is this study is designed to show -- how to show 20% improvement in all cardio mortality and cardio morbidity. So the question is, what level of -- more a quantified way and what level of market penetration do you expect to achieve, if Sensipar shows 20% improvement in the study from current about 25% penetration in dialysis patient?

Okay, there's quite a few questions in there. I think you're asking us to speculate on what reaction will be if we are able to generate statistically significant improvements in the large Phase III clinical trial. Tony, I think you touched on it earlier, but why don't you just repeat our view of what the opportunity is to demonstrate cardiovascular mortality and morbidity improvement in this setting?

So Sensipar itself continues to deliver value to patients, but the market share we hold was not totally saturated. So there's already existing potential to grow the market with the existing patient population. But I would believe that, that should we be able to show some type of cardiovascular outcome benefit, there would be an increased demand for the product demand in the marketplace, yes.

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

So question on Neulasta, another product that's been doing from a unit growth perspective. Could you update us on where first in every cycle penetration is right now, kind of how quickly are gaining share there? And are there particular parts of the market that are underpenetrated, either patients, physicians, payer segments, just so we can comfort around the sustainability of that unit growth?

So the last data I saw was the average chemo cycle in the U.S. runs to about 7 cycles. And then our data is showing that we're getting Neulasta use in about 4.3 of those. So there continues to be a fairly large potential growth opportunity as we go forward. As you look through usage versus non-usage, it's a bit like looking at compliance. There's no real demographic reason for usage, non-usage. It's spread across the entire population. We have physicians using, some are not using it in the first cycle, going onto second cycle, not taking all cycles. So we continue to focus down customer-by-customer trying to understand prescribing behavior, prescribing practice and then focus the education and message clearly around the behavior we're seeing in the marketplace to try and make sure that patients are given this product when they have threat of febrile neutropenia in the first cycle and all the cycles as much as possible.

And the other big picture thing to remember here, Marshall, is there are still tens of thousands of patients admitted to hospital every year in the U.S. with febrile neutropenia, and some 1 in 9 of those patients die in the hospital of complications, including the complication of febrile neutropenia. So this is -- continues to be an area of high-end unmet medical need. And in fact, the Center for Disease Control has made this a focus of their communication effort with patients and caregivers to help them understand the importance of trying to prevent infections for patients who are undergoing chemotherapy. So this is an important disease state and one that we're continuing to try to do everything we can to serve patients.

Our next question comes from the line of Revi Mehrotra with Crédit Suisse. Ravi Mehrotra - Crédit Suisse AG, Research Division: Relates to the FMC and DaVita deals that you mentioned before. I think you'd highlighted that there are some discounts and rebates involved in those deals. Could you give us any granularity on those discounts and rebates?

We're not going to talk about the specifics in the contract. What we've said and what I think is in the public filings of the 2 large dialysis operators is that the discounts are less than what was in place previously. But we're not going to get into the specific details of the contracts at this point.

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

Just a simple R&D question. Sean, you mentioned an interim look for T-Vec at year end. Question is, is that a futility analysis? And if not, why was it designated as a prespecified interim work?

It's a good question. It is not specifically designed as a futility analysis. And it was just written into the protocol, which is under SPA with FDA as an interim. It doesn't have a purpose specified to it actually in the protocol. I think that the view perhaps was that the data would be informative. Remember, this is an open label trial, and so it's possible in theory to look at the data on a kind of continuous basis. So in many cases, when that condition exists and you want to kind of control the amount of time that people are actually looking at the data, you actually set an interim analysis in place in order to have some kind of control over the study.

Our next question comes from the line of Geoff Porges with Bernstein.

It's Aleks here for Geoff. Just have a few question on the rest of the pipeline, the oncology business, the solid tumors. You guys didn't talk much about the pancreatic cancer drug, the ovarian cancer drug. Is there any update there? What's your view on their potential, anything we should be expecting?

Again, a good question. I suppose as these projects move through their life cycles, there are times where there's sort of no news as good news. I think right now they're kind of no news as good news. Those programs, AMG 386 in ovarian cancer, AMG 479 in pancreatic cancer are actually progressing either on or ahead of schedule. But we're in a stage right now where you're really enrolling patients, accruing endpoints. No data available yet. So that's why they didn't kind of call them out. But they're moving along very nicely. We continue to be optimistic about both programs.

Our last question comes from the line of John Sonnier with William Blair. John S. Sonnier - William Blair & Company L.L.C., Research Division: So my question is on blinatumomab. Just wondering what we should expect this year in the way of visibility? At Micromet, we are hoping for some insight into durability or retreatment data from the ongoing Phase II.

Yes, I think that there are plans to have additional data available at appropriate scientific meetings this year from those type of studies, and so I hope we'd be able to continue with that. So to my knowledge, we're planning essentially the same schedule of presentation and data from the studies that Micromet had planned before the acquisition.

Excellent. Thank you, Sean. Bob, do you want to make any some closing comments?

Once again, thanks for your attention and your interest in Amgen. We're pleased with the results from the first quarter, and Arvind and his team will be here if there are any questions that you didn't get a chance to ask during the conference call. So again, thanks very much for your interest. Thank you, everybody.

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