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Amgen, Inc. (NASDAQ:AMGN)

Q4 FY07 Earnings Call

January 24, 2008, 5.00 PM ET

Executives

Arvind Sood - VP of IR

Kevin W. Sharer - Chairman, President and CEO

Robert Bradway - EVP and CFO

George Morrow - EVP, Global Commercial Operations

Roger M. Perlmutter - EVP, Research and Development

Eric Schmidt - Cowen & Company

Analysts

Geoffrey C. Meacham - JP Morgan

May-Kin Ho - Goldman Sachs & Co.

Geoffrey Porges - Sanford Bernstein

Jim Birchenough - Lehman Brothers

Mark Schoenebaum - Bear Stearns

Michel Abremin - Credit Suisse

Joel Sendek - Lazard Capital Markets

William Q. Sargent - Banc of AmericaSecurities

Steven Harr - Morgan Stanley

Richard Beleson - Capital Research & Management Company

George Farmer - Wachovia Capital Market

Christopher J. Raymond - Robert W. Baird & Co

Operator

Good day ladies and gentlemen. My name is Melanie and I will be your conference facilitator for today's Amgen Fourth Quarter Full Year 2007 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. There will be a question-and-answer session at the conclusion of the last speakers prepared remarks. [Operator Instructions]. We ask that you please limit yourself to one question.

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

Arvind Sood - Vice President of Investor Relations

Okay Melanie, thank you. Good afternoon everybody. I would like to welcome you to our conference call this afternoon. We have a lot of ground to cover during this call, including a review of our financial results during the fourth quarter and full year 2007, as well as our best judgment of business trends and risks to our business in 2008.

Our Chairman and CEO, Kevin Sharer will lead off with a strategic overview of our business, followed by Bob Bradway, our Chief Financial Officer. Bob will provide some additional details on our performance in 2007, as well as our projected growth outlook in 2008. George Morrow, who as you know is the Head of Commercial...Global Commercial operations will then discuss our product performance, both within the U.S. and international markets, with a particular focus on critical issues that may influence product performance in 2008.

Following George will be Roger Perlmutter, our Head of R&D, who in the context of providing a pipeline update, will discuss the results of a Phase III study comparing Denosumab to Alendronate. After Roger's presentation, we will open it up for your questions.

We will be using slides for our presentation today. These slides have been posted on our website and a link was sent to separately by email. Before I turn the call over to Kevin, I would like to remind you that through the course of our presentation today, we will make certain forward-looking statements and of course actual results can vary materially.

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

Kevin W. Sharer - Chairman, President and Chief Executive Officer

Thanks Arvind. Good afternoon everybody. Thanks for joining us. Needless to say, 2007 was a challenging year for Amgen and our shareholders. In fact in my now almost 16 years at the company, it stands out as the toughest one we have ever faced.

We had safety-related concerns and in our ESA franchise and those resulted in the loss of substantial planned revenue and profit. However we took swift, decisive and as I think the numbers show effective actions to restructure our cost base and still fund in advance the pipeline. This enabled us to deliver 2007 earnings per share of $4.29, which remarkably is very close to the lower-end of our original EPS guidance that we gave last year at about this time, that's despite the unexpected and very large hit to our operating income.

I'm proud of that operating performance and I think in 2007, we proved that we were adaptive, were resilient and were able to move the company ahead under even the most difficult circumstances. And this 2007 performance gives me enormous confidence in our ability to meet any challenges 2008 may present. I know you want to hear less about last year, more about what lies ahead. So I'm going to give a top level look at 2008 and some thoughts and guidance. Then we will draw down to the new answers during the rest of this call.

To begin with, we know 2008 will bear the full year impact of the 2007 ESA changes and we'll once again operate the business to optimize results and advance the pipeline. Although we are facing some new competition with ENBREL and with biosimilars in Europe, we have plans in place, we are prepared and our position is solid.

Our regulatory agency relationships were a key priority for Amgen. We remain committed to doing the right thing for patients and I'm happy to report on constructive dialogues with both the FDA and EMEA. In fact, over the past ten months we have moved ahead together to implement three ESA label changes. We'll continue to cooperate and work together because we and these agencies share the same goal, which is doing the right thing for patients.

For 2008 guidance, taking all that into consideration, we are projecting a revenue range of $14.2 billion to $14.6 billion and an earnings per share range of $4 to $4.30 per share. Our guidance range reflects our best judgment of our business trends and the ongoing competitive reimbursement and regulatory risk to our business. At the time of our business update, which we are scheduling for June, we'll have more information on all these matters to discuss with you.

In fact you can hear from us a lot of this year because we expect significant pipeline data to emerge. In fact, we now have the Denosumab head to head versus Alendronate data, and as you read in the press release, the study met primary and all secondary endpoints. Denosumab showed greater increases in bone-marrow density as compared to Alendronate. Also the safety profile for Denosumab continues to be encouraging. Roger will discuss that and other details of this trial in more detail later.

While more Denosumab studies are underway, the results we are going to talk about today give me increased optimism about the Denosumab's prospects. Simply put, we could not have hoped in this study for better results. Also, we have a number of molecules in Phase II that we will continue to advance this year. As we examine the data, we will determine which ones make the most sense to take to Phase III ourselves and which ones may need to move forward to partnering or licensing agreements. Again, we will keep you informed.

The bottom line is that we have more assets in our pipeline than we can develop ourselves. This is a good problem to have and we want to maximize the potential benefit for patients and shareholders. In every case where the clinical finding show promise, we want these new medicines to have the best chance of reaching people with serious illness.

Before I turn the call over to Bob for the financial review, I want to thank the people at Amgen who put forth a phenomenal effort in 2007. We were able to take a punch and keep going, that gives me confidence that we can handle whatever comes our way. There will undoubtedly be challenges and opportunities in 2008 and we are ready. Bob?

Robert Bradway - Executive Vice President and Chief Financial Officer

Thanks Kevin. If I can direct your attention to page five, I will walk you through the fourth quarter adjusted income statement.

Starting with revenues for the fourth quarter, as you can see from the slide; revenues for the fourth quarter decreased 2% from $3.8 billion to $3.7 billion. In terms of the product franchises, product sales in our Anemia franchise decreased by 17% during this period, while the rest of our product range grew by 9%. In terms of wholesaler inventories during the quarter, all of our major products ended at the high end of the normal ranges. And George will give you a little bit more product detail in a moment.

Moving to the geographical breakdown of sales, our fourth quarter U.S sales totaled $2.9 billion, which represents a 7% increase... sorry 7% decrease over the same period from the prior year. Our international sales in the fourth quarter were $747 million, which represents an increase of 17% and these sales were positively impacted by $64 million from foreign exchange fluctuations. Excluding those fluctuations, our international product sales increased by 7% during the period.

Now turning to operating expenses which I will discuss on an adjusted basis. You will note our operating expenses decreased year-on-year to into our ongoing efficiencies from our announced cost cutting efforts. Starting with cost of sales, for the quarter you can see that cost of sales increased by 3% to a cost of sales margin of about 15.6%. This increase was primarily driven by excess capacity charges at our manufacturing facility in Puerto Rico.

Moving to R&D expenses, you can see that our R&D expenses decreased 22% during the period and this was primarily due to licensing activity. In the fourth quarter you may recall, we had an inbound licensing deal with Cytokinetics and of course in 2007, we derived the benefit from out licensing Denosumab in Japan to Daiichi Sankyo. So those were the primary contributors to the 22% decrease. In addition, we have lower staff-related costs and discretionary spend as well, resulting from our previously announced restructuring.

Looking at SG&A; SG&A expenses decreased 1% during the period and this reflects our lower promotion and ad spending on marketed products, which decreases were partially offset by our higher line of profit share expenses due to ENBREL sales growth as well as higher legal costs associated with our ongoing litigation. SG&A expense growth is down approximately 3% year-over-year, excluding the higher Wyeth profit share expenses.

So despite the increases that I talked about in our talked about our business including cost of sales, legal expenses and profit sharing from Wyeth, total operating expenses decreased during the period by 8% again due to the efficiencies we achieved during the quarter.

Moving to the tax rate; you can see the adjusted tax rate for the quarter was 22.6%, which in an increase over the prior year, but recall that the fourth quarter of 2006 benefited from retroactive extension of the R&D tax credit, as well as favorable audit settlement during that period.

In terms of earnings, adjusted earnings per share were $1 for the quarter, which represents an increase of 11% over the prior period. Looking at fourth quarter adjusted earnings including stock option expenses, earnings were $0.97, which again represents an increase of 11% compared to the $0.87 we earned on the basis in fourth quarter of 2006. And on a GAAP basis, our fourth quarter 2007 earnings per share were $0.76 compared to $0.71 in the fourth quarter of last year. Again representing an increase of 7%.

The fourth quarter GAAP earnings were negatively impacted by $157 million of charges, principally related to staff separation costs, accelerated depreciation and accruals for losses on leased facilities in connection with our previously announced restructuring.

So I turn your attention to page six, I'll walk you through the adjusted income statement for the full year. For the full year, you can see revenue has increased 4% from $14.3 billion to $14.8 billion. Product sales for our Anemia franchise decreased 8% during this period while the rest of our products increased by 14%. In wholesaler inventories for our major products at year end we were at high end of normal ranges.

In terms of US sales during this period, US sales totaled $11.4 billion which was essentially flat with results from a year ago. Looking at the international sales for the full year 2007, we achieved sales of $2.9 billion which represents an increase of 17% and again, these sales were positively impacted by foreign exchange to the tune of about $193 million. Excluding those foreign exchange fluctuations, our international product sales grew 9% during the year.

And again, turning to operating expanses on an adjusted basis, our cost to sales increased through the year by 8% to a cost of sales margin of 15.8% and this increase was primarily driven by product mix due to the higher sales of ENBREL, as well other items including the write-off of certain new product presentations and excess capacity charges at our facility in Puerto Rico.

Excess capacity charges are expected to continue to occur to through 2008, as we have previously indicated to you. R&D expenses over the period decreased 4%, again this was primarily due to the licensing activity that I have previously described.

Turning to SG&A, SG&A expense growth was 5% during the year and this reflects the higher Wyeth profit share expenses again due to ENBREL sales growth, as well higher legal costs for the full year. These increases were partially offset by our lower promotion and ad spending for marketed products. For the full year, our SG&A expense is essentially flat once you strip out the higher Wyeth profit share expenses.

For the full year tax rate, you see the full year adjusted tax rate was 21.3% which represents a decrease from the 22.3% that we reported in 2006. Turning to earnings per share, adjusted earnings per share were $4.29 which represents an increase of 10% over the prior year. Including stock option expenses, the earnings per share were $4.17, which again represents 11% increase compared to the $3.76 that we reported in 2006.

And again, briefly touching on earnings per share on a GAAP basis, our 2007 earnings per share on GAAP reported basis were $2.82, compared to $2.48 in 2006, which represents an increase of 14%. 2007 GAAP earnings were negatively impacted by the write-off of $590 million of acquired in-process research and development related to our previously announced acquisition of Alantos and Ilypsa as well as $739 million of charges, primarily related to asset impairments, accelerated depreciation, staff separation costs and accruals for losses on our leased facilities in connection with restructuring.

On page seven, we have provided some highlights from our balance sheet and statement of cash flows. As you can see we ended the year 2007 with a global cash balance of $7.2 billion. As you can see our debt at the end of the fourth quarter was $11.2 billion and just to remind you the increase over the year end 2006, represents an increase of $2.2 billion and that's primarily due to the issuance earlier in 2007 of $4 billion of senior notes offset by the repayment of our $1.7 billion outlined [ph] security.

In terms of capital expenditures for the year, as you can see we spent approximately $1.3 billion on capital expenditures and that included about $234 million in the fourth quarter of the year. Our capital expenditures were lower in the fourth quarter versus the prior year, primarily due to the indefinite postponement of our construction of a manufacturing facility in Ireland, as well as other capital project reductions due to our previously announced restructuring. In terms of share repurchases, we repurchased 87 million shares during the year, at a total cost of $5.1 billion and just to remind you, we currently have in excess of $6 billion of share repurchase authorization remaining under our Board stock repurchase... Board-approved stock repurchase programs.

Turning to page eight, as Kevin mentioned earlier and as you have seen in our release, we are offering revenue guidance for 2008 in the range of $14.2 billion to $14.6 billion and we are offering earnings per share guidance, adjusted earnings per share in the range of $4 to $4.30.

Looking, at the components of our operating income during the period of 2008, we are expecting that our cost to sales will increase slightly as a percent of sales versus 2007, in terms of R&D again we are expecting a slight increase as a percentage of sales compared to 2007. We are expecting that SG&A will be similar to what it was in 2007, when excluding the Wyeth profit share. In terms of the Wyeth profit share, we are expecting that to amount to about one-third of our total SG&A expense in 2008, versus be approximately 30% that it comprised in 2007.

We are expecting the tax rate in 2008 to be similar to 2007 levels. And in that we are assuming that the R&D tax credit will be re-enacted. Capital expenditures, we are expecting to be approximately $1 billion during 2008 and we will continue to be opportunistic with respect to our share buyback program. Now, with that, I would like to turn the floor over to George who will walk us through our product performance.

George Morrow - Executive Vice President, Global Commercial Operations

Okay, thanks Bob. Let's go right to the commercial highlights on slide 11. The components of the 3% full year product sales growth are at the ESA franchise, which accounted for 43% of product sales, declined to 8% and the remaining portfolio grew 14% year-over-year. As, I will be showing you in a moment, the ESA franchise sales trend was flat and stable during the later part of the year as physicians incorporated the new label and reimbursement policies into their anemia management approaches.

Next is slide 12. For reference purposes this slide displays the fourth quarter and the full year sales in growth rates for our major products. But, I am not going into additional detail on this slide.

Moving to the next slide which is Aranesp; physician response has been rapid and ESA utilization patterns now largely reflect new label and reimbursement changes. As such, Aranesp weekly sales stabilized in a reasonably tight range starting in mid-September and extending through most of the fourth quarter. As you think about the true underlying demand trend however, it's necessary to adjust fourth quarter sales for a few one-time items totaling approximately $50 million. These include a downward adjustments to return accruals, a recovery of certain accruals taken for Medicaid discounts, under the Reduction Act and a modest typical quarter end, end-user inventory build.

In the U.S. segment share held relatively steady in both oncology at about 64% and nephrology at about 53%. On the international side, Aranesp declined by 3% in the fourth quarter, excluding foreign exchange benefits. Our exit share was 2.5 for total Aranesp in Europe and pricing was negatively impacted by the intensifying competitive environment with several biosimilars, peg-EPO, and Dyne EPO entering the market.

As we exit 2008 with a fairly stable but flat pattern of sales trend, we see several important issues that may influence future sales. The outcome of ODAC, the net affects of label changes which Roger will discuss in a moment, reimbursement policy changes by either public or private payers and competitive behavior in the U.S and Europe. Note that for the first two quarters of 2008, we will have particularly tough competitors, given that the full effect of all of the changes of last year were realized from mid-September on. The ESA environment remains dynamic and we will keep you informed as events unfold.

Next slide. To continue to assist you in understanding the components of Aranesp revenue over time, we have updated a chart that you previously saw first in 2006. The blue boxes contain the full year numbers, while the red numbers showed the fourth quarter write down. As mentioned, the global Aranesp business declined by 12% in 2007 versus 2006. In U.S. the largest impact was seen on oncology, particularly in oncology clinics where practices are highly sensitive to reimbursement changes. As this slide indicates, U.S oncology component was $1.55 billion in 2007, versus the $2.1 billion we showed for 2006, a decline of 26%. Our international oncology business fared a bit better in 2007 versus 2006, growing from about $500 million in 2006 to about $550 million in 2007.

Next is Epogen on slide 15. Epogen declined 3% in the fourth quarter of 2007 versus the fourth quarter of 2006 driven by a 7% decline in dose and utilization that was partially offset by 3% patient growth and some other minor adjustments. For the full year, Epogen declined 1% in 2007 as compared to 2006, also driven by a reduced dosing utilization, resulted from changing practice patterns due to label changes and EMP. A further modest decline in dosing utilization in 2008 is possible to the degree that some physicians had not yet modified their prescribing patterns according to the January 2008 EMP update. And just as a reminder this update includes distributive [ph] reimbursement from monthly doses above 400,000 units and persistent hemoglobin measurements above 13 grams per deciliter.

Next is slide 16. On your left, Neupogen combined grew 9% fourth quarter '07 versus fourth quarter '06. In the U.S. sales increased by 4% driven primarily by demand and more specifically price, with underlying unit growth in the last slab versus last year. While U.S. wholesaler inventories ended slightly above the normal range, this was not a factor in sales growth year-on-year, due to the fact that 2006 ended with a similar inventory picture. International Neulasta and Neupogen grew 29% year-on-year, 18% excluding foreign exchange tax.

As noted in the past couple of calls, the ESA issues in the U.S. had impacted sales for share of Wyeth in Alaska. However, we have refocused our efforts on this important franchise and saw a positive trend in share of Wyeth for the fourth quarter. For the full year 2007, worldwide Neulasta and Neupogen sales also grew 9% versus full year of 2006.

ENBREL is next on slide 17. Once again in the fourth quarter of 2007 we have experienced solid growth of 8% versus the fourth quarter of 2006 driven by demand. As, you may recall from our first quarter call last year there were two factors contributing to the decline in the first quarter of 2007 versus the prior quarter. A favorable discount adjustment of $31 million in the fourth quarter of 2006 and the typical behavior pattern of many patients filling an extra prescription prior to the beginning of the planned year. Both Rheumatology and Dermatology segments had double-digit growth versus the fourth quarter of 2006. And despite some share loss in both segments we maintained our leadership position. In terms of the full year greater focus on mobilizing patient to seek treatment and better assistance in helping patients clear reimbursement hurdles, were the chief drivers of the 12% growth versus the prior year.

Turning to 2008 we have shifted to a wholesaler distribution model in January which we estimate will result in roughly 10 days of sales as wholesalers build inventory. As indicated in our third quarter 10-Q, we were in discussions with the FDA with respect to the class of TNF inhibitor agents around several safety issues. Such discussions may result in additional patient safety information in the form of box warning that will apply to the ENBREL label as is been the case with other TNF inhibitor agents. Roger will speak more of this issue shortly. Dermatologists continued to believe that ENBREL has the best balance of safety and efficacy, so new competitors will have to meet a high hurdle approved regarding long-term safety when they launch in 2008.

To Sensipar on slide 18; for the fourth quarter worldwide Sensipar sales grew 31% versus the fourth quarter of 2006. Earlier last year we felt that Sensipar was being negatively impacted by the distraction of the ESA issues among our U.S. nephrology customers. Our field organization has done an excellent job of making sure that Sensipar messaging is heard and this enabled us return in a strong fourth quarter in the U.S. with nearly 23% year-over-year growth and international sales grew even faster at 57%. Full year 2007 worldwide Sensipar sales of $463 million showed that this product is becoming an important therapy in the kidney disease setting.

Next is Vectibix. Vectibix revenue and share declines appeared to have stabilized during the fourth quarter. Future growth is highly dependent upon label expansion into first and second line metastatic colorectal cancer incorporating our new information on CareX. The CareX bio market data holds a potential to redefine the benefit risk profile of the class by identifying metastatic colorectal cancer patients who are more or less likely to respond to treatments.

And I will finish up with an overview of our international business on slide 20. We drove fourth quarter overall growth of 7% despite the fact that ESA dosing was more conservative, Dynepo was launched early in the year and several biosimilars and peg-EPO were launched in certain markets in the second half of the year. So far the only impact of the new ESA competition has been some modest Aranesp price erosions. In fact Aranesp share increased slightly year-over-year. In 2008, we will encounter the full effect of the new competition, including potential GEC access biosimilars, but so far so good. Roger?

Roger M. Perlmutter - Executive Vice President, Research and Development

Thanks, George. Going on to slide 22, let me summarize the key events in 2007 for the research and development organizations. 2007 of course was a year that was formed substantially by our interaction with international regulatory agencies with regard to erythropoietic-stimulating agents and we worked hard to improve ESA labeling. Our goal in all of this is to ensure that ESAs are used appropriately and that physicians and patients are informed about any risks that maybe understood with respect to ESAs. We issued a real healthcare professional audit [ph] over 66000 healthcare providers following March and November labeling updates and posted labeling changes on our website, communicated new information to investigators and the results of safety studies and we are working with agencies to finalize our pharmocovigilance study.

For Vectibix we received conditional approval in Europe based on the use of CareX as a predictive biomarker and we continue to study this and other biomarkers in order to better understand how to use Vectibix in the colorectal cancer setting. We also filed romiplostim NPLATE in the United States, Europe, Canada and Australia and I have little bit more say about that in a moment. But in 2007 as a result of the events that Kevin and George and Bob have described, it was necessary to restructure the R&D organization. And in the face of this restructuring we have the same time we are able to progress our late stage clinical programs and to achieve unprecedented expansion of the early pipeline.

Indeed on the numbers and those numbers are for example, the advancement of new molecules from basic research to pre-clinical developments, from pre-clinical development into the clinical setting and movement of Phase I programs into Phase II. On these numbers, 2007 was the best year in the history of Amgen research and development, which to me speaks volumes about the resiliency and adaptability of our R&D organization.

Turning to slide 23 with respect to erythropoietic-stimulating agents, our discussions with the FDA are continuing and the ENA is working to harmonize ESA labels, we described this in the fall of last year and we do expect that in the very near future, there will be harmonized ESA label in Europe. We are preparing for the ODAC meeting in March and we are working closely with the FDA. My expectation is that we will be able to go in together with a presentation that describes what's known and what we agree on and those areas where, there are still unknown features of ESA safety and what can be done about that both to pursue detailed analysis of any potential safety concern and also to implement a risk management plan and we will be rolling out the details of that risk management plan in the very near future.

We also completed enrollment of our TREAT study, which you will recall is the large outcome study in patients with renal insufficiency who are diabetics not on dialysis, in which were ready asking whether treatment of anemia in that population improves overall outcomes defined as ASCO GI mortality and the composite of cardiovascular endpoint. In all of these actions our primary priority is patients safety. We are trying to do the very best we can to ensure that there is appropriate use of ESA to treat anemia.

Turning now to slide 24, with respect to ENBREL, as George mentioned we are in discussion with the FDA to improve our label for ENBREL. We are expecting that there will be box warning related to serious infections as there is with other TNF inhibitor agents. As many of you have seen we published in the New England Journal of Medicine, one of most prestigious healthcare journals in United States. And they were demonstrating that children and adolescents with moderate to severe plaque psoriasis who received treatment with ENBREL experienced very significant improvements in their disease and this was a quite acceptable safety profile. So we were very enthusiastic about this new data.

In slide 25 I provide an update on some other marketed products. With respect to Vectibix we have completed new enrollment in the first line colorectal cancer Phase III study. And in addition we expect our second line colorectal cancer study to complete its enrollment by in the first quarter of this year on target. In both of these studies we are now employing a data analysis algorithm that includes analysis of the status of the KRAS oncogene in the tumors in these patients. And what we have shown as is described in the ASCO GI press release from today. And that was previously presented in part at the European Congress on Clinical Oncology, is that patients who have mutant version of KRAS in the third line colorectal setting, do not benefit from Vectibix treatment. The question really at the moment is whether the first or second line colorectal cancer setting, we can improve patient responses and reduce inappropriate toxicity by focusing Vectibix treatment on those patients who are most likely to respond that is those who have volatile KRAS represented in their tumor populations.

For Sensipar EVOLVE study which is a very large outcome study looking at all causes of mortality in cardiovascular outcomes when secondary hyper hyperparathyroidism is treated in patients with renal deficiency is on target to be completed by the end of January, ahead of schedule. We also completed our primary analysis on two Panitumumab head and neck head and neck cancer studies one in patients who are resected head and neck cancer and other Panitumumab head and neck head and neck cancer that have not undergone resection.

In both of these studies we found that Panitumumab message primary endpoint of reducing the incidence of severe or Oral mucositis in patients who are undergoing treatment. At the same time, we also saw trends favoring a reduction in duration and severity of Oral mucositis and in the use of a narcotic analgesics. However these trend when adjusted for multiple comparisons were are not statistically significant. The safety profile for Panitumumab in this setting was similar to that that was seen in the placebo-treated patients and we have the opportunity to review this data in a great deal, more detail at upcoming scientific meetings.

Turning now to Denosumab, the press release that we recently provided to you gives the results for Phase III head to head study, comparing denosumab to alendronate treatment in women with post-menopausal osteoporosis. In this study, primary and all secondary end points were met. The study was a fairly straightforward two-arm study which was conducted internationally. In this study, 1189 patients were enrolled and randomized one to one to receive alendronate, which is given at 70 milligrams of once-weekly by the oral route, while denosumab given as the dose which we are studying in post-menopausal osteoporosis, which is 60 milligrams given by subcutaneous injection, once every six months.

The study was designed such that we first compared the bone-marrow density at the total hip for non-inferiority. And if we met that endpoint, then we compared denosumab versus alendronate treatment for superiority and we found in that comparison that can denosumab was superior to alendronate in terms of improving bone-marrow density. I cannot give you the exact numbers, because it's our intention to publish these results in a high profile journal and I don't want to compromise that publication. So I will, simply say that at the total hip which is the primary endpoint that the effect of denosumab exceeded the effect of alendronate by 40%, and alendronate behaved as has been seen in many other prior studies of women with post-menopausal osteoporosis who were treated with this diphosphate. So this is really a very exciting result and we are extremely enthusiastic about it.

I should point out that are the results at other scalable sites were similar, and each one of our secondary endpoints was met as I have indicated. The safety profiles for denosumab and alendronate were very similar and that includes the serious adverse events, where they are indistinguishable. So, we feel extremely comfortable in this much larger study now that denosumab is behaving as we had expected. I would point out that the denosumab is the most potent anti-resorptive agents that has ever been introduced into clinical practice, as judged by pre-clinical studies and it certainly behaved that way in this clinical study.

Now bone-marrow density is not a registration endpoint, and this study will not prove to be a basis for registration. The important thing of course is what happens in our 216 study which is our post-menopausal osteoporosis study, which is on track to deliver data in the second half of this year, as is our Phase III study in men who have undergone hormone aberrations by GnRH superagonists or antagonists for prostate cancer. In addition, we completed our Phase III enrollment in our breast cell-related event study and we are expecting a very, very robust data set in 2008. We are on-track to review the entire PMO data set, which includes the fracture study, the hormone aberration study in breast cancer, the hormone aberration study in prostrate cancer, the study in women with osteopenia not yet progressed to osteoporosis, as well as the head to head study, all of those data which form together our registration package in the second half of 2008.

Turning to our pipeline update then on Slide 27, my last slide. As I indicated, Panitumumab endpoint was granted priority review by the Food and Drug Administration. We do expect a regulatory decision in the first half of 2008. As was announced today, there will be an ODAC Review scheduled for the 12th of March, which will provide an opportunity for us to once again go over the very substantial data set and of course for registration of the strain in the treatment of Immune Thrombocytopenia Purpura. The complete data will be reviewed at the American Society of Hematology in December, which include 11 posters and 3 oral presentations, describing aspects of our studies, including two pivotal Phase III studies, which met our endpoints.

Our new-stage pipeline is advancing with nine new molecules advancing into Phase II programs in 2007. In 2007, we also out-licensed AMG 623 our BAFF [ph] antagonist, which is part of the effort that we are making to seek partners for programs that no longer fit within our product peak area. and I'll emphasize again that all of this performance was achieved at the time, when we were struggling to gain efficiencies and to improve the way which the R&D operation works, based on the financial constraints that affected us in 2007. The fact that we were able to do all of this in 2007 bodes well for what we will be able to achieve in 2008.

Arvind Sood - Vice President of Investor Relations

Okay thanks Robert; now we let to open it for questions of, let me just listen something before you view. We do have a lot of people on the line, so I would like to request that you limit yourself just to one question. So with that would you review the procedure for asking questions Melanie?

Question And Answer

Operator

Yes sir. [Operator Instructions]. Our first question comes from the line of Geoff Meacham with JP Morgan. Go ahead.

Geoffrey C. Meacham - JP Morgan

Hi guys, good quarter and thanks for taking the question. Looking at your slide 14, the Aranesp segment breakouts, I'm comparing this with an earlier slide that you guys have for '06. And a couple questions, one for the U.S. non-oncology; it looks like that was down a $100 million year-over-year. Can you talk about the drivers there, and then the second part is that the U.S. Oncology Division of that, if you could just segment that between CIA, AOC and MDS, that'd be great.

Kevin W. Sharer - Chairman, President and Chief Executive Officer

Yes Geoff. Because of the reimbursements change that have taken place, distinguishing between CIA, AOC and MDS is just -- it's kind of a fruitless exercise right now. So we are not going to that any longer. Going to the non-oncology, we did lose some business there and basically what's happening is doctors are titrating to a lower hemoglobin level. It's close to 11 at this point. So that reflects decrease some, decrease utilization by the decrease dosing.

Geoffrey C. Meacham - JP Morgan

Thanks.

Operator

Our next question comes from the line operating May-Kin Ho with Goldman Sachs. Go ahead.

May-Kin Ho - Goldman Sachs & Co.

Hi. I was comparing to a slide that you had at the JP Morgan conference on the expenses, there seem to be some slight differences, versus the guidance there. Can you talk about that?

Kevin W. Sharer - Chairman, President and Chief Executive Officer

Yes. We have updated with the benefit now of having the actual fourth quarter data May-Kin, we have updated. As you can see in the slide we provided, slide 9, our current expectations. So the slide 9 just is in reference to full year 2007 result now that we have the benefit that we had in the close [ph].

Arvind Sood - Vice President of Investor Relations

We will take the next question Melanie.

Operator

Our next question comes from the line of Geoffrey Porges with Bernstein. Go ahead.

Geoffrey Porges - Sanford Bernstein

Thanks very much for taking the question. So just to go back to the slide 14 George. The other thing that you helped to script before was Medicare and non-Medicare within oncology and you have given us that here. But could you talk about I think you flagged up with the potential downside from the NCD being literally interpreted with 70% on the Medicare side, and the question was what was going to happen on the non-Medicare side. Could you talk about now you have seen this stabilization, where you have come to on those two sides of your oncology business. Thanks.

George Morrow - Executive Vice President, Global Commercial Operations

Yes let me give you some date from audits. So it's, I can't say this is perfectly projectable to the broader audience, but I think it's pretty good otherwise, so we wouldn't share it. If you take that period of stabilization in the fourth quarter, later quarter '07, early fourth quarter '07, and compare to the similar period, the previous year, the utilization patient use for ESA is down about 50%. Okay, so literally we are talking about half of the patients being treated in that period, versus really a peak period in 2006, and Geoff that's probably a bigger decrease in the Medicare segment and a lesser decrease in the commercial payer segment, but as we've said previously, even though commercial payers have not adopted the NCD provisions. Many doctors are treating their patients with one approach. And so they are not differentiating between Medicare and commercial payers. So I think 50% decrease in utilization, really reflects the new reimbursement environment in the label and as I said it's been, it was very stable through latter part of last year.

Geoffrey Porges - Sanford Bernstein

Thanks that's helpful.

Operator

Our next question comes from Jim Birchenough with Lehman Brothers. Go ahead.

Jim Birchenough - Lehman Brothers

Yes hi guys. I'm assuming your guidance contemplates a range of scenarios at the ODAC panel and back in May, the uncertainties that were left were indication-specific restrictions and what to do in the range of 10% to 12%, so I guess the question is on the low end of your guidance, what scenario are you assuming, coming out of ODAC?

Kevin W. Sharer - Chairman, President and Chief Executive Officer

It's certainly understandable question. We're just commenting on ODAC, we are not trying to handicap in this guidance around this call what might happen there. We are preparing cooperatively with the FDA and we look forward to really full and complete discussion of the issue. So, I'd rather just not comment on conditioning what may or may not happen at ODAC and relate that to our guidance, so I know that's not completely satisfactory. But I think for right now, it's the right thing to do.

Jim Birchenough - Lehman Brothers

Kevin, could ask then, if the guidance could absorb an NCD like label.

Kevin W. Sharer - Chairman, President and Chief Executive Officer

Like I said, I'd rather just not try to parse it and let's just be a little bit patient here and see what happens. I understand the question and the concern, but we've done the best we can with this guidance and we are sure if that's going to be prepared for a constructive discussion with the FDA at the ODAC.

Arvind Sood - Vice President of Investor Relations

So let's take the next question Melanie.

Operator

Our next question comes from the line of Mark Schoenebaum with Bear Stearns. Go ahead.

Mark Schoenebaum - Bear Stearns

Oh. Hi, thanks for taking the question. Just may be I guess I'll ask the DMAP question. When you look at the secondary end points in that chart Roger, meaning other scope or points on BMD, you said they were met, but were they on non-inferiority, are you are superior at all the other scope of sites on BMD?

Roger M. Perlmutter - Executive Vice President, Research and Development

Yes Mark, the study was designed, our view of the study and we put it together was denosumab ought to be superior at cortical sides and ought to be at least non-inferior at trabecular bone, because that's the information that came from our preclinical studies. So the specific statistical analysis plan said test for non-inferiority first, than superiority at the cortical sites which include total hip trochanter and distal radius. We were superior at all of those sites, and in the margins of superiority about what I describe. But in addition, we were better at all the other sites. There is no formal statistical analysis, it wasn't past of our statistical analysis plan, but you can say looking at the data, if you simply look at that and test it, than we are superior at all scalable sides.

Mark Schoenebaum - Bear Stearns

And I know what empowers the fractures, but were the rates comparable within arms?

Roger M. Perlmutter - Executive Vice President, Research and Development

They are very similar. The fracture rates are very similar. But keep in mind, this is a one-year study and although the patient number is good size, but particularly for safety analysis with 1189 total patients enrolled, in order to see a fracture difference comparing an activation Alendronate with what we believe is another activation in denosumab, we would need to have many thousand of patients studied for years, so its not surprising we didn't see difference.

Mark Schoenebaum - Bear Stearns

Thanks

Arvind Sood - Vice President of Investor Relations

Mark thanks for your question. Operator let's go to the next one please.

Operator

Our next question comes from the line Michel Abremin with Credit Suisse. Go ahead

Michel Abremin - Credit Suisse

Hi. Thanks for taking question. I hate to wait for questions, something so simple. But can you please tell us the whether the infection rates were similar to the denosumab and Alendronate?

Kevin W. Sharer - Chairman, President and Chief Executive Officer

Yes Michel the rates were very similar and all of the safety data are extremely comparable. So it's a very reassuring data set with respect to safety. They are extremely similar, there are no differences that you pick out.

Michel Abremin - Credit Suisse

All right, thanks.

Operator

Our next question comes from the Joel Sendek with Lazard Capital Markets. Go ahead

Joel Sendek - Lazard Capital Markets

Thanks a lot. I have a question on SG&A guidance. Firstly, you gave that number as a dollar figure and not as a percentage of sales. So I am wondering if you have flexibility there on the expense side, on the SG&A line if the revenue is coming at the low end of the range?

George Morrow - Executive Vice President, Global Commercial Operations

Well, as we have said before, we feel we have a better flexibility, but the guidance is what you see Joel in the... on the page 9 which is we expect SG&A to be similar in 2007 to where it was in 2008 when you strip out the Wyeth profit share. But obviously we are expecting the Wyeth profit share number to grow.

Arvind Sood - Vice President of Investor Relations

Let's take the next question.

Operator

Our next question comes from the line of William Sargent with Banc of America. Go ahead

William Q. Sargent - Banc of AmericaSecurities

Hi, thank you for taking my question. I was just wondering if you would comment how you think a black box warning would affect ENBREL room in terms of sales and also, does your EPS estimate include any down side either component of a U.S. ENBREL sales with this addition? Thanks.

George Morrow - Executive Vice President, Global Commercial Operations

Yes, I think we will still have differentiation in our label with regard to the safety and our forecast that's underpins the guidance certainly contemplated a box warning.

Arvind Sood - Vice President of Investor Relations

Let's go to the next question please.

Operator

Our next question comes from the line of Eric Schmidt with Cowen & Company. Go ahead

Eric Schmidt - Cowen & Company

Hi, another question for George; could you also quantify the Q4 wholesaler inventory effects for Epogen and Neupogen, Neulasta and ENBREL and specifically on this inventory build that's going to happen on the ENBREL side for the wholesaler switch is that 10 days of add in Q1 or is that near behind us?

George Morrow - Executive Vice President, Global Commercial Operations

Yes that will happen in Q1 and it will become a new study state. So, just running down the list; Aranesp was at the high end of the normal range, Neulasta its slightly over the normal range, Neupogen slightly over the normal range, Epogen within the normal range and Sensipar within the normal range but towards the high end

Eric Schmidt - Cowen & Company

Thanks.

Operator

Our next question comes from the line of Steve Harr with Morgan Stanley. Go ahead

Steven Harr - Morgan Stanley

Thank you. I will start by your comment you have too many products as you take pipeline candidates which I was thinking you can develop. I think one of the things investors have been struggling with is the extreme concentration of your business. So, how are you thinking about what assets to develop and what to out license and if want are out licensing, what's your plan to diversify this business over the next three to four years?

Kevin W. Sharer - Chairman, President and Chief Executive Officer

I understand the question. We take a look at the pipeline as it develops, if you guard rail [ph] that and said what if all of the molecules that are going into Phase III need... excuse me Phase II need to go on the Phase III and the demands of those molecules in terms of Phase III trials were beyond economically what look like made the more sense for the company. We try to look at them in terms of what's the most attractive for us which could involve factors of how big and where could the products be, how might they fit with our franchises. Would we develop on for one part of the world, somebody else for another so there will be a variety of criteria. And I think the diversification of the business if you will is going to happen as the pipeline develops three to five years is a little bit short in a 10 to 20-year product cycle. So, let me extend beyond that a little bit.

We've got probably two kinds of diversification challenges, one is U.S. versus international, we are highly concentrated in the U.S. given our history it be nice to be a bit more international than we are right now, I think that will happen. And then, number two, we would like to have more products in more therapeutic areas and if the pipeline develops as I hope it does we will end up being a major player in the bone area. We have metabolic disease assays, we have one in, one or two asthma, more in inflammations. So, as we look our long range plan and project out ten years or so we see quiet a bit more diversified company both in therapeutic areas and geography, but I think all of us I mean everybody in this call who has been around a while trying to predict exactly what the pipeline is going to do is a bit challenging but we are certainly where the issue, but I don't think the Company is so concentrated right now that its imperative that we do some M&A move to change that profile. I am actually all things considered so far so good but obviously we all hope for diversification in a positive way going forward. That was a long answer I know but it was an important strategic question that was pretty complicated.

Steven Harr - Morgan Stanley

It's not that you are managing the bottom-line right now if I cut in R&D is this being more thoughtful in terms of how you think about the long run players?

Kevin W. Sharer - Chairman, President and Chief Executive Officer

Yes, we are working when I had gone around last summer just to see our top investors we saw a lot of them. The messages were quiet similar we plan to go out and here after this call see a lot more people but the message is basically we are hey look Kevin, when you guys are running the company make sure that you don't try to deliver for the short-term and damage a long-term, keep investing in research and development.

I got to tell you we are very, very confident that we have enough resource and access to enough recourse to move this pipeline ahead. I don't want anybody to interpret the comment about too many assets as one of lack of commitment to high R&D spending quiet the reverse. We are going to spend in R&D as I have said in 20ish percent of sales and that's not a hard number but is it 20, is it 21, is it 22 that's a heck a lot of money but I think we are going to have assets beyond that to development. And that's a great spot to be, research has been enormously productive for us and I am really excited about the potential.

Arvind Sood - Vice President of Investor Relations

Steve thanks for your question. Let's take the next one.

Operator

Our next question from the line of Richard Beleson with Capital World Investors. Please go ahead.

Richard Beleson - Capital Research & Management Company

Thank you. I am just wondering based on the increase in bone mineral density is that you have seen. Can you give some type of mathematical model to predict what you think you might see in terms of fractures... fracture rate?

Roger M. Perlmutter - Executive Vice President, Research and Development

Well, unfortunately Richard, bone mineral density is not a perfect surrogated all, it's a very imperfect surrogate for those things that ultimately contribute to fracture risk. There are lot of parameters that are involved in fracture risk. And even when you are looking at it comparing multiple disphosphinates its not so straightforward. In this case we got a novel mechanism of action that is we are employing that the mechanism that is ordinarily used by the body to control bone resorption, we are blocking rank ligand. We increase bone mineral density we can show pre-clinically that we increased bone strength, we are very optimistic about how that will read out in terms of fracture risk. But there is not normal gram that permits us to say for X increase in bone mineral density we get Y improvement in fracture risk. So, we just going to have to wait for the results and be patient.

Kevin W. Sharer - Chairman, President and Chief Executive Officer

Here is a way to talk about big shelf here's a way to think about at least from my point of view. When we look at the safety profile obviously we were all quiet keen to look at that and what we were very, very pleased to how that looks, very pleased. If you look at the bone mineral density and you said, is it the same less or better, those been the three outcomes we should check out the best possible outcome and better and Roger talked about the numbers. All of that said it's one of those so far so good stay tuned. But I have to say this trial result is one that reinforces our optimism and hope after the product longer term.

Arvind Sood - Vice President of Investor Relations

Melanie as we are getting close to the top of the hour why don't we take two more questions please?

Operator

Yes sir. Our next question comes from the line of George Farmer with Wachovia Capital Market. Go ahead.

George Farmer - Wachovia Capital Market

Hi thanks for squeezing me in. Roger you talked about things to be discussed with FDA regarding ESA safety issues. Is it just a matter of setting up a risk management program or are new trials in fact required and if so, when do you think you will begin those studies?

Roger M. Perlmutter - Executive Vice President, Research and Development

George when we said before that we have already committed to a more robust pharmacovigilance program to do additional studies to explore the question of ESA safety. I mean the fundamental issue here is that the weight of evidence when you look at the totality of all the studies suggests that ESAs do not pose additional risk in terms of tumor progression or safety if you for example perform a med analysis as we have done or Toclyn [ph] has done or other people have done. On the other hand there are individual studies which show safety signals, in a number of different settings and it is possible that those individual studies are telling us something quite important about particular tumor types or particular patients.

So to exclude the possibility that there is a risk in terms of tumor progression or early death as a result of ESA used to treat chemotherapy-induced anemia, you really have to do large studies in homogenous tumor types and we have been working with the FDA to design those studies with an eye towards making sure that they are practical that you can actually enroll the studies that we all agree that I will answer the question and give us the right kind of results. Once we have settled on those routine to get those studies started, we are looking forward to the advice that we will get from the ODAC panel, because we will be talking about those studies with the ODAC Group and FDA... we and the FDA together, we will talk about those studies when we go to ODAC in March.

George Farmer - Wachovia Capital Market

Right, thanks.

Arvind Sood - Vice President of Investor Relations

Let's take one last question Melanie. Our final question comes from line of Chris Raymond with Robert Baird. Go ahead.

Christopher J. Raymond - Robert W. Baird & Co

Hi, thank you for taking the question, just a pipeline question I am kind of curious that there is no mention of the Ilypsa phosphate binder, I guess you are calling it AMG 223. Could you give maybe a little update as to where that molecule stands?

Roger M. Perlmutter - Executive Vice President, Research and Development

Yes, Chris we are going to talk about the totality of the Phase II and Phase II going to Phase III pipeline. When we have our review in June, the Ilypsa molecule is going forward, it has the characteristics that we described earlier, as a phosphate binder and we are getting ready to embark on the additional studies necessary to drive registration. So, we will give you a full update on that one and also on the Alantos acquisitions our partnership with kind Servia [ph] DPT IV inhibitor when we speak in June.

Arvind Sood - Vice President of Investor Relations

Okay. Thanks roger. Let me thank everybody for your participation in our call this afternoon. These are important issues, if we didn't get a chance to get to you through the course of this call, of course myself and the Investor Relations team will be around for quite some time. So, please free to call us. Have a good day.

Operator

Ladies and gentlemen thank you for your participation in today's conference. That does conclude the presentation you may disconnect. Have a wonderful day.

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