Amgen, Inc. Q3 2009 Earnings Call Transcript

 |  About: Amgen Inc. (AMGN)
by: SA Transcripts


Welcome to the Amgen third quarter 2009 financial results conference call. (Operator Instructions) I would now like to introduce Arvind Sood, Vice President of Investor Relations. Mr. Sood, you may now begin.

Arvind Sood

I would like to welcome you to our third quarter results conference call. As we have a lot of ground to cover today, I’ll keep my comments very brief so we have adequate time for your questions at the end of our prepared remarks.

Joining me today are Kevin Sharer, our Chairman and CEO, who will provide a strategic review of our business, followed by our CFO Bob Bradway who will discuss our quarterly results, underscore the significant strides we have made, and how we manage our capital and offer insights on our revised growth outlook for the year. George Morrow, our head of global commercial operations, will then discuss our product performance trends in the US and international markets as well as how we have held up against biosimilars outside the US, and then Roger Perlmutter who is our head of R&D will provide a regulatory and pipeline update.

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 email. I would like to remind you that our comments today will be governed by our Safe Harbor statement. In other words, through the course of our presentation today, we will make certain forward-looking statements, and actual results can vary materially.

With that, I would like to turn the call over to Kevin.

Kevin Sharer

Good afternoon everyone, and welcome to our third quarter 2009 conference call. I’m very pleased with our third quarter operating results on both the top and bottomline. While acknowledging the benefit from tax this quarter, our results on the bottomline continue to exceed my expectations, and we’ve once again raised earnings guidance. There are many moving parts in the product sales line, and George will update you. Net, the base business is solid, excluding Aranesp in the US, and grew 5% as we anticipate several future growth drivers. We also completed and announced the results of an unprecedented for Amgen 5 major phase III trial results in oncology and nephrology. We also advanced our midstage pipeline. Roger has more detail. One of the studies treating anemia has important information that we’re working with the FDA to communicate soon to physicians. Roger will share the detail and our plans later in the call.

As you know, we received a complete response letter from the FDA regarding Prolia in osteoporosis. Among other things, the letter was in effect a status report and roadmap for next steps. We continue to work closely and collaboratively with the FDA, and I remain optimistic about Prolia’s prospects to help patients with osteoporosis soon.

Healthcare reform continues to evolve, and we’re paying close attention. While it is too soon to know the final outcome, we will have a view regarding the likely affect on Amgen by the time we discuss 2010 guidance in January. I’d especially thank my colleagues at Amgen for their hard work and excellent results this quarter.

Bob, over to you.

Robert A. Bradway

On page five I will walk you through the adjusted income statement for the third quarter. As you can see, we reported very strong earnings per share growth of 21% for this quarter, and I’d like to walk you through the components of that growth.

Let me start with revenues. As you can see, year over year revenue were down about 2% in the third quarter to $3.8 billion. When looking at these results, however, recall that the Aranesp label changed last year in the third quarter, and that is reflected in this year’s third quarter results. Revenue excluding Aranesp increased 4% on a year over year basis, and in addition our results were negatively affected by a stronger dollar in this quarter. George will give you more product detail shortly. I would note that looking at our results sequentially, it’s also worth noting that revenues were up about 3%.

Wholesaler inventory levels which were low at the beginning of the year have normalized now for the most part, and in terms of specific products, we ended the third quarter with wholesale inventories below the low end of normal ranges for both Epogen and Vectibix and above the high end of normal ranges for Aranesp. Wholesaler inventories for our other products were within the normal ranges.

Shifting to a review of the business by geography, our US sales for the quarter were relatively unchanged at $2.9 billion, and internationally we posted third quarter sales of about $818 million which represents a decrease of 4% versus the prior year reflecting the fact that the dollar was stronger this quarter. Excluding the impact of foreign exchange which was about $76 million in the quarter, total product sales increased 1% and international product sales increased 5%.

Turning now to our operating expenses, on an adjusted our total OpEx for the quarter was down 5% versus last year, and as you can see, our operating margin increased by almost two percentage points reflecting the success of our continued cost cutting efforts. I’ll now walk you through the components of our operating expenses starting with cost of sales, which for the quarter decreased by 8% primarily due to lower royalty expenses, lower inventory writeoffs, and lower excess capacity charges which were partially offset by higher finish costs resulting from low utilization levels at our manufacturing facility in Puerto Rico.

Year over year, you can see we’ve benefited from about a 1% margin improvement versus the third quarter of last year, and note also that quarter over quarter, our cost of sales margin has remained flat. Turning now to R&D expenses, as you can see, R&D expenses for the quarter were down 12% primarily driven by lower clinical trial costs and lower staff-related expenses due in part to the optimization of our clinical supply network.

SG&A expenses increased 3% versus the same quarter last year. This increase includes the cost of hiring and training the Prolia primary car salesforce in anticipation of the approval of Prolia. I’d just like to note that once Prolia is approved and launched, we expect this expense run rate to increase as we begin promotional expenditures as well.

In addition to these SG&A expenses, our initial SG&A expenses were higher due to promotional expenses for our marketed products as well as higher expenses associated with the Pfizer which as you know was formerly the profit share due to higher enrolled sales. These increases were partially offset by lower litigation expenses, lower staff expenses, and recoveries associated with our collaboration with Glaxo Smith Klein for Prolia in PMO.

Turning now to the tax rate, let me spend a few moments discussing our adjusted tax rate for the quarter which was 12.9%, compared to 22.7% in the prior year. There are three main drivers for the lower rate this quarter. First, the third quarter 2009 rate benefited from the fact that we reached settlements with both the IRS and the sate of California on certain prior year tax audits and the impact of these settlements was specific to the third quarter. So we’ve taken all the benefit of those in the third quarter. Second, we had increased both manufacturing and profits in Puerto Rico in the third quarter of 2009 as compared to the third quarter of 2008, and finally as you’ll recall, the federal R&D tax credit had not yet been extended by Congress at this time last year, and obviously we’re benefiting from it this year.

So the third quarter adjusted tax rate is not indicative of the anticipated full year rate which we now expect will be approximately 18%. Year to date, our adjusted tax rate is approximately 17%. While we’re not providing tax guidance for 2010 at this time, please keep in mind that our expected 2009 adjusted rate is influenced by tax settlements that are specific to 2009 and will not carry forward to 2010, and therefore, our tax rate going forward is likely to be more in line with prior years than with 2009.

Finishing with EPS, as you can see, our adjusted earnings for the quarter were $1.49, up 21%, and clearly EPS benefited from lower operating expenses, a decreased tax rate, as well as a decreased share count following our share buybacks earlier in the year. Our GAAP earnings for the quarter were $1.36, up 30% versus the prior year.

Turning to page 6, you can see we once again ended the quarter with a strong balance sheet and with healthy cash flows. First, let me spend a moment to discuss some of the key balance sheet items. Note that at the end of the third quarter, our global cash balance was $14 billion, and excluding the impact of a change in the way we account for convertible debt, our debt increased by $1 billion year-over-year, and we expect that this will drop back to $11.2 billion after we retire $1 billion of floating rate notes that mature in November 2009.

With respect to our cash flow, we generated $2 billion of cash flow from operations in the third quarter, which is an improvement of roughly $600 million or 43% over what we generated in the same period last year. This is primarily due to higher earnings and the fact that we had a legal settlement in the third quarter of 2008, which obviously does not repeat this year.

We didn’t repurchase any shares during the third quarter, and I would remind you as you saw on my first slide, that we had a weighted average share count of about 1021 million shares at the end of the third quarter. We currently have $2.2 billion remaining on our authorized repurchase programs, and we’ll continue to use that authorization opportunistically.

Turning to page 7, I’d like to provide updated revenue and earnings guidance for the year. We are affirming our 2009 revenue guidance which we still expect to be at the upper end of the guidance range of $14.4 to $14.8 billion. With respect to earnings per share, we now expect earnings to be in the range of $4.90 to $5.05 compared to the previous range of $4.80 to $4.95. Our revised guidance reflects the lower tax rate that I referred to earlier as well as continued operating expense discipline. And finally, we believe that capital expenditures guidance for the year is consistent with what we’ve given you previously, namely that we will spend less than $600 million in capital expenditures this year.

Now, let me turn it over to George.

George Morrow

Let’s go right to the commercial highlights on Slide 9. Product sales declined 1% year-over-year driven by a few key unfavorable comparisons—first Q3 ’09 US Aranesp sales declined $125 million due to label changes which occurred in August 2008 and a one-time return reserve adjustment which occurred in the third quarter of 2008. Second unfavorable foreign exchange diminished international sales by $76 million.

Excluding Aranesp, the remainder of the US portfolio grew 5%, and excluding the unfavorable foreign exchange rate impact, the international business grew about 5% as well. On a sequential basis, quarterly global sales grew $102 million with most products showing positive growth. Aggregate wholesale inventories ended the quarter in the middle of the normal range, up from their first and second quarter levels which were at the low end of the range.

The next slide graphically illustrates the components of year over year growth in the third quarter, excluding the foreign exchange loss. Aranesp was the only major component of our product portfolio to decline and was offset by solid growth in our other products.

Next I’ll discuss each of these products in more detail starting with Aranesp. Worldwide Aranesp sales decreased 19% in the third quarter versus last year. Overall US segment share was down 1 point year over year and down 2 points quarter over quarter. Wholesaler inventories of Aransep ended the quarter higher than our normal range. In the US, Aranesp sales were down 27% year over year. ESA label changes made in August 2008 combined with reimbursement policy changes are fully reflected in clinical practices resulting in a sharp year over year decline in utilization.

In oncology, virtually all patients are being initiated and maintained at a hemoglobin of 10 g per dL and use is minimal in patients where the anticipated outcome is cure. In CKD patients not on dialysis, doses are being titrated to achieve and maintain hemoglobin within the range of 10 to 12 g/dL. We’re continuing our ESA REMS discussions with the FDA and expect resolution this year.

Internationally, Aranesp sales decreased 2% excluding foreign exchange and declined 9% including foreign exchange. I’ll discuss the specifics of share and segment changes when I review the international results.

Epogen grew by 5% in the third quarter of 2009 versus the third quarter of 2008, driven mostly by patient growth. Consistent with the label, healthcare practitioners have refined their treatment practices to achieve and maintain patient hemoglobin levels in the 10 to 12 g/dL range, and we expect this to continue.

Neulasta and Neupogen combined grew 2% in the third quarter of ’09 versus the third quarter of ’08. In the US, sales grew 5% driven by demand, about half coming from price and half coming from units. Inventory and business adjustments remained flat year over year. Internationally, Neupogen and Neulasta declined 7% year over year with 3% growth excluding foreign exchange effects. The Neupogen-Neulasta franchise growth continues to be driven largely by conversion of Neupogen to Neulasta as well as solid growth in previously underpenetrated markets in Central and Eastern Europe. Neulasta and Neupogen wholesaler inventory levels exited third quarter 2009 near the middle of the normal range.

Enbrel is next on slide 14. At a reporting level, we experienced growth of 3% versus the third quarter of 2008. The primary driver was demand growth at 6% which was partially offset by business adjustments recorded in the third quarter of 2008, which were favorable and also one-time in nature. Within demand, we experienced price growth partially offset by modest unit decline. The unit decline was primarily in dermatology where we lost some share year over year to new competition. The impact of inventory changes within the quarter was immaterial.

During the third quarter US Enbrel maintained its leadership position in both rheumatology and dermatology. Despite two new competitors launching in Q2 in rheumatology, Enbrel held share at around 33%, and in dermatology, Enbrel continues to get the majority of its firstline biologic use for psoriasis capturing more than 60% of the dollar share in this segment during the quarter.

For the third quarter, worldwide Sensipar sales grew 2% versus the third quarter of 2008, essentially due to international demand. International delivered 14% growth, or 24% excluding the negative impact of foreign exchange. Conversely US performance declined 3% due to slight lower segment penetration driven by continued to payer pressure and restrictions on the Part D side of our business.

Next slide is Vectibix. Our promotional efforts center on identifying specific and appropriate patients based on our existing label and highlighting the benefits of Vectibix versus the competition. Vectibix’s future growth is highly dependent upon label expansion into second and first-line metastatic colorectal cancer, and Roger will discuss the good news on that front in a moment.

The next slide summarizes our international sales performance. Internationally, sales grew 6% excluding divested products and the effects of foreign exchange versus the prior year. Growth was driven by Neulasta conversion, growth from new product launches, and expansion into new territories. On the next slide, we’ll look at international segmentship for Aranesp in nephrology. As in recent quarters, Aranesp nephrology share remains steady as biosimilars continue to take share from EPO-Alfa and EPO-Beta but not Aranesp.

My last slide is new, and it provides comparable segment share data for the GCSF market. To date, biosimilar uptake is only slightly faster than what we saw with ESA but in line with our internal expectations.

Roger Perlmutter

Slide 21 provides an outline for what I will cover today. During the third quarter, our R&D organization announced results from five major phase III studies in oncology and nephrology and also made very substantial progress in advancing our mid and early stage pipeline.

Let me turn first to Prolia on the next slide, which is under review at the FDA and other regulatory agencies for the treatment and prevention of postmenopausal osteoporosis and for the treatment of bone loss associated with hormone ablation therapy in breast and prostate cancer patients. On Monday, we announced that we had received a complete response letter from the FDA with respect to Prolia. The agency is reviewing our post marketing studies in the osteoporosis treatment indication and our previously submitted risk evaluation and mitigation strategy or REMS is still pending. While no new studies are requested in the treatment of postmenopausal osteoporosis, additional clinical trials would be required for approval of the prevention of postmenopausal osteoporosis indication.

I should note that the receipt of a complete response letter is now common step in the approval process especially for first in class therapies. As noted in our statement, we believe that working together with the FDA we can quickly complete the process that would permit approval of Prolia for the treatment of postmenopausal osteoporosis. We have now also received a complete response letter with respect to the use of Prolia as treatment for bone loss in women with breast cancer receiving aromatase inhibitors and in men with prostate cancer receiving hormone ablation therapy. In both instances, the agency has asked for additional information from clinical trials that would demonstrate that denosumab has no adverse effect on tumor progression or on overall survival in patients with breast or prostate cancer. We expect to learn more about the agency's requirements outlined in this complete response letter during the next few weeks.

Turning to slide 23, in September, we presented data showing that denosumab is superior to Zometa in its ability to reduce skeletal-related events in women with metastatic breast cancer. A similar study performed in patients with either multiple myeloma or one of a large set of solid tumors showed that denosumab was as effective as is Zometa in delaying these pathologic consequences of malignancy in the skeleton. Results from a third study, in this case performed in men with prostate cancer and skeletal metastases, will be available in the first quarter of 2010. Based on the expectation of completion of the study in the near term, we have elected to file for approval for denosumab in this indication using all three skeletal-related events trial, in this way providing active comparator controlled data from approximately 6000 patients.

Slide 24 shows that in addition to the denosumab SRE studies that I just mentioned, in the third quarter, we also obtained data showing that Vectibix improves progression-free survival when used in combination with standard chemotherapy in patients with colorectal cancer whose tumors contain wild type KRAS genes. Details of these studies were presented at the European Society of Medical Oncology meetings in Berlin at the end of September. The effects of Vectibix treatment on progression-free survival were statistically significant, and we saw a trend towards improved overall survival in one of these studies, our second-line colorectal cancer study. Overall survival information from our first-line colorectal cancer study will become available during the fourth quarter of this year. While I cannot speculate on what the results of this analysis will show, in either case, I expect that we will be able to file for approval of a broader set of indications for Vectibix sometime next year.

Turning to slide 25, during the third quarter we announced topline information on the TREAT study, which enrolled 4038 patients with diabetes, chronic kidney disease though not on dialysis, and moderate anemia, who were randomized to receive either Aranesp to achieve a hemoglobin level of 13 g/dL or placebo treatment. The primary endpoints for the study were the composite outcome of death or cardiovascular disease, comprising in this case non-fatal myocardial infarction, congestive heart failure, hospitalization for myocardial ischemia or stroke, and the composite outcome of death or end-stage renal disease. In essence, this is the first large-scale placebo controlled trial that examines the benefits and risks of anemia treatment. As we announced previously, the study did not meet its primary endpoints. There was no statically significant effect of Aranesp treatment on overall mortality or cardiovascular outcomes. This is important since many had believed that anemia treatment would improve cardiovascular outcomes in this population.

On the other hand, a prior report from a smaller open label study called CHOIR found a highly significant adverse effect of anemia treatment on the composite endpoint of death and cardiovascular outcomes in CKD patients not on dialysis, so the findings in our large double blind placebo-controlled study are really quite important. Among the components of the TREAT outcomes measures, stroke, which has been noted in the Aranesp labels since 2001, was more likely to occur in the patients who received Aranesp with 101 patients or 5% suffering a stroke in the actively treated group versus 53 or 2.6% in those who received placebo, a nearly twofold difference. This risk must be weighed against improvements in other areas, notably in the frequency of blood transfusion and in patient reported outcomes, but it is certainly not inconsequential. It is important to note that in this moderately anemic population, the placebo treated group was permitted to receive Aranesp as a rescue medication and maintain hemoglobin levels above10 g per deciliter. That is, they were maintained within the recommended range specified in current labeling. The Aranesp group was treated to the higher hemoglobin target of 13 g per deciliter.

I also wish to note that during the course of the study, we modified the study protocol such that patients diagnosed with malignancy were withdrawn from study drug. This precaution was taken to exclude the possibility of harm in the study population. In the final analysis, there were no significant differences between groups and the incidence of cancer or of deaths in patients who developed cancer. Among those patients with a history of cancer at baseline, however, there were 60 deaths from any cause in the 188 patients assigned to Aranesp and 37 deaths in the 160 patients assigned to placebo, and within these populations, there was a further imbalance in adjudicated deaths due to cancer with 14 of 188 patients receiving Aranesp and only one of the 37 patients receiving placebo assigned to this category.

This is a post-hoc analysis, of course, and requires more detailed investigation. As I noted earlier, it is our view, as stated in our label, that in patients with active cancer not on chemotherapy, treatment with Aranesp should be avoided.

Details of the TREAT study will be presented at the American Society for Nephrology Meeting at the end of this month and the American Heart Association meetings in November. In addition, and manuscript describing the results of TREAT will appear in the relatively near future. We have communicated the TREAT study results to regulatory authorities around the world, and we will work closely with regulators to update the Aranesp and Epogen labels with this new data as soon as possible.

Finally turning to my last slide, we expect results from five more phase three studies in 2010 including the denosumab SRE study in men with metastatic prostate cancer that I already mentioned, as well as a study examining the ability of denosumab treatment to delay the appearance of skeletal metastases in men with established prostate cancer. Phase III studies of Vectibix as therapy for recurrent or metastatic squamous cell carcinoma of the head and neck and of motesanib added to conventional chemotherapy in patients with non-small cell lung cancer will also read out in 2010, as will the EVOLVE study, one that examines the ability of Sensipar, Mimpara in Europe, to improve vascular outcomes in patients with renal insufficiency.

In addition during 2010, our mid-stage pipeline will become progressively more visible with studies of several new oncology agents reaching completion, so I expect that there will be even more to communicate over the next several months.

Kevin Sharer

We would now be happy to take your questions, and I would like to ask that you just ask one question at a time so we can give everyone a chance to be heard. We’ve got plenty of time, and we’ll get to your questions.

Question and Answer Session


(Operator instructions) Our first comes from the line of Geoffrey Porges – Bernstein.

Geoffrey Porges – Bernstein

Roger, on denosumab, treatment-induced bone loss, the FDA has asked you for PFS overall survival. What sort of study would you do to prove that negative, and are you convinced that you have sufficient data on the SRE endpoint to show that there is no effect on overall survival in PFS from both studies at that dose?

Roger M. Perlmutter

Yes, Geoff, I think that one of the things that we are going to learn is the extent to which the SRE studies of which, as you know, 2 of 3 are completed, actually contain the information necessary to respond to the questions raised by the division of biologic oncologic products at FDA, so we’re going to learn a lot more about that. As you know, we do have a lot of detail within the hormone ablation study in prostate cancer that we can also discuss that provides information about both progression and overall survival, and of course, we can discuss those data with the FDA as well, so we’ll learn a lot more in the next short period of time.


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

Jim Birchenough – Barclays Capital

Just following up on the TREAT data, when did you share this data with FDA, and beyond the labeling update, is there any risk to the broader CKD indication for Aranesp?

Roger M. Perlmutter

The TREAT data, of course, we obtained the topline information which is just a flash report that represents just the initial study findings from this very large study, 4000 patients, back in the last part of August, and we shared that information with the FDA immediately before we sent out a press release. Subsequently, we have been engaged in further analyses of these data, working with the study executive committee, which is of course an external group of academic experts on the study data, and with external statistical consultants, and as those data have developed, we have shared those data also with the FDA, and we’re continuing to have discussions with the FDA and other regulators about these data, so the question is now what should be done in order to properly inform physicians and patients about the findings of the TREAT study, and that’s what we are in the midst of doing, and we’ll work our way through that over the next short period of time.


Our next question comes from the line of Geoff Meacham with J.P. Morgan.

Geoff Meacham – J.P. Morgan

I just wanted to follow up on the TREAT study. Roger, I just want to confirm that the cancer analysis was not pre-specified and that among these cancer patients at the placebo comparator, they were getting, I think you said, 10 g per deciliter and Aranesp patients were getting 13; is that right?

Roger Perlmutter

First of all, there was not a pre-specified analysis of this. As I indicated, these are post-hoc analyses, so what was done was simply to look at the overall cancer incidence in these populations which is balanced and then to ask additional questions about deaths due to cancer, adjudicated deaths due to cancer, which was a pre-specified feature of the study. The important thing to note is that the Aranesp-treated arm had a hemoglobin target of 13; the placebo treated arm was permitted rescue medication in the form of Aranesp and maintained a hemoglobin that was within the 10 to 12 range that is recommended by our label, so you’re really comparing a high hemoglobin arm to an arm that is within our current label as represented, and we’re still looking in enormous detail at each one of these cases of malignancy in order to make sure that they were properly adjudicated, that they were scored correctly, and that we really understand what happened in each case. As I indicated, it’s a very large study. We’re just 6 or 7 weeks out from the time that the study closed, so it takes quite a while to get all these data pulled together.


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

Yaron Werber – Citi

Roger, just to followup to go back to Prolia in the cancer indication, can you help us understand a little bit, how was the PFS data gathered in the ongoing SRE studies both in the prostate and other tumors in breast, and how is that done in the actual tumor prevention study? Just so we really understand what to expect and the differences in the quality of the PFS data, and I don’t know if you can but just share with us any initial conversation with FDA as to again how do they look, what’s crossread between halt and SRE as to where the bar is and what kind of data they really want to approve Prolia for the new indications in cancer?

Kevin Sharer

We understand your interest. That was about four questions, and so I’ll ask Roger to try to get a start there, but kind of getting inside speculation about FDA and those conversations is probably not too productive, but I know Roger can help you out on most of the things you’re interested in.

Roger Perlmutter

The first question had to do with the way in which in we capture progression data in the SRE studies, and there is a specialized case report form that was specifically designed for this, and the investigators were trained on this, so they’re actually scoring progression, and of course we capture overall survival data which we have presented for the 136 and 244 studies as you know. Obviously in the whole prostate study and also in the 103 study, we had the advantage of a very specific biomarker that scores tumor burden namely PSA, that has been and will be very important, and so those are the things that will be available and are available for the agency to look at. Of course, they haven’t seen the SRE studies in detail. I think once they have a chance to look at them, those data will be very important, but the conversations have yet to occur.


Our next question comes from the line of Maged Shenouda with UBS.

Maged Shenouda – UBS

Can you provide an update on the EU filings for Prolia for PMO in all?

Roger Perlmutter

Yes. Maged, the EU filing continues to go on track. It is doing quite well, and that process occurs of course with great regularity, so we’re expecting relatively soon to have the 180-day report that we can respond to, and things are moving along very well.


Our next question comes from the line of Mark Schoenebaum with Deutsche Bank.

Mark Schoenebaum – Deutsche Bank

George, can you maybe give us the breakout of Aranesp sales in pre-dialysis in the US and in Europe, if possible, and your opinion on whether or not you think these data are going to have any impact on those numbers?

George Morrow

Yes. I’m not going to speculate on what’s going to happen because Roger has to complete his discussions with the FDA, and they need to decide what changes if any will occur with the label, but if we go back to third quarter of 2009 in the US, hard to precisely give you a number, but it’s probably in the $75 million range in the US for pre-dialysis CKD patients, and we have even weaker data in Europe, but it’s probably on the same dimensions, so probably around 75 in that quarter as well, but it could be plus or minus 10 to 15.


Our next question comes from the line of May-Kin Ho with Goldman Sachs.

May-Kin Ho – Goldman Sachs

George, can you update us on how many people you have now added on Prolia and if the approval does not come until middle of next year or second half, what is the impact?

George Morrow

May-Kin, what we told you, I guess, probably almost a year ago was that we’re going to have 500 to 1000 representatives in the US to launch Prolia, and we have recruited a primary care salesforce, and we’re well within that range at this point. We’re ready to go, and they are going to be doing productive things in advance of getting the label and chance to launch this product. I’m not going to speculate on when that will occur, but they’re very much engaged at this point.


Your next question comes from the line of Michael Aberman – Credit Suisse.

Michael Aberman – Credit Suisse

I was wondering if you could help me out explain specifically, and I know you won’t go into details because it’s not finalized, but when you say the FDA requires for the REMS a medication guide, a communication plan, and a timetable, is that inclusive everything they’re requesting, and can you just elaborate on each individual element as to what that means, expand on what a medication guide, a communication plan, and a timetable entails?

Roger Perlmutter

That is the listing that they have indicated and, of course we provided those medication guide and communication plan to the agency, and they’re reviewing it. Medication guide of course is key to the label and provides a means of telling patients with each administration exactly what the benefit-risk profile looks like. It’s focused a lot on the risks that have been identified or may exist with Prolia, so that what the medication guide looks like, and the communication plan has a similar information, in somewhat more depth, that is provided to physicians, and then there is a set of measures that demonstrate that in fact the medication guide and communication plan are being appropriately distributed and paid attention to. Those things are important. In addition, of course the agency is anxious to have as it is typical in such cases the most up-to-date safety followup from the long-term extension data on our studies which we will also provide them with.


Our next question comes from the line of Bret Holley with Oppenheimer.

Bret Holley – Oppenheimer

I was just wondering if that has been any alteration in your EU regulatory strategy in light of the developments with the FDA. Has the tenor of the conversion changed at all with the EMEA?

Roger Perlmutter

Bret, no it hasn’t. We continue to move along with EMEA according to the timeline that we had originally outlined.


Your next question comes from the line of Michael Yee – RBC Capital Markets.

Michael Yee – RBC Capital Markets

Can you give a little more color on your thinking about filing in the bone cancer indication? I know you said that in Q1, you’d be ready to file pretty soon thereafter, and more importantly, is it contingent was final approval in osteoporosis or you don’t need that before you file?

Roger Perlmutter

We will have the data available in the first quarter from the 103 study—the prostate cancer study, but of course then we have prepare all the study reports and all the documents that are necessary for filing, and I don’t want to underestimate how much time that takes. We’ve got a lot of stuff that we have to put together—integrated safety summaries and etc., so it’ll be a little while after that. Our filing strategy will not be changed much by the activity on Prolia. I’m expecting that we’ll be able to move forward relatively soon with Prolia, but it wont’ change our strategy in any case.


Your next question comes from the line of Eric Schmidt – Cowen and Company

Eric Schmidt – Cowen and Company

I was hoping that maybe George could quantify either on a product by product basis or an overall total sales level basis the inventory benefit that you saw in Q3. It seems like some of the ticked up in terms of inventories from the end of this quarter versus June 30th.

George J. Morrow

Let me go through them very quickly. Aranesp, as I mentioned, is at the high end. It went from 12 days to 20 days, and the normal range is 12 to 16. Neulasta went from 9 to 11; normal is 10 to 14. Neupogen went from 15 to 16; again this is all Q2 to Q3, and normal is 14 to 18. Epogen went from 7 to 7, and that’s below the normal range of 8 to 12. Enbrel went from 14 to 15, and normal is 14 to 20. Sensipar went from 18 to 18; normal is 15 to 19. Vectibix went from 19 to 12; normal is 15 to 20.


Your next question comes from the line of Eun Yang – Jefferies.

Eun Yang – Jefferies

In the TREAT study, the rate of mortality in patients who have baseline of cancer, what was the most common cause of death in Aranesp versus placebo?

Roger M. Perlmutter

In patients with a baseline risk of cancer, cardiovascular mortality was still the overriding cause of death, as one might expect in a population with these kinds of risk factors.


Your next question comes from the line of Steve Harr – Morgan Stanley.

Steve Harr – Morgan Stanley

Roger, I was wondering that the cancer outcome was not pre-specified and there was a modest imbalance in the number of patients who had cancer at baseline. Do you have any sense yet if there were differences in the types of cancer or the stage of cancer that may account for some of this difference, or is it pretty well balanced and this is consistent with what we’ve seen before, and that is that high doses of this drug may cause cancer to grow a little more quickly.

Roger M. Perlmutter

Steve, first of all, I’d say I don’t think there is any conclusion that we can draw yet about whether the administration of Aranesp was doing anything to cancer progression. When we look in detail at these cases, not surprisingly you’re looking at tyranny of small numbers, and so things move around quite a bit. There are protocol violators who had active disease who really did not get much therapy, and so there’s still a lot of work that has to be done to sort out what has happened. Looking at this data that we have and trying to go through each one of the different cases, it is not at the moment possible to draw to any conclusions about the effect of Aranesp on tumor bearing population.


Your next question comes from the line of Joel Sendek – Lazard Capital Markets.

Joel Sendek – Lazard Capital Markets

Can you tell us what the timeline is for data on the pharmaco-vigilance study that I think is study 782 in non-small cell?

Roger M. Perlmutter

The 782 study is a very large study in non-small cell lung cancer, but it’s not going to read out for many years. The study was just initiated, so it’s going to take quite a long time before we have data from that.


Your next question comes from the line of Rachel McMinn – Bank of America.

Rachel McMinn – Bank of America

I was wondering if you can comment on Prolia, the bone met prevention study, whether the event rate is tracking relative to your expectations and when in 2010 we should expect to hear more about that study.

Roger M. Perlmutter

Rachel, we’re moving along as we had expected with that study, and I don’t think we’ve given guidance in terms of when exactly it would be. We have to continue to follow the event tracker and, as we’ve learned from the past, it’s very important to really dig into these, as you and I have discussed this before, and see that the events are truly events. So we do expect to have the data in 2010, but I can’t give you a precise date.


Your next question comes from the line of Chris Raymond – Robert Baird.

Chris Raymond – Robert Baird

I was looking at the $0.22 beat, but a $0.10 raise. How should we think about what you might be thinking about for the fourth quarter? Should we anticipate just another usual ramp in spending as driving that differential?

Robert A. Bradway

As you’ve seen from us through the years, a variety of our expenses will increase in the fourth quarter. You should expect to see that certainly in R&D and other areas as well.


Your next question comes from the line of Joshua Schimmer – Leerink Swann.

Joshua Schimmer – Leerink Swann

I’m trying to understand why biosimilar uptake in Europe is so slow. Is it a viable business model, and do you see any shifting in healthcare policies or regulations to incentivize faster or further uptake of biosimilar agents?

Kevin Sharer

First of all, I’ll say that it varies tremendously by country, with Germany being probably at the forefront of biosimilar penetration. Countries further south you go in Europe, the lower the penetration, and probably the primary reason is there are anti-substitution laws and that the doctor really has to decide, and so far given the pricing and safety concerns, they’ve largely chosen to stick with the originator product. Will that change over time? I think you see in Germany the sick funds making some attempt to spur some additional adoption of the biosimilars, but it’s not something that the doctors naturally want to do en masse at this point.


Your next question comes from the line of Shiv Kapoor – Morgan Joseph.

Shiv Kapoor – Morgan Joseph

In November 2008, you had expressed an aspiration to be one of the top three performers in the biopharmaceutical industry over the next five years. Given that there’s been various moving parts of the business including biosimilars, bmab, Aranesp—some positives, several negatives—overall, given what’s transpired of the past year, do you feel optimistic about your future growth profile?

Kevin Sharer

You’re right. We did last November in New York express that aspiration. A couple of things: I think that if you look at the positives, that is, Vectibix and Prolia, I’m very optimistic. We knew back then that ESAs were declining, and they’re declining at the rate that we expected, and there is REMS and a few other things in the horizon that we also knew about. So in general, the trajectory that I saw a year ago, I still see. One thing that is also true is that the industry’s prospects, say compared to a decade ago or two decades ago, are more modest than they would have been by quite a bit. I also note that we’re in the middle of what’s seen as perhaps the greatest recession in a long time. So given all that, which I didn’t exactly see last November, the degree which we see it now, I’m still very optimistic about our prospects to be an industry leader in growth, and obviously a lot of that is going to play out over the next year or so as we learn more about the label for Prolia and Vectibix results and other things that will reveal themselves, but I feel like I did a year ago.


The next question is a followup from the line of Geoff Porges with Bernstein.

Geoff Porges – Bernstein

I hate to go back to this original question, Roger, but if the FDA asked you for an additional study on Prolia or is your interpretation of what their request is that you may be able to satisfy that request with the data from the SRE study?

Roger Perlmutter

Geoff, it’s possible we may be able to satisfy that request with the data from the SRE studies. That needs to be discussed further with the agency. They did not specifically ask for us to begin to conduct additional studies.


Our final question comes from the line of Jim Birchenough with Barclays Capital.

Jim Birchenough – Barclays Capital

Just following up on the complete response letter and looking at the recent guidance from FDA, the draft guidance on REMS, they’ve got very specific requirements for format and content. When you look at the format and content of what you provided in your REMS, do you think you need to reformat it? This seems like pretty nitpicky bureaucratic stuff. I know you don’t want to characterize it that way, but did you format it and provide the exact content they asked for in the draft guidance?

Roger Perlmutter


Arvind Sood

With that, let me thank everybody for your participation in our call this afternoon. If you have any follow-on questions or comments, of course, the investor relations team will be standing by for the next few hours. Have a good afternoon!

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