Amgen (AMGN) Robert A. Bradway on Q1 2016 Results - Earnings Call Transcript

| About: Amgen Inc. (AMGN)

Amgen, Inc. (NASDAQ:AMGN)

Q1 2016 Earnings Call

April 28, 2016 5:30 pm ET

Executives

Arvind K. Sood - Vice President-Investor Relations

Robert A. Bradway - Chairman, President & Chief Executive Officer

David W. Meline - Chief Financial Officer & Executive Vice President

Anthony C. Hooper - Executive VP-Global Commercial Operations

Sean E. Harper - Executive Vice President-Research & Development

Analysts

Matthew K. Harrison - Morgan Stanley & Co. LLC

Geoff Meacham - Barclays Capital, Inc.

Terence Flynn - Goldman Sachs & Co.

Alethia Young - Credit Suisse Securities (NYSE:USA) LLC (Broker)

Cory W. Kasimov - JPMorgan Securities LLC

Mark J. Schoenebaum - Evercore ISI

Michael Yee - RBC Capital Markets LLC

Joshua E. Schimmer - Piper Jaffray & Co. (Broker)

Robyn Karnauskas - Citigroup Global Markets, Inc. (Broker)

Eun K. Yang - Jefferies LLC

Ying Huang - Bank of America Merrill Lynch

Geoffrey C. Porges - Leerink Partners LLC

Yanan Zhu - Wells Fargo Securities LLC

Jeff Chen - Cowen & Co. LLC

Operator

My name is Jade, and I'll be your conference facilitator today for Amgen's first quarter 2016 financial results conference call. All lines have been placed on mute to prevent any background noise. There will be a question-answer session at the conclusion of the last speaker's prepared remarks. In order to ensure that everyone has a chance to participate, we would like to request that you limit to asking one question during the Q&A session.

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

Arvind K. Sood - Vice President-Investor Relations

Thank you, Jade. Good afternoon, everybody. I'd like to actually begin by extending my gratitude to all of you for having to deal with the deluge of earnings reports from multiple companies reporting today. I appreciate you being on our conference call to review our operating performance for the first quarter of 2016.

We are off to a great start for the year. And to review our progress, Bob Bradway, our Chairman and CEO, will lead the call with a strategic overview. Our CFO, David Meline, will then review our quarterly results and update you on our guidance for 2016. Tony Hooper, our Head of Global Commercial Operations, is here to discuss our product performance during the quarter; followed by our head of R&D, Sean Harper, who will provide a pipeline update.

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 e-mail. Our comments today will be governed by our Safe Harbor statement which in summary says that through the course of our presentation and discussion today we may make certain forward-looking statements and actual results may vary materially.

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

Robert A. Bradway - Chairman, President & Chief Executive Officer

Okay. Thank you, Arvind, and let me also thank our listeners for joining the call.

As Arvind said, we're off to a strong start in 2016 with 10% revenue growth and 17% adjusted earnings per share growth in the first quarter. Our sales were strong in the U.S. and internationally, and that was true broadly across our products. As you can see from these results, we've put the company in a strong position to manage competition for our legacy products while investing for growth with our newly-launched and late-stage pipeline products.

Last year, as you know, we had six launches in the U.S. We expect these products, and especially Kyprolis and REPATHA to pave the way for our long term growth. We'll talk more about these launches and our priorities for them on this call.

If last year was a year of launches in the U.S., this will be a year of launches for us internationally, as we take REPATHA, Kyprolis and our other new products into countries around the world. In total this year, we're expecting on the order of 80 new launches across our countries and products. For example, REPATHA is launching now in Japan, Brazil and multiple countries in Europe, and the early signs are good. Similarly, Kyprolis is off to a strong early start in its first markets in Europe.

Our Oncology and Cardiovascular franchises received a lot of visibility last year owing to the flow of data and our product launches in these areas. This year, we expect attention to focus on our other franchises as well, as our pipeline advances with important new opportunities. In bone health, for example, our romosozumab opportunity is coming into focus with positive Phase 3 data.

In nephrology, we expect approval later this year for Parsabiv, a therapeutic for dialysis patients. And we expect pivotal data in neuroscience for our migraine anti-body, AMG 334.

In inflammation, we look forward later this year to establishing with the FDA that our adalimumab molecule is indeed bio-similar to Humira. And while I'm speaking about our biosimilars programs, I'd also remind you that we expect to submit our bevacizumab or Avastin biosimilar file to regulators this year and to have Phase 3 data for our trastuzumab or hercepton bio-similar as well.

Our transformation efforts are well underway and delivering results. This includes cost savings, which David will discuss, but also improved speed to market and speed in the market. And these attributes are every bit as important as cost savings as we grow our company with new products in new territories and adapt to the changing environment for our industry.

Finally, we've designed our capital allocation strategy to deliver value for shareholders through both an attractive return of capital and dividends and buybacks, and vigorous investment for long-term growth.

This is an exciting time in the field of biology, with promising clinical opportunities and breakthroughs arising in many of our areas of interest. So with a strong balance sheet and a long-term investment outlook, we will continue to look for the most promising internal and external opportunities to advance. To underscore our prior comments on this topic, our emphasis will be on focus and capital discipline as we do this.

Before turning to David, let me just congratulate my colleagues around the world for the quality of their execution and a very strong start to the year. David?

David W. Meline - Chief Financial Officer & Executive Vice President

Okay. Thanks, Bob.

Turning to the first quarter financial results on page six of the slide deck, we are pleased with our strong performance, driven by continued momentum across much of our product portfolio. Total revenues at $5.5 billion grew 10% year over year. Overall product sales increased 7%, reflecting continued strong performance from our growth products, which more than offset the impact of competition on our legacy products, EPOGEN and NEUPOGEN.

Other revenues at $288 million increased $129 million versus the first quarter of 2015. Other revenue benefited both from an upfront partner payment for a licensing transaction, representing almost 40% of total other revenue for the quarter, as well as higher Ibrance royalty income. Total revenue and product sales were impacted 1% unfavorably due to foreign exchange changes.

Adjusted operating income at $2.9 billion grew 17% from prior year. Adjusted operating margin improved to 54.6% for the quarter, reflecting continued growth and progress from our transformation initiatives across all operating expense categories. As in prior years, our operating margin will likely be lower in the remaining quarters of the year, driven by the timing of expenses.

In 2016, we remain on track to deliver over $400 million of gross efficiency savings from the transformation versus prior year. This enables continued investment in our pipeline and launch activities, while delivering solid profitability.

On an adjusted basis, cost of sales as a percent of product sales at 13.5%, improved by 1.6 points, driven by manufacturing efficiencies, higher net selling price and lower royalties. Research and development expenses at $858 million were relatively unchanged in the first quarter of 2016 versus last year.

SG&A expenses increased 11% on a year-over-year basis, as increased commercial investments in new product launches were enabled by savings from transformation and process improvement efforts. In total, adjusted operating expenses increased 3% year over year, including a favorable foreign exchange impact of approximately one percentage point.

Other income and expenses were relatively flat on a year-over-year basis at $144 million in the quarter, as higher interest income was offset by higher interest expense.

The adjusted tax rate was 18.9% for the quarter, a 1.9-point increase versus Q1 of 2015. This increase was primarily due to the unfavorable tax impact of changes in the geographic mix of earnings and a state audit settlement in the same quarter of last year.

These increases were partially offset by the adoption of Accounting Standards Update 2016-09, a new accounting standard that impacts how certain share-based compensation tax expense is recognized. These impacts were previously reported on the balance sheet as a change in shareholders' equity. The new rule requires these impacts to be recognized in the income statement and thus have a tax rate impact. Future tax rate impacts will depend on the movement in our stock price between when we grant share-based compensation and when it vests. The Q1 benefit of this change adds approximately $0.09 to our adjusted earnings per share.

Adjusted net income increased 15% and adjusted earnings per share increased 17% year over year.

Turning next to cash flow and the balance sheet on page seven, free cash flow was $1.8 billion, an increase of $400 million over last year. We deployed $0.7 billion to repurchase 4.6 million shares in the quarter at an average price of $147 per share, and are on track to achieve total share repurchase for this year in the range of $2 billion to $3 billion.

Additionally, our first quarter dividend increased to $1.00 per share, an increase of 27% over last year. At the end of the first quarter, we had $4.2 billion remaining on our board authorized share buyback program and are on track to deliver on our capital allocation commitments to shareholders.

Cash and investments totaled $34.7 billion, an increase of $7.6 billion from last year's first quarter level. This increase reflects strong net cash flow and our first quarter debt issuance of $2.9 billion, of which approximately $2 billion will be used to repay debt maturities over the balance of this year.

Our debt balance stands at $34.3 billion as of March 31 of this year. Our total debt portfolio has a weighted average interest rate of 3.7% and an average maturity of 11 years.

Turning to the outlook for the business for the remainder of 2016 on page eight, we remain on track with our plans to continue investing to grow the business while transforming to a more agile and efficient operating model. Today we are increasing our 2016 guidance, which reflects solid Q1 performance from revenue and expense as well as a revised tax outlook.

With this background, our 2016 revenue guidance is now $22.2 billion to $22.6 billion versus prior guidance of $22.0 billion to $22.5 billion. And our adjusted earnings per share guidance is now $10.85 to $11.20 a share versus prior guidance of $10.60 to $11.00.

In addition, we now expect our adjusted tax rate to be 19% to 20%, including the impact of the previously mentioned Accounting Standards Update, versus prior guidance of 19.5% to 20.5%.

Finally, we expect to invest capital expenditures of approximately $700 million this year.

This concludes the financial update. I will now turn the call over to Tony.

Anthony C. Hooper - Executive VP-Global Commercial Operations

Thank you, David, and good afternoon, folks. You'll find a summary of our sales performance for the first quarter on slide number 10.

As Bob said, we had a great start, with global product sales in the first quarter growing by 7% year over year. Our U.S. business delivered 9% year-over-year growth, and sales growth in our international business was negatively impacted by five percentage points due to foreign exchange. Excluding the foreign exchange impact, our international business was up 7% year over year.

I will structure my comments in three categories today: performance in our growth products; how we are managing the life cycle of our mature brands; and conclude with an update on the performance of our newly launched products.

First, our six growth products – Prolia, XGEVA, Vectibix, Nplate, Sensipar, and Enbrel – aggregated nearly $3 billion in sales or over 50% of the first quarter sales, growing 20% year over year. Sustaining their growth continues to be a priority for us.

Let me start with Prolia and XGEVA, which are now annualizing at approximately $3 billion per year. Prolia grew significantly at 29% year over year. Continued share gains drove growth in both the U.S. and Europe, although with 25% year-over-year unit demand growth in both regions.

We saw the typical seasonality in the first quarter. In the U.S., our direct-to-consumer promotional efforts continued to drive increasing levels of new patient adoption, and we are sustaining repeat injection rates of over 65%. We expect continued growth from Prolia to come for years.

XGEVA grew 11% year over year. Unit share increased about three percentage points over last year in both the U.S. and Europe. The first quarter was positively impacted by increased levels of purchasing by some large end customers in the U.S., which we expect to burn off in the next quarter. We continue to focus on XGEVA's superior clinical profile versus the competition, and look forward to potential new indications, which will drive sustained long-term growth.

Turning to Vectibix and Nplate, unit demand growth drove double-digit gains year over year across both products. For Vectibix, we continue to make solid inroads into earlier lines of therapy in both the U.S. and Europe.

Sensipar grew 10% year over year, driven by net selling price as well as unit growth in the U.S. and Europe. With sales annualizing around $1.5 billion, Sensipar remains a growth driver. We look forward to adding Parsabiv as another treatment option for patients with secondary hyperparathyroidism. Our regulatory filing for Parsabiv are currently under review in both the U.S. and Europe.

Let me now turn to Enbrel. Enbrel grew 24% year on year, due to changes on net selling price and inventory, which was partially offset by competition. As a reminder, net selling price change comprises several components, including list price increases, as well as the rebates we provide to payers and the impact of formulary decisions.

In the first quarter of 2016, inventory was at a normal level. The year-over-year inventory growth is as a result of prior year dynamics. Declines in inventory levels in the first quarter last year make for an approximately $100 million favorable comparison this quarter. As we think about the second quarter this year, we expect to see a reverse effect of a similar magnitude. In other words, the significant inventory build in the second quarter of 2015 will create an unfavorable comparison, assuming inventory levels remain normal next quarter.

Turning to underlying performance for Enbrel, we saw 14% year-on-year growth in the rheumatology segment for the first quarter and Enbrel held quarter-over-quarter value share at 28%.

In dermatology, competition from new entrants, primarily non-biologics, helped drive year-on-year segment growth of 29%. Enbrel's share in dermatology declined one percentage point quarter over quarter to 21%. If you'll recall, rheumatology comprises about 80% of Enbrel sales. Given Enbrel's exclusivity through 2029, it remains a critical growth driver that we are continuing to invest behind.

Let me now turn to how we're managing the life cycle of our mature brands, starting with our ESA products. Aranesp sales increased 11% year over year, driven by 15% unit growth. In the U.S., we are successfully transitioning our medium sized and independent provider centers from EPOGEN to Aranesp. Aranesp now represents over 70% of ESA's share of these providers. International sales were negatively impacted by pricing pressures and foreign exchange rates.

EPOGEN declined 44% year over year. About a third of this decline is a shift from EPOGEN to Aranesp in the dialysis setting I mentioned above. Most of the decline comes from the shift from Amgen ESA to Mircera at Fresenius. We understand that Fresenius, which represents about a third of the U.S. dialysis business, has converted over 70% of their patients to Mircera. If you remember, we have a contract with DaVita, which represents another third of the dialysis business, to 2018, to purchase at least 90% of the ESA's from Amgen. I'd also like to point out, we also do not expect biosimilar competition to EPOGEN in 2016.

NEUPOGEN declined 13% year over year and 19% quarter over quarter, with a competitive landscape playing out as we generally expected. NEUPOGEN exited the quarter with a 64% share of the short-acting set segment, which now consists of ZARXIO, Granix, and Leukine. As we've said before, we continue to compete account by account as competition intensifies. We continue to emphasize the value of NEUPOGEN, all from its track record of safety, efficacy and reliable supply.

Neulasta grew 4% during the quarter. Unit growth of 3% included purchases by some large U.S. end customers, which we expect to burn off next quarter.

Let me now turn to our launches, beginning with the Neulasta Onpro Kit. The Neulasta Onpro Kit has been an extremely successful launch, achieving about one-third share of Neulasta units in the first quarter and approaching $1 billion in cumulative sales in the 12 months since launch.

Patients undergoing minor sequence chemotherapy regimens are at high risk of serious infections. One of the biggest challenges physicians face in preventing these infections is patient compliance. Most insuring patients get the Neulasta injection after each course of chemo and at the right time, 24 hours after chemo. These are critical steps in order to insure maximum benefit from Neulasta.

With the Neulasta Onpro Kit, we are able to address this important unmet need. This innovation also provides meaningful differentiation versus the traditional pre-filled syringe and potential future competitors. We also see the compliance rates improving with the use of Neulasta Onpro based on patient level data.

This is a great example of our strategy to identify and develop innovative delivery systems to improve the patient experience. By all measures, this is a highly successful launch, and the value it brings to patients and the healthcare system is translating to strong performance. We remain focused on increasing adoption to benefit more patients.

Kyprolis grew 43% year over year. On a sequential basis. U.S. unit growth was offset by unfavorable changes to inventory and to net selling price. The addition of ENDEAVOR data, which demonstrated its superiority versus Velcade to the U.S. label in January further solidifies Kyprolis' profile as a backbone of multiple myeloma therapy. We expect sales to continue to grow as we treat more second line patients, and they stay on therapy longer to achieve deeper and more durable responses. In markets outside the U.S., we are making good progress with our launches. Initial results have been very positive, as we bring this important therapy to these patients.

BLINCYTO continues to increase patient penetration in the U.S. and launches are underway across Europe, as reimbursement is secured. Sean will discuss developments about the Vectibix antibody platform in a moment.

IMLYGIC, our oncolytic immunotherapy for metastatic melanoma is currently indicated as monotherapy in the U.S. and Europe and is playing an important role in addressing the need for the small patient population. We believe that true potential for IMLYGIC lies in combination with other immunotherapies across different tumor types.

Turning now to REPATHA, which I continue to believe is one of our largest opportunities. I'm pleased with our competitiveness to date. Our robust clinical development program clearly demonstrated REPATHA's ability to deliver intensive and predictable LDL-C reduction. This message continues to resonate well with physicians, and coupled with strong execution in the marketplace, we continue to lead prescribing in the U.S., as seen in the IMS data.

In Europe, reimbursement negotiations are on track, and we're an early launch in several countries, including, Germany, Spain, the Netherlands and Scandinavia. In Japan, we have now received pricing approval and launch activities with our partner sellers are well underway.

Before handing over to Sean, I thought I would provide some color on the REPATHA launch. In my personal experience, I've seen a number of examples of successful but high value, slower ramping products that share a few common traits with REPATHA. First, these products often contribute to changes in treatment paradigms such as new meclizine vaccine and new (23:05). In the case of REPATHA, inhibition of PCSK9 is a novel mechanism and it is the first injectable biologic addressing chronic cardiovascular disease. I'm excited about the prospect of launching the REPATHA monthly dosing option later this year, reducing the number of required injections and creating another potential point of difference from the competition.

Second, these products often have significant development programs that improve the product profile, expand their patient pools, or extend duration of therapy over time. With REPATHA, how much we study with staffing and helping patients was well received by physicians, at the recent American College of Cardiology meeting.

Our coronary imaging study, we'll read out later this year, and was designed to demonstrate that REPATHA reduces patients' blood burden. And most significantly, of course, we expect the read out of a large 27,500-patient outcomes trial later this year, which we expect will establish a clear benefit in cardiovascular outcomes based on REPATHA's profound effect on lowering LDL cholesterol.

Lastly, access and reimbursement hurdles, while intense, should be overcome with a demonstration of superior clinical benefits versus the current standard of care. We expect to establish this with REPATHA through the outcomes study I just mentioned.

You might have seen this dynamic successfully play out with the fact that tenase has displaced Warfarin. I am unwavering in my commitment and in the belief of REPATHA. We will continue to work with payers to improve access to REPATHA for appropriate patients and expect its strong value proposition to benefit patients with ASCVD who are at risk of heart attack or stroke.

In closing, I'm pleased with our execution this quarter, and our strong start to the year. We've maintained focus on our growth brands while defending our mature portfolio and launching new products. We recognize that our launch products are an important long-term value driver and are working relentlessly to make them a success.

Let me close by recognizing that none of this would have been possible without the dedication of our staff and thanking them for the commitment to delivery to patients.

Let me now pass it to Sean.

Sean E. Harper - Executive Vice President-Research & Development

Thanks, Tony, and good afternoon. We've made a lot of exciting progress in Q1 as we continue to advance our pipeline of innovative programs. I'll begin my remarks with our cardiovascular franchise starting with REPATHA.

Statin-associated muscle symptoms represent a major unresolved challenge for treatment of patients with cardiovascular disease and often result in the use of therapies that provide less LDL cholesterol reduction than desired. In our recently completed Phase 3 study, GAUSS-3, we evaluated REPATHA and ezetimibe in a group of patients whose statin intolerance was verified by rigorous blinded statin rechallenge, where only those patients that experienced muscle related side effects on statin but not on placebo were studied.

As presented at the ATC meeting and simultaneously published in the Journal of American Medical Association, the study demonstrated that REPATHA resulted in a significantly greater reduction in LDL cholesterol after 24 weeks as compared to Ezetimibe with low levels of muscle related adverse events. We believe this is an important result for those high-risk patients that are unable to effectively manage their LDL cholesterol due to muscle symptoms from statins.

Looking ahead, as Tony mentioned, we continue to look forward to the results of our coronary imaging study and cardiovascular outcome studies in the second half of this year. We also continue to work closely with regulators on their reviews of our REPATHA monthly dosing option.

Feedback from cardiologists on our innovative myosin activator, omecamtiv mecarbil, has been consistent that we have a very compelling mechanism of action in Phase 2 data set. We're currently working with our partners at Cytokinetics and Servier, as well as global regulators to define a potential path to Phase 3 outcomes studies.

Turning to oncology, our Phase 3 open label study evaluating BLINCYTO versus standard of care in patients with Philadelphia chromosome-negative relapsed or refractory ALL was stopped at a pre-specified interim analysis after successfully achieving the primary endpoint of improved overall survival. This is a first for immunotherapy in this population, and we look forward to discussions with regulators as we seek conversions to full approval.

In Q1 we also filed an SBLA for BLINCYTO in the U.S. to include new data supporting the treatment of pediatric and adolescent patients with ALL. We feel BLINCYTO could be an important treatment option for younger patients, potentially avoiding the complications later in life, such as secondary malignancies that can arise with the use of cytotoxic chemotherapies.

We are advancing our bi-specific T-cell engager or BiTE platform, including AMG 330, which continues to enroll patients in its Phase 1 dose-escalation study. Recall that AMG 330 is our CD33 4ARM BiTE for acute myelitis leukemia, or AML. AML remains an area of profound unmet medical need. Despite adult AML being about four times as prevalent as adult ALL and with a very poor prognosis, there have been no significant advances approved in the last 20 years.

Staying with our immuno-oncology platforms, we recently initiated enrollment in the Phase 3 portion of our melanoma study of Enlogic in combination with KEYTRUDA, Merck's PD-1 inhibitor, and we look forward to presenting the results from the Phase 1b portion of this study at the upcoming ASCO meeting.

We also recently presented some encouraging first-in-human data at the American Association for Cancer Research annual meeting from one of our early stage immuno-oncology programs, AMG 820. This is our antibody against colony-stimulating Factor 1 receptor, also known as CFAMs, which stimulates the activation of tumor-associated macrophages. There's great interest in the role that tumor-associated macrophages play in tumor immunosuppression. And we're helping to lead this field with AMG 820, which is now enrolling patients in a Phase 1/2 study in combination with KEYTRUDA in advanced solid tumors.

Before I leave oncology, I would note we continue to have productive interactions with regulators in Europe on the Kyprolis ENDEAVOR submission, and I'm also pleased to announce that our Phase 3 study of XGEVA versus zoledronic acid for the prevention of skeletal-related events in patients with newly-diagnosed multiple myeloma has completed its enrollment. This is an event-driven study. And based on the current event rate, we estimate the data will be available in the second half of this year.

In bone health, we were pleased to report, along with our partners at UCB, the positive results from two Phase 3 romosozumab studies in Q1. Most importantly, our placebo-controlled pivotal fracture study met both of its primary vertebral fracture endpoints as well as the important secondary endpoint of clinical fracture reduction. This latter end point consists of symptomatic vertebral fractures plus non-vertebral fractures, an endpoint increasingly recognized by physicians, payers, and regulators, as these are the symptomatic fractures that can be life-altering.

Our Phase 3 study of romosozumab in men with osteoporosis also successfully completed in Q1 with romosozumab treatment resulting in significant gains in bone marrow density versus placebo. We look forward to our pre-VLA meeting with FDA as we pull together our initial filing package in the U.S. We also await the results from the event-driven fracture study, evaluating romosozumab in comparison to alendronate treatment, which we expect to see in 2017 and will be part of our European filing.

Switching to neuroscience, we had the opportunity to present the 52-week data from our Phase 2 episodic migraine study with our CGRP receptor antibody, AMG 334, at the American Academy of Neurology meeting earlier this month. After one year of treatment with a 70-milligram monthly dosing regimen, more than 60% of patients experienced at least a 50% reduction in their monthly migraine days, and about 20% of patients had no migraine days in month 12. These are patients that were having on the order of eight migraine days per month, so this is quite a clinically meaningful result.

We believe the efficacy, tolerability, and administration profile of AMG 334 could be an attractive option for migraine patients, considering the lack of well-tolerated prophylactic options currently available. We are rapidly advancing this program through the clinic with our partners at Novartis.

We now expect to have the results from our Phase 2b chronic migraine study midyear and we intend to use this study to potentially gain an indication in chronic migraines in our initial BLA filing.

We've also completed now enrollment in both of our Phase 3 episodic migraine studies and expect the results from both of these in the second half of this year.

Also in migraine, we believe that AMG 301, our PAC-1 receptor antibody, could complement AMG 334, and we continue to progress this asset through Phase 1.

In other regulatory activities, we continue to work with global regulators on their review of Parsabiv, our novel intravenous calcimimetic for the treatment of secondary hyperparathyroidism in patients on hemodialysis. FDA has also accepted our SBLA for the expanded use of Enbrel to treat pediatric patients with chronic, severe plaque psoriasis.

Finally, with several pivotal data sets and regulatory decisions ahead of us, we have a lot to look forward to this year, and I'd like to take a moment to thank all of my colleagues at Amgen for their unwavering focus on delivering innovative new medicines for patients in need.

Bob?

Robert A. Bradway - Chairman, President & Chief Executive Officer

Okay. Thank you, Sean. Let's turn it over now to questions. And, Arvind, why don't you remind our callers of the procedure.

Arvind K. Sood - Vice President-Investor Relations

Yes, Jade, if you can, go ahead and open it up for Q&A and just review the procedure for asking questions, please.

Question-and-Answer Session

Operator

And your first question comes from the line of Matthew Harrison from Morgan Stanley.

Matthew K. Harrison - Morgan Stanley & Co. LLC

Great, thanks for taking my question, just a couple clarifications for Tony. You mentioned two end customer purchases for Neulasta and XGEVA. Can you tell how large they were? And then second, maybe if you could, just expand around your comments for REPATHA. I think it's our understanding that 70% to 80% of scripts are abandoned at the pharmacy. What's your view on what needs to change to lower that rate? And how should we think about the change that outcomes data, if positive, could have there? And is there a rate, a hazard ratio, for example, in the outcomes data, that you think would cause a significant shift in some of those utilization management criteria? Thanks.

Anthony C. Hooper - Executive VP-Global Commercial Operations

Okay, so let me try and go through those. So on the large customer end user purchases for XGEVA and Neulasta, so in the range of $30 million to $50 million, so not a large amount, but they will clearly burn off during the second quarter. When I look at REPATHA, it is about a 77% rejection rate, not abandonment, that's happening at the pharmacy. So a lot of the prescriptions being denied because they don't quite fit the prior auth process which has been required.

Talking to cardiologists, it's clear that they are extremely frustrated at the moment because the patients they're sending in are appropriate patients who are not being properly managed on their maximum tolerated statin at the moment. We are spending quite a bit of time with payers at the moment, and helping them see the – what I would imagine that the unintended consequences of a rather onerous paper-based prior auth system, which is resulting in so many patients not getting access to drug when they should.

So, I think with a bit more discussion, people will understand the importance of getting appropriate patients on drug. I think of some of the question in terms of narrowing the population is around what will the outcomes show. And there's no doubt in my mind that once we have limited proof that this drug actually results not only in lowering LDL, but in actually reducing the risk of heart attack and stroke, that more patients will gain access to the drug.

Arvind K. Sood - Vice President-Investor Relations

Jade, let's go with the next question, please.

Operator

And your next question comes from the line of Geoff Meacham of Barclays.

Geoff Meacham - Barclays Capital, Inc.

Good afternoon, guys. Thanks for taking the question. I just wanted to talk a little bit about romo, just looking at the non-vertebral fracture data, do you think that this could be a big variance competitively? And then, what's the outlook for the European filing based on the PMO data? Do you think that the – there's a risk that secondary end points that may have to be hit on that? Thank you.

Robert A. Bradway - Chairman, President & Chief Executive Officer

Thanks, Jeff. Sean, why don't you take those questions?

Sean E. Harper - Executive Vice President-Research & Development

In terms of the results, the second part of the question relates, I think, to the ability to file the data set in Europe, and we do believe the data will support registration as is in Europe, but we also have always planned to file both outcomes – fracture studies. So we have the alendronate controlled study in which the primary end point is clinical fracture that will be part of that – part of that file.

I think that when you step back there are a couple things. One is that we need to present these data at the appropriate scientific congresses and publish them so that the experts in the field can look at the data, because the paradigm for the study design is so different than what people are used to with a three-year placebo-controlled portion rather than a one-year placebo-controlled portion.

And in the end, the most important endpoint to look at with these therapeutics we've hit which, again, is the symptomatic vertebral fractures plus non-vertebral. And we had quite a significant effect size there as well as the transition from treatment with romosozumab on to Prolia where we continue to see benefit of romosozumab into the second year on Prolia. So overall, I think the data will be well-received when people are able to look at it in some detail.

Operator

And your next question comes from the line of Terence Flynn from Goldman Sachs.

Terence Flynn - Goldman Sachs & Co.

Hi. Thanks for taking the question. Maybe first, just was wondering if you guys could comment on the Treasury notice and intercompany debt and any potential impact to your longer term tax rate. And then any potential for an FDA panel on etelcalcetide? Thank you.

Robert A. Bradway - Chairman, President & Chief Executive Officer

Sure. Okay, David, why don't you take the first?

David W. Meline - Chief Financial Officer & Executive Vice President

Yeah, so on the first one, so first of all Amgen, of course, is not a company that's inverted, so we're a U.S.-based company. And all of our debt is issued and received from third parties, so we don't see any impact on our business in terms of our ability to finance and the ability to deduct the interest expense from our earnings. So, right now we don't see any impact. But it's a pretty detailed and lengthy ruling so we continue to look at it, but we don't foresee any right now.

Sean E. Harper - Executive Vice President-Research & Development

And, Terence, it's Sean. We don't anticipate the need for an FDA advisory committee for Parsabiv.

Arvind K. Sood - Vice President-Investor Relations

Okay. Jade, let's take the next question.

Operator

Your next question comes from the line of Alethia Young from Credit Suisse.

Alethia Young - Credit Suisse Securities (USA) LLC (Broker)

Hey, guys. Thanks for taking my questions. I just wanted to ask a little bit about Kyprolis and if you were seeing any competition with DARZALEX or any of the other of the new regimens on the market. If you could give me color there, that would be great.

Anthony C. Hooper - Executive VP-Global Commercial Operations

Okay. So let me answer that question. This is Tony. Clearly, as I said, the addition of the ENDEAVOR data to our label, giving us both a doublet and a triplet regimen in second line, both with clinical data showing great efficacy versus the prior regimens, has put us in a good position to give patients in second line plus a better opportunity. The data in the market is quite shallow because we haven't looked at the patient chart orders. But as I look at the orders for the first quarter, I see Kyprolis continue to hold market share in third line. I see continued growth in the second line. And I see the newer entrants with very slow single digit market shares and predominantly being used in fourth line plus.

Operator

And your next question comes from the line of Cory Kasimov from JPMorgan.

Cory W. Kasimov - JPMorgan Securities LLC

Hey. Good afternoon, guys. Thanks for taking the question. So with regard to REPATHA access, assuming you get positive CVOT data later this year, what's your understanding of the process you'll need to follow in order to ease kind of current utilization management? I guess I'm wondering how fast things could open up, or if you're going to need to get the data and the label and renegotiate with payers first before you're able to tag a noticeable difference on that front? Thanks.

Anthony C. Hooper - Executive VP-Global Commercial Operations

So, as Sean said, we're expecting the data in the latter end of this year. Once the data becomes clear it'll become public. And I think people will have to make up their minds what that actually means. It will be presented then in a peer-reviewed publication and presented at one of the large congresses where the data will become clear to all the prescribing cardiologists. We, of course, from a commercial perspective are not in a position to negotiate or talk to payers about the data until the FDA has approved it in our label. In the interim, however, our medical affairs organization can respond to questions that we receive from the payers in a balanced and medical way. But I'm assuming once this becomes clear, the details will just clarify the unique value of this particular product. Sean?

Sean E. Harper - Executive Vice President-Research & Development

This is Sean. I think the other comment I would make is that you may have seen that the – that some of the U.S.-based guidelines for treatment of hyperlipidemia and cardiovascular risks were recently updated and included the concept of using the PCSK9 inhibitors after stepping through some other therapeutic options that have the cardiovascular outcomes data.

It's my understanding from talking with many of the key opinion leaders who are either involved in the guidelines or just thought leaders in the field, there's – there's a clear desire to update these guidelines as fast as possible when the cardiovascular outcomes data are available. So that's an independent process from anything to do with getting good data into the label and can be a very important thing that payers look at when they make access decision.

Arvind K. Sood - Vice President-Investor Relations

Jade, let's take the next question.

Operator

And your next question comes from the line of Mark Schoenebaum from Evercore ISI.

Mark J. Schoenebaum - Evercore ISI

Hey, guys. Maybe a question for Bob. In this environment, biotech prices have obviously come down. So I'm wondering what your current feelings, Bob, are around hostile acquisitions? Thank you very much.

Robert A. Bradway - Chairman, President & Chief Executive Officer

Mark, I don't know that I'd make any comments about hostile acquisitions but, as you've heard us say before, evaluations in some areas are more attractive this year than they were last and we have a strong balance sheet and we continue to look carefully both internally and externally for the most attractive programs that we can advance. But we look at all range of transactions, licensing, as well as M&A, and we consider them each individually. So I wouldn't speculate, Mark, about anything more than that at this point.

Operator

And your next question comes from the line of Michael Yee from RBC Capital Markets.

Michael Yee - RBC Capital Markets LLC

Great, thanks, a question for Sean. The pivotal CGRP data is certainly coming and there's a wealth of data coming. You've talked in the past about your hypothesis, about your mechanism and some differentiation. Can you maybe update us on your thoughts about how you still see that playing out as some more data has come out and just where data has played out? Can you maybe list one or two things where you specifically see some differentiation or how that plays in the future? Thanks, Sean.

Robert A. Bradway - Chairman, President & Chief Executive Officer

Thank you, Michael.

Sean E. Harper - Executive Vice President-Research & Development

So, Michael, I don't think much has really changed in terms of the fact that there's sort of fundamental scientific principles here around the difference between a receptor antagonist and the ligand. We've always felt that the receptor antagonist would be more potent, and we're seeing that play out. We've always thought that might result in a situation in which the administration profile of the product was better than it would be if larger amounts of protein were necessary for delivery, for example, on a monthly basis in a subcutaneous delivery device. So, I continue to think that it's a relative advantage to have a more potent agent when you're trying to administer infrequent dosing subcutaneously. But whether that will be really play into being an important clinical differentiator when these products are out in the marketplace is, I think, too soon to know.

Otherwise, we continue to push very hard on the product to get it to patients as fast as we can because there are about 26 million people with migraine in the United States, and among them there's somewhere in the order of 8 million to 10 million who have had attempts or are currently on and off of therapy for prophylaxis. So there's clearly a very large unmet medical need, and some proportion of that population would be an appropriate population, potentially, for this sort of therapeutic.

Operator

And your next question comes from the line of Josh Schimmer from Piper Jaffray.

Joshua E. Schimmer - Piper Jaffray & Co. (Broker)

Okay. Thanks for taking the questions, and maybe one for Sean. Amgen has had such a strong track record advancing the Phase 3 programs through to commercialization. Curious as to what there is in the Phase 2 or earlier pipeline that you're most enthusiastic to move into Phase 3; you mentioned omecamtiv, curious as to what else.

Sean E. Harper - Executive Vice President-Research & Development

Sure, I like to talk about that sort of thing. The certainly omecamtiv is very exciting. We also, as I mentioned, have another migraine prophylaxis antibody and of course, the potential to actually develop a bi-specific antibody that would address both of those pathways as a product behind that. Heart failure does remain a real focus for us, and we actually are introducing a novel, completely novel heart failure medicine into the clinic in a matter of days from now, which is exciting and have quite a few early discovery-level programs in that area.

Cardiovascular more broadly, we have some very interesting things we're working on in the early and midstage pipeline. And of course, the BiTE platform has a very large number of products in pre-clinical phases that are moving toward the clinic. And we're seeing a situation in which we're going to be introducing into the clinic multiple different therapies in some cases, with different targets directed at the same hematological malignancy, for example, and are having to envision some interesting multi-armed clinical trials to try to get some efficiency in the testing when we have so many things coming forward simultaneously.

So there's a lot going on. Because of everything that happens, that's happening at the commercialization interface, we don't get a lot of time to talk about that, and perhaps we'll have an opportunity in an upcoming business review setting to go through some of this in some more detail.

Operator

And your next question comes from the line of Robyn Karnauskas from Citi.

Robyn Karnauskas - Citigroup Global Markets, Inc. (Broker)

Hi. Thanks for taking my question. So just thinking a little bit big picture on the REPATHA launch, I think you called it like a slow launch. And you were talking about working with payers. How much are you willing to participate and deal with price versus, say, mortality outcomes? So what's the balance of lowering price and mortality outcomes as far as opening up access? Thanks.

Anthony C. Hooper - Executive VP-Global Commercial Operations

Robyn, it's Tony. Clearly as we've said, we bring our products to market with a clear debate and discussion around the pharmoeconomic value of the products. There was an extrapolated value that these drugs would actually result in reduction of both stroke, heart attack, and early untimely death, and I think we will continue to bring the value to market. There are rebates in the marketplace at the moment, and that dynamic will continue over time as we jostle for formulary positions. But I think what we bring to market at the moment is a pretty decent and acceptable value proposition to treat patients at high risk.

Operator

And your next question comes from the line of Eun Yang from Jefferies.

Eun K. Yang - Jefferies LLC

Thank you for taking the question, a question on Parsabiv. With the bundled payment in dialysis, what do you think could the pricing power be for the product like this, particularly since Parsabiv is expected to go generic in a couple of years? Thanks.

Anthony C. Hooper - Executive VP-Global Commercial Operations

All right, so it's Tony. Let me answer that one. So as you know, CMS have gone with a two-year period, that this product will operate outside of the bundle under the ASP pricing method, which will give CMS two years to evaluate the product value and then to make a decision how much value is put into the bundle when the product moves from ASP into the bundle.

Operator

And your next question comes from the line of Ying Huang from B-of-A Merrill Lynch.

Ying Huang - Bank of America Merrill Lynch

Hi, thanks for taking my question. The first one for maybe Sean to talk about a few outcome trials here. I know you guys never disclose the powering assumption or the assumption for event rate. But should we assume that it's probably similar to what your competitor has talked about?

And then secondly, I have a question on the EPO market. So Fresenius is switching to Mircera from Roche. You have a long-term contract with DaVita. What is your thought of the other one-third of the market with EPO and also (52:15) going forward?

Robert A. Bradway - Chairman, President & Chief Executive Officer

We'll take this in two parts. Sean will take your first question and then Tony can address your EPO question.

Sean E. Harper - Executive Vice President-Research & Development

Actually both we and Regeneron and Sanofi have published papers on the design of these studies, where there's a quite a bit of detail in the way that they were constructed. And in the end, these types of studies differ largely on the issue of how long it takes to enroll the population and what the event rate is once you get patients enrolled.

There are not, we don't believe – we would not anticipate large differences in the event rates between the two populations, but there will be some difference in event rate. And I think both companies have set their studies up so that they would be able to detect what was considered to be a clinically meaningful minimum effect size, so typically one would set these kind of trials up so that you wouldn't miss a 20% reduction in risk. Obviously, you may be looking for more, but that would be the way you power the trial. So there are more similarities than there are differences.

Anthony C. Hooper - Executive VP-Global Commercial Operations

Okay, so let me answer your question on the dialysis market. You're right, the market is broken into three. DaVita is responsible for about one-third of the market. We have a contract with them that is exclusive that runs to 2018. Fresenius, who is responsible for another one-third of the market are in the process of converting a lot of their patients. The last time they made any numbers public, they were talking about just over 70% conversion to Mircera. The other one-third of the market is the independent medium and small dialysis units. In that setting, we have converted about 70% of the EPOGEN usage to Aranesp.

Operator

And your next question comes from the line of Geoff Porges from Leerink Partners.

Geoffrey C. Porges - Leerink Partners LLC

Thank you, I appreciate the question. Tony, a couple for you. Could you talk a little bit about price on Enbrel, the contribution of price? Should we just infer that it's the difference between the growth, the units, and the inventory? It looks about 20%. And could you just talk about whether that looks to be sustainable given the market environment?

And then on a related note, could you talk about the value proposition for AMG 334? Certainly, millions of patients out there with migraine, but you can imagine payers preparing to do some of the things that they did for REPATHA. So how do you think that you're going to approach the value proposition of that indication to avoid the sort of really tight restrictions that you've encountered?

Anthony C. Hooper - Executive VP-Global Commercial Operations

Okay. So let's go back to the front end. Just to reconfirm again, what we report and what we talk about in terms of net price, and really that's a combination of the list price minus the rebates and/or formulary positions you have in the marketplace. I think as a company we're acutely aware of the issues facing the industry in the U.S. at the moment. But Amgen's all about innovation, right? So we price our drugs around the pharmacoeconomic value of the products as we bring them to market.

Enbrel itself, of course, is competing in a highly competitive marketplace where several large players are competing for formulary position to enable patient access. At the same time, the health plans and the PBNs are negotiating price concessions on large rebates to set up formulary placements themselves and it's because of the magnitude of these rebates that price increases have become part of this overall dynamic. So, it's an integrative process flow as we go forward.

Talking about 334, as Sean has said again and again, this is a huge unmet medical need in the marketplace where existing therapies have side effects that are sometimes as bad as the disease itself. Unlike most other diseases, patients with chronic migraine really know about it. It's debilitating. It's devastating. And some of the initial research we've done have shown a much higher inclination or preparedness to pay a co-pay because patients really want to get rid of the disease as quick as they can.

I think most of the patients who are available to us have been on therapy for some time and were able to show they've been on therapy. So step edits I'm sure will be there. But there's a large bolus of patients who have failed consistently on existing treatment in the marketplace.

Arvind K. Sood - Vice President-Investor Relations

So, Jade, I'm noticing that it's fast approaching 6:30 on the East Coast. Why don't we take two last questions?

Operator

And your next question comes from the line of Jim Birchenough from Wells Fargo Securities.

Yanan Zhu - Wells Fargo Securities LLC

Hi, thanks for squeezing us in. This is actually Yanan Zhu in for Jim. I wanted to ask a question on the CGRP program, specifically on the regulatory path. As you know, it's a competitive space with four players. You have the clear lead, the first Phase 3 data readout for that frequent episodic migraine indication. However, in a chronic migraine indication, it's a little less clear, because others have Phase 3 programs ongoing. Interestingly, you just mentioned, you commented that you might use the Phase 2 data that is going to read out – the Phase 2b data in chronic migraine – to support a BLA. Our question is, do you think you will seek a chronic migraine indication based on the Phase 2b data? Have there been any discussion with regulators on that? Thanks.

Sean E. Harper - Executive Vice President-Research & Development

This is Sean. I think that the things have you to take into account is that the chronic migraine Phase 2b study is quite a large study and it explores doses that are used in the two large Phase 3 episodic migraine studies. And these are obviously – there's a spectrum of disease here – and while there is a separate regulatory entity of chronic migraine and episodic migraine, the path of physiology is probably quite shared across these as evidenced by the fact that all the CGRP antagonists are having similar efficacy in the different patient populations. So it's our feeling that taken together, the aggregate data could potentially support both indications being granted at least by some of the global regulators.

And I would not typically go into the discussions about the specific conversations we've had with regulators, but I'd just say that we feel that it's a very reasonable approach to attempt to get both indications based on the aggregate data package.

Arvind K. Sood - Vice President-Investor Relations

Great, let's take one last question.

Operator

And your final question comes from the line of Jeff Chen from Cowen & Company.

Jeff Chen - Cowen & Co. LLC

Hi. Thanks for taking my question. For Tony, could you just discuss a little bit more about REPATHA in EU and Japan in terms of your experience of access and reimbursement? And if you think that the CVOT outcomes data will change the negotiation, or would that be a new round of negotiations? Thanks.

Anthony C. Hooper - Executive VP-Global Commercial Operations

So I think if you've heard people talk about the (1:00:36) performance in Europe where once the price has been set and reimbursement is agreed, there's no longer an economic decision around every prescription, so uptake happens quite fast. So I believe that as we get into growing into this marketplace, pricing is just about set. When you come in with larger expanded patient population groups, there's a chance in Europe, you have to go back in it in a country-by-country negotiation. In Japan, historically, that hasn't happened as much, and the pricing we receive in Japan seems to be a longer play-through from pricing.

Arvind K. Sood - Vice President-Investor Relations

Great. Thank you, everybody, for your participation on this busy, busy day. Of course, I'll be around together with the rest of my team, so if we can offer any further assistance, please give me a call. Have a good day.

Operator

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

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