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Amgen, Inc. (NASDAQ:AMGN)

Q2 2013 Earnings Call

Jul 30, 2013, 5:00 pm ET

Executives

Arvind Sood - Vice President of Investor Relations

Bob Bradway - Chairman of the Board, President, Chief Executive Officer

Jon Peacock - Chief Financial Officer, Executive Vice President

Sean Harper - Executive Vice President - Research and Development

Tony Hooper - Executive Vice President - Global Commercial Operations

Analysts

Robyn Karnauskas - Deutsche Bank

Chris Raymond - Robert W. Baird

Matthew Roden - UBS Securities

Ravi Mehrotra - Credit Suisse

Eric Schmidt - Cowen and Company

Rachel McMinn - Bank of America Merrill Lynch

Geoff Porges - Sanford Bernstein

Howard Liang - Leerink Swann

Geoff Meacham - JPMorgan

Michael Yee - RBC Capital

Mark Schoenebaum - ISI Group

Terence Flynn - Goldman Sachs

Eun Yang - Jefferies

Joel Sendek - Stifel

Tony Butler - Barclays

Operator

My name is Marvin, and I will be your conference facilitator today for Amgen's second quarter 2013 financial results conference call. All lines have been placed on mute to prevent any background noise. There will be a question-and-answer session at the conclusion of the last speaker's prepared remarks. In order to ensure that everyone has a chance to participate, we would like to request that you limit yourself to asking one question during the Q&A session. (Operator Instructions).

I would now like to introduce Arvind Sood, Vice President of Investor Relations. Mr. Sood, you may now begin.

Arvind Sood

Okay, thank you, Marvin. Good afternoon, everybody. I would like to welcome you to our second quarter conference call. I believe through our prepared comments today, you will consistently hear the message of the progress we are making on our full-year objectives as well as steps we are taking to deliver long-term value to shareholders. To discuss the quarterly performance and our full-year outlook, I am joined by several members of our leadership team.

Our Chairman and CEO, Bob Bradway will begin with a brief strategic overview. Our Chief Financial Officer, Jon Peacock, will then review our quarterly financial results and provide an update on our guidance for the year. Our Head of Global Commercial Operations, Tony Hooper, will discuss product performances and trends followed by Sean Harper, our Head of R&D, who will provide a brief pipeline update.

After Sean's comments we should have ample time for Q&A. We will use slides for our presentation today. These slides have been posted on our website and a link was sent to you separately by email. Our comments today will be governed by our Safe Harbor statement, which in summary says that through the course of our presentation and discussion today, we may make certain forward-looking statements and actual results may vary materially.

So with that, I would like to turn the call over to Bob.

Bob Bradway

Okay, thanks, Arvind. Good afternoon and thank you for joining our second quarter call. As you can see from our results through the first half of the year, we are carrying good momentum into the third and fourth quarters and are on track to deliver solid revenue and earnings growth for the year, as indicated by our increased guidance. Reflecting on our second quarter performance, I would highlight the growth of our two largest products, Enbrel and Neulasta, as well as the continued success we are experiencing in launching Prolia and XGEVA globally.

While we are on track to deliver for the year, we are making strong progress as well on our long-term growth objectives. Our strategy for growth starts with innovations. So let me talk first about our pipeline.

As you may recall, we expect eight of our pipeline programs to generate registration enabling data by 2016. We announced positive Phase 3 data from the first two of these, T-Vec in malignant melanoma and trebananib in ovarian cancer in the second quarter. Sean Harper will have more to say about each of these in a moment.

In the cardiovascular arena, our innovative PCSK9 program, AMG145, is advancing well and we announced today that we expect pivotal data for this program in the first quarter of 2014. This will obviously be a significant event for us and, we hope, for cardiovascular patients as well.

In June, we announced a couple of business development initiatives in the cardiovascular area that we are touching on here. Per subject to the customary regulatory clearances, we plan to acquire the U.S. commercial rights to a novel heard drug, ivabradine, developed by Servier and approved in the EU and a number of other market for chronic heart failure in stable angina. Sean will talk about our plans for filing this drug with the FDA in his remarks.

As part of this transaction, we will partner our heart failure molecule, omecamtiv mecarbil, in the EU Servier and then separately we would acquire rights to develop omecamtiv mecarbil in Japan. We see development and commercial benefits to working with Servier in heart failure area and expect that the benefits of engaging cardiologists in the U.S. ahead of any launch of AMG145 will be attractive as well.

With respect to our international expansion efforts, we announced important progress during the quarter. We are excited about our collaboration in Japan with Astellas through which we now have clear path forward for innovative medicines in the world's second largest market.

We expect our collaboration with Astellas to result in a wholly owned Amgen affiliate as early as 2020. Additionally, we have formed a joint venture in China with Zhejiang Beta Pharma to commercialize Vectibix, which we expect to be our first new product for China in the 2015 timeframe. These collaborations clearly augment our presence in these large and growing markets and allow us to bring our medicines directly to patients who can benefit from them.

I can imagine there maybe questions about our M&A strategy at the moment, so without talking about any specific opportunities, I would like to highlight that our acquisition strategy continues to focus on assets that we think offer attractive prospects for growth and return on capital, in areas where we can add value for our shareholders through our capabilities, infrastructure and experience.

Our strategy is aimed at targets that are additive to the progress that we are making operationally and with our own pipeline. As we look at opportunities, we will remain disciplined and committed to growing our dividend and maintaining our solid investment grade credit rating.

Before turning over to Jon to review our financial highlights, I would like to acknowledge the contributions of my Amgen colleagues who once again this quarter delivered for patients and shareholders. Jon?

Jon Peacock

Thanks, Bob. Overall growth in total revenues of 5% for the quarter was supported by solid product sales growth of 9%. This was driven, as Bob as mentioned by strong performance across the portfolio, including Enbrel and Neulasta, our largest products and continued progress with Prolia and XGEVA. It also included a positive adjustment of $185 million to previous estimates for managed Medicaid rebates on prior period sales and this was based on recent claims experience. These adjustments primarily affected filgrastim and ESA franchises. And, overall they had an impact on the EPS of around $0.16. Others revenues in the quarter were lower compared to 2012, reflecting the $200 million payment from Takeda that we recognized in the second quarter of last year.

Operating expenses were up 8%, driven by the increase in the Phase III clinical activity, particularly related to PCSK9 molecule AMG145. Now that our Phase III trials are up and running and progressing well, you should expect that R&D expenses in the remaining two quarters of the year will be broadly in line with the expenses that we have reported for the second quarter.

SG&A expenses were 3% higher, within this Enbrel profit share expenses were up 15% to $425 million. As you may recall, one of the Enbrel royalty comments expired during the first quarter resulting in a higher increase in Enbrel profits relative to the increase in sales compared to a year ago. Excluding the Enbrel profit share SG&A costs were slightly downs' a year ago. Also, sales margin excluding the Puerto Rico excise taxes were flat at 13.9% of product sales.

Other income and expenses were $145 million in the quarter. This is broadly representative of what you should expect for the remaining two quarters of the year. The tax rate on the quarter of 11.9% benefited from a different jurisdictional mix of cost and revenues and the 2013 federal R&D credit. Overall, adjusted earnings per share increased 3% to $1.89.

Turning to cash flow and the balance sheet on page 5, we generated free cash flow of $1.4 billion in the quarter. The higher cash flow of $2.2 billion that you will see on the page in Q2 of last year, was driven by two discrete items, specifically the termination of interest rate swap agreements and a one-time payment received in Spain to settle several older receivable balances last year. In addition to our quarterly dividend this quarter, year-to-date we have repurchased shares for a total cost of $800 million and at an average cost of $85 per share. We didn't repurchase additional shares during the second quarter.

At the end of the quarter, we held $22 billion in cash or liquid investments and $23.9 billion in debt. As Bob mentioned earlier, we remain committed to increasing our dividend meaningfully over time and through our solid investment grade ratings.

Turning to guidance for the full-year on page six. We now expect full-year revenue to be at the upper end of our guidance of $17.8 billion to $18.2 billion. We are raising our guidance on adjusted earnings per share to a range of $7.30 to $7.45. Within this, we now expect our tax rate for the full-year to be between 9% and 10%. Finally, our guidance on capital expenditures remains unchanged at approximately $700 million.

Let me hand over to Tony now, who will give you some more insights on product sales during the quarter.

Tony Hooper

Thanks, Jon. You will find a summary about global performance in quarter two on the slide number seven. As expected, we had a strong quarter two with product sales growing 9% year-over-year and 11% quarter-over-quarter. We remain focused on executing against our commercial strategy. Our underlying business excluding the impact of the Medicaid adjustments delivered 5% year-over-year growth and 6% quarter-over-quarter. We also saw sales growth from all our regions. The U.S. was up and the rest of the world was up 9% year-over-year, or 12% excluding foreign exchange.

I would like to review our Q2 performance for our portfolio, starting with Enbrel. Enbrel continues to be recognized by rheumatologists and dermatologists with its track record of efficacy, safety and long-term experience. We are committed to investing in Enbrel over the long-term. In quarter two, Enbrel sales grew 9% year-over-year primarily due to price. Quarter-over-quarter, we saw increased unit demand of 9%. Underlying market demand in both rheumatology and dermatology segments remains strong.

In rheumatology, Enbrel continues to hold share while in dermatology we saw a slight decrease in share due to increasing competitor activity. Our direct to consumer advertising continues to emphasis the benefits of using Enbrel. Enbrel consistently leads to total brand awareness in the rheumatology segment. Additionally, physicians continue to augment over 90% of Enbrel patient requests. With Enbrel we remain the value share leader in both rheumatology and dermatology segments and I am confident in its further growth potential.

Moving now to Neulasta and NEUPOGEN. As you know, Neulasta represents approximately 80% of this franchise. We continue to emphasize first and every cycle of treatment as the best way to reduce the risk of febrile neutropenia in appropriate patients. Year-over-year global sales of Neulasta increased by 10%. This was driven by price, wholesale inventory and the impact of Medicaid that Bob mentioned previously. Worldwide, unit demand was down 3% year-over-year but flat quarter-over-quarter. In the U.S., we actually saw penetration levels increase in quarter two. NEUPOGEN sales were down 2% year-over-year. Declines in unit demand in the U.S. and the rest of the world were positively offset by price and the impact of Medicaid adjustment.

EPOGEN was up 50% quarter-over-quarter due to increased unit demand as a result of the Peginesatide recall as well as the impact of Medicaid adjustment. We continue to work with the dialysis clinics to ensure uninterrupted supply with dialysis patients.

Aranesp global sales were up 12% quarter-over-quarter and were flat excluding the impact of Medicaid adjustment. In both, the U.S. and Europe, demand appears to be trending slightly down driven by dose reductions in the U.S. and continued pressure and tight steps and competition in Europe.

Sensipar sales increased 12% year-over-year due to increases in overall unit demand driven by strong penetration. Sensipar is an important product addressing a significant unmet medical need. We are confident that Sensipar will remain a growth driver for Amgen.

Nplate and Vectibix sales in aggregate were higher year-over-year. For Nplate, market demand continues to grow in both the U.S. And in Europe. For Vectibix, we saw unit demand increases in both, the U.S. and Europe. Over 50% of our sales were in Europe and we continue to pursue reimbursements with payors across Europe in both, first-line and second-line treatment of metastatic colorectal cancer consistent with our label

Denosumab delivered strong results in quarter two. For Prolia, we saw the seasonal uptick that we have come to expect in the second quarter, we expect the third quarter to emulate the seasonality seen last year too. We continued to grow our share in the U.S and in Europe. In the U.S., since launching the new direct-to-consumer campaign with Blythe Danner business to prolia.com are up more than five-fold. Average monthly patient requests have increased 25% and over 90% of Prolia patients requests are honored by prescribers. We are improving repeat injection rights in the U.S. and our latest data shows that 63% of patients returning for their second injection. In Europe, we have recently finalized reimbursement negotiations in France and will be launching soon.

XGEVA global sales grew 12% quarter-over-quarter. In the U.S, our value share grew by two percentage points in the quarter. We now hold 61% share in the segment. Outside the U.S., XGEVA grew 33% quarter-over-quarter driven by share gains. Recent launches in Europe continue their strong trajectory. In France, we already achieved 40% segment value share since launch in Q1. Our commercial focus is the superior clinical benefit of XGEVA for the benefit of patients.

Moving onto inventory, for the U.S., I would note that our portfolio ended the quarter with wholesale inventory within the normal range. Lastly, let me comment on our business outside of the U.S. We saw solid growth in Europe 6% excluding impact of foreign exchange driven by continued growth of both, Prolia and XGEVA. We are also pleased with the contributions of both, our MN and Bergamo acquisitions in Turkey and Brazil.

Additionally, let me take a moment to comment on our recently announced Servier partnership that Bob talked about, which is subject to normal regulatory approvals. To us this is an important step as we build and expand our cardiovascular capabilities and relationships for the future potential introductions of AMG145 and other cardiovascular drugs.

In summary, I am very pleased with both, the competitive strategies our team have developed and their focused execution against these strategies. Our underlying business delivered a strong quarter and I believe we are well positioned to achieve our full year revenue growth objectives.

Let me pass you now to Sean. Sean?

Sean Harper

Thanks, Tony. Good afternoon. It's been a quarter for the R&D organization. Our pipeline continues to march forward. We recently presented the results of our Phase III study at T-VEC in the setting of metastatic melanoma at ASCO. We have already engaged in discussion with regulators based on this data set, which demonstrated a clinically meaningful benefit in durable response and a strong trend in overall survival. Keeping in mind that the trigger for analysis is event-driven, our latest estimate for the primary overall survival analysis is now the first half of 2014.

Beyond monotherapy in melanoma, we remain very excited about the potential for pursuing T-VEC in other tumor types, in particular as a priming agent with other cancer immunotherapies such as PD-1 antagonist, an enthusiasm which is shared by other companies with whom we are building such collaborations. As you know in Q2, we released positive top line on the primary endpoint of progression-free survival from the Phase III study of Trebananib, our peptide antagonist of the angiopoietin axis in recurrence ovarian carcinoma. The final overall survival analysis, a secondary endpoint, is currently estimated to occur in the second half of 2014.

Turning to Vectibix, we are engaged in discussions with worldwide regulators on potential label changes based on recent studies and analysis in first and third-line metastatic colorectal cancer. XGEVA received an additional indication in giant cell tumor, which addresses a serious unmet need in this rare condition which affects pediatric and adult populations.

Data from a key study was recently published in Lancet Oncology. Data from Phase 2 studies from brodalumab in psoriatic arthritis resulted in a decision in our collaboration with AstraZeneca/ Medimmune to proceed into Phase III for this indication. In addition, within this collaboration AMG 139 a monoclonal antibody directed against IL-23, also known as MEDI2070 has entered Phase 2 for Crohn's disease.

We terminated our small molecule inhibitor, the GlyT1 transporter, AMG 747, which was in Phase 2 for schizophrenia due to unexpected severe skin reaction. As we announced last quarter, we have initiated our biosimilar Herceptin pivotal study. Due to a delay in the availability of biosimilar trastuzumab, manufactured by a contract organization, enrollment in this study is being suspended temporarily and will resume when continuous supply is ensured. We continue to expect to initiate launch of our biosimilars portfolio in 2017.

Turning to our cardiovascular disease therapeutic area. The AMG 145 Phase 3 program is proceeding nicely and we expect the LDL cholesterol data from our four Phase 3 studies as monotherapy in combination with statins in statin-intolerant patients and in patients with heterozygous familial hypercholesterolemia in the first quarter of next year.

I also want to comment on how pleased I am that we anticipate gaining rights in the United States for ivabradine, a novel ion channel antagonist through a partnership with Servier. We feel this partnership can bring unique value to heart failure in stable angina patients with elevated heart rate, despite treatment with available therapies. This will increase our engagement with the cardiovascular community an area of great focus for us.

Servier has generated an impressive of clinical outcomes data, including the recent outcome study in heart failure supporting registration in Europe and elsewhere. We look forward to working on U.S. registration with FDA.

Staying with cardiovascular programs, our phase 2 study of intravenous omecamtiv mecarbil in acute heart failure that we conducted in collaboration with Cytokinetics recently completed. These data will be presented at the European Society of Cardiology meeting in September.

Finally, just to share with you some thoughts on our earlier stage efforts. Around six months into it, we are finding our scientific integration with deCODE Genetics to be even more productive and tactful than we had hoped. We now have multiple cases in which advanced human genetic analysis have allowed us to establish programs against new novel disease targets as well as to prioritize the existing targets within our early and new stage pipeline.

As part of a future R&D review, I will look forward to elaborating with some examples. I am more confident than ever that the strategy of guiding our R&D efforts needed this advanced human genetics will meaningfully improve our productivity. Bob?

Bob Bradway

Clearly. Thank you, Sean, and now I will turn it over to Arvind and Marvin for the question-and-answer session.

Arvind Sood

Yes. Marvin, would you go ahead and review the procedure for asking question again?

Question-and-Answer Session

Operator

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

Robyn Karnauskas - Deutsche Bank

I will first start with the base business questions since that progressed nicely this quarter. Can you talk a little bit about the unit declines that you are seeing with Neulasta and is there any concern that that might be due to the upcoming NEUPOGEN similar product launch by Teva? Also on the XGEVA side, what kinds of trends are you seeing in the face of generics, if you don't take much share at all in this space? Thanks.

Tony Hooper

Okay, this is Tony. Let me respond to a couple of those. One, we have looked deeply into the Neulasta business, looked at the chemo regimens. We see nothing specific that's impacting the business at the moment. I think it would be too early to be looking at any type of impact of a competitor to NEUPOGEN. Just a reminder, any other products that come after, it will not be a biosimilar but it will be a separate BLA.

Turning to XGEVA. It looks like there are about seven generics now competing for the Zometa business. That has declined quite dramatically. XGEVA has maintained about 40% unit market share. There was a slight decline in new bio-naive patients in the first couple of months and that's due to pick back up again to where it was in the past. Okay?

Operator

Our next question comes from the line of Chris Raymond with Robert W. Baird.

Chris Raymond - Robert W. Baird

Just on this Medicaid accrual. I know you guys explained that you basically had some claims experience that drove the decision but could you maybe give a little bit more color? Specifically what was exogenous event or set of circumstances that led to taking it this quarter?

Jon Peacock

Chris, it's Jon. We have been keeping track of the claims we have been receiving against the reserves that we set up over the last two to three years for Medicaid patients being processed through the managed healthcare systems state-by-state across the U.S. We made a judgment that the claims that were coming in consistently over that period since we started the accrual were coming in somewhat lower than the reserves that we had set, and so it became clear that the net revenues were higher than we had estimated at the time we set up the reserves, so the adjustment we are making is really to recognize that there is net revenues based on the actual claims experience that we have seen over the last couple of years, the net revenues were higher than we had estimated when we set up those reserves, so we were at a point where with our auditors we felt it was appropriate to recognize that.

Operator

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

Matthew Roden - UBS Securities

Great. Thanks for taking the question. This is actually a non-Onyx question. It is an Amgen question, but it seems that you do have an appetite to do a sizable deal if it makes sense and I was just wondering if you could talk about your flexibility to finance a larger transaction like this. Can you talk maybe about how you view your own balance sheet in terms of what debt ratios you are comfortable with, your ability to access offshore cash, your appetite to include stock in a transaction? Again, this isn't necessarily with respect to current process, but in general just trying to understand your willingness and ability to go big if you feel that it's right thing to do? Thanks.

Tony Hooper

Matt, thanks for the question. Perhaps Jon and I can both take pieces of what you have asked. As I said in my remarks, our M&A strategy is very much focused on assets that we think offer attractive growth potential, assets that we think we can earn an attractive return on capital for our shareholders and we are very much focused on things that we think line up well with our capabilities, infrastructure and experience, so that's the focus.

With respect to the financial size, Matt, I think we have tried to be pretty consistent and clear that first we have a strong balance sheet, which is reflected in our solid investment grade rating and it's important to us to maintain that strong balance sheet and the investment grade rating that we have, so that's clearly something we look at and think about really carefully.

Our focus has been and is likely to continue to be [add] on transactions that we think we can finance with cash. And, to the extent that the acquisitions are on shore with the onshore cash, to the extent that we find opportunities internationally as we have from time-to-time been able to do, we use international cash for that purpose. Again, we are looking at transactions that we think enable us to grow that are additive to what we are otherwise doing with the business that enable us to maintain the strong balance sheet and continue our track record of growing the dividend for our shareholders.

Jon, I don't know whether you want to add any specific flavor on the debt ratings to Matt's question?

Jon Peacock

No. I would just reiterate that we are committed to continuing to increase the dividend meaningfully overtime. We said and have continued to say since 2011 over the five-year period to 2015 we are committed to returning on average more than 60% of net income to shareholders and I think we are well on track to doing that as well, so I think those are all important commitments to us and they all fit alongside our acquisition strategy.

Arvind Sood

All right. Next question, Marvin?

Operator

Our next question comes from the line of Ravi Mehrotra with Credit Suisse.

Ravi Mehrotra - Credit Suisse

Simple on the Astellas deal, post 2020 buyout, what proportion of the economics does Astellas retain? Thank you.

Sean Harper

We are not sure we heard the beginning of that question Ravi, but Jon you have to take a crack at this.

Jon Peacock

Yes. There's really two elements to the deal Ravi just to sort of explain how it works. We have five pipeline assets around which we have arranged a profit share agreement with Astellas. They are co-funding the development of those assets and we will also co-commercialize them through which there is profit share agreement over the life of each of those assets.

Alongside that, we are working with Astellas to set up a joint venture. Through that joint venture, we will build the Amgen affiliates. We will take full ownership of that affiliate by 2020. There were no significant economics that passed through that joint venture. So the only economics that flow to Astellas are through the profit share arrangements on those five products.

Operator

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

Eric Schmidt - Cowen and Company

Thanks. A question, maybe for Jon, on the tax rate. Could you talk a little bit about this jurisdictional mix that drove down the guidance and is that specific to 2013 or is that going to carry over into future years?

Jon Peacock

Yes, Eric. I won't get in to too much detail about that, except to say that as expense base and R&D increases in support of our clinical trial activity, a lot of that expense base is U.S. based and a lot of that is fully deductible and against the full U.S. taxes and that is one of the mix issues of the driver.

Operator

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

Rachel McMinn - Bank of America Merrill Lynch

Yes. Just two quick questions. For PCSK9, you talked about when you will get data. Should we expect you to file a couple of months after that or are there other studies that you will need to support a filing? Then, on the 185 Medicaid benefit, it looks like about $56 million or so is in the R&F line. Could you just quantify how much, if any other products, in EPOGEN versus the new EPO franchise? Thanks.

Bob Bradway

Yes. Well, we will split that into two parts. Jon, why don't you address the Medicaid question first and then Sean could dive in with PCSK9.

Jon Peacock

Yes, Rachel, of the 185, it's predominantly in the filgrastim and the ESA franchise, as you noted from the comments Tony made on R&F. It's about 50 in the R&F space. The rest is largely spread across the other three. I don't want to get into much more detail on that. Thanks.

Bob Bradway

On PCSK9, Sean?

Sean Harper

Yes. I don't want to get into specifics of when we are going to file but these are the pivotal data sets that we are thinking about for initial registration.

Operator

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

Geoff Porges - Sanford Bernstein

Question for Tony. Tony, could you talk a little about the Enbrel and your loss of franchises which is pretty dominant right now and give us a sense of what proportion of business for those two products is now contracted with payors or other entities and potentially subjected to rebates and price negotiations?

Tony Hooper

Geoff, the question is complex. We have access in reimbursement across some old channels for Enbrel and for Neulasta. They are specific rebates that are built into some of these. So that's about as much we have disclosed to-date. Am I missing a piece of your question?

Arvind Sood

Geoff, are you there? I think I lost Geoff. Marvin, let's go on to the next question and then maybe Geoff can get back in the queue.

Operator

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

Unidentified Analyst

This is actually Chris for Yaron. I had a question about the EPO franchise. I know that you no longer have a competitor in the space. Can you comment how you are thinking about franchising the second half of 2013 and as we head into 2014?

Bob Bradway

Sure, Chris. We can take that. I will ask Tony to address it.

Tony Hooper

So the way we look at it at the moment, is it's pretty much the way we have for the last 20 years or so. We have looked to bring the highest value to patients, to make sure all patients who are available to get access to EPO and that we continue to build the strong record we have around both the efficacy and the safety profile of this drug for future when someone else tries to enter the market

Sean Harper

Chris, the only other thing that's perhaps worth just commenting on, is obviously CMS has proposed a cut in the reimbursement rate to dialysis providers and we are in the common period with CMS and obviously we and the providers will work to make sure CMS understands the risk that the cuts, if implemented, might have on patients having access to appropriate quality care. So it's still early days. We won't know for some number of months what the likely impact of that proposed cuts is going to be. But that's the other thing that we are working with the providers on when it comes to the EPOGEN prospects.

Arvind Sood

All right. Let's go to the next question, Marvin.

Operator

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

Geoff Porges - Sanford Bernstein

Jump back in the queue now, but I just wanted to clarify Tony on the case of Enbrel, we are hearing a lot that you are in preferred position with payors in quite a number of situations, so I am just wondering how much of your Enbrel business is driven in that way as opposed to more or less open formularies? Thanks.

Tony Hooper

I think, we are that way between one of two or one off three in most of the situation.

Geoff Porges - Sanford Bernstein

Okay. Thanks very much.

Arvind Sood

Okay. Marvin, let's take the next question please?

Operator

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

Howard Liang - Leerink Swann

Was there a specific reason why there was no share repurchased in the second quarter? And how would a acquisition the size of Onyx impact the share repurchase program?

Sean Harper

We will avoid talking about the specifics related to Onyx, but Jon if you want to talk about the quarter just complete, go ahead.

Jon Peacock

Yes. I think we said at the beginning of the year that the share repurchases for this year and into next year would be more modest. We had a fairly heavy share repurchase program at the beginning of the year as we saw stock price hovering around $80 a share. We got about $1.6 billion remaining on the share repurchase program that we have said we expect to have lost those into well into 2014, so this isn't the sort of smooth quarter-by-quarter process. We will gauge it appropriately. Then in terms of in acquisitions, I will just sort of restate that we are committed to the capital allocation commitments that I highlighted earlier on.

Tony Hooper

Just perhaps a little bit additional color, Howard. As you know during the quarter, we had couple of big clinical events, we had a couple of important business development transactions that I have already addressed, so it's not unusual for us when we have that much activity to be out of share buyback market.

Operator

Our next question comes from the line of Geoff Meacham with JPMorgan.

Geoff Meacham - JPMorgan

I got one for Sean on AMG145, so given that the data is coming in 1Q, just want to get your sense as to what you would view as a meaningful result for the Phase 3. Then, you guys said earlier that you thought outcomes data will ultimately be the key driver for adoption of this class. Just curious if you had any update on that?

Sean Harper

Yes. I think that we had a very robust Phase 2 program for this molecule given how enthusiastic we are about the pathway and the opportunity to clearly help patients with cardiovascular disease, so I suppose that's what I am anticipating from the Phase 3 studies is going to reflect very closely what we saw in Phase 2. Populations we are studying are the same, drug dosages and the approaches were the same and I would hope we continue to see quite a significant 50% to 70% kind of reduction in LDL cholesterol whether it's used in monotherapy or on the back of the existing statin therapies and I would hope to see continued similar well-tolerated profile.

I think that the outcomes data will be important despite the tremendous amount of human genetic elevation that exists for the pathway and the view by virtually every expert that I have interacted with that the outcomes data is kind of a predictable positive result. You still need the data and the data will be important when they come. I think in the meantime, for patients with particularly high risk and elevated LDL cholesterol, this will be an important intervention.

Operator

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

Michael Yee - RBC Capital

Hi. Thanks. Investors consistently say that biosimilar risk or at least [branded] products seem to be part of the overarching issue for thinking about Amgen over the next one or three years and sort of what is reflected in maybe the PE multiple, so maybe you can comment as you why products that are possibly coming this year or in the future would not take a lot of market share and why you think that would be or would not be similar to the experience in Europe? Thanks.

Bob Bradway

Okay, a couple of question there. Tony, why don't you address?

Tony Hooper

Okay. So let me just talk a little about it. I think the market has clearly understood that these are not generics coming. These are biosimilars. When you look at what's happened in Europe, one realizes that we have spent 20 years building a very good history around both the efficacy of these drugs and the long-term safety data around these drugs. In addition, and probably as important, that over that 20 year period, we are one of the few companies who have continued to supply high quality product without exception. We have not, at any stage shorted a patient. So as we view this as a set of higher hurdles in Europe to run our business, this will be the same set of hurdle that will be applied and we will be using in the U.S. when potential competition comes to the market. That's why we, at the moment, are doing the extrapolations and projections we have.

Operator

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

Mark Schoenebaum - ISI Group

I would just like to know please what you paid for Onyx. I am just kidding. Can I ask maybe a question to Sean Harper, perhaps that isn't protocol, but it is something that I am really interested in. Maybe the cardiovascular drug in your pipeline that doesn't get as much attention as omecamtiv. I think there is an important Phase 2 study coming up, Sean. I would love if you could walk us through the recent blue print fashion, the design of the trials we are going to see data for and what the expectations maybe should be on the street? What exactly do you need to see to move into Phase 3? I know, in the past you characterized this is as a high risk program. I just wondered if your view on that's evolved at all? Thank you very much.

Jon Peacock

High risk, high reward there.

Mark Schoenebaum - ISI Group

Fair enough.

Jon Peacock

So I think that just comes with operating in the heart failure space. I don't think it's anything about this mechanism that makes it bad. That is just, as we all know, while there are a number of therapies that have very clear proven mortality benefit in this disease, there are quite a few that have turned out to have various effects and so on. So it is a difficult area to work in, requires an upfront morbidity, mortality outcomes type of trial before one can gain registration in most jurisdictions. But because of that, it requires a lot of investment and until you see those outcomes data, you are not going to be absolutely sure of what you have got.

That said, if you look in this space right now and we validated this very much with our colleagues at Servier, when you look in this space, there is virtually nothing out there in systolic heart failure that's really interesting as a chronic treatment. In that context, if you think about the experiments that we are doing, they really fall in to two groups.

One is into intravenous studies which are done very short-term in hospitalized patients and this is much more of a PK/PD kind of a study to try to understand in that laboratory type of environment in which you can use intravenous drug, measure concentrations in patients, monitor them real-time over a 48 to 72 hour period. We can learn a lot about the safety and the concentration exposure range we need at activity.

In that context, that experiment is the one which has three different cohorts with increasing levels of exposure that you will be seeing at the European meetings. But a very important study is going now which is an oral study that chronically doses patients over several months. This is where the real potential value of this kind of therapy is. It's really about keeping these patients from having six to ten hospitalizations per year for flares [ph], making them more functional and, of course, possibly increasing their actual outcome in terms of survival.

I think that we will have to see data from those chronic studies with the oral presentation of the drug before we could understand that we have something that's worthy of going into a large morbidity mortality trial and pursuing that goal. I think this remains, as you appreciate, a program that's really of great interest, given the epidemiology of heart failure, which around the world is rising and is really a true public health threat around the world.

Operator

Our next question comes from the line Terence Flynn with Goldman Sachs.

Terence Flynn - Goldman Sachs

First on AMG145, I was just wondering if you can comment about any IP that you or others might have with respect to the target itself. Then the second question I had was, I missed the comments on the biosimilar Herceptin program, the delay. I thought that you said it was due to a delay at a contract manufacturer, but I guess I was under the impression that you guys would be manufacturing this yourselves, so could you just clarify that for me? Thank you.

Bob Bradway

Sure, Terrence. This is Bob let me take those questions. First with respect to IP on 145. As you know, we don't comment at this early often about IP, the [offers] is that we don't see any barriers for us in developing and commercializing AMG145. As you know, as you heard us say repeatedly, we are very excited about this access and what we think it can do for patients.

With respect to comments on biosimilar molecule in the process of transitioning this molecule that we perhaps recall licensed in, we are relying on a contract manufacturer to supply clinical material and some of that clinical material hasn't been at the high quality standards that we require and so we are facing a little bit of delay there. But as Sean pointed out, we don't expect any delays to our ultimately launching our first biosimilar molecules in 2017.

Operator

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

Unidentified Analyst

Hi. Good afternoon. Thank you. It's Matthew actually on for Ian. I just want to go back to the conversation around biosimilar bio generic, branded generic NEUPOGEN and Neulasta, and see if you wouldn't mind being a little bit more specific on the steps or the actions you are taking to prepare the market or customers or payors in order to defend the business and event or protect the business in events of the sort of fourth quarter November timing when (Inaudible) Thank you.

Bob Bradway

Okay. Thanks, Matthew. Tony, why don't you take a shot?

Tony Hooper

First of all, we don't believe there's any such signals that biogeneric, I mean it is very generic or it's a biosimilars and the biosimilars are pretty different to the generics. A lot of potential future competition will be BLAs, so we have to be establishing themselves as separate independent new entities with no history around efficacy and safety in the market place. We have had seven-plus years of experience in Europe, understanding a multitude of players have come to market, we are using all those experience, all those knowledge as we prepare for potential competition in the U.S. I am not going to go into details around what we are doing in the U.S., but we have been relatively successful outside the U.S. and we will be applying the same type of tactics. Thank you.

Arvind Sood

Marvin, let's take the next question please?

Operator

Our next question comes from the line of Eun Yang with Jefferies.

Eun Yang - Jefferies

Well, thanks very much. A question on AMG145, in the second part of TESLA study in the [patients], are you testing for LDL receptor functionality to select the patients with the some residual activity, receptor activity, but not those with negative activity?

Sean Harper

It's difficult to make those predictions and so I think that as we see responses to the therapy in individuals, it will be then much easier to ask those kind of biochemical questions about why. And, of course if you see a response to a therapy, you are going to know that to some extent there are some kind of functional LDL receptor being expressed on the service to the [parricide] and you can begin to work out some of that, but it's right now not a case where we are doing all of that kind of biochemical analysis upfront in choosing patients to treat, but kind of the other way around.

Operator

Our next question comes from the line of Joel Sendek with Stifel.

Joel Sendek - Stifel

So I just have a question about the revenue guidance, because certainly if you look at what you delivered this quarter and that set up with the guidance would suggest flat or maybe even slightly down. I am wondering why you didn't increase the guidance for us? Thanks.

Jon Peacock

Well, I think if you adjust for the one-time events that we have seen yesterday, you will see a different trend. So do bear in mind the adjustments we made in the first quarter on the Enbrel returns and the adjustments we have made this quarter on the Medicaid rebates which are adjusting revenues from prior periods. So I think if you take that out, you will see that actually we are expecting to carry some good momentum into the second half of the year.

Bob Bradway

So, Marvin, I think they have covered a lot of topics here and I think most, if not, all of the major analysts have had a chance to ask some questions. So why don't we take two last questions.

Operator

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

Tony Butler - Barclays

Briefly with PCSK9 coming soon, I am making assumptions that payors will try to have some step added. Do you actually today engage in discussions with those payors about that upcoming potential product in the market? If you haven't, when would you, assuming that you would do it well before you will actually file the program? Thank you.

Tony Hooper

Tony, this is Tony. The rules are pretty clear. We may not engage with payors around pricing strategy prior to registration.

Arvind Sood

All right, Marvin, let's take one last question.

Operator

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

Eric Schmidt - Cowen & Company

I really appreciate the follow up. It's a bigger picture, maybe R&D question for Bob. I think a couple of years ago either you or your predecessor had talked about trying to target 18% to 20% of sales or revenue being reinvested in R&D. You run a tad higher than that in the first half of the year. Is that still a longer term goal? That 18% to 20%?

Bob Bradway

Well, you are right to note that we are running a tad higher and that's one of the reasons why Jon tried to provide some clarity for you in his remarks. Obviously you can deduce from our comments about 145 that we are excited about that program and doing everything we can to deliver the results that we have talked about for the first quarter of the next year. It's an important product what we are spending money on now are these late stage Phase 3 programs. So we are not far off the guidance we gave you but we wanted to be clear and that's why we addressed it in our prepared remarks today.

Arvind Sood

Okay. Thanks, Bob, and the rest of the team. I would also like to thank you, all of the analysts and shareholders who participated in the call. If you have any other questions, follow-on questions, comments, obviously the Investor Relations team will be around for several hours. So please feel free to reach out to us. Have a good afternoon.

Bob Bradway

Thank you.

Operator

This concludes today's Amgen second quarter 2013 financial results conference call. We thank you for your participation. You may all disconnect.

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