Amgen, Inc. Q4 2009 Earnings Call Transcript

| About: Amgen Inc. (AMGN)

Amgen, Inc. (NASDAQ:AMGN)

Q4 2009 Earnings Call

January 25, 2009 5:00 pm ET


Kevin Sharer - Chairman & Chief Executive Officer

Bob Bradway - Chief Financial Officer

George Morrow - Executive Vice President of Global Commercial Operations

Roger Perlmutter - Executive Vice President of Research & Development

Arvind Sood - Vice President of Investor Relations


Chris Raymond - Robert W. Baird & Co.

Jeff Meacham - JP Morgan

Eric Schmidt - Cowen & Co.

Jeff Porges - Bernstein

Mark Schoenebaum - Deutsche Bank

Jim Birchenough - Barclays Capital

Steve Harr - Morgan Stanley

Michael Aberman - Credit Suisse

Yaron Werber - Citi

Rachel McMahon - Bank of America/Merrill Lynch

Eun Yang - Jefferies & Co.

May-Kin Ho - Goldman Sachs

Michael Yee - RBC

Maged Shenouda - UBS


My name is Christen and I will be your conference facilitator today, for Amgen’s fourth quarter and full year 2009 financial results conference call. All lines have been placed on mute to prevent any background noise. There will be question-and-answer session at the conclusion of the last speaker’s prepared remarks. (Operator Instructions)

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

Arvind Sood

Thank you Christen, good afternoon everybody. I would like to welcome you to our Q4 and full year 2009 results conference call. The objective of the call is to review our solid earnings performance in ’09 and focus on our outlook for 2010. In addition to growing earnings last year, we generated a record amount of operating cash flow and made meaningful progress towards advancing our pipeline.

We amongst our peer group of companies are in a unique position of having several regulatory and clinical catalysts ahead of us in the New Year. To discuss each of these topics in detail, I’m joined today by Kevin Sharer, our Chairman and CEO. Kevin will provide a strategic outlook for our business, followed by our CFO, Bob Bradway, who will discuss our results for 2009 and provide expected growth outlook for 2010.

George Morrow, who as you knows is our Head of Global Commercial Operations, will then discuss our product performance during the last quarter and after some thoughts and launching Prolia and then our Head of R&D Roger Perlmutter, will provide a regulatory update including progress on denosumab registrational programs as well as a pipeline update on our Phase 3 products in particular.

We will use slides for our presentation today. These slides have been posted on our website, and a link was sent to you separately by email. I would like to remind you that our comments today will be governed by our Safe Harbor statement, what that means in summary is that through the course of our presentation today, we may make certain forward-looking statements and actual results could vary materially.

We will use non-GAAP financial measures to help you understand our underlying business performance. These non-GAAP figures have been reconcile with GAAP figures in the press release that we sent earlier.

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

Kevin Sharer

Thank you, Arvind. Good afternoon everyone, and thank you for joining us today. As we reflect on 2009, I’d like to make a few comments. First the macroeconomic environment was the most challenging we have seen in our 30 year history, while no one can be fully satisfied with a revenue decline even a modest one coming within a percent of the low end of our original revenue guidance in this environment was admirable.

We once gain meaningfully grew earnings per share and over the most recent five year period, which includes the ESA business reset we’ve grown earnings per share at 15% compound annual growth rate, a very solid performance. We advanced the pipeline meaningfully in 2009, highlighted by recommendation for Prolia approval in Europe and a 15 to 0 FDA Advisory Panel Vote to recommend approval in the United States.

We also managed expenses in cash effectively as Arvind mentioned and generated over $6 billion in operating cash flow to invest and growing a business and returning cash to shareholders. I’d like to take this opportunity to thank my colleague at Amgen for their tireless efforts in 2009 on behalf of patients and shareholders.

Let’s now turn to the current year 2010. 2010 is an important year. First, we will learn the course of healthcare reform. Today it is impossible to consistently predict its course, so we have not included estimates about his possible financial consequences in our guidance. However, it is hard to imagine that what we saw a month ago will come to pass.

Second, we predict for Amgen, a return to top line growth and another solid year of earnings per share growth with strong cash generation. We expect and are ready to launch Prolia worldwide. Predicting the exact timing of the approvals is challenging. However, we are not aware of any major issues. That said, predicting within a few months the exact timing is not possible.

The most important points are that, we expect approval and we are ready. I’d like to announce today that, we have now submitted the information requested by the FDA and Prolia Complete Response Letter for Postmenopausal Osteoporosis. Also important clinical results are fourth coming this year, particularly, the prostate SRE III trial. Roger will comment on the expected 2010 pipeline key events.

We also expect the number of ESA related important events this year including REMS, MEDCAK and Cardiac on which George will comment. We will continue to be efficient and look to deploy our strong balance sheet and cash flow to serve more patients and overtime increase our top line growth rate. A few final thoughts before I turn it over to Bob.

We have a shot over the next three to five years to deliver top quartile industry growth performance. We are ready to launch Prolia. We have the financial resources and will to advance and grow our pipeline based on a combination of internal innovation, collaboration, and acquisition from outside. We have a clear understanding of our challenges and the ability to constructively manage them.

Our team is aligned, committed, and ready to move Amgen forward Bob, over to you.

Bob Bradway

Thank you, Kevin. I can direct your attention to slide five. I’ll walk you through the adjusted P&L for the quarter. As you can see, our year-over-year revenues were up about 2% in the fourth quarter to $3.8 billion and let me just quickly note that excluding Aranesp, revenues were up 4% in the quarter. Shifting to a review of our business by geography, U.S. sales were down 1% to $2.9 billion for the quarter.

Again, excluding Aranesp U.S. sales were up 2% on a year-over-year basis. George will have more to say about wholesaler inventory in a moment, but I want to note here that, we exited the year with overall wholesaler inventory at the low end of our normal range. So what this means is that, sales growth was adversely impacted by $65 million in the year-over-year inventory changes, which represent about one day of sales for us in the U.S.

Internationally, we posted a strong quarter with sales of $861 million, which represents an increase of 11% versus the prior year. Changes in foreign exchange positively impacted fourth quarter sales by $35 million. Now recall that foreign exchange negatively impacted us in the first, second and third quarters so this is the only quarter of the year in which we were helped by foreign exchange.

Turning now to operating expenses, as you can see on an adjusted basis, our total operating expenses were up 7% this quarter versus last year. In terms of the components of that, cost of sales for the quarter decreased by 3% as efficiencies more than offset a less favorable product mix than higher sales volume.

R&D expenses were up 12% year-over-year and that’s primarily driven by higher licensing fees of some $60 million associated with the Array BioPharma, agreement as well as higher staff related costs and some costs associated with ongoing collaborations in our early and mid-stage pipeline.

It’s worth noting that, sequentially R&D expenses were higher in the fourth quarter versus in the third, and I would point out that while we have typically seen an increase in our fourth quarter R&D expenses this year that increase is more pronounced again as a result of the array in transaction and certain investments in the early and mid-stage pipeline.

Turning to SG&A expenses, they were increased by 9% versus the same quarter last year, and this increase includes the cost of hiring the Prolia primary care sales force. It’s perhaps also worth noting, that the fourth quarter represents the first full quarter in which the Prolia sales force was on board in the P&L. Once Prolia is launched, we expect Prolia related expenses to increase as we begin promotional expenditures as well.

In addition, SG&A expenses were higher in the quarter due to higher staff related costs away from the Prolia sales force, which were offset to some extent by recoveries associated with the GlaxoSmithKline collaboration for Prolia. Excluding expenses associated with the ENBREL profit share, adjusted SG&A in the fourth quarter of 2009 was up 13% versus the same quarter last year. Sequentially, SG&A expenses were up and the increases in the fourth quarter of this year were consistent with the historical spending patterns that we’ve seen in prior years.

Shifting now to the tax rate for the quarter, as you can see our adjusted rate for the quarter was 15.9% compared to 19% in the prior year. The reduction in 2009 was primarily due to increased manufacturing in Puerto Rico and the favorable tax impact of changes in revenue and expense mix, partially offset by the benefit of the extension of the Federal R&D Tax Credit in the fourth quarter of 2008.

Shifting now to EPS for the quarter, again you can see that our fourth quarter 2009 adjusted EPS $1.05 which is down 1% versus the prior year as the benefit of a lower tax rate and decreased share count were more than offset by increased R&D and SG&A expenses which again primarily relate to Prolia and the Array BioPharma agreement in the fourth quarter. On a GAAP basis earnings per share were $0.92 which represents an increase of 6% over the prior year.

Now, shifting to the full year 2009 results on slide six, you can see for the full year we reported earnings per share growth as Kevin said earlier of about 8%. Let me make a few comments about revenues. Year-over-year revenues were down 2% to $14.6 billion, and when looking at the full year results recall that the Aranesp label changed last year in the third quarter and that's reflected in these results.

In addition our results were negatively affected by a stronger dollar in the first three quarters of the year. Recall the last quarter we indicated revenues returning to the upper end of our guidance range of $14.4 to $14.8 billion. However as a result of the decline in wholesaler inventory levels versus our expectations over the last few days of the year full year revenues ended just above the middle of our guidance range.

Shifting to review of our business by geography, U.S. sales were down 3% to $11.1 billion. Internationally we posted sales of $3.2 billion in 2009 unchanged from last year. Excluding the negative impact of foreign exchange with some $213 million, total product sales decreased 1% and international sales increased 6% and we achieved this in the face of increased competition from biosimilars in Europe.

Turning now to operating expenses, again on an adjusted basis our total operating expenses were down 3% versus last year and we end of the year with an operating margin of 42.2% which is an improvement over where we were in 2008. Efficiencies were key to enabling us to drive down cost of sales by 5%, even though we were selling a less favorable products mix.

R&D expenses decreased 6% year-over-year due to lower clinical trial costs primarily for denosumab and Vectibix as well as lower sacramated cost for the full year. As a percent of sales in 2009 R&D expenses were 19.1%.

Turning again to SG&A, you can see that expenses increased by 1% versus 2008 due to increased spending for activities associated with the anticipated launch of Prolia and increased promotional expenses for our marketed products. These full year increases were partially offset by lower G&A expenses and expense recoveries associated with the GSK collaboration for Prolia. ENBREL profit shares were down $32 million year-over-year and excluding the ENBREL profit share SG&A expenses increased 2% versus 2008.

Turning now to the tax rate for the full year, let me just spend a few moments discussing our adjusted tax rate which was 16.9% for the full year compared to $21.7 in 2008 and there are three main drivers for the lower rate in 2009, the first recall that in the third quarter we reached settlement with both the IRS and the state of California on certain prior year tax audits the impact of which were specific for 2009. Second, we had increased manufacturing and profits in Puerto Rico in 2009 and, third, the tax rate benefited from some favorable changes in our revenue and expense mix during the course of the year.

Turning now to earnings per share, 2009 adjusted earnings per share were $4.91, up 8% and as you can see earnings per share benefited from lower OpEx as well as decreased tax rate and decreased share count following our buybacks this year. We ended the year with earnings at the low end of the guidance range primarily due to the impact of the declines in U.S. wholesaler inventory levels and the Array BioPharma agreement which we closed at the end of December. Our GAAP EPS for the full year were $4.51, up 20% on the prior year.

Turning to slide seven, you can see we ended the year with a strong balance sheet and healthy cash flows. Let me talk about a few of the key balance sheet items. Our year end global cash balance was $13.4 billion. You see we ended the year with $11.2 billion of debt and our adjusted stockholders equity increased by $2 billion over the year to $22.4 billion. With respect to our cash flow, we generated approximately $6.3 billion of cash flow from operations in 2009 which represents an increase of 6% over the prior year.

Capital expenditures for 2009 were approximately $500 million, which is down again for the second year in a row, thanks to improved productivity and efficiency in our capital programs. During the year, we repurchased 59 million shares, and with the additional $5 billion that our Board authorized in December, we currently have $6 billion remaining under our authorized share repurchase programs.

Turning now to slide eight, I’ll just walk you through 2010 guidance. We expect revenue to be in the range of $15.1 billion to $15.5 billion. This guidance range for 2010 accommodates growth in our base business as well as the relevant range of timing for global Prolia launches and excludes any impact from healthcare reform.

As we prepared for the launch of Prolia, I’ve already noted that we expect to see associated increases in sales and marketing expenses, for this perhaps also worth noting that we would expect to see some increase in R&D staff related costs associated with the launch of Prolia, and to an extent we may see a slight impact on the cost of sales once we launched Prolia as well, but taking that into account, we’d expect that both the cost of sales and the R&D margins to be roughly similar in 2010, as a percent of sales to what they were in 2009. That leads us to adjusted earnings per share in the range of 505 to 525.

Finally, let me say a word about tax and capital expenditures. On tax we expect our 2009 adjusted rated of 16.9% is not reflective of what we will see in 2010. In 2010, we would expect adjusted tax rate to be in the 20% to 21% range, which is clearly an improvement over where we were in 2008, when our adjusted rate was 21.7%. I would note also this guidance assumes that the R&D tax credit will be retroactively extended for 2010. Finally, for capital expenditures, we expect those to be in the range of $600 million in 2010 as well.

Now I’ll turn to George.

George Morrow

Okay. Thanks, Bob, and let's go right to the commercial highlights on slide 10. For the fourth quarter 2009 product sales increased 2% year-over-year with the U.S. declining 1% primarily due to Aranesp, as Bob mentioned and international go in 11% with growth across all products. The U.S. Aranesp decline of 20% was due to the 2008 label change and was largely offset by gains in EPOGEN, which saw a record quarter.

Internationally, our European business continued its strong performance with 7% growth with new product launches and new territories both contributing. For the full year 2009, global product sales declined 2% year-over-year driven mainly by Aranesp in the U.S., wholesaler inventories, and foreign exchange.

U.S. sales declined 3% year-over-year with an Aranesp sales decline of 24% offset by the remainder of the sales portfolio, which grew 1%. In addition, U.S. wholesaler inventories declined during 2009 accounting for a $70 million reduction in sales. This compares with an inventory growth of $130 million in 2008 resulting from the introduction of ENBREL into this channel.

The difference contributed approximately $200 million to the year-over-year sales decline. International sales grew 6% driven largely by Neulasta and Vectibix, and unfavorable foreign exchange comparison with 2008 reduced our international full year results by $213 million leading to flat sales.

The next slide graphically illustrates the components of year-over-year growth in the fourth quarter excluding the foreign exchange gain. U.S. Aranesp was the only major component of our product portfolio to decline in the fourth quarter and was offset by 2% growth in our other products. I’ll discuss each of the product results in more details in a moment.

First, slide 12 shows the effects of changes in inventory have had on our quarterly sales. As you can see, a build up of inventory in the second half of 2008 depressed sales in the first quarter of 2009. This slide also illustrates the difference in inventory build by the wholesalers in the fourth quarter of each of the past three years with 2009 showing very little year end build up. We expect that this will reduce the depressing effect of inventory burn off, which we saw in quarter one 2009.

From a full year perspective, as I mentioned, U.S. wholesaler inventory was a significant negative factor in year-over-year performance at approximately $2 million down. Quarter end wholesaler inventories are affected by many factors including the day, the week that a quarter ends, wholesaler shipping schedules, end user buying patterns, wholesaler working capital decisions, and credit availability in costs. Overtime, of course, demand drives average wholesaler inventory levels.

Turning to Aranesp, worldwide Aranesp sales decreased 8% in the fourth quarter versus last year. In the US Aranesp sales are down 20% year-over-year. ESA label changes made in August 2008 were the primary reason for this decline. Wholesaler inventory fluctuations also contributed to the year-over-year decline accounting for roughly 7% of the total. Internationally Aranesp sales were flat excluding foreign exchange and grew 4% including foreign exchange.

Slide 14 displays actual weekly U.S. Aranesp sales going back to quarter four 2007. As a reminder, the sharp peaks and troughs seen in the blue weekly sales line are largely a result of inventory build ups and depletions not fluctuations and actual patient utilization. At the end of the third quarter 2009 Aranesp inventory was above the high end of the normal range.

In the fourth quarter inventory returned to the midpoint of the normal range. The decline in the blue weekly sales line you see in the fourth quarter is due to this downward inventory move as well as business adjustments that occurred late in the quarter. The red trend lines reflect average weekly sales for each quarter. Wholesaler inventory fluctuations and business adjustments are excluded from the averages in order to provide a true quarter-on-quarter comparison more reflective of patient utilization.

As you can see, average weekly sales have only slightly declined in the fourth quarter 2009 versus the third quarter. While we believe the ESA labeling changes made in 2008 are fully reflected in clinical practices, several events will occur in 2010 that could further impact Aranesp sales. We expect the REMS to be finalized in the first quarter of this year and cannot rule out an additional step down in Aranesp sales as a result.

In response to the TREAT data we have already updated the U.S. labeling for ESAs and further labeling changes maybe undertaking as further analysis and review of the data occur. Our analysis of the Aranesp weekly sales in the U.S. is that when adjusted for inventory levels, in onetime accrual adjustments, we have want seen any material impact from TREAT data availability.

CMS has scheduled a MEDCAC meeting in March together information on the use of ESAs in the rheumatology setting. The meeting will determine any further action in coverage or payment policy and will update you in subsequent quarters as more information becomes available as a result of these events.

Next is EPOGEN. EPOGEN grew by 9% in the fourth quarter of 2009 versus the fourth quarter of 2008 driven by patient growth, increased dose utilization and increased in net price. For the full year net sales increased 5% driven by patient growth, increased dose utilization and net price increase. For 2010 dose fluctuations may continue as healthcare practitioners continue to refine the treatment practices in order to maintain hemoglobin levels in the 10 to 12 range.

We will comment on the final CMS bundling rules once released in the next few months. Next slide, Neulasta and NEUPOGEN combined grew 2% in the fourth quarter ‘09 versus the fourth quarter '08. In the U.S. sales were flat with units and price combined up 5% and inventory and business adjustments down 5%. NEUPOGEN wholesaler inventory levels exited fourth quarter '09 at the low end of normal range. Internationally Neulasta and NEUPOGEN increased 9% year-on-year including foreign exchange.

ENBREL is next on slide 17. Net sales were essentially flat versus the fourth quarter of 2008. Demand was also flat with price growth offset by unit decline. The unit decline was primarily in dermatology where we lost some share year-over-year to new competition. During the fourth quarter U.S. ENBREL maintained its leadership position in both dermatology and rheumatology.

In dermatology ENBREL captured a 35% dollar share during the quarter a slight increase versus the prior quarter and in dermatology despite the launch of new competition early in the fourth quarter ENBREL continued to get the majority of the first line biologic use for psoriasis capturing 57% of the dollar share in the segment during the quarter.

On prior calls we discuss that both rheumatology and dermatology segments have historically been impacted by seasonality with softness typically seen in the first quarter as some patients choose to forego filling prescription when is they face resetting deductibles, higher co-pays, and other insurance changes.

This year, we have stepped up our efforts to assist patients working through these challenges via specific new offerings in our existing ENBREL support program. We also continue to enhance our co-pay program, which offers support for co-pays, co-insurance, and prescription deductibles. It’s too early to make the call on the success of the new programs at this point, but the early data we have seen is encouraging.

Again, full year comparisons between 2008 and 2009 were impacted by combination of modest 2009 inventory drawdown and a large 2008 inventory build up. For ENBREL the combined year-on-year effect was approximately $120 million and without this impact ENBREL would have grown slightly in 2009.

Onto Sensipar on slide 18, for the fourth quarter worldwide Sensipar sales grew 12% versus the fourth quarter of 2008 comprised of an 8% increase in demand, a 2% increase in foreign exchange, and a 2% increase in inventories and business adjustments. Again, as we learn more about how oral drugs such as Sensipar will be handled in 2011 ESRD bundle will be in a better position to communicate on the potential impact.

Next slide, Vectibix sales grew 43% in the fourth quarter '09 versus the fourth quarter '08 and during the quarter, we saw growth in the U.S. EGFr colorectal cancer segment for the first time since the second quarter 2008. As I mentioned on our third quarter call, Vectibix future growth is dependent upon label expansion into second and first line metastatic colorectal cancer. International sales continue to be strong for Vectibix representing 51% of fourth quarter sales.

The next slide summarizes our international sales performance. Internationally, sales grew 8% excluding divested products and divested products in the fix of foreign exchange versus the prior year. Growth was driven by Neulasta conversion, new product launches and expansion into new territories.

On the next slide, we'll look at the international segment share for Aranesp Nephrology followed by Filgrastim. As in recent quarters, Aranesp Nephrology share remains steady as biosimilars condition to take share from EPO alpha and EPO beta and Mircera growth continues to arrive largely from NeoRecormon.

My last slide provides comparable data for the G-CSF market. To-date biosimilar up take is only slightly faster than what we saw with ESA. So as Arvind mentioned, I thought I’d finish up with a few thoughts on the Prolia launch. Roger will provide a regulatory update in a moment, but I wanted to revisit some points we made during our Analyst Day in late 2008.

First, we believe Prolia addresses a significant unmet need in postmenopausal osteoporosis, especially in that higher risk and non-complaint patients. For reimbursement and fulfillment reasons, we expect early trial in the highest risk and most unsatisfied patients before more widespread adoption, and in Europe, EMEA proof may precede reimbursement authority pricing by many months, particularly in larger markets such as France, Spain, and Italy.

One final comment regarding the U.S. Prolia sales force, in advance of the Prolia launch, the sales force are currently being trained on ENBREL and will soon start detailing primary care doctors to generate referrals to dermatologists for psoriasis and rheumatologists for rheumatoid arthritis. Roger.

Roger Perlmutter

Thanks, George. 2009 was a very productive year for research and development at Amgen. It’s noted on slide 24 we completed five Phase 3 mega trial all of which delivered data on schedule and within a six week period, including among these were two studies demonstrating the ability of denosumab to delay bony complications in patients with metastatic bone disease. Two studies of Vectibix used in combination with chemotherapy for the treatment of colorectal cancer and to TREAT outcome study exploring the benefits and risks of anemia treatment in patients with chronic kidney disease, who did not yet require dialysis.

Also in 2009, we advanced three drug candidates into formal dose ranging study, AMG 785, our Sclerostin antibody that we are developing in partnership with UCB is being evaluated in postmenopausal osteoporosis and as a means for improving fracture healing. AMG 827 and anti-IL-17 receptor antibody is being evaluated in psoriasis and other inflammatory diseases, and AMG 853 a molecule prostanoid receptor antagonist is being evaluated in asthma.

We added eight new molecules to our development roster including a Phase 2 glucokinase activator that we’ve licensed from Array BioPharma in the fourth quarter. We exercised our option for AMG 423, a very exciting potential treatment for heart failure that was originally discovered by Cytokinetics. We also received quite a bit of external recognition last year, including the Scrip awards for best overall pipeline and best new drug in Nplate and Time Magazine cited denosumab as one of 2009's top 10 medical breakthroughs.

As we announced in December on slide 25, we’ve received a positive opinion from the CHNP for the approval of Prolia to reduce fracture risk in women with postmenopausal osteoporosis at high risk for fracture and in men undergoing treatment for prostate cancer with androgen deprivation therapy. Formal EU adoption of the market authorization is expected to enroll in the near future.

Here in the United States, in mid-December, we’ve received detailed comments on our Prolia file from the FDA related to the complete response letters that is were sent in mid-October. The questions posed by the FDA related principally to the conduct of the post marketing surveillance.

We completed a very comprehensive response to the agency at the end of last week and as Kevin mentioned, we’ve submitted our complete response dossier for their review. Discussions with regulatory agencies in Australia, Canada and Switzerland are progressing.

In 2009, we obtained very impressive results using denosumab to reduce the risk of skeletal-related events meaning fractures, the need for surgery or radio therapy to treat bone pathology or spinal cord compression in patients with metastatic bone disease.

Our two Phase 3 studies, one in patients with breast cancer and the second in patients with a variety of other solid tumors or multiple myeloma will be complemented by a third study in patients with prostate cancer. We expect results from the third study during the first quarter of 2010.

As I mentioned previously, we obtained positive data with respect to progression free survival for Vectibix, when used in combination with chemotherapy in patients with metastatic colorectal cancer.

Our studies provided the first prospective data demonstrating that patients whose tumors contain a mutated version of the KRA gene derived no benefit from Vectibix therapy. This finding is in accord with our previous studies and those of other groups. The support of view the EGF receptor, the target of Vectibix therapy delivers signals through the KRAs signaling pathway.

A legitimate activation of this pathway through acquired some MEDCAC mutations in cancer cells in essence of short circuits EGF receptor drive signals hence obviating any therapeutic effect of EGF receptor blockade. As noted on the slide, we continued to derive important information from the TREAT outcome study, which addressed the benefits and risks associated with Aranesp therapy to a hemoglobin target of 13 grams per deciliter in patients with chronic kidney disease not yet on dialysis.

I wish to reiterate as we made plain in our publication in the fourth quarter that although Aranesp treatment of this higher hemoglobin target reduce the risk of blood transfusions. There was no statistically significant effect on all cause mortality or cardiovascular morbidity, which was the primary end point of the study. Moreover, we saw that this treatment, which is more aggressive than that which is recommended in our label, was associated with a very significant increase in the frequency of hemoglobin.

We concluded that for many patients in this population the risks of therapy will exceed the benefit that could be derived in terms of transfusion reduction. Much additional work remains to be completed using the very comprehensive TREAT database and there is much still to learn about ESA therapy in patients with renal insufficiency. I’ll have more to say about this in a few minutes.

Turning then to slide 26, our pipeline continues to advance. Data from the prostate cancer skeletal-related event study, comparing denosumab with zoledronic acid, well as I said become available during the first quarter of 2010, and we’ll have data from our metastasis prevention study in prostate cancer in the second travel half of the year.

Keep in mind that these and other studies are event driven and hence it is not possible for me to define precisely when the endpoint will be reached. We're also initiating metastasis prevention study in breast cancer having reviewed the protocol in some detail with the FDA.

I should also note that, we have initiated a male osteoporosis with the goal of providing data that will complement those already obtained in postmenopausal women treated with Prolia. As noted on the slide, the evolve study, which assesses all caused mortality and cardiovascular morbidity in dialysis patients treated with Sensipar/ Mimpara, is now expected to complete in 2011 based on our event rate tracking metrics and the predictive algorithms that we used.

Similarly the enrolment in the Phase 3 study of motesanib in non-small cell lung cancer is nearly complete. The current event rate data suggest that the study will complete in 2011 rather than at the end of 2010, as we have previously thought. In both of these cases, I must again add the caveat that the completion of the event driven studies is often difficult to estimate with confidence.

Finally, our Phase 2 study of AMG 386 a peptibody that antagonists both angiopoietin 1 and angiopoietin 2 yielded strong evidence for a therapeutic benefit. Enhance we are proceeding with a Phase 3 trial in ovarian cancer. I remind you that this is the very first clinical program directed at angiopoietin access and angiogenesis target that we believe could prove useful in multiple tumor types. Data from the AMG 386 program will be present at upcoming scientific meetings.

Moving forward in 2010, there will be numerous opportunities to review our current understanding of anemia management. Slide 27 notes that we have made good progress working with the FDA on the REMS program, a follow up from the most recent Oncology Drugs Advisory Committee meeting on this topic. We expect that the REMS will be completed in the first quarter of 2010 and will be implemented thereafter.

Two important forums for discussion, the medical evidence in Coverage Advisory Committee, which provides advice to the centers for Medicare and Medicaid services and a Cardio-Renal Advisory Committee, which advises the FDA will consider the implications of new data with respect to anemia therapy in patients with Renal insufficiency.

Not surprisingly, there’s great deal to be learned from TREAT, the only large placebo controlled study of patients with chronic kidney disease, not on dialysis. We're working forward to reviewing these data with the Advisory Committees and with the response agencies. Finally, the brisk pace of data release that we have established during the past twelve months will continue during the next months.

As I show on my last slide, I’d mentioned the two denosumab Phase 3 studies that will provide data this year. In addition, we'll also see the data from a study evaluating the use of Vectibix in combination with standard regimens in the treatment of metastatic colorectal carcinoma with the head and neck. Additional data from numerous Phase 2 studies on oncology using AMG 386, AMG 479, AMG 655 and AMG 102 will also become available.

Naturally given the broad potential applicability of AMG 386 and the positive results that we have seen with this agent in patients with ovarian cancer, we're hopeful many of the other tumor type’s understudies will also prove amenable to AMG 386 based therapy. We will also see data from Phase 2 study of AMG 827 psoriasis, which we expect to be very exciting. So 2010 will be an extremely busy year, and much more to say about each of these programs in the coming months. Kevin.

Kevin Sharer

Okay. Thank you very much everybody and now I’d like to turn it over to Arvind for questions.

Arvind Sood

Christen, would you go ahead and review the procedure for asking questions.

Question-and-Answer Session


(Operator Instructions) Your first question comes from Chris Raymond - Robert W. Baird & Co.

Chris Raymond - Robert W. Baird & Co.

Just a point of detail on I guesses guidance and the impact of the TREAT study. In the past I think as I recall you guys have talked a little bit about your market Intel in terms of starting hemoglobin levels maybe in stopping where the targets where they were typically stopped. In light of the FDA piece in the New England journal article issued about a month ago, can you talk about where things might stand right now?

George Morrow

Chris, this is data from September of 2009 by the average dose at initiation or average hemoglobin initiation is 9.5 and maintenance is on average 10.6, and Roger may want to comment on how that related to the TREAT placebo.

Roger Perlmutter

Thanks George. It is really important to note again this was data from September that George reviewed, and of course that was prior to the publication of the TREAT results and yet those data show that people are already practicing medicine in this patient population and non-dialysis population in much the same way that we saw in the placebo arm of TREAT, that is they're initiating with hemoglobin below 10 and they maintain hemoglobin at 10.6, which is like the hemoglobin arm, so not like the treatment arm in TREAT and that's relevant to thinking about the way in which people going forward will view appropriate therapy, I think.


Your next question comes from Jeff Meacham - JP Morgan.

Jeff Meacham - JP Morgan

Question for you on denosumab filing in SRE and you talk about the games factor once you have the prostate data in hand and the second part to that was how would a superiority versus non-inferiority result change your view about the prostate opportunity overall?

Kevin Sharer

So again the within the first quarter we should get the results of the 103 study. We're in the mid of trying to get those files that the databases cleaned up and locked which we hope will happen very soon and then we'll see the data, we’ll then have three SRE studies to look at as you know that we saw superiority in the breast cancer study and non-inferiority in the solid tumor study, and it will take awhile to pull these very large files together. There are more than 6,000 patients involved in this.

So we'll move forward, get the best filing put together. Obviously, we’d like to see superiority in the prostate cancer study, can't speculate whether or not we will, but we'll just put together the best file that we have and present it to the agency. I can't speculate about what they’ll do with it, but it certainly is an extraordinarily robust file for this indication for the reduction in skeletal related events in patients with bony metastases.


Your next question comes from Eric Schmidt - Cowen & Co.

Eric Schmidt - Cowen & Co.

I was intrigued by Kevin's comments at the outside of the call that you think Amgen has a shot at delivering top quartile industry performance. Just kind of wondering, what metric you were looking at there? Was that EPS growth for total return or stock price performance and also, where you think the top quartile in the industry will be by that metric?

Kevin Sharer

I’ll lever the stock price performance to you guys in predicting, but I’ll be optimistic there. What I’m thinking about is consolidated analyst forecast for the top 13 to 15 or so revenue growth rate performance for our industry over the next period of time, and that's where I’m coming from. So within that range, top quartile is a shot. I have seen those numbers from various people, various analyses be kind of in the mid single digits for the very top in revenue growth, so that was basically what I’m talking about.


Your next question comes from Jeff Porges - Bernstein.

Jeff Porges - Bernstein

Just follow-up Roger, on Prolia with all the discussions you've had with the FDA, do you have a sense of what it will take to potentially get prevention or prevention of osteoporosis at least in PMO? Also what it will take to get the TIBL approval? Thanks.

Roger Perlmutter

Jeff, most of our conversations have of course have focused on the treatment indication for which we received all the detailed questions in mid December and the basis of our complete response letter. There have been other discussions related to the prevention indication and also with respect to the hormone ablation indications, treatment induced bone loss, which of course we did get that indication recommended for men in the EU.

There’s more work to be done there. I think that the information that we're getting from our SRE studies will be very relevant in terms of reinforcing the safety profile of denosumab in that setting obviously 12 times the dose of Prolia, and as we have that data to make available to FDA, I think that will catalyze some discussions about what can be done to gain the indication in treatment induced bone loss.


Your next question comes from Mark Schoenebaum - Deutsche Bank.

Mark Schoenebaum - Deutsche Bank

Maybe I’ll ask a different question related to Prolia if you don't mind. This is probably for Bob and Kevin. I was just wondering what the company's updated thoughts are on dividend versus share buyback. This was a topic I know in '07, but I feel like maybe it’s time to revisit it as part of the dialog if you wouldn't mind?

Kevin Sharer

I have said possibly and fairly consistently that I would expect Amgen some day will pay a dividend. I don't imagine that's any time soon. I don't think that our shareholder base as I talked and is clamoring for it. I’m aware the arguments, both pro and con, but we don't have any immediate plans to change our share buyback policy. Bob, if you've got any additional color, go ahead, but…

Bob Bradway

I think you hit it Kevin. I’d flag as Kevin said at the outset $6.3 billion of operating cash flow and it’s an objective return capital to our shareholders and right now we're committed to doing that through share buybacks and you saw that $3.2 billion in 2009 and flexibility to continue to buyback stock in 2010.


Your next question comes from Jim Birchenough - Barclays Capital.

Jim Birchenough - Barclays Capital

Question on bone met prevention. I’m intrigued by the fact that you're moving forward with bone met prevention in breast without the data from bone met prevention in prostates, I’m just wondering if you can discuss the confidence in moving forward without the final data. Is there anything from the prostate bone met prevention study that gives you confidence in terms of safety, cancer end points, or efficacy and if that trial doesn't work, would you reconsider the breast study?

Bob Bradway

Jim, we’d always intended to do a study in breast. It was sort of a question of aligning all the many, many priority that we have because, we have a lot of opportunities I think in our pipeline and then the question is: When to do which things? When to do which studies?

The thing I was really in many ways most encouraging for the breast study were the results of the 136 SRE study, the superiority result that we observed versus zoledronic acid in that study gave us great confidence that we're having a profound effect on the way in which breast cancer cells behave when they are in bone, and that encourage us to think even more seriously about the breast cancer prevention study.

So I think if anything that was more a go than certainly than anything else, we have no results from the prostate constituted and I won't until the second half of the year. So we're just waiting to see what happens, but you can expect that there will be differences in the way metastases progresses for these different tumor types and it’s important I think to look in both prostate and breast cancer tumor cells comes out that favor metastases to bone.


Your next question comes from Steve Harr - Morgan Stanley.

Steve Harr - Morgan Stanley

Bob, and George when you give your guidance for 2010, what views have you incorporated around outcomes from the various regulatory panels on the ESA space, Medicare and FDA?

Bob Bradway

As I said, Steve, with respect to the top line guidance, our guidance accommodates a range of potential outcomes.


Your next question comes from Michael Aberman - Credit Suisse.

Michael Aberman - Credit Suisse

This question is for Roger, I’m wondering if you could give us an update on the Vectibix regulatory strategy and challenges and what we can expect next there.

Roger Perlmutter

Michael, of course we are going to file for Vectibix in the first and second line colorectal cancer setting. It takes a while to pull together all the data and all the results from the various different Vectibix studies. We'll file around the world, and we expect a lot of discussion about it because, as you know, there will be concerns at the regulatory level about with the overall survival trend that we saw, which is favorable, but did not meet statistical significance.

There’ll be a lot of discussion about drop ins, as you know in you're studies, patients who progressed would very likely receive an EGF receptor antagonist after progressing. What does that mean? I expect a lot of those kinds of discussions, but we'll pull our files together. We think our data are very, very supportive of the use of Vectibix in the setting four patients with wild type KRAS gene.


Your next question comes from Yaron Werber - Citi.

Yaron Werber - Citi

Just a question for you, we're getting lots of questions these days on Dmab upcoming Phase 3 in prostate cancer. Can you help us understand a little bit some of the preclinical rationale that rings like an inhibitor is actually going to be therapeutic there? When you're using an animal, some of the data a little, it’s a little complicated, so your thoughts are going to be really useful.

Roger Perlmutter

The preclinical data for denosumab in metastases prevention is actually enormously strong. So we have used a number of rodent models in which we’ve introduced tumor cells into the circulation and looked at the ability of pretreatment. In this case, with an OPGFC, because it can't use denosumab in the setting to block rank Ligand, block two bone turnovers, and look at collimation in the bone.

It’s really very impressive as I’ve said many times. Rank Ligand in addition by denosumab in the human clinical setting are using OPGFC, is the most potent anti-reabsorbed method it’s ever been introduced into clinical practice, whether in small rodents or in humans.

It has a very dramatic effect on the ability of tumors to gain access to bone in the preclinical setting, now whether we'll see that in humans or not, I don't know. That's why we're doing the study, but frankly the preclinical data are extremely is supportive and there’s no other way to look at it.


Your next question comes from Rachel McMahon - Bank of America/Merrill Lynch.

Rachel McMahon - Bank of America/Merrill Lynch

You made a comment about gross margins potentially being impacted by denosumab launching, and I am curious if you can expand on that a little bit, not just the launch but just big picture and we think about our models in the outer years is Dmab consistent or should we model a little bit less gross margins? Thanks.

Kevin Sharer

I was trying to give the sense, Rachel that we would expect cost of sales to be in 2010 roughly inline with what we seen for 2009, so I think that's an appropriate place to leave it roughly inline with what we experienced as a percent of sales this year.


Your next question comes from Eun Yang - Jefferies & Co.

Eun Yang - Jefferies & Co.

Could you comment on your discussion with FDA regarding the halt indication and prostate cancer? In Europe the regulatory agency provided a positive opinion so I am wondering whether start that data from three SRE studies will be sufficient to satisfy the additional data that FDA has requested?

Kevin Sharer

Yes, as I mentioned before, the what most of our discussions with the agency have and the detailed question that is they sent in December related to the treatment Postmenopausal Osteoporosis indication not to the treatment induced bone loss, but we do feel that there is a lot of important data from the 6,000 patients in the SRE studies which will make available of course in detail to FDA that are relevant to the safety of Prolia in the treatment induced bone loss setting.

Clearly denosumab used in SREs is used twelve times the exposure and so as a result we think that the results of this are quite relevant and we are hopeful that with that information in mind and given the demonstrated efficacy of Prolia in particular in men with and androgen deprivation therapy that there will be a way forward to make this drug available to patients in the United States.


Your next question comes from May-Kin Ho - Goldman Sachs.

May-Kin Ho - Goldman Sachs

This question is for Roger. Can you discuss the little bit more in terms of what happened between October and now in terms of discussion with the FDA on the information that you filed how much more safety data that you have to submit and would they want the safety for the third SRE trial before they would approve the Osteoporosis indication?

Roger Perlmutter

May-Kin, that the as is typical in these kinds of circumstances the FDA asks for a safety update. We're doing lots of clinical studies as you know with denosumab and it has been a year from our filing. We filed in December of 2008, so a lot more information, so we provide that integrated safety summary for all of the studies, long term extensions of our other studies, etc., that's what they wanted and that's what we provided.

The material with respect to the SRE studies of course is a very different patient population, patients with metastatic cancer receiving twelve times the dose, so that's quite a different setting they're mainly interested in the safety update, and frankly the what happened between mid-October and mid-December aside from the dialog that was going on between us and FDA was FDA assembling detailed questions related primarily to most post marketing surveillance and how that would be implemented for Prolia.

We finally got all of their questions together in mid-December and none of the responses to those questions required any new studies or new information. It simply required that we go through all of our analysis and present them in a clear way which we did and have submitted now very comprehensive analysis to FDA.


Your next question comes from Michael Yee - RBC.

Michael Yee - RBC

Just as a follow up to be clear, were bone cancer safety data submitted in the re-filing or no and is it clear that that won't be expected to be refiled as part of the package?

Kevin Sharer

Michael, I don't want to speculate on what FDA might require beyond what we have sent, what we provide to them is all of the relevant safety data from any patient who has been exposed to denosumab to make sure that they have an understanding of everything that we have seen. Could they say, we want to see more from studies currently underway, sure, it is always possible. I can't speculate on that. We'll just work very closely with them to give them all the information they need.


Your final question comes from Maged Shenouda - UBS.

Maged Shenouda - UBS

Given your comments on average hemoglobin levels with the start maintenance of ESA therapy, practically how much impact do you expect the REMS will have on utilization and just at the clinician and patient level, have you seen any impact on Aranesp use in CKD from the TREAT presentation of publication?

George Morrow

So, on the REMS, until we get final approval and implemented, we really don't want to speculate. I can tell you generally what we're going to be looking at is do doctors go ahead and get trained on the label, get certified and what kind of conversations will they have with their patients and what is the behavioral response to all of that, and so speculating on physician and patient behavior and until we have the exact final implementation plan and actually get some real world experience is really hard to speculate on that at this point.

Arvind Sood

Okay, George thanks for that. Let me thank everybody for your participation in our call this afternoon. If we didn't get to your questions or if you have any follow on comments, of course, Investor Relation team will be standing by. We’ll be happy to talk to you. Have a good afternoon.


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

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