美國安進 (AMGN) 2014 Q2 法說會逐字稿

My name is Marvin and I will be your conference facilitator today for Amgen's second-quarter earnings conference call.

(Operator Instructions)

I would now like to introduce Arvind Sood, Vice President of Investor Relations.

Mr. Sood you may now begin.

Okay, thank you, Marvin.

Good afternoon, everybody.

I'd like to welcome you to our conference call to review our operating results for the second quarter.

Our new CFO, and my new boss, David Meline, actually picked a great quarter to join us, as our business performance was strong across the board.

Our CEO, Bob Bradway, will introduce David formally in just a couple of minutes, and will also review our strategic progress and actions we are taking to position ourselves for long-term growth.

Following Bob, David will review our second-quarter performance.

Our Head of Global Commercial Operations, Tony Hooper, will then discuss our product performance during the quarter and trends that we see going forward.

Following Tony, our Head of R&D, Sean Harper, will provide a brief update on the many late-stage opportunities we have in our pipeline, as well as progress we are making on the regulatory submissions.

After Sean's comments, Bob will make a few concluding comments and then we should have plenty of time for Q&A.

We will use slides for our presentation today.

These slides have been posted on our website and a link was sent separately by email.

You will notice that we have made some significant additions to our quarterly slide deck.

This change was made in the spirit of providing more disclosure to further your understanding of our product trend drivers.

And of course this will give my friend, Mark Schoenebaum, something to talk about in his next few weekly videos.

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

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

Okay.

Thank you, Arvind.

Let me begin by welcoming David Meline as our Chief Financial Officer.

David joins us from 3M, and his financial leadership and broad international experience will be very helpful to Amgen as we execute our strategy for long-term growth and launch our pipeline of medicines in a number of new geographies.

I'd also like to thank Michael Kelly for serving as our acting CFO prior to David's appointment.

Our performance was strong across the board in the second quarter and our confidence in the business was buoyed by our 11% revenue growth, 30% operating income growth, and 25% earnings per share growth for the period.

Our recently launched and legacy brands performed well in the US and internationally, and we exercised expense discipline across the business to drive these results.

Based on our progress through the first half of the year, and our confidence in the underlying trends of the business, we are raising guidance as David will explain shortly.

Because we will be talking on this call both about our quarterly results and some restructuring activity, I'd like to just take a moment to set some strategic context.

Our strategy for long-term growth begins with a commitment to developing a robust, differentiated pipeline of new medicines addressing serious illness.

This strategy is beginning to bear fruit.

We've talked about our substantial portfolio of 10 late-stage molecules delivering pivotal data by 2016.

So far in 2014, we've reported positive pivotal data for five of these molecules and we have submitted two of them already in the US; Ivabradine, for chronic heart failure, and T-Vec, for malignant melanoma.

In Q3 we expect to submit Evolocumab in the US and Europe, T-Vec in Europe, and later in the year, blinatumomab in the US with the breakthrough therapy designation.

This presents us with the prospect of several high potential new product launches beginning in 2015.

To capitalize on this opportunity, we announced today the first steps of a restructuring plan designed to improve our focus and proactively reallocate resources ahead of the commercialization of our many promising molecules on a cost-competitive basis.

Our initial efforts include streamlining our organization, reducing layers of management, increasing managerial spans of responsibility, and beginning implementation of a revised geographic site plan.

In this regard we'll reduce our workforce by between 2,400 and 2,900 positions, beginning in the fourth quarter of 2014 and continuing through 2015, predominantly in the United States.

This represents approximately 12% to 15% of Amgen's global workforce of some 20,000 staff members.

The significant element of our current restructuring plan involves optimizing our sites in the United States.

As part of this, we plan to close all of our facilities in Washington and Colorado by the end of 2015.

We'll begin the process of exiting these sites in the third quarter of this year.

These sites were primarily research and development and manufacturing facilities.

Going forward, we see opportunities to concentrate more of our research and process development activities in our sites in South San Francisco and Cambridge, Massachusetts, obviously two key biotechnology hubs.

We will retain our headquarters in Thousand Oaks, albeit with a reduced number of staff, and overall we anticipate approximately a 23% reduction in our facilities footprint as part of this first step in our restructuring.

These actions will result in pretax accounting charges in the range of $775 million to $950 million, primarily incurred in 2014 and 2015.

The combination of these actions will reduce operating expenses by approximately $700 million in 2016, as compared to 2013, although most of the savings will be reinvested to support global launches of our new products.

These actions were contemplated as part of our 2014 guidance, and the financial benefit will be modest in 2015 due to the timing of these actions during the calendar year.

Let me just point out that the initiatives I've described represent the first steps in our strategic resource reallocation efforts.

For much of the past year, teams across Amgen have engaged in a coordinated effort to reengineer our Company for the future.

They are focused on ensuring that we build exactly the right capabilities to deliver on our strategy and our aspirations.

As part of this, we've been evaluating our overall expense base, our fixed costs, our variable costs, our labor-related expenses, and our financing costs.

Our next steps, which are well underway, include evaluating additional efficiency initiatives, particularly in the shared services area.

We'll discuss our full program with you, together with an estimate of the resulting cost savings, pipeline progress, and our commercial plans during a business review meeting that we will be hosting in the fourth quarter.

I would emphasize today that we begin these actions with a strong underlying confidence in our business.

Our confidence is bolstered by our strong operating performance and the widespread positive reception to our Evolocumab data, and by our expectations for the well-designed ASPIRE trial for Kyprolis, results for which will be announced as soon as they are available.

Let me now turn the call over to David Meline who will walk you through the financials for our second quarter.

Okay.

Thanks, Bob.

I'm pleased to join Amgen at this pivotal time.

I look forward to working with the team in order to support the global growth of the Company, while helping to prioritize the best opportunities for products and programs which will serve the Company's mission.

We will also ensure that the Company is efficient and lean in order to maintain competitiveness and support our capital allocation plans.

I look forward to expanding on these themes during the fourth-quarter business review.

Turning to page 5 of the presentation, Amgen's revenue grew by 11% year over year, with 8% product sales growth driven by strength across the product portfolio, both in the US and internationally.

We also saw a nearly $150 million increase in other revenues, primarily due to our Nexavar and Stivarga partnerships.

On a quarter-over-quarter basis, revenues grew 15%.

This is consistent with our product sales pattern in recent years.

However, the increase was a bit sharper this year, in part due to inventory build for Enbrel of about $60 million in Q2, which Tony will discuss in more detail shortly.

Operating income grew 30%, based on the combination of solid revenue growth along with reduced operating expenses which were down year over year.

Within operating expenses, cost of sales increased by 0.4 points to 15.9% of sales, due to the impact of the Puerto Rico excise tax.

Research and development expenses increased by 4% year over year, driven by the addition of the Onyx programs, offset partially by reduced expenses associated with support of marketed products.

SG&A expenses decreased by 12%, driven by significant reduction in Enbrel related expenses.

Other income and expenses were $144 million in the quarter, which was flat year over year.

Tax rate for the quarter was 16.2%, a 4.3 point increase versus the second quarter of 2013, due primarily to the geographic earnings mix and the absence of the R&D tax credit versus the year ago period.

As a result, adjusted net income increased 26% for the quarter and adjusted earnings per share increased 25%.

Now turning next to cash flow and the balance sheet on page 6. We generated $2.1 billion in free cash flow in the second quarter of 2014, a $600 million year-over-year increase, due primarily to the impact of higher sales and improvements in working capital.

Dividend payments in the quarter totaled $0.5 billion, reflecting the 30% year-over-year dividend increase.

At quarter end, Amgen held over $26 billion in cash and short-term investments, up over $4 billion versus a year ago, and our debt balance was $33 billion.

The quarter-end debt and cash balances include the impact of pre-funding a majority of our $2 billion debt maturity later this year.

Turning to page 7, Amgen is increasing its revenue guidance for 2014 to $19.5 billion to $19.7 billion, and adjusted EPS guidance to $8.20 to $8.40 a share.

We are reaffirming our tax rate guidance of 15% to 16% for the year, which assumes that the R&D tax credit will be extended in 2014 and applied retroactively to the full year.

At this point, our best view on timing is that the R&D tax credit extension would happen in the fourth quarter, which would result in a lower tax rate in Q4, as compared to the first three quarters of 2014.

Our guidance on capital expenditures remains unchanged.

Finally on slide 8, we see a summary of the financial impacts from the restructuring announced today.

Specifically we will be incurring pretax GAAP charges of $775 million to $950 million in 2014 and 2015.

In the second half of 2014, we expect an EPS impact of $0.36 to $0.45 per share on a GAAP basis, with the balance occurring substantially in 2015.

Roughly 40% of total expenses will be on a cash basis.

Based on the timing of the program, savings for 2014 are reflected in the full-year guidance.

And as a reminder, operating expenses tend to be more heavily weighted towards the second half of the year, and we expect that again to occur in 2014.

While capital investments will also be required as part of these restructuring actions, we are maintaining our capital investment guidance for 2014, and in the future, expect to fund these investments within the capital expense run rate of approximately $800 million.

We look forward to discussing our full program in greater detail at our business review meeting in the fourth quarter.

Let me now turn this over to Tony.

Thanks David.

You'll find a summary of our global sales performance for the second quarter on slide number 10.

The strong underlying demand we saw in quarter one continued into quarter two, as our legacy product franchises remain stable despite new competition, and our growth phase products continue to increased demand from both share and market growth.

As a result, we delivered 8% year-over-year sales growth in quarter two, driven by solid unit demand and to a lesser extent, price, as shown on slide number 11.

You will recall that last year, we realized the benefit of the Medicaid rebate adjustment in the amount of $185 million, which negatively impacted the year-on-year comparison this year by about 4 percentage points.

This adjustment mostly impacted our ESA and Filgrastim products.

Our performance was particularly strong in the international markets, with 13% year-on-year growth, driven by strong performance in Europe, and we also benefited from the acquisition of Pegfilgrastim rights from Roche in several new and emerging markets.

Now to slide 12, where on a sequential basis sales grew 14% due to the rebound of the inventory dynamic in quarter one and solid unit demand.

We exited quarter two with wholesale inventory levels within our normal range.

Let's review our second-quarter product performance, beginning with Neulasta and Neupogen on slides 13 and 14.

Neulasta sales were relatively flat year on year.

Positive contribution from price was partially offset by the positive Medicaid rebate adjustment in quarter two of last year.

This Medicaid rebate adjustment also negatively impacted Neupogen sales as they were down 9% year on year.

Today, we have only seen a slight impact from the new Filgrastim competition in both the US and Europe.

Turning now to Enbrel on slides 15 and 16.

Underlying demand continues to be strong, as sales were up 7% year on year, primarily driven by price.

Most of the inventory dynamics we saw less quarter has worked its way through the channel.

At the end of quarter two, we did see a slight inventory build of about $60 million that we expect to be drawn down in quarter three.

We continue to see strong segment growth in both rheumatology and dermatology at 19% and 21% respectively, and we held value share in both segments quarter on quarter, as shown on slide number 17.

Now to slide 18.

Epogen sales were up 2% year on year, as price was partially offset by last year's Medicaid rebate adjustments.

Unit demand has been relatively stable and we continue to monitor average hemoglobin levels and dose utilization under the bundled payment system.

Aranesp was down 1% year on year, as shown on slide 19.

Underlying demand for Aranesp continues to decrease slightly, due to practice patterns in both oncology and nephrology in the US, and due to price competition pressures in Europe.

Turning now to slide 20, the combined Denosumab franchise grew 29% year on year, with a 31% unit growth.

Prolia grew 40% year on year, due to strong unit demand, as we continue to grow share in all markets.

In the US, an improved salesforce focus on high-prescribing physicians continues to drive both depth and breadth of prescriptions.

In fact, new patient Rx's are up 33% year on year, and our DTC programs are driving increases in patient awareness and patient requests.

As a result, in the US, we grew market share as measured by days of therapy by 3 percentage points in the quarter, up to 17% shown on slide 21.

US repeat injection rates are over 60% on second injection, and over 70% on third injection, leading to a 50% increase in repeat patients versus a year ago.

XGEVA grew 20% year on year, due to strong unit demand.

XGEVA continues to capture market share in a growing market, despite competition from generic zoledronic acid, as shown on slide number 22.

Our focus with prescribers on the superior clinical efficacy profile of XGEVA continues to drive growth.

Now to Sensipar, which continues to grow and is now annualizing at a run rate of about $1.2 billion.

As a result of increased patient penetration, quarter two sales grew 15% year on year, growth included both unit demand and price.

Nplate grew 12% year on year, mainly due to a high unit demand and strong market growth across all regions.

Vectibix sales grew 42% year on year, driven by strong unit demand across all regions.

Vectibix is now the only EGFR agent approved with improved overall survival data of first-line metastatic colorectal cancer in combination with an oxaliplatin-based regimen, or FOLFOX, in KRAS wild-type patients, and will address an important unmet need in these patients.

Finally, Kyprolis sales were up 15% globally and 23% in the US on a sequential basis.

In the US, roughly half of this growth is due to unit demand and the other half due to return to normal inventory levels versus last quarter.

Kyprolis continues to maintain dominant share in the third line multiple myeloma setting.

We expect the next major inflection point for Kyprolis will be upon the inclusion of second line data in the label.

I look forward to reviewing the ASPIRE data in the near future.

As we enter into the second half of the year, we've made very good progress on a number of fronts.

I will conclude my prepared comments where I began.

Our legacy products remain stable, despite new competition, and our growth phase products continue to benefit from higher demand and increased market share.

Now I'll pass it to Sean.

Thanks, Tony.

Good afternoon.

We continue to advance our pipeline so let me begin with an update on cardiovascular programs, beginning with Evolocumab, our PCSK9 antibody.

We're busy preparing our Evolocumab submission for dyslipidemia, and are targeting submissions in the US and EU this quarter.

These submissions for Evolocumab will include both Q 2-week and Q monthly dosing, however, in order to maximize the probability of a first-cycle approval for Evolocumab delivered via our autoinjector, we've decided to not include our automated mini-doser device in the initial submission.

Rather, the plan is to submit the device file as a supplement shortly after the initial approval of Evolocumab.

We also had the opportunity to present data from our Evolocumab Phase III TESLA study in homozygous familial hypercholesterolemia, and our Phase II/III TAUSSIG study in severe familial hypercholesterolemia at the European Atherosclerosis Society meeting last month.

These data generated a lot of excitement, and we continue to explore the potential for Evolocumab in these severely-affected patient populations.

In addition, we have completed our submission of Ivabradine in the US for chronic heart failure.

An epidemic condition with a high degree of unmet need, based on the large data set including outcomes data.

We anticipate that the successful launch of Evolocumab and Ivabradine will meaningfully benefit many patients with cardiovascular risk.

We are looking forward to new Kyprolis data, including a review by an independent data monitoring committee of an interim analysis of the ASPIRE study in relapsed multiple myeloma patients.

And the final analysis of the FOCUS study in relapsed refractory multiple myeloma.

In both of these event-driven studies, our current estimates are that these analyses will occur in the third quarter.

We've also completed enrollment in ENDEAVOR, our Phase III head-to-head comparison of Kyprolis with dexamethasone to Velcade with dexamethasone in relapsed multiple myeloma.

Our immunooncology programs continue to advance and we had several data presentations at ASCO.

We presented the overall survival data from our Phase III T-Vec study in metastatic melanoma, which demonstrated a 4.4 month improvement in overall survival, which closely approached statistical significance.

We believe this trend, along with the successful result on our durable response rate primary end point, makes for a very compelling data set, and we recently submitted a BLA for this agent in the US, and are planning a European submission in the third quarter for regionally and distantly metastatic melanoma.

In addition, we continue to believe that there's a compelling opportunity for T-Vec to prime the immune system with checkpoint inhibitors.

We're currently investigating T-Vec in combination with ipilimumab, or Yervoy, in a phase IB/II metastatic melanoma study.

The phase IB portion was presented at ASCO, and while a small study, the encouraging response rate we reported, along with no new or unexpected toxicities, generated a lot of interest.

We're also moving forward aggressively with our collaborative efforts with Merck on PD-1, and expect to begin combination studies later this year.

We also presented the blinatumomab confirmatory Phase II results in relapsed refractory adult acute lymphoblastic leukemia at ASCO.

We're preparing a submission in the US where we were granted breakthrough therapy designation this year and are also in discussions with regulators about our EU submission.

Our Phase II study of Vectibix versus Avastin in first-line wild-type KRAS metastatic colorectal cancer suggested a survival advantage from Vectibix in this population, which also garnered interest at ASCO.

As you will recall, we recently received US approval for first-line use with FOLFOX in wild-type KRAS metastatic colorectal cancer.

Our accelerated approval for monotherapy in metastatic colorectal cancer was also converted to full approval at that time.

Regarding the ongoing Trebananib Phase III study in recurring ovarian cancer, our latest estimates from the results of this event-driven overall survival secondary endpoint is now the fourth quarter this year.

Recall that Trebananib is a peptibody that inhibits ANG one and two, and the primary endpoint of progression free survival was met last year.

Our psoriasis program for brodalumab, which we're developing with our partners at AstraZeneca, consists of three Phase III studies, one placebo-controlled and two head-to-head studies comparing to ustekinumab, or Stelara.

The efficacy data we reported from the placebo-controlled study was very positive and the other two studies we'll read out in the fourth quarter.

The results from our Phase II study in psoriatic arthritis with brodalumab were recently published in the New England Journal of Medicine.

And, as we have announced, we and our partners have initiated two Phase III studies in the psoriatic arthritis to evaluate the impact of brodalumab on improving clinical signs and symptoms as well as the ability to prevent joint damage.

As you heard from us earlier this month, AMG 416, the intravenous calcimimetic we gained access to via the acquisition of KAI Pharmaceuticals had a very positive top-line result from the first of three Phase III studies in secondary hyperparathyroidism.

We look forward to seeing the second placebo-controlled study in the third quarter, as well as the result of the head-to-head comparisons to Sensipar in the first half of next year.

Secondary hyperparathyroidism can be a challenging disease to manage, and we believe there's an important role for an effective calcimimetic that can be administered intravenously, coincident with hemodialysis.

Turning to a couple of our earlier stage programs, we were pleased to see Phase I asthma data from our anti-TSLP, or thymic stromal lymphopoietin monoclonal antibody AMG 157 also highlighted in the New England Journal recently.

We're developing this molecule in partnership with AstraZeneca/ MedImmune, and believe this program has the potential to help address the large unmet need in asthma.

As a quick update on our CGRP receptor antibody, AMG 334, we've completed enrollment in our Phase IIB dose ranging study in episodic migraine patients, and expect to see these data later this year.

Our Phase IIB chronic migraine study with AMG 334 continues to enroll.

Finally, I'd like to take a moment to thank my Amgen colleagues for our continued progress toward advancing these new potential medicines for patients in need.

Bob.

Okay.

Thank you, Sean.

Before turning to questions, let me just take a moment to put the many parts of our business into a single perspective as we move along the strategic path that we first outlined for you in 2011.

First we're focused on bringing forward a substantial portfolio of innovative molecules that address significant unmet medical needs in areas of grievous illness.

Molecules that demonstrate large, clinically relevant effects and are supported where possible by human genetic validation.

Second, we're building our business infrastructure to bring medicines to patients all around the world, shifting resources to areas of highest value and growth.

And finally, we're making these investments for growth as we continue to meet our commitments to grow revenues and earnings and return capital to our shareholders.

And we look forward to providing more granularity on our progressing pipeline, our commercial plans for launching new products, our expansion activities, and so forth when we're together for the business review meeting during the fourth quarter.

So with that, let's turn to the question and answer session, and Marvin perhaps you can remind our callers of the procedure that we follow.

(Operator Instructions)

Matthew Harrison, Morgan Stanley.

Hey good afternoon everybody, thanks for taking the question.

I wanted to ask specifically about the restructuring and what you indicated was potentially its impact on the guidance for this year.

If I go and I look for you at the low-end had about a $0.30 improvement in EPS, and at the high end you bumped by $0.20.

And if I take a look at that based upon your margin structure that you didn't change in your guidance, it looks like on an annualized basis that's around $30 million to about $165 million.

Is that -- of that $700 million, is that what you expect will actually fall through to the bottom line and the rest is in terms of increased R&D or SG&A expense to launch these new products?

Thanks

Thanks for the question Matt.

I guess a couple things perhaps to help you think through the modeling.

First, as I said in my remarks the restructuring announcement that we made today was contemplated when we gave initial 2014 guidance, so I wouldn't expect that you'd be adjusting your 2014 guidance as a result of today's announcement, because as I said we had these in mind when we provided 2014 guidance.

And I'd just reiterate what David said which is bear in mind that it's typical for our second-quarter operating margin to be the highest for us of the year, and we expect that there will be some increase in operating expenses as normal in the third and fourth quarter, and perhaps a little bit more the usual as we begin investing in the prelaunch activities for the medicines that we file.

Robyn Karnauskas, Deutsche Bank

Great, this is Mohit for Robyn.

Thanks for taking my question.

I have one question regarding AMG 416 regarding the head-to-head study you are doing with comparing to Sensipar.

What do you expect to see from this trial apart from the primary endpoint?

Which other second hand endpoint we should look at as well, and then do you expect to conduct an outcome study for this product also?

Thank you.

Sure.

I would say that the comparison to Sensipar is important because we need to understand both an efficacy, a tolerability, and an adherence over time how the products compare.

And I think all of those are important just understanding the sort of biochemical activity of the dosing that we've chosen for AMG 416 versus the current Sensipar dosing.

Understanding the tolerability issues, which as you know are quite limiting for Sensipar given the large pill burden that these dialysis patients face.

And finally, the adherence issue, which of course is related to tolerability but not directly.

So these are all the things that we'd be looking at to try to understand where AMG 416 should be positioned to help patients and physicians manage the issues associated with these patients.

Great, thanks.

Eric Schmidt, Cowen and Company

Thanks for taking the question.

Maybe for Bob on the restructuring I guess I understand that you don't want to be too specific until the business review meeting, but should we generally take it to mean that you're redeploying investment in R&D toward SG&A?

And if that's the case do you think you can bring Amgen's targeted R&D down to more in line with your large biopharma peers?

Thanks for the question Eric.

Let me make clear that the changes that we announced today are Company-wide changes, so while the facilities particular in Washington and to an extent in Colorado that we're closing are primarily research and development and process development related, that the cuts themselves are Company-wide and some of the launch investments will relate to research and development activities, and obviously the bulk of it over time to commercial activities.

So we're reallocating away from some of our lower growth, lower return areas and to what we expect to be higher growth, higher return opportunities for us, so that's how I'd characterize it.

And you're right Eric that in the context of our full business review, we'll be able to expend enough time to elaborate on how we expect the cost structure to evolve as we reshape the business.

Terence Flynn, Goldman Sachs.

Hi, thanks for taking the question.

Was just wondering if there are any new pieces of clinical data that you're expecting that might change the level of reinvestment either up or down as you cited in your restructuring?

And then another question Bob is in your prepared remarks you mentioned the well-designed ASPIRE trial; I was wondering if you care to expand here as we fielded a number of questions on some of the limitations of the trial design, and just wondering if you could help us out there.

Thank you

Sure.

I would perhaps take your question in two pieces.

Why don't I take the first part and then Sean can elaborate on the R&D question and the ASPIRE question in particular.

Our expectation again is that the reception to our Evolocumab data has been very positive, so we look forward to continuing to advance that and to begin investing in the kinds of activities that would be typical before the launch of such a medicine.

In addition we shared incremental information with you on this call about our other cardiovascular medicine, Ivabradine, and Sean I think was pretty clear about the steps that we're taking with our oncology medicines and AMG 416.

So on the basis of those molecules and the progress we've made against them, we feel it's time now to reallocate resources and that's what we're preparing to do.

Sean if you want to elaborate on any of the specific incremental programs that we embarked on or talk about ASPIRE?

Of course fundamentally we look at each of the clinical trial results that we get on major late-stage programs and the emerging pipeline as well, and make investment decisions accordingly, so that's kind of the name of the game.

It's a little bit hard to anticipate.

You can get disappointed and invest less, and you can things can look better than you think and you invest more, so I don't know how else to address that.

In terms of ASPIRE, I think that Bob is reflecting the sense that the R&D organization has about the ASPIRE study in general terms, which is that I would agree entirely and do agree that the study is well designed.

It is always possible to criticize study designs and many different ways to design studies for the same basic objectives.

Obviously, ASPIRE is designed to help us to understand the incremental benefit that occurs by adding Kyprolis to a rev-dex standard of care background in this population.

So I think likely if there are real specific questions around the study design so that we can talk about that offline, but I would agree that it's a well --

It's a large study.

It's an 800 patient study and I think we expect it to provide a pretty good window into the truth about the molecules, I think that's what I would expect from a well-designed study.

Geoffrey Porges, Bernstein

Thank you very much for taking the question.

I hate to come back to this Bob, but I'm still confused about the effects of the restructuring.

Could I ask you are you suggesting to us that the operating expenses net will be flat in 2015 and 2016?

Because you will take R&D down and SG&A will go up to prepare for these cardiovascular launches?

Or are you suggesting that the operating expense ratio will be constant in 2015 through 2016 with that same reallocation?

I'm trying to understand what it means.

Thanks Geoff.

What we were trying to convey is that the changes that we've announced in this for step of restructuring would aggregate to $700 million of operating expense when compared to 2013, so the things that we are eliminating for example where $700 million of operating expense in 2013.

Now what we're planning to do is to reallocate much of that to the activities associated with the molecules that we've begun filing.

So you're right that what we're saying is first in 2014 we had contemplated these actions and they've taken place late in the calendar year, so this doesn't really affect the outlook for 2014.

With respect to 2015, again, the actions will begin to accrue benefits for us through the course of the year, and by 2016 we think we will be through the actions that we've disclosed.

And so the full benefit of these actions would be available, therefore, we'll have on order of magnitude $700 million in that year, some portion of which -- most of which we expect to invest in launch activities for the molecules that we're filing.

So assuming those activities continue to proceed as we expect them to, we would plan to reinvest most of that in the business Geoff, in that year.

Now one of other thing just to reiterate, again the restructuring that we've announced is Company-wide, so we're reallocating resources away not just from research and development but from across the business.

Okay.

Thank you.

Josh Schimmer, Piper Jaffray

Thanks for taking the question.

I guess on a high level or conceptual basis as we think about 2015 and 2016, do we think of these as transition years between the mature franchise and the emerging pipeline?

Or are you confident you can still deliver meaningful EPS growth over that time?

Thanks.

As I said in my remarks our objective is to continue to grow the business and to continue to increase our returns for shareholders, including to increase our dividend during this period.

So that's our objective Josh, and this restructuring doesn't reflect any change to that.

Okay.

Thanks.

Yaron Werber, Citi.

Hi, thanks for taking my question.

If you don't mind it's sort of two quick ones.

One, just for you Bob, when you look at Amgen, historically Amgen has had really a great franchise and very much monopoly-dominant positions.

This Company historically has not had to compete in a lot of markets maybe outside of inflammation.

The markets you're going to go into are going to be a lot more competitive, and I just want to understand how you position the Company for that?

And then secondly, if you don't mind just Evolocumab, the decision to sort of split up the two formulations, what was the reason for that, the filing for the two formulations?

Thank you.

Okay.

So two questions there.

Why don't I take the first part of the competitive dynamic, and I'll ask Tony to add his thoughts, and then Sean can reiterate his comments on Evolocumab.

But Yaron, you're right we're entering a new era in the sense that we're entering into more competitive spaces than we have in the past, and that's something we've been talking about here at Amgen over the course of the last couple years.

And we're excited and looking forward to have the opportunity to show what we can do in competing in some of these competitively-intense fields that we're entering.

And again, we think we're entering these spaces with molecules that have large effect size, which are differentiated which form the basis of a clear approach for our developing these new product areas.

Tony why don't you share your thoughts?

So you're right that initially Amgen specialized in building markets as they did with both Filgrastim and ESA franchises, but as you look back at the legacy portfolio now where our European team have been defending against a number of competitors in the market during the last seven years, we truly have built a competitive skill and ability.

When we look at Enbrel in the US we compete on a daily basis against at least nine other competitors.

And when we launched Denosumab, we went in to launch against a branded Zometa, which became generic, had six competitors, and we still grow market share against those.

So I think we have built a skill over time to really be competitive, and this is what we're honing with the team now as we go into new therapeutic areas, building therapeutic confidence, understanding of these relationships, and assuring that we can be maximally competitive as we go to market.

Let me clarify on the issue around the Evolocumab device, so this is not a formulation issue.

The formulation is a formulation that's going to be registered along with the every-two week and every-month dosing data.

The autoinjector, which is the SureClick autoinjector, which we have many, many patient years of exposure and the regulators are very familiar will also be registered.

What we're not initially registering is the automated mini-doser device, which administers the entire volume necessary for monthly injection as a single infusion.

And the reason for that is to not take a chance given the novelty of that device as compared to our autoinjector of delaying the entire drug submission by including that, rather than getting it approved, get the autoinjector approved, get the product ready for launch, and then submit shortly after approval the device, which will be reviewed on a device clock, not a drug review clock.

Mark Schoenebaum, ISI Group

Hey guys.

In all seriousness thank you for the slide deck, and Arvind I will be featuring my Arvind Sood bobble head doll this week on my video, just so you know.

But I had a question for Bob, and then a quick clarification.

There's been a lot of activity in the large pharma and specialty pharma space, which you guys kind of straddle that with biotech on the inversion front, and I know your tax rate is very low, but much of your cash is generated ex-US and getting access to it is maybe a bit more complicated under ideal situation, so the former and well-known banker, I'd love to just know how you're thinking about inversions in general and whether or not Amgen might be interested in something like that, whether it makes sense or not.

And just a quick clarification for Tony, Tony there's a lot going on with inventory this quarter, but I want to be very clear; if one looks at the data on a year-on-year comparison the increase in inventory year on year was negligible and you remain within the normal range, correct?

Just get that one first.

Go ahead Tony.

So the answer is we ended the quarter within our normal range, the only exception being Enbrel, there was about $60 million over the normal range sequentially.

And on a year-on-year basis the build was very, very modest, correct?

Correct, yes.

Thank you.

So Mark, on your question, you're right, there's an awful lot of activity at the moment related to tax structuring.

I guess the first thing I observe is that our focus strategically is to try to advance molecules that we think we can add value to that address grievous illness, so that's where our energy is focused from a business development and capital allocation standpoint when we think outside of our own four walls.

I think my take on the inversion activity is that unfortunately our country doesn't yet have a globally competitive corporate tax system or structure, and until that changes I think there will be tax financial engineering related transactions like those that we're seeing now.

I hope that congress will take action and enact broad sweeping corporate tax reform, but I'm not optimistic that that will happen.

Certainly not this year, and again I hope that even if corporate tax reform doesn't happen, that there may be a window for repatriation.

But I think those two steps, corporate tax reform and repatriation, are important in order to create a level playing field for corporations, particularly like ours in innovative industries, and I think that's what you see in biotechnology and pharmaceutical activity right now.

Michael Yee, RBC Capital Markets.

Thanks.

Just maybe a question for Sean going back to some of the Kyprolis data, which is coming up.

Maybe you could clarify for us, I know there's multiple interims, I just wanted to clarify is this a 50% or 75% interim?

Since prior did not stop and should we have full expectation that this one would stop since you're so positive on the overall design?

And then secondly, when this data comes out what do you think is clinically meaningful here in the second line, understanding it should be positive but what would you be very pleased with?

So this particular interim on ASPIRE comes up with a reasonable number of events and power.

It's not of course fully powered as a final analysis would be.

And whether the study is well-designed or not has in my view nothing to do with the question of whether the results are going to be positive in an interim.

It's a question of the statistical power that you have to detect the effect size.

So depending on whether you're very ambitious in your thinking about an effect size for the molecule on top of Rev dex, you might imagine a positive interim at this stage.

If you're more conservative about the effect size you could imagine the study might have to run through to completion to show that effect size.

I hate to blurt out a number because I've had so many conversations with so many experts in this field, and I've heard such a large range of answers from people about what they think would be meaningful.

And largely it's because they're doing some kind of back of the envelope comparison in their minds to what one might see in such an experiment with Velcade, and this is not a Velcade comparison study; that study just enrolled fully, ENDEAVOR, and will come later.

We're going to see the data very soon.

And I think I'm just going to look at the data when it comes and we'll figure out and work with our -- we have access to most of the really key opinion leaders in this disease realm of the world.

And we'll have them help us understand how they feel about the results assuming that we do get a readout because the study stopped early for efficacy.

That may or may not occur at this data set we review.

Okay.

Thank you.

That's helpful.

Geoff Meacham, JPMorgan

Hey guys, congrats on the quarter and thanks for taking my question.

First question, what can you tell us about the pace of commercial investments in Evolocumab, especially given the earlier filing?

And then on the restructuring for the facilities footprint, is this mostly for legacy products, does this change your view on the biosimilar opportunity or other let's say more legacy kind of assets in terms of the revenue?

Sorry Geoff, I know you asked two questions there and I got the first one clearly.

Let me ask Tony to respond to the first question.

You recognize of course that this is a competitive space, so I'm sure we're not going to say whole lot there, but let's come back Marvin and let Geoff ask the second question; I didn't catch the beginning few words of your sentence in the second question Geoff.

As Sean said earlier we've filed now for Ivabradine, the drug for chronic heart failure, which obviously will be a critical part to Amgen moving into the cardiovascular space.

Clearly that's where we'll be potentially approved sometime early next year, and we're setting up the commercial launch to ready ourselves for that.

That team of specialists plus the medical organization will be the same organization that then takes Evolocumab to market a bit later during 2015.

Got you.

The second one and thanks Bob, Bob just on the restructuring with the lower facilities footprint I'm assuming this is mostly for legacy products but does it change your view on the biosimilar opportunity or the revenue potential for that or for any of your legacy products?

Okay, thanks for asking that question.

I want to make sure to be clear in my response that this doesn't in any way diminish our enthusiasm for biosimilar portfolio that we're developing.

Just remind you we have six programs advancing, three of which are already in pivotal trials, and so we're excited about the prospect of developing and launching those beginning in 2017.

And you're right to point out that this enables and gives us an opportunity to rationalize some of our manufacturing capability.

And let me just at a high level remind you that we've talked over the past couple of years about our investments in manufacturing technologies and new processes that we think will enable us to make protein therapies more reliably and at lower cost than we currently do.

And as we progress our investments in that area, we would expect that to free up some of our legacy manufacturing capacity.

So we're exiting a 20-year-old manufacturing technologies and continuing to invest in what we think are state-of-the-art cutting edge technologies that will enable us to again rationalize, and we think make product more reliably and more cost-effectively.

Thanks.

Matt Roden, UBS.

Hey guys, this is Andrew Peters in for Matt.

Thanks for taking our question.

I have one for Tony on the EPOGEN and dialysis market.

As both branded and potentially biosimilars begin to come to market in the US, we wanted to get your thoughts on how you view the impacts of some of the large dialysis providers and potential volume deals and how you see kind of that moving forward once Roche comes in in the biosimilars as well.

Okay so just to remind you again that Roche has the right to enter the market at present with Mircera, and then the patent will expire during 2015.

The market is divided into three large chunks, obviously DaVita and FMC holding about a third of the business, and the other third being held or managed by some of the small providers.

With regards to DaVita, we have an exclusive supply contract with them that runs until 2018, and with FMC, we have a non-exclusive agreement at present.

So obviously all the experiences that both FMC and a few others are having in Europe, which include a number of other alternative products, is something we take into account.

We have continued to maintain a fairly large portion of the dialysis market share in Europe, so we are modeling ourselves on that but the market of course in the US is apparently different.

Great.

Thanks.

Eun Yang, Jefferies.

Question on romosozumab for 785 in Phase II/III patients are treated with 785 for 12 months then followed by 24 months of Prolia.

Will that be less favorable for a primary outcome measured at 24 months, compared to 24 months continuous romosozumab treatment?

Thanks for the question.

Sean, why don't you respond?

I think that the science of this novel pathway really led us to that approach, and what we found in our Phase II work with romosozumab is while one does see the most rapid increase in bone mineral density has been seen with any agent that's been introduced into humans.

It does plateau by a year, and by a year essentially what one is experiencing with continued use of romosozumab is a antiresorptive effect, a kind of magnitude effect that's generally similar to that which you would see with marketed antiresorptives.

And so at that point it didn't seem prudent to continue to dose people with an anabolic agent which is a novel mechanism et cetera, when we have the ability to adopt a paradigm of rapidly building bone in patients who require that, and then kind of locking in those gains with an antiresorptive such as Prolia.

So that was the surprise to us of course because this is completely novel biology, and it wasn't until we got into the clinic and worked with patients in Phase II that we found that it really wasn't sensible to use the product on a chronic basis.

Ian Somaiya, Nomura Securities.

Thanks.

Just a question on the restructuring.

Should we expect any kind of pipeline reprioritization?

When we get to the business review meeting at the end of the year, and just as you think about 2016 and beyond, how much of the shift in spending to SG&A is sort of one-time in support of launching of these products?

And how much of it should we assume is recurring?

Okay, thanks for those questions.

I'll invite Sean to respond to your pipeline question, but I'd just remind you that we've been doing a fair amount of re-priorities of the pipeline -- reprioritizing of the pipeline over the past two years.

But Sean you can reiterate actions that we've taken there if you like.

And of course we'll talk about where we are focusing our efforts when we're together for the full business review, and we'd like to give you an update on our approaches in the discovery research as well as the molecules that we're excited about at an earlier stage of development that we haven't had as much time to talk about given the bolus of advanced molecules that we're currently developing.

And similarly, Ian, I'd ask that rather than getting into the details now of our investment in competitive molecules that we'll use the business review at year end or in the fourth quarter as an opportunity to update you on our thinking.

But you'll appreciate that the initial stages before launch of a molecule include considerable amount of investment prior to actually generating revenues.

Sean?

I think it's obvious to folks that we have an unprecedented number of late-stage programs rolling through at the moment, and this is the nature of R&D at any given company.

It tends to be lumpy in this way and so as you're absorbing first enormous amounts of Phase III clinical trial expenses, those of course as a bolus like this moves through, they begin to roll off.

But the R&D expenses associated with supporting commercialization and the pharmacovigilance and regulatory activities, et cetera, in addition to supporting the new geographies that we're moving into are substantial investments.

And then while we may not have this number of molecules at any given time at steady-state in late-stage development, we certainly want to have plenty.

And so we're going to be continuing to make significant investment both in internal innovation as well as to be looking externally to make sure we are capturing innovation appropriately.

If you look at our late-stage portfolio right now it definitely represents a mix of those two capabilities.

Ravi Mehrotra, Credit Suisse

Thanks for taking my question.

Sorry another one on headcount reduction.

And thanks for all the color; you've partly answered this, but let me ask from a very philosophical perspective, is the headcount principally being driven to squeeze out operational inefficiencies, or with a greater goal of gaining structural advantages with a view of dominating select R&D and operational domains?

And the second of these, are there any subtleties in the restructuring that you can highlight which we may miss in just the headline headcount reduction numbers?

Thank you

Ravi, I think in our disclosure of the reductions we were clear and transparent about what our objectives for the move are.

And again what we're doing is we're carefully, we're selectively reallocating resources away from some of our legacy investment areas to some of these new areas that we think offer higher growth and better returns.

And again, I don't think there's a lot of subtlety to it.

We try to be quite clear and transparent about what we were trying to do, both as regard to the numbers, the locations, and what we're trying to do with our fixed cost from a site standpoint.

So again, I expect when we're together in the fourth quarter if there is need for more inside on the actions that we will have taken or in the process of taking, we can provide that for you.

Thank you.

Howard Liang, Leerink.

Can you talk about what additional commercial infrastructure you think you will need in order to launch Evolocumab and other products?

And with the $700 million benefit from the restructuring, would that be sufficient, or do you think you will need more buildup from other investment to build the infrastructure?

This is Tony.

It's clearly a very sensitive and competitive debate we'll have about this now.

But we're looking at putting together a definitive cardiovascular team, and that team will evolve over time as we then go from Ivabradine to Evolocumab.

The other products we'll be launching pretty much within our existing organization in terms of the oncology skills.

But that's about as much as we would want to discuss at this point in time.

Great, thanks Tony.

Let me thank everybody for your participation in our call this afternoon.

If you have any other questions or thoughts, obviously I together with the rest of my team will be around for the next several hours, so feel free to reach out to me.

Thanks again.

Ladies and gentlemen this concludes Amgen's second-quarter earnings conference call.

You may now disconnect.