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Amgen, Inc. (AMGN)

Q1 2006 Earnings Conference Call

April 18th 2006, 5:00 PM.

Executives:

Arvind Sood Vice President, Investor Relations

Kevin Sharer, Chairman, Chief Executive Officer, President, Chairman of Executive Committee and Member of Equity Award Committee

Richard Nanula, Chief Financial Officer, Executive Vice President - Finance, Executive Vice President - Strategy and Communications

George Morrow, Executive VP of Global Commercial Operations

Roger Perlmutter, Executive Vice President of R&D

Analysts:

Joel Sendek, Lazard Capital Market

Geoffrey Porges, Sanford Bernstein

Steven Harr, Morgan Stanley

Maykin Ho, Goldman Sachs

Elise Wang, Citigroup

Mark Schoenebaum, Bear Stearns

Shiv Kapoor, Montgomery & Co

Eric Ende, Merrill Lynch

Christopher Raymond, Robert W. Baird

Jeff Eason, JPMorgan

Gene Mack, HSBC

Jamie Rubin, Morgan Stanley

Sally Yanchus, Bessemer Investments

Andrew Barron, Citigroup

Craig Parker, Lehman Brothers

Eric Schmidt, Cowen

Operator

Good afternoon, my name is Angela and I will be your conference operator today. At this time, I would like to welcome everyone to the Amgen First Quarter Financial Results 2006 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question during this time simply press “*” then the number “1” on your telephone keypad. If you would like to withdraw your question press “*” then the number “2” on your telephone keypad. Thank you. Mr. Sood, you may begin your conference.

Arvind Sood Vice President, Investor Relations

Okay, thanks very much. Good afternoon everybody, and I would like to welcome you to our First Quarter 2006 Conference Call. With me today are Kevin Sharer, our Chairman and CEO, who is going to lead off the call, followed by our CFO, Richard Nanula, who is going to give you additional details on our financial performance during the first quarter. Also with us today is George Morrow, our Executive Vice President of Global Commercial Operations. And George will make some comments on the overall market and the current issues facing the commercial organization. After George, Roger Perlmutter, who is our Executive Vice President of Research and Development, will provide a pipeline update.

So before I start, I would like to make the customary cautionary statements. Through the course of the call today, we are going to make some forward-looking statements. And of course, we can’t guarantee that they will be accurate and actual results could vary materially. So with that, I would like to turn the call over to Kevin. Kevin?

Kevin Sharer, Chairman, Chief Executive Officer, President, Chairman of Executive Committee and Member of Equity Award Committee

Yeah thanks, Arvind. We are off to a good start in 2006 with total revenues for the quarter up 14% over the prior year, and adjusted earnings per share up 26% for the same period. Our marketed products continue to do well. You heard us say that even though we have achieved leading positions within each of our product categories given the current penetration rates, there is still a lot of room for additional growth. Richard will go into additional details on our performance during the first quarter as well as the outlook for the remainder of the year.

Let me comment on the business environment in 2006. On the reimbursement front, things are simpler with the transition more complete to the ASP methodology. As we had anticipated, we are starting to see stability in our ASPs, as evidenced by the ASPs for the second quarter 2006. George will discuss this in more detail, including what we are hearing about the new CMOS oncology demonstration project.

I would like to comment on some notable milestones during the quarter. First, we completed the filing of panitumumab with the FDA for third-line metastatic colorectal cancer. The pivotal study, which has been used to support this application was presented at the recently held meeting at the American Association of Cancer Research. I'm excited about the many key opportunities that we have in our pipeline. I believe our decision to increase adjusted R&D expenses by 30% to 40% this year is the right decision, given the many opportunities that we have. Roger will recap the panitumumab data together with a broader pipeline update, including information on the start of some major clinical trials involving our late-stage clinical compounds.

We also successfully closed on our acquisition of Abgenix. This transaction will allow us to capture the full economic benefits of panitumumab and provide full access to the XenoMouse technology, which could lead to the development of additional novel compounds.

As you know, there has been much talk of late about Roche and its peg-EPO product. Based upon Roche's public comments, we anticipate that Roche's BLA filing could take place any day. We believe peg-EPO violates six of Amgen's US patents, and Amgen is seeking to prevent Roche from importing and selling peg-EPO in the United States. On November 8, 2005, Amgen filed a patent lawsuit against Roche in federal court. And on April 11, 2006, Amgen filed a complaint with the International Trade Commission requesting that the ITC exclude peg-EPO from the U.S. market. Many of you have asked why we're pursuing these two actions simultaneously. While I'm not going to comment specifically on Amgen's legal strategy, there are some differences in timing and available remedies in the federal court and ITC actions that make it appropriate for Amgen to pursue both actions simultaneously to get the strongest possible response to Roche's actions. We believe this litigation will proceed in the normal course in the coming months. We have great confidence in our patent portfolio and a proven track record of protecting our therapies from infringers.

We also believe that peg-EPO provides no additional clinical benefits versus Amgen's innovative therapies: EPOGEN and Aranesp. As you know, Amgen revolutionized anemia treatment with the introduction of EPOGEN and Aranesp, which have accumulated over 4 million combined patient years of experience. I would now like to turn the call over to Richard.

Richard Nanula, Chief Financial Officer, Executive Vice President - Finance, Executive Vice President - Strategy and Communications

Thanks, Kevin. I'm pleased to report that adjusted earnings per share, excluding stock option expense increased 26% for the first quarter to $0.91 per share. On a GAAP basis, earnings per share increased 22% to $0.82 in the first quarter versus $0.67 in the prior year. Effective January 1, 2006, we began recording expense associated with employee stock options in accordance with the Statement of Financial Accounting Standards Number 123(R). As a result, reported GAAP results for the first quarter of 2006 were negatively impacted by $66 million on a pre-tax basis from the inclusion of related stock option expense.

Stock option expense in the first quarter was $0.04 per share versus $0.06 in the first quarter of 2005. Adjusted EPS, including stock option expense were $0.87 for the first quarter of 2006, an increase of 32% compared to $0.66 in the first quarter of 2005. Total product sales grew 14% to 3.1 billion over Q1 2005 sales of 2.7 billion. Total revenues also grew 14% compared to the first quarter of last year, reaching 3.2 billion. When we look back a number of years, we have consistently seen a sequential decrease in product sales from the fourth to the first quarter. For example, the first quarter sequential decline was 1% in 2006, it was 2% in 2005.

Sequential quarterly growth rates can be influenced by a variety of factors, such as shipping shortages due to extended holiday periods and buy-ins tied to contractual discount incentives. More importantly, underlying demand for our products remained strong, and with the exception of Enbrel, is in line with our expectations. George will discuss our products in greater detail in a moment.

With respect to Aranesp and Neulasta, we exited the first quarter with wholesale inventories somewhat below our normal expected range driven by strong demand at the end of the quarter. Our other products' inventories ended the quarter within the normal range. First quarter U.S. sales totaled 2.6 billion, an increase of 15% versus the first quarter of 2005. Total international sales were at 556 million, an increase of 10% versus the first quarter of 2005, and were negatively impacted by 46 million from changes in foreign currency exchange rates. However, this impact is offset in our bottom-line through our non-US operating expenses and our foreign currency hedging program. Excluding the impact of foreign exchange, worldwide product sales increased 16%, and the international product sales increased 19%.

Now I'll turn to operating expenses, which as usual I will discuss on an adjusted basis. Cost of sales rose 13% primarily due to higher manufacturing costs, in part due to higher sales volumes. Enbrel costs in the first quarter were higher, as we shared the costs related to the ramp-up of our partner Wyeth's Grange Castle facility under our global supply agreement. Higher costs of sales substantially offset lower royalty expenses as our contractual royalty obligations on NEUPOGEN and Neulasta with Amgen clinical partners expired in December of 2005.

R&D expenses rose 20% during the first quarter over Q1 '05, mainly due to higher staff levels and increased funding necessary to support clinical trials for our late-stage programs, including higher clinical manufacturing costs. As a percentage of sales R&D rose 1 percentage point to 20% compared to 19% during the first quarter of 2005, which contributed to the 1% decline in our operating margins to 44.4%. In January, we indicated to you that R&D expense would increase 30 to 40% this year, as we continue to initiate numerous large-scale trials throughout the remainder of the year, we expect to see accelerated growth in R&D expenses, inline with that guidance. As Kevin mentioned, given the opportunities we see in our pipeline, we believe this increased investment in R&D is the right strategy for long-term growth.

SG&A expenses rose 13% in the quarter, primarily due to higher staff level to support the growing organization, higher legal costs and higher Wyeth profit share expenses related to Enbrel sales growth. Our adjusted tax rate was 25.1% for the quarter versus 26.4% in the first quarter of 2005. For the full year, we now expect our adjusted tax rate to be lower than 2005 versus our previous guidance of a rate comparable to 2005, due to expanded manufacturing activities in Puerto Rico and what we believe may be some likely favorable tax settlements.

During the first quarter of 2006, adjusted EPS growth of 26% exceeded revenue growth of 14% by 12 percentage points. This earnings leverage was driven by a higher interest income, a lower-than-planned tax rate and a lower share count. This leverage is expected to moderate by the end of the year as we incur higher R&D expenses as well as absorb the dilution related to the Abgenix acquisition, beginning in the second quarter.

The Company now expects 2006 adjusted EPS in the range of $3.60 to $3.70, including expected dilution from the Abgenix acquisition but excluding stock options, up from a range of $3.55 to $3.70 per share, which excluded both the impact of the Abgenix dilution and stock-option expense.

In the second quarter, we expect to record a significant charge for acquired in-process R&D and development, so in-process research and development related to the Abgenix acquisition, which we will also exclude from adjusted earnings. In February, we completed a $5 billion convertible debt issuance. These notes carry interest rates of 1/8th of a percent on the 2.5 billion five-year notes and 3/8ths of a percent on the 2.5 billion seven-year notes. In connection with the bond issue, we entered into a bond hedge and warrant transactions which had the economic effect of raising the effective conversion premium to 50%.

Concurrent with the debt issuance, we repurchased a total of $3 billion of company stock. Aggregate repurchases for the quarter were 47 million shares at a total cost of 3.4 billion. This reduced our absolute shares outstanding as of March 31 to 1.178 billion. For purposes of calculating our adjusted EPS, the weighted average shares used this quarter were 1.214 billion versus 1.29 billion in Q1 of 2005. This reduction reflects our aggressive share repurchase program as well as the repayment and term modifications of our prior convertible debt issuance.

Turning to the balance sheet, capital expenditures were $225 million for the quarter. During the quarter, we announced major manufacturing expansion projects in Ireland and Puerto Rico, as well as the global expansion of our R&D capabilities. Our cash and marketable securities were 7.1 billion at the end of the first quarter, and just after quarter end, we funded the $2.1 billion Abgenix cash purchase price, thereby lowering our cash balances. Next, George will provide commentary on our products and business.

George Morrow, Executive VP of Global Commercial Operations

Okay as Richard mentioned, total product sales rose 14% during the first quarter. Overall, with the exception of Enbrel, our product performance was in line with our expectations. So let me turn to the key factors affecting our performance, starting with Aranesp. Worldwide sales of Aranesp increased 24% in the first quarter of 2006 versus the same quarter of 2005. In the U.S. Aranesp continues to exhibit strength, due to both share gains and market growth, where we saw 33% growth in net sales in the first quarter compared to the first quarter of 2005. We believe that our recent approval for every-three-week dosing will be a significant benefit for patients allowing them to synchronize their anemia treatments with their every-three-weak chemo, further strengthening Aranesp's position in this segment.

In the EU, Aranesp's share increased to 45% in oncology and 46% in nephrology. We continue to drive the uptake of extended dosing regimens in both settings, which is important in our preparation for the entrance of biosimilars in coming years. And we currently don't expect to see any biosimilars in the EU in 2006. We have seen good adoption of SureClick, our auto injector, in the EU since its launch in the summer of 2005. This device further differentiates Aranesp in both indications, as well as Neulasta, from the competition.

Speaking of NEUPOGEN and Neulasta, worldwide sales increased 13% for the quarter, driven by focused efforts in the U.S. on expanding first cycle utilization in moderate-risk chemo regimens. In the U.S., net sales for the Filgrastim franchise grew 15% during the quarter versus the same quarter last year, and Neulasta currently has a 74% share. Regarding the label expansion, we currently estimate that only about 22% of chemo patients in the clinic setting are receiving a colony-stimulating factor in the first cycle. Furthermore, there are potentially 100,000 total patients undergoing chemo regimens with a febrile neutropenia risk of 17% or greater who, according to our label, could benefit from Neulasta in the first cycle. Our field force is focused on continuing to get this important message out to our customers.

In the EU, we are still actively converting patients over from NEUPOGEN to Neulasta, and Neulasta's share increased to 46% by the end of the quarter. It is now the segment leader. Before I move on, just a few points about the U.S. reimbursement environment. In 2006, due to the combination of stable product discounts and smaller incremental price increases, we have seen a flattening of ASP figures. In fact, the second quarter '06 ASPs just released by the CMS reflect a small increase for Aranesp, Neulasta and NEUPOGEN versus quarter one.

The 2006 oncology demonstration project is not linked to the administration of chemotherapy, as the 2005 version was, but rather to evaluation of management visits. This helps CMS meet its objective of having oncology payments focused increasingly on patient-centered care rather than on chemotherapy administration. It has targeted about half of the funding originally targeted for the 2005 demo. But because it is seeking information on the state of patients' disease, and whether treatment is following clinical practice guidelines, we believe that this demonstrates CMS' continued commitment to quality cancer care and established guidelines.

The Competitive Acquisition Program or CAP that has been proposed as an alternative to the buy-and-bill model for oncology is scheduled to begin in July. As physicians have not yet begun to enroll in this program, we do not have sufficient details to assess its impact, if any, on our business. Beginning in 2006, CMS final rules adopted ASP for the hospital outpatient setting and discontinued the application of an equitable adjustment to the payment rate for Aranesp. And the last point on the reimbursement is to date, we have seen limited but increasing adoption of ASP by private payers.

So, picking up with EPOGEN, sales were up 4% in quarter one '06 versus quarter one '05. The major driver of the year-over-year sales growth, as Richard mentioned, was wholesaler inventory changes. Demand increased in the freestanding dialysis centers, consistent with patient population growth of 3% to 4%, but was offset by the increased use of Aranesp in hospital dialysis. Aranesp used in the hospital setting is being driven by pricing and a preference to stock a single red cell booster.

As a reminder, the vast majority of EPOGEN business is currently in the freestanding dialysis centers, as compared to the hospital-based dialysis centers. We expect that for the full year of 2006, Aranesp use in dialysis will stabilize at approximately 200 to $240 million. The revised CMS EPOGEN policy, the erythropoietin monitoring policy, was implemented on April 1, 2006. We believe that this policy will enable physicians to continue their focus on effective anemia management, and will have no significant impact on utilization of EPOGEN.

Turning to Sensipar, worldwide sales increased 126% versus quarter one '05, continuing the strong momentum from launch. In the U.S., demand has grown steadily through appropriate dose penetration and market penetration. We continue to see greater use in patients with parathyroid hormone levels less than 440, which we believe is a sign of physicians' increased comfort with the drug. We believe that adoption could be further enhanced as a result of the broader coverage by the new Part D Medicare benefit.

In the EU, sales growth is demand-driven and reflects the ongoing strong momentum from launch, which occurred about a year and a half ago. As in the U.S. market, we are starting to see usage earlier in the disease progression, which also reflect increased comfort with the drug.

I will finish up with Enbrel. Sales grew 11% for the quarter versus the same quarter last year. The rheumatology segment grew 16% and the dermatology segment grew 18% during the quarter versus the same quarter last year. We have seen a slowing in both segments this quarter. We believe that a portion of the slowdown can be attributed to a sharp decline in enrollment of patients in the demo project at the end of quarter four 2005. Doctors decreased enrollment of patients in the demo project in anticipation of Part D beginning in January.

In addition, as I'm sure you all know, patients experienced difficulties with Part D enrollment in the first quarter. Last year, we began activities to assist patients with enrollment. In February, we launched an even more specialized program to assist seniors to enroll in Part D. We believe that the majority of issues with Part D are behind us, and going forward, we should see continued growth in the number of Enbrel patients, as a result of access to Part D benefits.

Rheumatology sales were also impacted by an increase in competitive activities. In September, Humira has gained an expanded label for psoriatic arthritis and increased their spend. In addition, J&J approached rheumatologists with new REMICADE contracts, which included higher discounts in the fourth quarter. Although we have maintained our lead share position at 41%, we are down from 43% in the second half of last year.

In the dermatology segment, Enbrel's share for the quarter was 83%, down from 85% in the prior year, and sales were negatively impacted by the slowdown in the growth of this segment. Our market research efforts have shown that the number of patients asking their dermatologist for Enbrel declined after pulling our TV ad last May. We believe that informed patients actively seek new treatment alternatives and partner with their physician to move through the prior authorization reimbursement hurdles.

On a positive note, we currently have a branded DTC campaign on the air in rheumatology, and plan to be back on the air with dermatology in the next few months. We will continue to use direct-to-consumer advertising to increase patient awareness on the benefit of biologics and, more specifically on Enbrel. We remain confident in the long-term growth opportunity of Enbrel. Rheumatology and dermatology are large, dissatisfied and underpenetrated segments. Enbrel is a valuable option for patients, based upon its well-established clinical profile of safety and efficacy. I will now turn it over to Roger.

Roger Perlmutter, Executive Vice President of R&D

Thank you George. Well, at our annual investors' meeting in January, I outlined the key components of the clinical programs for both our currently marketed products as well as our registrational products, their expected timing and the associated increase (technical difficulty). Before beginning this afternoon, I would like to note that for purposes of this earnings call and the others to be made during this year, I will concentrate our update only on those programs with significant activity. During our year-end call and corresponding investor presentation next year, we will again provide a comprehensive update similar to the press releases back in January.

Now let me take you through the key programs and update you on our progress. As George mentioned with respect to Aranesp, the FDA has approved every-three-week dosing of Aranesp for the treatment of chemotherapy-induced anemia in patients with nonmyeloid malignancies. Aranesp is the only erythropoiesis-stimulating agent approved by the FDA for every-three-week administration. We also received approval in Australia for Aranesp extended dose in the nephrology and oncology setting, and have submitted a BLA for Aranesp nephrology extended dose in Canada. The submission and approval of extended dosing protocol for Aranesp in these disease settings is an important milestone, allowing anemia treatment to be synchronized with the practice of care, for example, both weekly and every-three-week chemotherapy, which are the most commonly used treatment regimens. This schedule flexibility offers improved convenience for patients and less injection-related burden and burden on health-care professionals compared to current anemia treatments.

Data on extended dosing regimens using Aranesp in patients with anemia due to chronic kidney disease were filed with the FDA at the end of 2005. These data cover monthly maintenance dosing after de novo Q2 week correction of anemia. The data should support a U.S. label for Aranesp similar to the label in Europe. With respect to denosumab -- denosumab, as you will recall, targets RANK Ligand and acts at the level of the osteoclast to inhibit bone resorption. We're studying denosumab for its potential in a broad range of conditions associated with bone destruction including osteoporosis, treatment-induced bone loss, prevention of bone metastases and amelioration of the effects of these metastases, treatment of multiple myeloma and amelioration of structural damage in rheumatoid arthritis.

As I previously mentioned, more than 10,000 patients are now enrolled in denosumab clinical trial. This program includes our pivotal Phase III trial in women with postmenopausal osteoporosis, where the primary endpoint is reduction in vertebral fractures. It is a three-year trial that will not be finished until 2008. As I stated previously, we believe that three-year fracture data will provide the basis for regulatory approval, based on the novel mechanism of action of denosumab and, hence, the desire to accumulate substantial information about chronic treatment of osteoporosis with this new molecule. In addition, we want to have the best possible chance of demonstrating a reduction in hip fracture with denosumab, which requires longer-term treatment to achieve statistical significance.

It is our expectation that we will file for denosumab in postmenopausal osteoporosis in both in the U.S. and the EU, using three-year fracture data. We are conducting three additional Phase III trials on the prevention of osteoporosis and the protection against the reduction in bone mineral density seen in patients undergoing hormone-ablative therapy for breast or prostate cancer.

On the oncology side, as previously discussed, denosumab has the potential to prevent bone metastases, as well as to inhibit and treat bone destruction across all cancers with metastatic components involved. Data from a previous Phase II study supporting the ability of denosumab to suppress pathologic bone turnover in patients with metastatic breast cancer indicated that the safety profile of denosumab is favorable at all doses and schedules tested, but suppression of bone turnover with denosumab in these patients is rapid, and that skeletal-related events, although infrequent at this early stage, are reduced to an extent at least similar to that seen with intravenous disphosphonate. These data were obtained from a randomized Phase II study comparing subcutaneous denosumab to IV disphosphonates, including primarily but not exclusively celedronate (phonetic).

The study focused on measurement of bone turnover but also included measurement of skeletal-related events, and was conducted globally in women with breast cancer metastatic to bone who are IV disphosphonate naive. Additional detail from the effect of denosumab on bone turnover in patients with metastatic breast cancer will be presented at the American Society of Clinical Oncology meeting in June.

This quarter, the first of four Phase III studies in oncology on the prevention of bone metastases in patients with prostate cancer was begun. The remaining three studies, which are designed to show reduction in skeletal-related events in patients with metastatic bone disease, are on schedule to begin in the second and third quarters of this year. In addition, a Phase II study in multiple myeloma is underway, where the primary endpoint is the reduction in serum M or myeloma protein.

Finally, in the rheumatoid arthritis setting, data from a Phase II study measuring the impact of denosumab on bone erosions in rheumatoid arthritis and, hence, the potential for denosumab to ameliorate structural damage in this disease, will be presented in the fourth quarter of this year at the American College of Rheumatology. Now, as Kevin noted in late March we completed the BLA submission with the FDA for panitumumab in third-line metastatic colorectal cancer. This rolling BLA submission was initiated last December. Our indication for panitumumab is the treatment of metastatic colorectal cancer in patients who have failed prior chemotherapy, including oxaliplatin and/or irinotecan-containing regimens. The FDA had previously granted fast-track status to panitumumab for this indication. Accordingly, we hope to obtain approval in either the third or fourth quarter of this year.

On April 3, 2006, results from the pivotal Phase III study used in the BLA submission for third-line metastatic colorectal cancer were presented in a clinical plenary session at the 97th annual meeting of the American Association for Cancer Research. Based on data from this randomized Phase III trial involving 463 patients, those who received panitumumab every two weeks showed a 46% decrease in tumor progression rate versus those who received best supportive care alone. The mean period for progression-free survival was 13.8 weeks in the panitumumab group versus 8.5 weeks for best supportive care alone, and the most common side effect was an acneform rash. Other side effects that's commonly observed were fatigue, nausea and mild diarrhea.

Finally, we continue to enroll patients in our PACCE trial, a non-registration enabling trial evaluating panitumumab in first-line treatment of metastatic colorectal cancer. Patients are randomized to treatment with Avastin plus chemotherapy, with or without panitumumab. This open-label multicenter study has endpoints of progression-free survival, response rate, overall survival and safety, and more than two-thirds of the patients are currently enrolled. Also in the area of targeted therapies, our progress on AMG706 continues. You will recall that this is a small molecule that entered at several pathways simultaneously, including the entire family of VEGF receptors, c-Kit and the PDGF receptor.

In early clinical studies, AMG706 has shown significant biological activity, and we have embarked upon a number of trials designed to demonstrate that AMG706 is active in the treatment of malignancy. Importantly, AMG706 had previously shown activity in gastrointestinal stromal tumors in patients who had failed Gleevec therapy, and we have an ongoing study in this disease. The recent full approval of Sutent in gastrointestinal stromal tumors removes the prospect of accelerated approval for AMG706 in this setting. Nonetheless, we're very anxious to see interim data from our Phase II study, and we expect to see these data later in the second quarter.

We have also completed enrollment well ahead of schedule of a Phase II study of metastatic thyroid cancer. We expect data from this study to be available either late this year or early in 2007. In January, we also discussed plans to conduct a Phase III head-to-head study against Avastin in non-small-cell lung cancer that was commenced later this year. During the quarter, we received input from leading authorities regarding our plans for the study. They would like to see the study broadened in order to understand the impact of AMG706 in non-small-cell lung cancer circumstances beyond those currently treated by Avastin. And consequently Avastin, cannot be used as a global comparator for this study. We will be conducting a second narrower Phase II study against Avastin, which will begin in late 2006 or early in 2007.

And finally, we're conducting studies of AMG706 with other therapeutic regimens in a number of major tumor types, for example, in colorectal and non-small-cell lung cancer, and these studies are being, in part conducted in combination with panitumumab.

Turning now to AMG531, you will recall that this is our first peptibody in clinical development. A Phase II study of AMG531 in immune thrombocytopenic purpura show that we were able to double platelet counts in 94% of patients and treatment with AMG531 was effective even in patients who had undergone splenectomy, and was in all cases well tolerated.

During the first quarter, we completed enrollment of the first of two Phase III studies in ITP. The second study is nearly completely enrolled, and we expect to complete patient enrollment very, very soon. The primary endpoint of these studies, the incidence of a durable platelet response, defined per protocol as a doubling of baseline platelet counts and greater than 50 billion platelets per liter for six of the last eight weekly assessments in a 24-week treatment period. We had previously received fast-track designation from the FDA for this indication for AMG531.

Additionally, during the first quarter, we initiated two Phase II studies, the first in chemotherapy-induced thrombocytopenia with the primary endpoint being the improvement of platelet count, after the first cycle of chemotherapy, and the second in myelodysplastic syndromes with the primary endpoint being the evaluation of patient safety in this study.

I need also to mention, as Kevin did, that at the end of the first quarter, we completed the acquisition of Abgenix, thereby gaining full ownership of panitumumab and access to important manufacturing facilities for panitumumab in Fremont, California, as well as additional research space both in Fremont and near Vancouver, British Columbia. In welcoming our new Abgenix employees, I note that we have acquired the XenoMouse technology, a highly competitive platform for fully human monoclonal antibodies.

In the past, Abgenix has made this technology available under contract to several biotechnology and pharmaceutical companies, and we continue to receive inquiries on availability of this important antibody platform from a large number of firms. We are currently developing strategies that will permit partners to work with us in developing new therapeutics using this technology. We will customize our approach to these relationships, recognizing that great ideas can come from anywhere and that our ultimate goal is to produce the best possible human therapeutics.

I should mention that we're getting close now to ASCO, which is always an important platform for presentation of clinical data. We expect data results from several of our programs to be presented at the 42nd annual meeting in June. Included among them will be details from the Phase II study of denosumab in patients with metastatic breast cancer who have not been treated with intravenous bisphosphonate, and also a Phase II study of denosumab in patients with bone metastases who have been treated with intravenous bisphosphonate, but where the bisphosphonate had failed to suppress their bone turnover markers. There are also studies involving Aranesp given on the Q3-week extended dosing schedule in patients with chemotherapy-induced anemia, as well as in myelodysplastic syndrome; two Phase II studies of panitumumab in patients with metastatic colorectal cancer; a Phase II study of AMG706 in patients with thyroid cancer; and a Phase I study of panitumumab and AMG706 in combination with chemotherapy in patients with advanced non-small-cell lung cancer.

In addition, we expect data to be presented from our Apo2L/TRAIL ligand Phase I program in solid tumors and hematologic malignancies. This is a program that is being developed in collaboration with our colleagues at Genentech, and I will provide more updates as we get closer to ASCO. I would now like to turn it back to Arvind to commence the Q&A session.

Arvind Sood, Vice President, Investor Relations

Okay. Thank you, Roger. Operator, would you please review the procedure for the Q&A session? And I would like to make a request. I would like to ask that each of the participants limit themselves to one question so we can accommodate everybody.

Question-and-Answer Session

Operator

Operator Instructions. Your first question comes from Joel Sendek of Lazard Capital Market.

Q - Joel Sendek

Hi, thanks. In your 10-K, it says that EPO biosimilars may be improved in the EU this year. So in the same call you mentioned '07. I'm wondering if anything has changed? Thanks.

A - Roger Perlmutter

As you know, a few people have dropped out. They felt that the expenses associated with meeting all the EMEA requirements, as articulated in the guidelines, and the capital and the fact that there's not a tremendous amount of pricing room in the market, necessarily, has caused them to back away. And so at this point, we don't feel there are any submissions that will lead to an approval this year.

Operator

Your next question comes from Geoffrey Porges of Sanford Bernstein.

Q - Geoffrey Porges

Thanks very much for taking the question. Roger, could you clarify on the denosumab postmenopausal osteoporosis? Previously, you had indicated that there may be an opportunity for taking a two-year look at the data sometime in 2007 and potentially even filing in Europe, since their standard is two years, rather than three years. That now appears to be shelved. Could you confirm, then, that we won't see any data in the postmenopausal osteoporosis indication until 2008, or is there still the opportunity for an early look? Thanks.

A - Roger Perlmutter

Well, Geoff, there are always opportunities that could come, for example, from a data monitoring board, but after considering the matter for some time, we decided that we wanted to get the best possible look at the data. This is a completely new mechanism, and after discussions with the FDA, we felt that the right thing to was to look at the three-year data, which would give us the longest-term exposure and to harmonize our US/European submissions. That's our current plan, and that's what we're going forward with.

Q - Geoffrey Porges

Thank you.

Operator

Your next question comes from Steven Harr of Morgan Stanley.

Q - Steven Harr

A question on AMG706. As you have modified your trial programs, is this have to do with a feeling that a patient should not -- not get Avastin, or is this looking at different indications? What drove your decision, I guess, to change your trial protocol?

A - Roger Perlmutter

Well, a number of things, Steven. But as you know, there is a exclusion in Avastin treatment for patients with squamous cell carcinoma, and I am referring now to the non-small-cell lung cancer study. And there is our -- in evaluating the data and having discussions with our advisors, they were very anxious to see the effects of AMG706 in the totality of lung cancer patients. We really can't give lung cancer patients Avastin, so we wouldn't be able to use those with squamous cell carcinoma, we can't give them Avastin, so we wouldn't be able to use it as a comparator throughout that study. And so we decided to split it into two studies, basically, taking advantage of the fact that Avastin can be used in the adenocarcinoma setting.

Q - Steven Harr

So one trial where you can get Avastin and the other study that includes patients who are excluded from Avastin?

A - Roger Perlmutter

Correct.

Q - Steven Harr

That make sense. Okay.

Operator

Your next question comes from Maykin Ho of Goldman Sachs.

Q - Maykin Ho

I have a question for George. On the CAP program, as you said, it's supposed to be starting in July. And my understanding is that this quarter, physicians are supposed to be getting familiar with the program, and we are pretty late. Do you think that program will actually being implemented in July, or will it be delayed?

A - George Morrow

You know it feels like the CMS is committed to doing it, but we really haven’t seen much activity to-date making so. I think we just have to watch and see what happens, this been surprisingly quiet.

Q - Maykin Ho

Certainly, if you kind of look at the implementation, what is involved, it doesn't look like July would be the timeframe.

A - George Morrow

No, but I think the CMS probably would have changed their guidance if they felt they couldn't meet that.

Operator

Your next question comes from Elise Wang of Citigroup. Ms. Wang, your line is open.

A - Arvind Sood

Okay, let's move on to the next one.

Operator

Your next question comes from Mark Schoenebaum of Bear Stearns.

Q - Mark Schoenebaum

Hi, thanks a lot for taking my question. I hate to ask this question, and I hate to waste my one question on this. But I am reading from your 4Q release, where you said your guidance of 3.55 to 3.70 did not include the $0.05 to $0.10 from the Abgenix acquisition. And then I read from your release tonight -- it says your guidance of 3.60 to 3.70 includes it. So did you actually raise the upper end of the guidance, if you call it apples-to-apples, by $0.05 to $0.10?

A - Richard Nanula

I think that's right. Yes, sir, we did.

Q - Mark Schoenebaum

Oh, that's good news. Great.

Operator

Your next question is from Elise Wang of Citigroup.

Q - Elise Wang

Hi, can you hear me now?

A - Richard Nanula

Yeah.

Q - Elise Wang

Okay. The question I had had to do with the Enbrel outlook. Obviously, you’ve indicated a variety of different, I guess, metrics that are occurring in the market related to the dynamics on a competitive front and then some, perhaps, slowing of demand. What is, in fact, your outlook in the near term about the dynamics going forward around the Enbrel market opportunities that are out there? How should we look at that?

A - Roger Perlmutter

Well, I think we see this market as being very big and very much untapped, both in rheumatology and dermatology. Rheumatology, 27% of the patients who are on DMARDs are now on biologicals, so tremendous room for expansion. And in the dermatology space, only 6% of patients with moderate to severe psoriasis are on a biological. So, fundamentally, the patients are out there. Let's just talk about dermatology first. There are more co-insurances and co-pays, and so there are more reimbursement hassles now, to get a -- for a dermatology patient, a psoriatic patient to get on Enbrel. And so we really need to have both the patient and the office staff, including the physician, highly motivated to work through all the prior authorization. So going dark with our DTC campaign basically took the wind out of our sails, we believe. But the patients are there, and we're committed to getting that ad back on TV as soon as possible, and driving those patients back into the office. Having said that, the reimbursement environment does get tougher and tougher every year in the dermatology space. On the rheumatology side, we had a lot of patients in the demo project, and actually we just -- as I said, we saw a sharp decline in the enrollment of the demo project in the fourth quarter of last year. And so that took a little bit of growth out in the fourth quarter. And then when the converting of demo patients who were paying customers to Part D in the first quarter didn't happen the way we thought it would happen, that also created a little bit of an air pocket.

In March, we started to track back towards what we thought we would eventually obtain, but you lost basically two months of sales for a lot of patients that we assumed. So hopefully Part D will begin to smooth that, I think our sense of it is, in terms of enrolling patients, and we can compete for our fair share of those patients down the line. As far as REMICADE is concerned, they did really sweeten their contract in November of last year, and we noticed that some of the very high-writing doctors took advantage of that and probably pulled some patients away from Enbrel. But as you know, with ASP, that's a zero sum game -- so pay me now, pay me later. So their ASP will be affected, and that will probably squeeze some doctors back towards us, eventually. So that ought to all come out in the wash, eventually.

Q - Elise Wang

Okay.

A – Kevin Sharer

Still think we’ve got, on balance, the best product in terms of safety and efficacy in long-term usage.

Operator

Your next question comes from Shiv Kapoor of Montgomery & Co.

Q - Shiv Kapoor

Thank you for taking my question. I have a sales strategy question. It seems that you have at least two or three new molecules that will be coming to market over the next three to four years, including some cancer compounds and denosumab. How are you planning to change the sales force of Amgen for that?

A - George Morrow

Okay, I'm not going to answer specifically that question, partly because we have not finalized how we will launch denosumab. What I have said in the past is that we can do it very effectively and more efficiently than the typical Big Pharma approach. Big Pharma, for a product of this magnitude, would probably have 2,000 reps in the U.S. alone. We don't think we would need to take that approach, because we think we're going to have, thanks to Roger's great efforts, a well-differentiated label. So it's not a share or voice game. It's really a game of promoting and explaining the real benefits of this product. So you have got to watch this space. We will provide guidance on that when we reach the appropriate point. On the cancer side, we have got great sales forces in the marketplace today around the world, and I think our feeling right now is for the most part, that group can handle anything that Roger can get to them in the near future.

Q - Shiv Kapoor

Thanks.

Operator

Your next question comes from Eric Ende of Merrill Lynch.

Q - Eric Ende

Thanks a lot. You guys said on the call that more private payers are using the ASP reimbursement methodology. I was wondering what kind of impact we should expect as more of them start using that methodology?

A - George Morrow

Well, first of all, not many are using it but it is increasing, and they are not necessarily going to ASP plus 6%. Particularly in the oncology setting, the private or commercial payers have to negotiate with the oncology clinics, and some oncology clinics have a lot of negotiating power. So that's put a little tension in the wire out there. So I think, as they move to ASP environments, we think we have felt we can handle that situation. Our products have performed well under them, and we don't think it's going to be a major trend-breaking event for us.

Q - Eric Ende

Are they going ASP plus 6 or ASP with something less?

A - George Morrow

It's all over the map, but it's generally more than ASP plus 6 -- ASP 18, 20.

Q - Eric Ende

All right, perfect.

Operator

Your next question comes from Chris Raymond of Robert W. Baird.

Q - Christopher Raymond

Hi, thanks for taking the question. Just to clarify, George, you mentioned, I think, that Aranesp use in dialysis had stabilized around 240 million. Can you just clarify – does that inclusive or exclusive of CKD?

A - George Morrow

No, that's purely dialysis, and it's virtually all in the hospital dialysis setting.

Q - Christopher Raymond

And can you maybe venture a number for what the CKD impact is?

A - George Morrow

CKD, as far as -- really, any EPOGEN that is used in CKD really comes out in the spillover audit, and those sales are given to J&J, just as any pro quid sales in the dialysis segment come back to us.

Q - Christopher Raymond

I'm sorry; that question was relative to Aranesp.

A - George Morrow

Okay, I'm not sure I understand the question, then. So how big is Aranesp in CKD?

Operator

Your next question comes from Jeff Meecham of JP Morgan.

Q - Jeff Meecham

Hi, guys. Just a follow-up on Enbrel, trying to understand the moving parts here. Can you just help us understand generally the Enbrel performance in the quarter? Quantitatively, what was more impactful: competitive dynamics or Part D issues or market growth?

A - George Morrow

I don't know, honestly. We don't have enough information to parse it explicitly. I would say, probably Part D demo project had the most impact.

Q - Jeff Meecham

And then just as a follow-up to that, what signals do you have that the problems with sign-ups are behind us?

A - George Morrow

We track it very carefully. So we track the numbers of patients going into Part D.

Q - Jeff Meecham

Thanks.

Operator

Your next question comes from Jamie Rubin of Morgan Stanley.

A - Arvind Sood

Okay, let's move on, operator.

Operator

Your next question comes from Sally Yanchus of Bessemer Investments.

Q - Sally Yanchus

I was wondering, on Enbrel, what percentage of patients are Medicare eligible or Part D eligible? I mean what percent have been historically using the drug?

A - George Morrow

I don't have a figure off the top of my head. I can tell you, prior to the demo project and prior to Part D, because REMICADE is an infusion product it was covered under Medicare, under Part D. And really, we do not have access to those patients. So I just don't happen to have the percent of RA patients who are over 65 years of age. I can tell you it's pretty small in dermatology, but I don't have that figure right off. Roger, do you know that?

A - Roger Perlmutter

I don't know.

Operator

Your next question is from Chris Raymond of Robert W. Baird.

Q - Christopher Raymond

Hi, thanks. I was cut off on that last question, so I just wanted to clarify. So George, the question was, can you sort of give some directionality or indication of what the impact of CKD is on the Aranesp sales number?

A - George Morrow

Okay. So, just taking away dialysis, yes, if you would give me just a second. I don't have those numbers off the top of my head. So the Aranesp in nephrology grew about 34% in the first quarter, so still pretty robust growth.

Q - Christopher Raymond

Great. Thank you very much.

Operator

Your next question comes from Gene Mack of HSBC.

Q – Gene Mack

Thanks for taking the question. I was wondering, you mentioned that there were 22% of chemo patients currently receiving first cycle Neulasta, and then that there was 100,000 patients with a 17% or greater risk. I was just wondering, what the overlap between those two?

A - George Morrow

I think it's 100,000 incremental that could benefit. So I can't do the math right now, but the opportunity is 100,000 patients.

Q – Gene Mack

On top of the --? Okay.

A - George Morrow

The ones already currently being treated first cycle. And of course, most of the usage is second cycle and up.

Operator

Your next question comes from the line of Andrew Barron of Citigroup.

Q - Andrew Barron

Hi, thanks for taking my question. I had a question about denosumab, now that you have indicated that it's going to be three-year data that you probably used to file in CMO. I was wondering if we might see a filing in therapy-induced bone loss maybe from the HALT trials, since you indicated the two-year data would be available in 2007.

A - Roger Perlmutter

Yeah, I don't want to speculate on filings. So much depends on what the data look like. And there will be some interesting data to look at, at ASCO that we talked about a little bit with respect to the effect on patients with metastatic bone disease. And we, of course, have this ongoing myeloma study. So if you ask the question, is it possible that we could have a dataset come forward that we would think was so compelling that we would feel as if we needed to file in an oncology setting, as an example, before we filed in PMO. Certainly that is a possibility, or that we would feel that some combination of that plus the chemotherapy hormone ablation-induced bone loss would make some sense; that's always a possibility. But we really are -- in looking at the PMO setting, we really have, after considering it for some time, in light of the novelty of the mechanism, the importance of having long-term data, we have settled on a three-year filing strategy in that particular indication.

Q - Andrew Barron

Okay, thanks.

Operator

Your next question comes from Craig Parker of Lehman Brothers.

Q - Craig Parker

Hi, so another denosumab question. I guess I'm not entirely sure whether you have actually amended the protocol for that study, so there is not any kind of analysis that would be done at two years, or if that is still to be done but, regardless of that data, you would not file?

A - Roger Perlmutter

The protocol currently has a prespecified two-year interim analysis that was structured in such a way as to have the minimum possible effect on the statistical power of the three-year data, which is the primary endpoint. With our decision that we in fact are going to use three-year data to file, there's not much point in doing a two-year interim analysis. Why take the statistical penalty? So we revert to the primary endpoint, which was the goal in the first place.

Operator

Your next question comes from Eric Schmidt of Cowen.

Q - Eric Schmidt

Yeah, good afternoon, I know you are not going to comment on your legal strategy vis-a-vis Cera, but maybe you could comment on the litigation milestones that we should look forward to, the next one or two steps for both the ITC and the District Court?

A - Kevin Sharer

Thinking about litigation in terms of trying to predict key events is more speculation than we wish or are really able to do. What I can say is this is not an endless sort of proceeding. In the next months, we're going to find some things out. We are going to be talking about this case for a while. But I do want to make it very, very clear that these two actions we’ve taken are indications of the aggressiveness with which we're going to pursue this case, and we are anxious to get our day in court as soon as possible. We want the federal court to opine on our patents versus the peg-EPO product, and we're confident in our position. So this will keep playing out this year and next year, but I think we are starting to get into a place where we're going to see how it plays out. But nobody should mistake our confidence or aggression in this matter.

Q - Eric Schmidt

Thanks.

Operator

You have a follow up question from Geoffrey Porges of Sanford Bernstein.

Q - Geoffrey Porges

Thanks for taking the follow up. Wondering if you would just clarify -- you mentioned the inventory fluctuations for NEUPOGEN and Neulasta in the US. Could you tell us the number of days of inventory outstanding at the end of Q4 and at the end of Q1, so we can see what that fluctuation was?

A - Richard Nanula

It's normally the case and one of the reasons why we were sequentially down in the first quarter as a rule, is inventories go down from fourth quarter to first. So they were down for all of our products, Q over Q.

Q - Geoffrey Porges

But not particularly for NEUPOGEN/Neulasta?

A - Richard Nanula

For all of them -- for all of them, Q over Q. My comments sort of on inventories for NEUPOGEN/Neulasta were really year over year, and that's where there was a significant decline.

Q - Geoffrey Porges

Thanks.

Operator

You have a follow up question from Mark Schoenebaum of Bear Stearns.

Q - Mark Schoenebaum

Hi, I really appreciate that you taking the follow up. Maybe in follow-up to some of Kevin's prior remarks around peg-EPO, do you know with certainty exactly what Cera is, and exactly how it is made?

A - Kevin Sharer

No.

Q - Mark Schoenebaum

Thank you.

A - Arvind Sood

So, operator, as we're going on 3 o'clock, maybe we can take one last question, please.

Operator

Thank you, your last question comes from Steven Harr of Morgan Stanley.

Q - Steven Harr

I just wanted to get a little better understanding of the quarter-over-quarter trends for some of your drugs. They tended to disappoint, but if you look at IMS after January, they seemed like they might have been a little bit lower. Is it fair to say that, as the quarter progressed, your Aranesp/EPOGEN/Neulasta programs accelerated, maybe due to some end-of-the-year contract issues of physicians? Is that a fair conclusion?

A - George Morrow

So once you take out Steven, all the little wrinkles in quarter-on-quarter changes, there's a rock-solid trendline for NEUPOGEN, Neulasta and Aranesp. So that trendline, there has been no fundamental inflection point coming out of last year. So we have maintained that growth. EPOGEN, pretty rock-solid, Enbrel is the one where we saw the inflection point occur in the fourth quarter last year, and I have discussed how we're going to go about dealing with that.

Q - Steven Harr

Great, thank you.

Arvind Sood Vice President, Investor Relations

Okay. So thank you, everybody, for participating in our call this afternoon. If you have any follow-on questions, I will be in the office, so please feel free to call. Thanks again.

Operator

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

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Source: Amgen, Inc. Q1 2006 Earnings Conference Call Transcript (AMGN)
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