Amgen Inc., F1Q09Earnings Call Transcript

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Amgen Inc., (NASDAQ:AMGN) F1Q09 Earnings Call April 23, 2009 5:00 PM ET


Arvind Sood - Vice President of Investor Relations

Kevin Sharer - Chairman and Chief Executive Officer

Robert A. Bradway - Chief Financial Officer, Executive Vice President

George J. Morrow - Executive Vice President of Global Commercial Operations

Roger M. Perlmutter M.D., Ph. D. - Executive Vice President of Research & Development


Jim Birchenough - Barclays Capital

Michael Aberman - Credit Suisse

Christopher Raymond - Robert W. Baird & Co., Inc

Geoffrey Meacham - J.P. Morgan

Jeff Bourgeois - Bernstein

Eric Schmidt - Cowen And Company

Yaron Werber - Citi

May-Kin Ho - Goldman Sachs

Steven Harr - Morgan Stanley

Bret Holley - Oppenheimer & Co.

Maged Shenouda - UBS

Mark Schoenebaum - Deutsche Bank Securities

Shiv Kapoor - Morgan Joseph & Co Inc

Josh Schimmer - FTN Equity Capital Markets


Good afternoon, my name is Dennis and I will be your conference operator today. At this time I would like to welcome everyone to the Amgen’s First Quarter 2009 Financial Results Conference Call. (Operator Instructions) I would now like to introduce Arvind Sood, Vice President of Investor Relations. Mr. Sood, you may now begin.

Arvind Sood

Thank you Dennis, good afternoon everybody. I would like to welcome you to our first quarter conference cal.

The first quarter was characterized by a continued deterioration of the global economy and this has led to a rather challenging business environment that has impacted our Q1 performance. Other things that have affected our sector are changes in patient behavior, reductions in inventory as wholesalers adjust to lower demand and unfavorable currency trends.

Our Chairman and CEO Kevin Sharer will begin the call today with a strategic review of our business and the environment that we operate in. Our Chief Financial Officer Bob Bradway will then provide some additional details on our performance during the first quarter and how the trends observed in Q1 translate into expectations for the rest of the year. George Morrow, who is our head of global commercial operations, will then discuss our product performance both in the US and International markets, once again with a view towards how the Q1 trends translate into a revenue outlook for the full year.

We will conclude the formal portion of this call and open it up for your questions after a presentation by Roger Perlmutter, who, as you know, is our head of R&D. Roger will provide an update on the timing of ongoing Phase III trials with denosumab and Vectibix as well as a brief overview of our earlier stage pipeline.

We’ll use slides for our presentation today. These slides have been posted on our website and a link was sent to you separately by email.

So 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. As in the past we’ll use non-GAAP financial measures to help you understand our underlying business, business performance. These non-GAAP figures have been reconciled with GAAP figures in the press release that we sent earlier.

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

Kevin Sharer

Thank you, Arvin. Good afternoon and thank you for joining us for our First Quarter 2009 Earnings Conference Call. We all know we are in the midst of the most challenging economic environment in 80 years. We also now know that for the first time the biopharmaceutical industry is not exempt from these economic factors in the United States. In America patients are sometimes postponing doctor visits, not always taking medicines on the prescribed schedule and in some cases, particularly Enbrel in our case, are finding the co-pays difficult to afford. We also know that health and insurance coverage is not as broad or robust as in prior non-recessionary years. We will talk about these factors later in the call, with particular emphasis on the aggressive steps we are taking to help patients afford their medicines.

Now, I would like to focus on the first quarter revenue and our perspective about the rest of the year. It is a normal cyclical pattern at Amgen to have the fourth quarter be stronger than the first. For example, in both 2007 and 2008 the first quarter revenue was 4% below the prior fourth quarter. This year the difference is 12%. Looking more deeply, in both 2007 and 2008s first quarter demand was down approximately $147 million from the prior quarter. This year demand is down about $214 million fourth quarter to first quarter, with the difference between this and prior years numbers due to negative Enbrel trends. We also experienced an inventory swing fourth quarter ’08 to first quarter ’09 of $176 million, that is we were up $61 million fourth quarter ’08 and down $115 million in Q109 that accounts, along with the Enbrel drop, for the vast majority of the total quarterly drop in revenue. Clearly Enbrel is a major challenge and George will provide more detail later.

Let me comment on the rest of our business.

Our revenue plan is the basis for our revenue guidance and I will now put my view of our business in a context of our plan. Our international business is strong, doing well against biosimilars, and should be on or above plan for the year. While EPOGEN is a bit behind plan to date, we expect dose recovery and a modest price increase to help it achieve budget for the year.

We are more cautious on Filgrastim. Achieving unit growth is our objective and George will describe our plans. Oncology clinic practice economics are more challenging for physicians than ever and they are understandably taking more care and accepting economic risks that can arise from co-pay non-collection and individual product and service economics. It is difficult to predict the exact outcome of these two factors, unit growth and office economics, so we are being cautious in our forecast. We are also working constructively with the FDA on crafting a REMS program for Aranesp and expect implementation later this year.

The final two revenue areas I would like to comment on are our other products and other revenue; particularly our out licensed partnering revenue expectations. The other products, Vectibix, Sensipar, and Nplate will probably be a bit off our original plan for a variety of reasons that George will explain later.

We decided that to be conservative we would project that our out licensed partner revenue will be more in line with 2007 and 2008 levels, which is somewhat lower than our 2009 plan. I have gone into some detail since the quarter has more moving parts than usual, and the effect of the economic environment is more profound than we expected.

Let me summarize regarding revenues before turning to comments on earnings and the pipeline.

One, first quarter is seasonally down with the difference from prior years patterns being Enbrel and inventory swings. Both heavily influenced by macroeconomic factors.

International is performing well and ahead of plan.

Three, Enbrel and GCSF are under pressure for a variety of reasons, with the single biggest factor the economy. Not the only factor for sure, but the major driver.

EPOGEN with dose recovery and a modest price increase should be on track to meet our expectations.

Finally, we’ve conducted a very detailed, comprehensive analysis of all other sources of revenue, combined with things we expect or can control and believe our new revenue guidance range of $14.4 billion to $14.8 billion is achievable.

Now let’s turn to EPS guidance.

We are affirming our EPS guidance of $4.55 to $4.75 per share. We can do this because very early in the year, with macroeconomic effects becoming clear, we took additional and decisive cost actions across the company. I deeply appreciate the degree to which Amgen’s staff have embraced and are executing this plan. I want to further assure shareholders and staff that we continue to appropriately invest in advancing denosumab, providing support for key products, advancing the pipeline, and assuring product quality while also striving to deliver this year on the bottom line.

Finally, the pipeline, the future of the business. All aspects of preparing for a denosumab launch in osteoporosis in both the United States and Europe are proceeding as expected. Roger will elaborate on that. We are working hard to complete and analyze key clinical data for Vectibix and denosumab SRE that are expected later this year. We continue to look for product opportunities outside the company. A number of mid-stage products look very exciting and we are also advancing them. Roger will comment on that in a moment.

Before I turn the call over to Bob, I would like to thank Amgen’s staff for their dedication, hard work, and results in this most challenging environment. I remain very optimistic about our future prospects as we work through a challenging year and prepare for a bright future. Bob?

Bob Bradway

Okay thank you, Kevin. If I can direct your attention to page five I will walk you through the first quarter adjusted income statement. As you can see we reported revenues for the quarter were down 8% to $3.3 billion. Now, when you look at these results a little context might be helpful and in particular it is worth noting three of the factors which created an unfavorable comparison for us versus the prior year.

The first of these three factors concerns Enbrel. The second concerns foreign exchange, and the third involves product divestitures, so let me step you through this. You will recall that in the first quarter last year we moved to a wholesaler distribution model for Enbrel. That transition increased sales of the product in the quarter by $120 million, as wholesalers acquired the product for the first time. This is obviously a large variance in our revenues year-over-year.

Second, the strengthening of the US dollar worked against us in the quarter as well.

Third, recall that we divested Kineret, Kepivance, and STEMGEN in the fourth quarter last year; so, taken together, these items amount to just over $200 million. If you were to adjust for these then you can see revenues would be down not 8%, but 3% year-over-year.

Now shifting to a review of our business by geography, we experienced a particularly difficult quarter in the US where our business was down 10% compared to last year, with sales of $2.5 billion. Internationally we posted first quarter sales of $736 million, which is a decrease of 2% versus the prior year.

As I noted earlier, however, we were hurt by the strengthening dollar with sales down $69 million from foreign exchange fluctuations. Excluding this impact, our international product sales were actually up by 7%, which is solid performance, particularly when you consider that this was achieved in the face of biosimilars competition for two of our franchises in Europe.

Turning now to operating expenses, on an adjusted basis you can see our operating expenses were down 10% this quarter versus last year and despite the drop in our revenues our operating margin actually increased year-over-year.

You can see from these numbers that we’ve been managing expenses tightly in the uncertain economic environment we’re operating in and I will now walk you through the components of our operating expenses.

Turning to cost of sales for the quarter you can see they are down 13% and that is primarily due to lower sales volumes and the favorable mix as Enbrel represented a lower percentage of total sales this quarter than it had in the prior year.

R&D expenses were down 8% year-over-year and this is primarily a function of the fact that we had lower clinical trial costs associated with our denosumab registrational studies and the lower clinical trial costs associated with Motesanib following the delay in our study of that product in the non-small cell lung cancer setting. In addition, we benefited during the quarter from lower staff related costs and increased partnership recoveries during the quarter.

Turning to SG&A, SG&A expenses decreased 10% year-over-year and several factors account for this decrease. First, our expenses associated with Wyeth were lower reflecting the lower Enbrel sales in the quarter. In addition we had lower litigation expenses, lower information system expenses, and lower staff related costs, all of which were partially offset by some decisions we made to spend more money on product promotional expense during the quarter. Excluding our Wyeth profit share expenses, SG&A decreased 6% year-over-year.

Turning to the tax rate, as you can see the adjusted tax rate for the quarter was 21.5% which represents a decrease from the 22.4% in the prior year, and this is primarily due to the fact that the R&D tax credit had not been extended by congress in the first quarter of 2008.

Earnings per share, you can see that first quarter adjusted earnings per share were $1.08, which is down 4% versus the prior year, and EPS this quarter benefited both from the decreased tax rate as well as a decreased share count following our buy backs in the first quarter.

Now if you turn to page 6, you can see that we ended the quarter with a strong balance sheet and healthy cash flows. Our first quarter global cash balance was $10.4 billion, which is an increase of $1.8 billion versus the prior year. Our debt increased by $1 billion year-over-year reflecting the fact that we retired $1 billion of debt in the fourth quarter of 2008 and then raised $2 billion in a successful debt offering in January of this year. Keep in mind, when you think about our balance sheet, that we have a billion dollar liability maturing in November of this year and we currently expect that we will retire that liability with cash.

Now with respect to our cash flow, we generated about $860 million of cash flow from operations in the first quarter. Note that this is less than what we generated in the same period of 2008, but of course in that period we had the benefit of a $300 million up front milestone payment from Takeda as well as net income which was some $100 million higher and in addition there was some timing issues, in particular as we received $100 million of corporate partner receivables in the first quarter last year which we expect to receive early in the second quarter of 2009.

As I mentioned earlier, we repurchased shares during the first quarter of 2009. We repurchased $38 million shares and we currently have approximately $2.2 billion of authorization remaining on our board authorized stock repurchase programs.

Now if I can direct your attention to page 7, I will walk you through our updated revenue and adjusted earnings guidance for the year. As you heard Kevin say earlier, we now expect 2009 revenue to be in the range of $14.4 to $14.8 billion compared to the range that we gave you in January which is the $14.8 to $15.2 billion range.

Now, in bridging from our reported first quarter revenues of $3.3 billion to our full year revenue guidance, you can see that we’re expecting growth for the year off of this first quarter base. Now again, as Kevin said, note that through the years we have observed relative weakness in our first quarter product sales versus the product sales from the preceding fourth quarter. Now this has been due to a variety of factors such as customer ordering patterns and wholesaler inventory changes which historically boosted the fourth quarter and dampened results in the succeeding first quarter.

We think this effect was larger in the first quarter of 2009 than in previous years due in part to large inventory draw downs and George will talk more about this in a moment.

So, why are we expecting product sales growth for the rest of the year off of this first quarter sales base? We are expecting inventories to normalize to levels that we’ve seen in prior years. We’re expecting segment growth for most of our products. We are expecting share growth in a number of our products and of course we have some modest price increases planned during the year as well.

I have been talking about product sales and I want to talk now, for a moment, about our other revenues which, as Kevin suggested, may annualize at a level higher than what is reflected in the first quarter number.

Other revenues consist primarily of royalties from J&J and partner revenues associated with KIRA and Amgen and while we are not expecting much fluctuation in these revenues, to the extent that we are successful in out licensing molecules, molecules like AMG-108 or AMG-223, or to the extent that we’re able to trigger milestones from prior deals, we may see an increase in the other revenue line, for example as we did in 2007.

Turning now to earnings per share and expenses, let me reaffirm that our EPS guidance for the year is unchanged. We maintain a guidance range of $4.55 to $4.75. I think we demonstrated both in 2007 and 2008 that we could rapidly adjust our expense plans to align them with the revenue reality that we’re facing.

Obviously the first quarter of 2009 was a tough one for us at Amgen, but once again in the quarter we adjusted our expense plans to adapt to our new revenue outlook and we will continue to look for efficiencies and ways to build operating leverage into our business in this market downturn and to do this without compromising on our investment in denosumab or our commitment to advancing the pipeline.

As you think about modeling our expenses for the balance of the year, note that our expense growth within any given year has tended to be weighted towards the second half. This is likely to be magnified for us in 2009 as we prepare for the launch of denosumab and add sales and marketing resources, and to a lesser extent, research and development resources, including our medical liaisons for this important new product.

We have been consistent for the past several years in saying that we want to maintain a strong balance sheet and healthy cash flows while returning capital to our shareholders. We ended the first quarter again with a strong and flexible balance sheet as reflected in our strong single A debt ratings. We returned $2 billion of capital to our shareholders through buybacks in the first quarter and we will remain opportunistic through out the balance of 2009 and will look for ways to improve our cash flows as reflected in our ability to continue to manage down capital expenditures.

As you can see, we now believe that CapEx for the year is likely to be more on the order of $650 million than the range we previously gave you of $700 million.

Based on our business outlook we expect we can deliver strong earnings for 2009. We expect we can maintain our strong balance sheets and our healthy cash flows.

With that I will turn it over to George to talk in more detail about the product performance in the quarter.

George Morrow

Okay thanks Bob. Let’s go right to the commercial highlights on Slide 9.

Product sales declined 8% year-over-year, but this performance was heavily impacted by several factors unrelated to customer demand:

First, 1Q09 had a $120 million unfavorable inventory comparison with Q108 for Enbrel due to the switch from direct shift to wholesaler distribution in Q108.

Second, the stronger dollar diminished international sales by $69 million.

Third, the divestiture of Kineret, Kepivance, and STEMGEN in 2008 accounted for an $18 million delta.

In the absence of these items, year-on-year sales would have declined about 3%. The 18% year-over-year decline in Aranesp sales was primarily due to 2008 label changes and some share loss in the US as well as a $29 million foreign exchange negative effect.

Excluding the first quarter ’08 inventory load, Enbrel was down 5% as growth rates declined sharply for both rheumatology and dermatology segments. This segment growth rate decline was heavily influenced by a weakening economy as the high rate of unemployment, coupled with health insurance loss, adversely affected patients’ ability, or willingness, to pay relatively high co-pays.

As Kevin mentioned, we recognize the burden the economy is having on patients. We have enhanced our current Enbrel co-pay program and will soon be introducing the first medical benefit co-pay card program in the oncology space to lessen the financial burden on patients who need our medications. Wholesalers also reduced their inventories more than usual in the first quarter of ’09, presumably to manage their working capital more efficiently.

Finally, international continued its solid performance growing 7% before foreign exchange effects.

Next Slide, I don’t typically talk about quarter-on-quarter growth rates because they can be misleading based on non-primary demand related customer buying patterns, however, given the revenue delta between Q408 and Q109 and our new revenue guidance, we thought some perspective would be helpful.

This Slide shows our quarterly sales, excluding Aranesp, which of course has been contracting recently, and excluding the 1x $120 million Enbrel wholesale load in Q108. What it illustrates is the consistent pattern of relative quarter one weakness versus the preceding fourth quarter and in fact this pattern was evident even during the preceding rapid growth years. This affect is due to several factors including holiday driven wholesaler and customer stocking, patients stockpiling extra doses ahead of planned recess, and contract driven customer buying.

The fourth quarter to first quarter change in demand, and when I say demand I’m talking about shipments from wholesalers to hospitals, clinics, and pharmacies and inventory, when I talk about inventory I’m talking about wholesale inventories, are typically both negative and this year even more so. This year the effect was amplified by a larger inventory draw down which was influenced by credit market conditions and by economy related challenges with Enbrel demand that I referred to earlier.

If you look at our first quarter revenues of $3.3 billion relative to your revised revenue guidance, you can see that we expect the remaining three quarters of 2009, on average, to experience an increase in revenues, although we are not suggesting any specific quarterly pattern.

The factors that should drive this increase in quarterly revenue include normalizing inventory levels, segment growth in most products, share growth in some products, planned price increases and an expectation of some revenue related to our on going licensing and partnering activities.

Next Slide is Aranesp. Worldwide Aranesp sales decreased 18% in the first quarter versus last year. In the US Aranesp sales were down 28% year-over-year with oncology sales down 34% and nephrology sales down 18%. Overall US segment share decreased by 3% or 3 points versus the first quarter 2008, but increased by 2 points versus the fourth quarter of 2008. Year-over-year sales were also negatively impacted by a $22 million benefit in the first quarter of 2008 resulting from a change in an accounting estimate for product sales returns reserves and a $12 million negative adjustment in the first quarter 2009 for changes in accounting estimates related to accruals for sales incentives for sales in prior periods.

Internationally Aranesp sales grew 2% excluding FX. I will discuss specifics of share and segment changes when I review the international results.

On the next Slide I will update you on the trend utilization of Aranesp in the US market.

This Slide displays actual weekly US Aranesp sales going back to Q107. As a reminder, the short peaks and troughs are largely a result of inventory build-ups and depletions, not fluctuations in actual patient utilization. The red trend lines indicate average weekly sales over the past two years. These lines exclude returns and discount accrual true ups as well as the effect of wholesaler inventory fluctuations, which serve to distort the quarter-on-quarter comparisons shown on the previous Slide.

US Aranesp averaged $25 million per week in the fourth quarter of 2008 after the most recent label change and share decline. First quarter 2009 was down about $0.5 million per week versus the prior quarter. The decline is not as severe as the previous chart would suggest.

On the last earnings call, I mentioned that Aranesp sales may be impacted by an ESA REM program beginning in the first quarter. Obviously the REMs did not launch in the first quarter and Roger will have more to say about that in a moment.

Next Slide, EPOGEN grew 2% in the first quarter 2009 versus the first quarter of 2008 driven by patient growth and increase in price and a comparative increase in dose versus the first quarter of 2008. You will remember that Q108 was the implementation of the revised EMP which lowered the maximum does for EPOGEN while imposing penalties when ESA doses were not appropriately reduced in response to hemoglobin levels above the target range. The growth in EPOGEN sales was partially offset by lower wholesaler and customer inventory levels. We continue to expect minor does fluctuations as healthcare practitioners refine their treatment practices to achieve and maintain hemoglobin levels in the 10 to 12 range.

Next Slide, Neulasta/NEUPOGEN combined declined 1% Q109 versus Q108. In the US sales increased 1% driven by demand, which is partially offset by inventory and business adjustments. Internationally, Neulasta/NEUPOGEN declined 6% year-on-year with 4% growth excluding foreign exchange effects.

In the international regions, the NEUPOGEN/Neulasta franchise growth continues to be driven largely by conversion of NEUPOGEN to Neulasta. I will provide more information on biosimilars later in the presentation.

In the US conversion from NEUPOGEN to Neulasta is largely complete. We estimate an addressable patient population at medium to high risk of febrile leukopenia of about $600,000. Over 500,000 patients are receiving AGCF at some time during their chemotherapy treatment. Unfortunately less than 300,000 receive it in the first cycle, as primary prophylaxis is where treatment delivers the most benefit. Going forward in the US the growth rate of NEUPOGEN and Neulasta franchise will be driven by price, modest incremental penetration in untreated patients as moderate to severe risk of febrile leukopenia and offset by medical practice changes that reduce the utilization of myelosuppressive chemo regimens.

Enbrel is next on Slide 15. At a reporting level we experienced a decline of 20% versus the first quarter of 2008; 15% of this decline was driven by inventory. You will recall that in the first quarter of 2008 we changed our distribution model from drop shift directly to customers to distribution via wholesalers and this resulted in a $120 million of 1x sales in the first quarter of last year.

The remaining 5% decline during the current quarter was driven primarily by demand. The primary driver of this softness in Enbrel sales is dramatically decreased growth in both rheumatology and dermatology segments. During quarter one of 2008 both the rheumatology and dermatology segments grew between 15% and 20% and so far in 2009 we are seeing growth that is less than half of this. In fact, in the fourth quarter of 2008 the dermatology segment grew 17% in the first quarter it grew only 6%.

We believe the primary driver of the slowing segment growth is macroeconomic factors with evidence of office visit cancellations, dose stretching, and abandonment of prescriptions at the pharmacy counter. In addition, we lost share year-over-year to new competition in dermatology.

As Kevin mentioned, we recently launched a new co-pay offer to further support patients during these difficult economic times. This new offer replaces our existing co-pay program and together with our other patient assistance programs, it is critically important to ensuring that appropriate patients in need are able to start or continue therapy.

We do expect Enbrel to maintain its leadership position. In rheumatology, Enbrel continues to be the biologic of choice and continues to lead the class in segment share. In the next six months we are expecting new products to enter this highly competitive area, but we are comfortable that the markets vast experience with Enbrel and its long history of safety in the class will allow us to maintain our market leadership position.

In the dermatology segment Enbrel continues to get the majority of first line biologic use for psoriasis and captured more than 60% of the dollar share during the first quarter. New prescription volumes stabilized in quarter one after declining in the second half of 2008. Dermatologists continue to believe that Enbrel has a solid balance of safety and efficacy which is a high hurdle of proof regarding long-term safety that will have to be over come by new competition expected later this year.

Onto Sensipar on Slide 16, for the first quarter worldwide Sensipar sales grew 11% versus the first quarter of 2008. Continued unit and price growth delivered 15% year-over-year growth in the US which is offset by inventory and business adjustments or reserves. While the FHPT market in the US has experienced only limited direct effects from economic pressure on patients, we are seeing some payers restricting access to Sensipar recently. We are working to educate all payers on the unique therapeutic benefits of Sensipar while encouraging prescribing nephrologists to complete any necessary documentation to ensure that their dialysis patients are managed optimally.

Internationally sales grew 23% or 33% excluding the negative impact of foreign exchange.

Next is Vectibix. Our promotional efforts continue to focus on identifying specific and appropriate EGFR eligible patients based on our existing label and highlighting the key benefits of Vectibix versus the competition. While awareness of KRas data is nearly universal, only 53% of oncologists have tested their patients for the KRas mutation. Increasingly, commercial and Medicare payers are requiring KRas testing as a condition for reimbursement, a practice that will continue to accelerate down the road.

Future growth is highly dependent upon label expansion into second and first line metastatic colorectal cancer and Roger will have more on this in just a few moments.

The next slide summarizes our international sales performance. Internationally sales grew 9 %, excluding divested products and excluding the effects of foreign exchange versus the prior year, with growth across all products in nearly all existing territories and from expanding into new territories. This performance reflects a slight increase in segment share year-over-year for both Aranesp and Neulasta.

The next slide looks specifically at new competition in Europe in these segments.

As you can see on Slide 19, most ESA competitors and biosimilars have launched in Europe and some major countries and other countries are expected to launch this year. For G-CSF biosimilars we saw the first launches in the fourth quarter of 2008 and expect additional launches in 2009 and 2010. It is still too early to draw a firm conclusion, but so far the C-CSF biosimilars uptake curve extracted similarly to the ESA uptake curve.

On the next slide we look at International segment share for Aranesp in nephrology.

As in prior quarters, Aranesp share remains steady at 52% as biosimilars take share from EPO Alpha and EPO Beta but add Aranesp. Price erosion was offset by market growth. In some situations, we respond to competition by lowering the price for Aranesp, but we always strive to maintain a premium to the first generation EPOs.

Reflecting the fact that physicians continue to recognize the value of our second-generation product Aranesp share in oncology has also increased slightly.


Roger Perlmutter M.D.

Thank you, George. The first quarter was a period of steady progress in research and development at Amgen and we are poised to review a series of important clinical trials as the year progresses, and we have put in place the infrastructure to make sure that all of these data sets can be handled correctly.

Slide 22 outlines some important areas where progress was made during the first quarter. With respect to denosumab, our fully human antibody directed against RANK ligand earlier in the quarter we completed our submission to the European Medicines Agency seeking approval for the use of denosumab in the treatment of postmenopausal osteoporosis and of bone loss associated with the use of hormone ablation imposed in the management of breast and prostate cancer. The FDA review of our denosumab application, which we submitted at the end of last year, and for which the [DUPA] date of October 129 has been applied, is proceeding well and the European process is similarly on track.

Also, our Phase III program exploring the use of denosumab for the reduction of skeletal related events in patients with metastatic bone disease is fully enrolled and moving towards completion, with data from two Phase III studies expected in the second half of the year.

Turning to other pipeline programs, the data monitoring committee supervising our Phase III study exploring the use of Motesanib, our investigational VEGF receptor antagonist, in the treatment of non-small cell lung cancer approved protocol amendments that permit re-initiation of this study. Briefly, you will recall that we placed our study on clinical hold at the end of last year because of concern about adverse events including possible excess deaths in the group of patients with squamous cell carcinoma of the lung.

After reviewing additional data the DMC advised us to exclude such patients from future enrollment, but to permit enrollment of additional patients with other histologic subtypes of lung cancer. This analysis has now been reviewed by the FDA and they have approved our protocol amendments. At present over 1,000 patients have been enrolled in the [MONA-1] study, in which paclataxel and carboplatin treatment is impaired with the use of these agents plus once daily Motesanib in the first line therapy of non-small cell lung cancer. We expect to enroll approximately 300 additional patients in this study beginning in the third quarter.

Also with respect to Motesanib results from our Phase II programs in non-small cell lung cancer and in metastatic breast cancer were reviewed during the first quarter and were found to support continued development of this molecule. Detailed information about these studies will be provided in an appropriate scientific forum.

I should note that the development of Motesanib is part of a broad collaboration between Amgen, Takeda, and Millennium, the Takeda Oncology Company.

Turning now to Vectibix we have continued to follow blinded data from our randomized, multi-center Phase III study comparing the efficacy of Vectibix in combination with FOLFOX therapy

to the efficacy of FOLFOX alone in patients with previously untreated, that is first line, metastatic colorectal cancer. Our initial projections suggested that the study would complete this month, however a review of the still blinded data showed that insufficient centrally adjudicated progression events as defined in our FDA approved statistical analysis plan had occurred, that is the disease was not progressing in these patients as we had expected. Based on this review, we are now confident that this study will complete by September.

We also expect that results from a second Phase III study, this one in patients with previously treated metastatic colorectal cancer, that is second line, will become available at just about the same time. So, we will have a large amount of important new data on the use of Vectibix in the treatment of colorectal cancer available by the end of the summer.

You will recall that these studies will also provide, for the first time, perspective data on the importance of KRas mutations in tumor DNA. Ascertainment of mutation status in our study populations is excellent, so I feel confident that we will have very high quality data sets to review.

Finally, our Phase III study comparing the efficacy of Vectibix in combination with chemotherapy versus chemotherapy alone as first line treatment for metastatic and/or recurrent squamous cell carcinoma of the head and neck has completed enrollment and data from this study will become available in 2010.

On the regulatory front, we continue to have very productive interactions with the FDA in the area of ESA therapy. We have an agreed upon pharmaco vigilance program that includes a new study in patients with chemotherapy induced anemia following treatment for non-small cell lung cancer in which the affects of Aranesp treatment on overall survival will be evaluated. Identification of clinical sites for this pharmaco vigilant study has begun. Also we are working closely with the FDA to develop a comprehensive risk evaluation and mitigation strategy or REMs for the use of erythropoietic stimulating agents in the treatment of chemotherapy induced anemia.

Finally, on the regulatory front, marketing authorization for Nplate which is indicated for the treatment of immune thrombocytopenic purpura or ITP in patients who have failed other therapies was obtained in Europe during the first quarter. As I mentioned, we are looking forward to reviewing a very large number of clinical data sets during the next few months.

Slide 23 provides an overview of clinical trial results that we expect during 2009 and 2010. You will note that there will be five Phase III studies this year and five next year that will provide important clinical data as well as some very exciting Phase II studies involving six pipeline molecules, each of which has exhibited substantial promise in earlier clinical trials. So we are very excited about looking at these important data sets over the next few months. Kevin?

Kevin Sharer

Thanks Roger. We’ve gone over a lot of information for you today and before we take your questions I would like to summarize what we’ve tried to communicate. First, in January, we knew we faced a touch macroeconomic environment and we pledged that we would watch the business very closely to understand and react quickly to revenue trends. We have done that and by controlling expenses we will deliver good EPS performance.

Second, there are some challenging macro economic factors that are a fact of life and are affecting demand. We can’t change that. However, we are doing everything we can to execute as well as possible and are focusing more intensely than ever on helping our patients to get the medicines they need.

Three, our revenue challenges are well understood and concentrated in the United States market while our international results are on track.

Four, denosumab continues to advance on all fronts and we are very optimistic.

Next, we are on track to report and will report significant clinical results later this year.

Finally, I remain very optimistic about Amgen’s future prospects.

We will now take your questions.

Arvind Sood

Dennis, go ahead and review the procedure for asking questions. I would like to make one request to the conference call participants. We ask that you please limit yourself to just one question and give everybody else an opportunity to ask a question as well.

Question-and-Answer Session


(Operator Instructions) Your first question comes from Jim Birchenough - Barclays Capital

Jim Birchenough - Barclays Capital

I was wondering if you could give a bit more detail on the comments around some segments growing in terms of your guidance assumptions. Which segments are you expecting to grow? The second part of my question is in regards to Enbrel, if the economy continues to deteriorate do you think we could see further declines in Enbrel and is that contemplated in your guidance?

Bob Bradway

We’ll give you a break here and answer both those questions, but we would like you to stick to one question please and I will pass those over to George.

George Morrow

It is very hard to tell because I think certainly with regard to Enbrel and have we seen everything that’s going to happen. I think whenever you start a new plan year with managed care organizations you probably have the most disruption. So, our sense is that we may have borne the brunt of it, but nobody knows for sure and no one knows exactly where this economy is going, where unemployment is going and how many more people will lose health insurance. But, we think we’re through the worst of it, but we have to check that every day.

It terms of growth, we think that the GCSF market still has some growth and when I’m talking about growth I’m talking about combination of units and price. We think EPOGEN has growth potential. We think the SAPT market has growth potential and we think that the rheumatology segment will clearly grow. Dermatology we think will grow, but boy there was a big drop in that first quarter, so there is a pretty negative trend there, but hopefully that will stabilize.


Your next question comes from Michael Aberman with Credit Suisse.

Michael Aberman - Credit Suisse

Clearly your revenue guidance for the year contemplates booking a milestone revenue for denosumab up front. Can you help us understand what the quantity of that that you are including in your guidance?

Bob Bradway

Michael, we are not expecting denosumab to contribute much to the other revenue line, so it is premature to say what the contribution might be in terms of other revenue, but we’re not expecting that to be a significant contributor to our other revenue. We’re pleased with the progress we’re making and the partnership discussions, but again it is premature to give you any particular guidance on how that might up for us.


Your next question comes from Christopher Raymond with Robert W. Baird.

Christopher Raymond - Robert W. Baird & Co., Inc

My question is on denosumab and PMO. You guys talk a lot about economic issues and everything goes according to plan you will be launching essentially in a market that still has economic challenges. I am not asking you to give away all of your programs here, what you’re planning to do, but can you maybe talk about how your plans might be now versus where they were last year, considering that you will have a space that has a significant generic option available?

George Morrow

Yes, I think fundamentally doctors are going to write the prescription that they think is clinically best for their patients and we believe that is still going to favor denosumab in the long term. Obviously, as we get more and more into this recession we are sharpening our co-pay programs and we will learn a lot from this situation. I can’t imagine a worse situation in terms of patients being able to afford their medicines. So, we continue to have our eyes wide open. We do a fair amount of research with doctors and with payers and certainly they’ll all be reflecting the final decisions we make around how to go to market with this product and how to price it.

Kevin Sharer

I would just like to add maybe something that is fairly clear to George, but I think in November when we were with you all a really fine job, we knew we were going to launch into a generic [disphosinate] environment. We’ve known that all along. We also knew that co-pays and other patient economic factors were going to be important and we thought about that and finally we never have anticipated, and I refer back to our November presentation, that we would somehow take the whole market here. There are some folks who we won’t go after, but this is such a big market that even a modest share performance is going to be a substantial revenue source. So it is about the same conditions that we thought. A little bit more headwinds, but nothing fundamentally different.


Your next question comes from Geoffrey Meacham from J.P. Morgan.

Geoffrey Meacham - J.P. Morgan

My question is on Enbrel. Can you guys quantify the Enbrel co-pays that the patient will have with the new plan? How does that compare with out of pocket expenses versus some of your competitors in the class?

Kevin Sharer

I know Abbott just launched one for Humira and basically really no cost for six months and then $10.00, but you have to qualify. You have to have insurance to qualify. If you don’t have insurance you go into our Encourage program where we can potentially get you the product for free. So this is de minimus in terms of the patients out of pocket, so it is very competitive.


Your next question comes from Jeff Bourgeois with Bernstein

Jeff Bourgeois – Bernstein

I am wondering if you can give us, George, the number of shipping days for Q1 for you in the US compared to prior periods and the days on hand of inventory for the main products in the US products in the US channel.

George Morrow

Yes, I will even take it up one level and reiterate what Kevin said initially. Fourth quarter ’08 inventory built $61 million in the US. First quarter ’09 we depleted $115 million of inventory, so the delta is $176 million. Shipping days, there were 51 in the fourth quarter of 2008, by the way there were 50 in the first quarter, and there were 49 in the first quarter of 2009. Just going through the products, Aranesp went from 17 days on hand in the fourth quarter of 2008 to 14; Neulasta went from 15 days fourth quarter to 11 and this is the end of the quarter obviously; NEUPOGEN went from 18 to 15; EPOGEN went from 14 to 8; Sensipar went from 16 to 15; and Enbrel went from 17 days on hand to 14 days by the end of the quarter.


Your next question comes from Eric Schmidt from Cowen And Company.

Eric Schmidt - Cowen And Company

I have another question for George on Enbrel. I know you don’t necessarily look at things on a quarter over quarter basis, but since the trend line looks like Enbrel has fallen off a cliff in Q1, maybe you can just help us understand the underlying demand here a little bit more. Had you constructed a graph similar to what you’ve shown us on Aranesp in the past, would we see weakness kind of month on month into Q1 that continues to trend down or what would that look like if you strip out all of these other 1x items you have discussed?

George Morrow

Yes, so here is the challenge with Enbrel. We have demand in inventory and then there is some other factors, there is no foreign exchange in this particular case, so inventory was a factor. But, in demand, remember the way we defined it is shipments from wholesalers to clinics, hospitals, and to pharmacies. What you don’t know is at the end of the fourth quarter were patients expecting that their deductible is going to go up in January; they may be switching plans; maybe the co-pays get bigger; did they actually fill an extra prescription. So that is going to be counted in demand in the fourth quarter and so that typically creates what is known in the prescription market as the shoebox effect. So, you get a little bit of an air pocket in the end of the fourth quarter in terms of patient demand and so it is going to take a little while longer to sort that out. So, we are looking pretty strong at the prescription trends. They are slightly encouraging, but I wouldn’t say we are through the worst of it yet.


Your next question comes from Yaron Werber with Citi.

Yaron Werber - Citi

Let me just follow Eric’s question on Enbrel. Can you just clarify the patient co-pay assistance is that hitting the SG&A line or is that hitting the actual Enbrel sales line?

Bob Bradway

It is hitting SG&A.


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

May-Kin Ho - Goldman Sachs

Looking at your total revenue numbers it looked like this quarter the sharp four is about $300 million less than the consensus and your guidance is about $400 million less for the whole year. I know that you can have a little bit more normal inventory as a wholesaler, but frankly that is probably up to the wholesalers. And the economy continues to be weak, more and more people are unemployed. So, how are you thinking about this little cut in total revenues for the year?

George Morrow

One of the things that we do is we do a lot of modeling. We always triangulate so when Kevin and Bob and I sit down to look at revenue we triangulate, so we look at various statistical models, run rates, things like that. You are obviously not. You can do those analyses, it is public data, but you are not privy to our models and it is probably not something we are going to share. But, what we do is with these statistical models, we do it in a variety of ways. Some of the ways weigh the most recent data points, the most recent events that we use in either DDD data or actual sales data, and we aggregate products and we also look at products individually, aggregated across regions. So, we have lots of history with these models.

These models have a high degree of accuracy in terms of predicting where we’re going, as long as there aren’t major inflection points. Obviously no model is going to predict an inflection for us. For example if the economy got much, much worse than it is right now. So we think in these models the effect of the economy is sort of built into the most recent data points. It is early days, but we are encouraged by the way the models are directing us and certainly that has been reflected in our guidance at this point. But, it is still early days.


Your next question comes from Steven Harr from Morgan Stanley.

Steven Harr - Morgan Stanley

I don’t want to harp on guidance too much, but George what gives you confidence that wholesalers and potentially the customers would increase their inventories? It seems like the same credit and economic pressures that led them to draw inventories down are still in place so why would they normalize?

George Morrow

First of all we have contracts with them. They are incentivized to keep within a range of days on hand and most of them are right now at the lower end of that normal range. In fact, Enbrel is below; Aranesp is pretty much middle; Neulasta is toward the low end; NEUPOGEN is towards the low end; EPOGEN is right at the low end. So, are they going to go to the top, who knows. Typically the fourth quarter they do get pretty close if not over the top of the range, so they do have to service their customers, but they are also incentivized to be in that range that we typically speak of.


Your next question comes from Bret Holley with Oppenheimer & Co.

Bret Holley - Oppenheimer & Co.

I want to follow up on that point. What could you describe how severe the disincentives are for them to stay below range or stay potentially out of range on the inventories?

George Morrow

They will stay. We are highly confident they will stay within the range on average through out the course of the year.


Your next question comes from Maged Shenouda with UBS.

Maged Shenouda with UBS

Can you provide some additional detail on the GCSF dynamics and the physicians’ offices and how you expect that to play out for the rest of the year?

Kevin Sharer

Yes a couple of things, first of all there are patients who are not being treated for a cycle and we’re doing our best to point those patients out to doctors and correlate the use of different types of chemo with the likelihood that this patient is going to run into an FM event, so redoubling our efforts on that. Certainly co-pays matter and these are buy and bill products and so we are very limited in terms of what kind of economic discussions we have in offices, but I think the doctors are certainly aware what the situation is and to the extent that we can help their patients who are really struggling with their co-pays and they don’t want to take the risk of losing a co-pay, this new card system, which again is the first ever in the commercial side of the business for oncology, I think, will help maybe make them feel more comfortable to prescribe them Neulasta when it is indicated.


Your next question comes from Mark Schoenebaum with Deutsche Bank Securities.

Mark Schoenebaum - Deutsche Bank Securities

I actually have a question for Roger if he is still there. Roger, do you expect an FDA advisory panel meeting for Dmab for the PMO setting and if so given that the data looked so clean that you’ve publicized. What do you think the FDA might be interested in discussing and when do out think that may happen?

Roger Perlmutter M.D.

First of all to the advisory panel, I think that the guidance from the FD AAA act is that new products will have advisory committees, so you can expect there would be one, base on that. Under ordinary circumstances that would be our expectation. It is certainly what we are planning for. I think that the issues that, we don’t know of course what issues will be raised. We are having good discussions with the FDA; we speak to them frequently, is they really are digging into the review very well and so things have moved along quite smoothly in terms of the medical review. So they are getting into all the issues.

Naturally, I think they are going to want to explore how much is known about the behavior of Denosumab I this patient population, for how long a period of time and what do we need to know to feel comfortable since this is a drug that will be used in a very, very large number of patients. So, I think those will be the questions that they will seek advice on, but they will find other things, no doubt, as they go through their review.


Your next question comes from Shiv Kapoor with Morgan Joseph & Co Inc.

Shiv Kapoor - Morgan Joseph & Co Inc

Can you provide more detail on the discussions that you have had with the FDA on Aranesp and what potential impact that might have towards the end of the year?

Roger Perlmutter M.D.

The discussion, we have been having a discussion on ESAs, the risk of [inaudible] mitigation strategy has a component, of course, of wanting to update the information available to physicians and to patients and to include measures that assure appropriate use. Needless to say the risk information that is available on our label needs to be communicated to physicians correctly. Physicians need to be trained in the use of chemotherapy induced anemia setting and of course we want to make sure that patients understand this as well. So, those are the principle features of any REMs program and that is the kind of stuff that we are discussing.

I think we are getting very close to the point where everybody agrees that the right elements are in place and I can’t predict what effect that will have in the marketplace. I think George would say that when we look out at that, and we do look, of course, in aggregate numbers. Physicians are using Aranesp according to the label. As we look at it we don’t see use that is in section and segments or according to programs that are different from what’s outlined on the label. In that sense it may not have that much affect; on the other hand to the extent that it is very difficult for physicians to complete the training process or participate in the dialogue with their patients it could pose a barrier. We will just have to wait and see what we get to.


Your last question comes from Josh Schimmer with FTN.

Josh Schimmer – FTN Equity Capital Markets

On the TREAT study is there an upper limit of the patients Aranesp dosing and if so where is it?

Roger Perlmutter M.D.

The TREAT study is designed for a hemoglobin target and this is in a patient population that is of course a diabetic population not on dialysis. I can’t recall whether we have a specific unit upper limit, but we would be unlikely to hit it anyway in that patient population, because this is typically a pretty responsive population on the dialysis. We will get back to you on that one.

Arvind Sood

Okay Roger, thank you. Let me thank everybody for their participation in our conference call. If you have any other questions or comments, of course the IR team is going to be around this afternoon, so please feel free to call. Thanks again.


Ladies and gentlemen, this concludes Amgen’s First Quarter 2009 Financial Results Conference Call.

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