美國安進 (AMGN) 2016 Q3 法說會逐字稿

My name is Jake Wong and I will be your conference facilitator today for Amgen's third-quarter 2016 financial results conference call.

(Operator Instructions)

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

Mr. Sood, you may now begin.

Okay, thank you.

Good afternoon, everybody.

I'd like to welcome you to our third-quarter financial results conference call.

I would like to begin today by wishing Mark Schoenebaum of ISI Evercore, who as many of you might know, is on medical leave, I'd like to wish him a speedy recovery, and also welcome John Scotti who is covering the large cap biotech companies in Mark's absence.

Also in acknowledging those were new in the coverage, I would like to welcome Carter Gould of UBS, who will be initiating coverage of the sector and our Company.

Our performance during the quarter is best characterized by considerable operating leverage, as earnings growth well exceed revenue growth.

We successfully executed on our lifecycle management strategies for older products while continuing to make efforts to make our new product launches a success.

To discuss our performance in greater detail, I'm joined today by Bob Bradway, our Chairman and CEO, who will make some introductory comments.

Our CFO, David Meline, will then review our quarterly results and update you on our guidance for 2016.

Following David, our Head of Global Commercial Operations, Tony Hooper, will discuss our product performance during the quarter, followed by our Head of R&D, Sean Harper, who will provide a pipeline update.

We should have plenty of time for Q&A after Sean's comments.

As in the past, we will use slides for presentation today which have been posted on our website and a link was sent to you separately by e-mail.

We plan on using non-GAAP financial measures in today's presentation to provide information which may be useful to understanding our ongoing business performance.

However, these non-GAAP financial measures should be considered together with GAAP results and reconciliations of these measures are available in the schedule accompanying today's press release, our Form 8-K and also on the Investor Relations section of our website.

Just a reminder that some of the statements during the course of our presentation today are forward-looking statements, and our 2015 10-K and subsequent filings identify factors that could cause our actual results to differ materially.

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

Okay, thank you, Arvind.

Our business has performed well through the first nine months of the year and we continue to make progress in delivering our strategy for long-term growth.

At the heart of our strategy is innovation.

As you can see, once again in the third quarter we enjoyed strong unit volume growth for a number of our newer innovative products including Prolia, XGEVA, Sensipar, Vectibix and Nplate.

As international expansion is an important objective for us, it is worth noting as well that our unit volumes grew 12% outside of the US.

With respect to that 12%, recognize that the competition for our legacy products began much earlier outside of the US than inside, so what you see in this number is the strong demand for our new innovative medicines emerging internationally.

Our transformation program, which we announced over two years ago, is foundational for our long-term objectives and we've achieved momentum in that effort as evidenced in this quarter's results, with operating leverage across all of our business, enabling us to grow earnings well ahead of revenues and deliver a nearly 53% operating margin.

Just as importantly, the transformation is improving our agility, which shows up in our ability to move a program like Erenumab to market ahead of the competition and in our ability to rapidly adapt to changing demands in the marketplace as we have done in the dialysis market with our long-acting Aranesp.

I've said for some time that the strength of our legacy franchises is reflected in our durable cash flows.

This quarter we generated $2.5 billion of free cash flow.

Stable cash flow like this enables us to invest for the long-term both internally and externally while at the same time returning significant cash to our shareholders.

We continue to invest globally in the long-term success of our newly launched products, which we expect will generate meaningful revenues over time.

In cardiovascular, the Phase 3 results from our recent Repatha coronary imaging study constitutes one more success in our clinical development program for this molecule.

This study demonstrates the powerful effects of Repatha on atherosclerotic plaque in the coronary arteries, the major underlying cause of cardiovascular disease and the leading cause of death worldwide.

This is especially impressive considering that these results were generated on top of maximized statin therapy.

Cardiovascular outcomes data, which are expected in the first quarter next year, will obviously be important for Repatha and should definitively establish the importance of this therapy for those at risk of cardiovascular disease.

In oncology, the Neulasta Onpro kit continues to impress adopters in the marketplace and this has proven to be a very successful launch.

Multiple myeloma is a rapidly changing field where we've proven KYPROLIS to be the superior proteasome inhibitor for relapsed multiple myeloma patients.

We are focused on growing KYPROLIS in this important segment around the world and early launch results in Europe are encouraging, especially in Germany.

With respect to our innovative pipeline, our focus remains on addressing unmet medical needs with innovative medicines that make a big difference for patients.

Our next wave of new medicines is set to do just that.

In neuroscience we've already reported successful pivotal studies with our migraine medicine, Erenumab, in both chronic and episodic migraine.

This is a potentially life-changing medicine for migraine sufferers and we are pleased to be the in the lead position in the CGRP class.

Round out our franchise in bone health, we recently shared more clinical data on our novel bone building agent, Romosozumab.

Experts in the field are excited about the potential of Romosozumab and we look forward to our PDUFA date in July.

In biosimilars, Amjevita, which is of course our biosimilar to adalimumab, is our first approval among the many biosimilar programs that we expect will help generate long-term growth in Amgen.

As you know, we're in litigation with AbbVie over Amjevita and it is safe to say that there will be more litigation before there's a launch.

Given the pace of that litigation, it is unlikely that this that it will be clarified in time for us to launch in 2017.

We've also successfully completed Phase 3 studies in two more biosimilars and look forward to their regulatory progress.

While talking about R&D I want to say also a few words about the healthcare debate in the United States.

I think it's obvious that this debate is not going to dissipate anytime soon and that all of us in the community must work together to find more affordable healthcare solutions.

As we seek to do that, we should not lose sight of the fact that it is the economic and societal burden of disease that is the enemy, and innovative biopharmaceutical drugs offer the promise of addressing that burden.

We're at the dawn of a very exciting era for innovation.

We see that today in cancer, we see in cardiovascular medicine and I think we will see it Alzheimer's and other devastating illness as well.

But if we're to advance promising new medicines, we have to do that with an eye to both the price and the value of these therapies.

We must do it in a way that maintains the role of physicians in making the best decisions for patients.

We price our products to offer a strong value proposition for patients, payers and providers.

We believe the differentiated efficacy of our products enables us to take a leading role in our industry in structuring value-based partnerships for our medicines.

We accept that our products need to deliver clear benefit for our customers and accept that we should not be rewarded when they do not.

We have value-based contracts in place with a number of payers already and expect to do more.

While the regulatory environment is complex in this area today, making each individual contract challenging and time-consuming to put in place, we would expect to see more and more value-based contracts arise as one of the ways of enabling more patients to gain access to the right innovative medicines for their ailments of the right time.

We don't have all the solutions, obviously, at Amgen but we're committed to working with others to address challenges and approve the short- and long-term health of our society as a whole.

Shifting gears, we have a strong balance sheet and the flexibility and willingness to invest in external innovation.

We are active in our review of opportunities, principally in our core therapeutic categories and we're disciplined as to the price that we will pay for assets.

Of late, we've seen better opportunities to create value with earlier stage assets.

For example, in immuno-oncology, which is of course a focus area for us, we expanded our arsenal during the quarter with a collaboration with Advaxis, as well as through the re-acquisition of a BiTE molecule to the BCMA target for multiple myeloma from Boehringer Ingelheim.

We also expanded our cardiovascular franchise with an early-stage collaboration with Arrowhead.

Wrapping up, I would offer that the long-term prospects of our business are bright and I want to thank our teams around the world for their continuing focus on serving patients.

David?

Okay.

Thanks, Bob.

Turning to the third-quarter financial results on page 6 of the slide deck, revenues at $5.8 billion grew 2% year over year.

This quarter we saw steady product sales performance anniversarying against a strong third quarter comparison to last year.

Other revenues at $295 million increased $88 million versus the third quarter of 2015.

Other revenue benefited primarily from milestone payments, notably a milestone received related to the approval of KYPROLIS in Japan.

Changes in foreign exchange had less than a 1% negative impact to total revenue in product sales in the quarter on a year-over-year basis.

Non-GAAP operating income at $2.9 billion grew 9% from prior year.

Non-GAAP operating margin improved by over four points to 52.9% for the quarter, reflecting continued revenue performance and favorable expense impacts from our transformation initiatives across all operating expense categories.

On a non-GAAP basis, cost of sales as a percent of product sales improved by 0.5 points to 13%, driven by manufacturing efficiencies and higher net selling price, partially offset by product mix.

Research and development expenses at $963 million decreased by 11% versus last year, driven primarily by lower spending required to support certain late-stage clinical programs and transformation and process improvement efforts, partially offset by increases in upfront payment for several in-licensing transactions.

SG&A expenses increased 1% on a year-over-year basis as increased commercial investments in new product launches, primarily in International markets, were enabled by savings from transformation and process improvement efforts.

In total, non-GAAP operating expenses decreased 5% year over year.

Other income and expenses were a net $109 million expense in Q3.

This is favorable by $38 million on a year-over-year basis.

This year-over-year favorability was primarily due to gains in the third quarter from rebalancing our investment portfolio.

The non-GAAP tax rate was 18.9% for the quarter, a 0.9 point increase versus Q3 of 2015.

This increase reflects unfavorable changes in the geographic mix of earnings, offset by the benefit of the federal R&D credit in 2016.

Non-GAAP net income increased 9% and non-GAAP earnings per share increased 11% year over year.

Turning next to cash flow and the balance sheet on page 7, free cash flow was $2.5 billion for the quarter compared to free cash flow of $2.8 billion in the third quarter of 2015.

We deployed $0.7 billion to repurchase 4.4 million shares in the quarter.

Our year-to-date repurchases now total $2 billion at an average of $157 per share.

We continue to plan on repurchases of up to $3 billion in total this year.

Additionally, our third-quarter dividend was $1 per share, an increase of 27% over last year.

In October 2016, the Board of Directors approved an increase in the share repurchase authorization to $5 billion.

Cash and investments totaled $38 billion, an increase of approximately $7 billion from last year's third-quarter level.

This increase reflects continued solid net cash flow and the net effect of the third-quarter debt issuance.

Our debt balance stands at $35.3 billion as of September 30.

Our total debt portfolio has a weighted average interest rate of 3.7% and an average maturity of 12 years.

Turning to the outlook for the business for the remainder of 2016 on page 8, we remain on track with our plans to continue investing to grow the business while transforming to a more agile and efficient operating model.

Today we are increasing our 2016 guidance, which reflects continued conviction in executing our strategy and business performance through the first three quarters of this year.

As a reminder, we expect to see an increase in operating expenses in Q4 versus Q3, reflecting the typical pattern for the business.

With respect to our updated guidance, our 2016 revenue guidance is now $22.6 billion to $22.8 billion versus prior guidance of $22.5 billion to $22.8 billion.

Our non-GAAP earnings-per-share guidance is now $11.40 to $11.55 per share versus prior guidance of $11.10 to $11.40.

Finally, we continue to expect our adjusted tax rate to be in the range of 19% to 20% and capital expenditures to be approximately $700 million this year.

In summary, our performance in 2016 remains on track.

In this regard, we will be providing 2017 guidance in our January call.

We continue to be on track to meet our commitments through 2018 based on our balanced portfolio of launch, growth and legacy products, along with a steady progress on expenses due to our transformation efforts.

This concludes the financial update.

I'd like to turn the call over now to Tony.

Thank you, David.

You will find a summary of our performance for the third quarter on slide number 10.

Our total revenues increased 2% year over year as we continue to drive strong volume growth, as Bob said, across several important brands, including Prolia, Sensipar, XGEVA, Nplate and Vectibix.

We are bringing our new products, notably KYPROLIS and Repatha, to more patients in more markets.

These gains were offset by declines in our legacy products, primarily due to competition, along with the negative impact of changes in inventory levels.

In the US, our product sales declined 1% year over year and internationally product sales grew 4%, or 7% including -- excluding the impact of foreign exchange.

This performance was fueled by 12% volume growth.

Let me start with an update on how we are executing the lifecycle management strategies across our mature brands, beginning with Neulasta.

Neulasta treats cancer patients who are at risk of febrile neutropenia.

Each year around 100,000 patients in the US are hospitalized due to potentially fatal febrile neutropenia.

Not only are these hospitalizations costly to our healthcare system and potentially devastating to patients, but also they result in potential excessive use of broad-spectrum antibiotics, which can contribute to hospital-based antibody resistance.

This is a prime example of how our innovative medicines can deliver value to the healthcare system.

Year over year, Neulasta declined 5% due to a small segment contraction in the US along with increased competition in our International business.

We continue to see strong performance from our Onpro delivery kit in the US and are on track to exit 2016 at close to 50% market share.

The Onpro delivery kit is a clear example of our commitment to innovation to improve the quality of patient care throughout the product lifecycle.

Onpro improves the patient experience by eliminating the need to return to a doctor's office the day after chemotherapy for a Neulasta injection.

This translates to increased value for providers, patients and payers.

We expect adoption of this device to continue.

The short-acting filgrastim market in the US continued to behave as expected, with the entrance of a short-acting biosimilar in September last year.

Neupogen declined 36% year over year, mainly due to this competition.

We continue to compete account by account and hold 55% of the short-acting market as we exit the third quarter.

Turning to our ESA business, Aranesp increased 8% year over year, mainly due to growth in the US dialysis segment.

We have successfully transferred over 80% of the ESA use in independent and midsize dialysis centers from Epogen to Aranesp.

We don't expect much further transition to Aranesp moving forward.

EPOGEN declined 31% year over year.

The largest driver was conversion to Mircera by Fresenius, which began in earnest in the fourth quarter of 2015.

We don't expect a short-acting biosimilar entrant until late next year at the earliest.

Now to Enbrel, where segment growth remained strong in rheumatology and dermatology.

Our primary focus is in rheumatology, which represents in excess of 80% of our business, where Enbrel offers a very competitive efficacy and safety profile as well as a strong economic value.

Enbrel sales were unchanged year over year, driven by several factors.

First, volume declined due to increased competition.

Sequentially on a value basis we maintained share in rheumatology and lost one percentage point in dermatology.

Competition in these segments continues to intensify.

Secondly, we experienced a negative impact from changes in inventory levels.

Both of these dynamics were offset by positive changes in net selling price.

You'll recall that changes in net selling price comprise several components, including changes to list price as well as impacts from rebates we provide to payers, including those related to their formulary decisions.

Enbrel is another example of our focus on innovation, where we continue to pursue additional indications including one for children suffering from chronic moderate to severe plaque psoriasis.

We're also investing in novel delivery systems to help patients with chronic inflammatory diseases to more effectively and efficiently inject themselves and ensure optimal therapy over the treatment period.

We will continue to compete on a payer-contracting basis to maximize patient access to Enbrel.

In highly competitive markets, PBMs can require incremental rebates from us in order for us to maintain our formulary positioning.

Maintaining our formulary position is essential to ensure patients have access to a drug like Enbrel, which as has the longest in-market history of efficacy and safety.

Given this dynamic and present complex negotiations, we expect relatively little benefit from net selling price changes in 2017.

Sensipar grew 18% year over year, driven by net selling price and strong unit growth globally.

We look forward to Parsabiv's European approval and are working with the FDA to attain approval in the US.

Prolia delivered strong growth of 18% year over year.

Quarter over quarter, we saw the typical seasonality in quarter three with a decline of 14%.

Prolia remains an important growth driver and we continue to invest to realize its full potential.

Volume growth continued at nearly 20% in both the US and the EU as we continue to capture share across these markets.

XGEVA showed continued volume growth of about 7% year on year.

We were pleased to see the recent result of the successful Phase 3 trial with XGEVA in multiple myeloma.

About half the patients diagnosed with multiple myeloma will develop renal impairment, limiting the options for skeletal growth-related events.

We look forward to bringing XGEVA to these patients, who until recently we had no other option.

Vectibix and Nplate continued to deliver double-digit growth, driven mainly by volume gains.

Vectibix also benefited this quarter from shipments to our Japanese partner which can fluctuate throughout the year.

Let me now turn to our launch products, Repatha and KYPROLIS.

Both products represent substantial opportunities as they address serious diseases with significant unmet needs.

Starting with our cardiovascular franchise, Corlanor helped us to establish our presence in cardiovascular space and better understand the cardiology community.

Corlanor was approved to prevent re-hospitalization, one of the single largest costs in the healthcare system and thus offers a strong value proposition for chronic heart failure patients.

It has also now been included in the heart failure guidelines.

Nonetheless, Corlanor sales have been modest to date, as it faces steep payer hurdles.

We do not expect a dramatic change in this trend in the near future.

As for Repatha, we are working with payers and providers to allow on-label patient access.

We've seen some minor improvements in the utilization management criteria, but high hurdles remain for both physicians and patients to gain access.

We're very pleased with the Repatha GLAGOV results, which Sean will discuss in a moment.

We believe that GLAGOV, along with the expected positive outcomes data from the FOURIER study in the first quarter of 2017, will certainly strengthen Repatha's value proposition.

We look forward to having these data included in our label.

Now to KYPROLIS.

KYPROLIS grew 34% year over year as we see strong early uptake from key markets in Europe, combined with continued growth in the US.

In Europe, KYPROLIS grew 30% year over year.

Multiple myeloma is a dynamic market with the entrance of new competitors.

In the US we've lost some share in the third line plus as a result of these new entrants.

However, we expect proteasome inhibitions to remain foundational therapy and we continue to grow and generate volume growth in second line as this segment grows and patients are treated longer.

We're focused on growing in second line based on the strong ASPIRE and ENDEAVOR data.

Both regimens - triplet and doublet - have been recognized as preferred regimens for second-line treatment in the recently updated NCCN guidelines.

Let me close by thanking our customer-facing teams around the world.

Their focus and agility to continue delivering for patients in this highly dynamic environment is inspirational.

Let me now pass it to Sean.

Thanks, Tony.

Good afternoon.

We continued to make very good progress in the third quarter, with numerous regulatory and pipeline milestones.

I will begin my review with cardiovascular.

In September we received results from our intravascular ultrasound study in patients with coronary artery disease on intensive statin therapy where primary and secondary endpoints were met.

From a scientific standpoint, the clear demonstration of a link between the PCSK9 mechanism of action in lowering LDL cholesterol and a reduction in atherosclerotic plaque burden in patients already treated with intensive statin therapies is truly groundbreaking.

We look forward to the presentation of these results at the American Heart Association meetings in New Orleans on November 15, where we will also be hosting an investor event.

We are on track to review the results from our cardiovascular outcomes study in the first quarter of next year and anticipate having the data in time for presentation at the American College of Cardiology Annual Meeting in March.

In heart failure, we reached agreement with the FDA on the key elements of our Omecamtiv mecarbil Phase 3 cardiovascular outcome study through a special protocol assessment.

This study will enroll approximately 8,000 chronic heart failure patients with reduced ejection fraction, with the primary endpoint of time to cardiovascular death or first heart failure event.

We're finalizing some of the details of the protocol with global regulators and anticipate enrolling patients early next year.

Omecamtiv is being developed in collaboration with Cytokinetics and Servier.

In earlier stage cardiovascular programs, we recently announced licensing and collaboration agreements with Arrowhead Pharmaceuticals to develop and commercialize RNA interference therapies for Lp(a) and another undisclosed target.

Lp(a) is a target we have gained great confidence in through advanced genetic analyses performed at deCODE.

We have also recently entered the clinic with an exciting new molecule for heart failure and our ASGR1 program in atherosclerosis continues to move forward in the preclinical phase.

Turning to oncology, I will begin with KYPROLIS.

In Q3 we received the results of the CLARION study, which we had the opportunity to discuss at length in our conference call.

I would stress that we are committed to advancing KYPROLIS into first-line therapy and we are close to finalizing a study design focused on the combination of KYPROLIS, Revlimid and dexamethasone in transplant-eligible newly diagnosed multiple myeloma patients, where we have seen very encouraging data from large investigator sponsored studies.

In fact, today many of the thought leaders in the field consider KRd the standard of care for first-line patients.

We are also exploring other combination studies, including with some of the newer therapies and we're currently in discussions with Janssen to co-fund the study of carfilzomib in combination with daratumumab and dexamethasone for patients with relapsed or refractory multiple myeloma.

We're also currently supplying drug to Janssen for their Phase 1B dose finding combination study.

Before leaving KYPROLIS, I'm pleased to report we've completed enrollment in the Phase 3 study of weekly administration in the third-line setting and expect those results next year.

We're also advancing a reformulated oprozomib molecule into the clinic in order to rapidly and definitively assess the potential to develop an oral proteasome inhibitor with a benefit/risk profile that would be superior to existing oral proteasome therapy.

We recently had the opportunity to review the results of the study of XGEVA in the prevention of bone complications in the multiple myeloma population and we are pleased to report the study met its primary endpoint of non-inferiority to zoledronic acid in the time to first skeletal-related event.

This was expected the efficacy was similar between the agents, the renal safety profile, particularly important in the multiple myeloma population, favored the XGEVA arm.

Recall that XGEVA is not currently indicated for the prevention of skeletal-related events in the multiple myeloma population and we look forward to discussing label updates with global regulators.

In our immuno-oncology program, BLINCYTO, our CD19 BiTE, continues to make a meaningful impact on the lives of certain ALL patients and in 3Q, the FDA expanded the indication to include the pediatric setting.

The addition of the novel immunotherapy like BLINCYTO is an important advance for these patients where the use cytotoxic chemotherapies can lead to long-term consequences such as secondary malignancies.

We're also initiating several Phase 3 studies of BLINCYTO in non-Hodgkin's lymphoma, including our previously announced combination study with Merck's PD1 inhibitor, KEYTRUDA.

As we investigate the potential for IMLYGIC in combination other immunotherapies, we recently had the opportunity to present encouraging data from an interim analysis of our Phase 2 study of IMLYGIC in combination with YERVOY at the European cancer meetings ESMO.

In summary, the data suggests that the combination of IMLYGIC and YERVOY has greater efficacy than either agent alone in stage IIIb-IV melanoma patients without any additional safety burden.

The study is expected to complete later this year and will be submitted for presentation at the medical meeting in 2017.

Our combinations of studies of IMLYGIC with the anti-PD1 antibody KEYTRUDA continue to enroll.

We also re-acquired the rights to AMG 420, a Phase 1 BiTE construct directed against B-cell maturation antigen, or BCMA, a multiple myeloma target that had been licensed to Boehringer Ingelheim prior to our acquisition of Micromet.

Finally, we announced the preclinical collaboration with Advaxis on a unique, innovative and bespoke approach to generating immune responses against patient-specific tumor neo-antigens.

In our bone health programs, a Phase 3 study of Prolia compared with risedronate in patients receiving glucocorticoid treatment met all primary and secondary endpoints.

Glucocorticoid-induced osteoporosis is a small but medically important indication for men and women, often under the care of rheumatologists.

We will discuss in a label update with regulators soon.

Last month, data from the Romosozumab Phase 3 placebo-controlled fracture study, FRAME, was presented at the American society of bone and mineral research and simultaneously published in the New England Journal of Medicine.

Feedback from the bone community was very positive and there's a clear desire for new innovative anabolic therapies for the treatment of osteoporosis.

FDA has accepted our Romosozumab file and along with our partners at UCB we look forward to continued interactions as we work toward our July 17 PDUFA date.

We also expect to conduct the primary analysis of the Phase 3 active-controlled fracture study, ARCH, in the first half of next year.

In neuroscience, we continue to advance our CGRP receptor antibody Erenumab for migraine prophylaxis in collaboration with Novartis.

We successfully completed the first of two Phase 3 studies in episodic migraine setting.

70 milligrams of subcutaneous Erenumab administered monthly resulted in a statistically and clinically significant reduction from baseline in monthly migraine days, with a safety profile similar to placebo.

We'll see the results of the second Phase 3 study in episodic migraine by the end of this year.

We also presented the positive results from our Phase 2B chronic migraine study at the European Headache and Migraine Trust International Congress.

This was a robust study of more than 650 patients experiencing 18 migraine days per month at baseline.

We believe the results of this study, combined with our two Phase 3 studies in episodic migraine, could support registration for both chronic and episodic migraine indications.

And nephrology, Parsabiv received a positive opinion in Europe for the prevention of secondary hypoparathyroidism in adults with chronic kidney disease on dialysis and we look forward receiving market authorization in the EU.

In the US, we are working to FDA toward approval.

Finally we received our first biosimilar approval in Q3 for Amjevita, our biosimilar Humira, which was approved in all eligible indications of the reference product.

We also began enrolling Phase 3 studies for our biosimilar rituximab, ABP 798, in both rheumatoid arthritis and non-Hodgkin's lymphoma and our biosimilar infliximab, ABP 710, in rheumatoid arthritis.

As we move toward the end of the year, we still have some important work ahead of us.

As always, I would like to thank our staff for their efforts to combat serious disease.

Bob?

Thank you, Sean.

We would like to open the call up now to questions and I'd ask our operator to remind everybody with procedure is for asking questions.

With that, let's turn it over to your questions.

(Operator Instructions)

Terence Flynn, Goldman Sachs.

Hi, thanks for taking the question.

Maybe just two for me.

First, Bob, I was just wondering if there is a repatriation agreement under a new administration, just wondering if you could help frame for us maybe some potential uses of your cash.

Sean, was wondering, on the IVUS data that we will see, can you help us think about potential implications for the ongoing CV outcomes trial with respect to potential effect sizes.

Is there any correlation there?

Thank you.

Thanks for your question.

Why don't I ask David to address your question on repatriation.

Obviously, you know we're supportive of corporate tax reform and in particular reform that would enable us to think about that cash, but David, why don't you address the question and we'll have Sean talk about IVUS.

Certainly.

I think the first point, of course, is that we continue to generate very solid and stable cash flow for the business and what we have seen thus far is that we are able to fund all of the requirements of the business without having to repatriate the cash and pay a current very unfavorable tax rate.

I think the point is, is should see tax reform in the US, would we consider to repatriate the cash?

I would say yes and what we would look at would be first to maintain the lowest weighted average cost of capital for the Company.

That could involve repaying some of the debt that we have on the balance sheet but maintaining a pretty healthy net debt position for the Company.

Then we would look at certainly deploying cash, as Bob was saying, towards external opportunities, but in that instance we would certainly lead with other strategic opportunities that make sense where we could get a return for our own shareholders from such investments.

Finally, we would look at potentially buying back shares to again get to the right and balanced weighted average cost of capital.

With regard to the IVUS results and reading them through to CV outcomes, there's obviously no formula for that.

What I would say is that the scientific hypothesis behind the program is that we would see a similar impact on atherosclerotic disease and hence, outcome measures from lowering LDL by a given amount with this mechanism as we would if we did it with a statin.

Obviously, here patients are already maxed out on statin therapy and you are doing something you otherwise you could not do, which is to lower LDL substantially beyond that.

The hypothesis would be that you would see a reduction in the impact of atherosclerotic disease that would be generally similar because the mechanisms are very similar.

I think that the positive IVUS study increases one's confidence about that hypothesis substantially.

As you know, the human genetics which we tended to focus on a lot here at Amgen were very strongly indicative of that already, but the IVUS data give us much more confidence.

I generally expect to see something that's generally similar to what you might expect to see if you are reducing LDL in PCSK9 outcome trial with, were possible to do so on top of existing maxed-out statin therapy, with a statin.

That's how I think about it.

Let's take the next question and just a gentle reminder that if you can please limit yourself to just one question.

That way we can be sure that we get to everybody's questions.

Let's go onto the next question, please.

Matthew Harrison, Morgan Stanley.

Great, thanks for taking the question.

If I can ask two related questions on Enbrel, hopefully that doesn't get in Arvind's way.

First, Tony, you talked about expected little benefit from net selling prices in 2017.

I'm wondering if you can just expand on that and tell us if there's a certain amount of price increase that you are expecting when you make that comment or if the contracts you've written have certain price protections where no matter how much list price you take you won't see much net price.

Just related to that, can you tell us exactly what the dollar amount of the inventory headwind was in the third quarter?

Thanks.

Let me start with the last one first.

The inventory build was about $108 million, was the differential.

From the net selling price, obviously we've never given product-specific price guidance and/or -- the contracts themselves are confidential.

Clearly my statement around that there will be little impact on the net selling price changes is indicative of we'll be driving the business on volume, not on net selling price next year.

Let's go onto the next one.

Eric Schmidt, Cowen and Company.

To follow up on the same topic for Tony, are you suggesting that you've been able to contract in a better way in terms of volumes and we won't continue to see the mid- to high-single-digit volume erosions for Enbrel the we've seen over the course of this year?

No.

Volume is always driven by demand in the marketplace.

What I'm saying is the contracts per se will result in little impact on net selling price.

Eun Yang, Jefferies.

Thank you.

Question on AMG 820.

You had this product in development for a while, but it was quiet until you did the deal with -- a collaboration with Merck.

I want to ask you what is your view on anti-CSF1R potentially in IO combination and what tumor types you think would benefit the most from this combination?

This is of course for people who are not the cognoscenti in this area, it is an antibody that would address the role of tumor macrophages in maintaining a microenvironment for tumors.

There's a lot of very non-causal indirect evidence to suggest that those macrophages do play an important role in tumor genesis and maintaining surveillance -- evading the surveillance of the immune system.

It's, I think, a very interesting target and something that one could imagine being synergistic with checkpoint inhibition.

There are, of course, tumor types that tend to have much more infiltration of these macrophages and where you can demonstrate in fact that prognosis is related to in individual patients by the numbers or density of these infiltrating macrophages.

We've tended to focus on some of those tumor types.

I would not necessarily get into on the this call exactly what tumor types we are exploring, because we are doing -- we are in early stages so we are looking at lots of different tumor types and mixed population studies.

It is very interesting program.

Michael Yee, RBC Capital Markets.

Thanks for the question.

Sean, wanted to ask on romosozumab now that you've presented more data and it seems to be well on progress.

The importance of the upcoming active-controlled study, what's your expectation for what happens there and the importance of it in the regulatory filing, presuming the FDA would want to see it.

Do you think the regulatory decision is an efficacy question or a safety question and how do you think about what it is going on there?

Thanks so much.

Right, so from a regulatory perspective, there's absolutely no requirement for such a study.

A placebo-controlled fracture trial, large placebo-controlled fracture trial that meets the guidances that exists in this field is sufficient for registration all over the world.

We have made a strategic decision to file in some parts of the world with both studies and that has to with payer access determinations and so on.

I think that you are right that of course any time we do studies on our products, regulators are interested to see them, mainly to be -- and we often are interested in getting those changes into the label or they are interested in them from a safety perspective and so on.

I think that one thing we have to recognize is that this study is designed to be analyzed first based on a time-driven basis and that's what we are talking about when we talk about the primary analysis that comes from the first half of next year.

Then because we never are sure about the event rate that we are going to experience in these kind of trials, there's an event-driven analysis for example for non-vertebral fracture, which would come later if we don't hit it based on the time-based analysis, so that's important to understand.

Then finally, I would say that this is a very high hurdle.

No one's done an active-controlled fracture trial like this before that's actually powered and designed to actually show fractured results from the get go.

It produces a high hurdle.

It was our feeling that we needed to be able to demonstrate that the product could be superior to a strategy of using alendronate, so that is the idea behind having the second study.

Largely, again, to work with payers.

Geoffrey Porges, Leerink Partners.

Thank you very much.

I'm sorry to keep persisting on this Enbrel question, but this quarter revenue was obviously flat.

You did have the one-time effect but units were down 7% and you commented that if you look at year over year, list price was up 26% or so, certainly above 20%.

Are we to assume then that your list price increases more or less completely given up in the contracts that you are now engaged in.

Just related to that, could you give us an example of some of the value-based contracts and how much of your business is involved in such contracts now?

Just trying to understand what that will mean.

Okay, so clearly the details of the contracts we are putting out are confidential, but as we think about list prices next year, we will be circumspect, clearly based on the environment.

There's a lot of pressure in the highly competitive environments, specifically with the anti-TNFs, where we have to put large rebates on the table to maintain our formulary position.

The large rebates are clearly impacting net selling price.

Let me go back and say that as we think about 2017, we will see little impact on the net selling price for Enbrel.

Demand will be driven by what happens in the marketplace and the trends are as they are in terms of the market share at the moment and in terms of the TRx's.

As regard to some of the value-based contracts we have, there is a contract in the Northeast where we've talked about a value-based contract with Repatha around a guaranteed level of lipid lowering, specifically linked to Repatha and our ability to lower lipids.

We have some work on going with Corlanor in terms of re-hospitalization.

We have some work that's happening both inside the US and outside the US on Prolia in terms of fractures.

Those are three examples.

In total, Geoff, for example in Repatha, we are getting up to two handfuls -- or sorry, to two handfuls of these contracts and as I said in my remarks, each one of these takes some time to put in place, but I think we are addressing the need in the marketplace and we would expect to continue to see more of these, not just from Amgen but others in the industry and frankly in other sectors of the healthcare economy as well.

I think we're at a point where consumers, payers want to pay for what works and not for what doesn't.

This is one way to address that need in the marketplace.

Again, I think the products that we have, products like Prolia, products like Repatha, a number of our products of us an opportunity to offer such value-based arrangements in the market.

Joshua Schimmer, Piper Jaffray.

Thanks for taking the question.

I was a little surprised to hear that Corlanor was facing some significant reimbursement headwinds.

Hoping you can draw a fence around that and help us understand why that is not a harbinger of difficulties and headwinds for Repatha once you have the cardiovascular outcomes data in hand for that product.

Thank you.

Let me try and answer the question.

The label we eventually got from the FDA for Corlanor was a fairly limited label that pointed to re-hospitalization only.

A number of restrictions are in place by the payers and of course Corlanor has been added to the standard of care at the moment.

Most of the payers are busy trying to work out do they displace the ACE inhibitor with Entresto at the moment.

There's a second add on for patients who have heart rate higher than 70 who would then be eligible for Corlanor.

The business to date has been limited.

Access is limited and a fair amount of paperwork is required by physicians and cardiologists to get patients on Corlanor.

The other thing just remember, of course, Josh is that this product wasn't developed at all the way we've developed Repatha and we continue to be very excited about the prospects for Repatha and the importance of the outcomes data to demonstrate to everybody why lowering LDL cholesterol with this mechanism is important.

We are enthusiastic.

We have a set of data for Repatha that are spectacularly consistent from start to finish.

We look forward to adding the outcomes data to that.

John Scotti, Evercore ISI.

Hi, thanks for taking my question.

Arvind, thank you so much for the kind words earlier.

I really appreciate it.

Thank you.

I wanted to ask on Omecamtiv, actually.

Now that you've decided to move to Phase 3, Sean, maybe your thoughts on, I guess for everyone, the size of the opportunity, how much would this program cost?

Specifically on the Phase 3 design, how long do you think it will take to enroll the trial, your thoughts?

Then as well as your thoughts on the practical feasibility of -- my understanding is you need to thread the needle from a PK perspective with regard to any risk of increasing systole duration at high exposure.

How, practically, do you intend to address that in the Phase 3 trial?

Then generally, is this an opportunity that you see as the same magnitude as Repatha or what is your thoughts on the overall size?

Thank you.

What I would say is if you step back and look at chronic heart failure, it is right up there on the top of global epidemic disease burden things.

It is a huge unmet need.

If you compare it to an area like oncology, the amount of work that's going on in terms of innovative mechanism that are directed at heart failure, is night and day.

There's very little -- for example there's absolutely no competition in this space of something that would be an inotropic positive contractile mechanism like Omecamtiv.

I think there's a huge opportunity and in particular, just from a purely medical perspective, this has been the Holy Grail in heart failure is to try and get something that actually can increase the efficiency of the squeeze that the living cardiac tissue can provide without increasing myocardial oxygen demand and resulting in arrhythmic death.

We believe at this point we have a very compelling Phase 2 experience and a lot of very sophisticated human physiologic experiments that we have done to understand how the product is working.

We understand it deeply at a molecular level.

I think that the PK is an important feature and one of the reasons that it is taken us this time it has to get the product into Phase 3 is that this is classic really tough relatively narrow window small molecule drug development.

We had to come up with a formulation that was well behaved and also in drug testing strategy that can be implemented in the clinic to assess.

We have a titrated regimen where patients get started on a dose, then they get the blood test to see what level they are at once they are at steady state and some proportion of patients get increased to a higher dose to ensure that everybody in a therapeutic range.

I think we've demonstrated very convincingly that we can keep all the patients out of a range we are getting too much of the mechanism, too much pharmacodynamic affect and not enough relaxation time.

Bottom line is I think it is an extremely important program and I think that it will -- these programs are inherently long term because you can't, unlike Repatha, where we could get at least onto the market from the surrogate, you have to have mortality and morbidity outcomes trial just to gain market.

But I'm very pleased that we are advancing this mechanism and we have a lot of interest in heart failure throughout our whole pipeline.

Robyn Karnauskas, Citigroup.

Hi, guys, thank you.

Just looking big picture of the Company, it looks like product sales have been stable for a few quarters, or about four or five quarters.

Given the slow uptake of the new products, it looks like a lot of the growth here is being driven by price.

How are you thinking about the importance of bringing in some inorganic growth and the magnitude of that inorganic growth, given that the new products are more slow launchers?

Thank you.

Robin, as I said in my remarks, we have a strong balance sheet.

I think we have a world-class business development effort.

We are looking, and we have been for some time, looking at opportunities.

I think it is important, particularly in an environment like this, to be disciplined about price so that we can earn a return for shareholders, not just for the target's shareholders, so we'll continue to look.

Of late we have found some very interesting opportunities at the early stages, so we've done a few deals.

We've got a few others we're looking at now but we will continue to look at larger opportunities.

For the most part, Robyn, those will be in our six areas of focus, therapeutic focus.

As we've said now for more than a year, we are looking at a wider range of opportunities than we were previously.

Alethia Young, Credit Suisse.

Thanks for taking my question.

I guess, can you give us some more color on the Onpro kit, what market share you have right now?

Also, is the IP different than the Neulasta IP?

Thanks.

This is Tony.

Let me answer that one.

One, we do have IP on the Onpro kit, so it is actually different to the composition of matter patent.

Number two, the average market share for the Onpro in second quarter was about 34% and we've exited the third quarter at around 44%, 45% as an average.

Good growth and we believe we are on track for close to [50%](corrected by company after the call) by the end of the year.

Ronny Gal, Sanford Bernstein.

Thank you for taking my question.

A little bit on KYPROLIS.

The concern out there has been that KYPROLIS was going to kind of get squeeze between the IMID on one side and daratumumab on the other.

The combination with daratumumab is kind of interesting.

The question is, are you thinking about this as a trial that will look at the dara plus KYPROLIS versus dara plus an IMID or is this just against a single agent?

How do you guys make the case that KYPROLIS should be used instead of any one of those two agents?

Okay.

I think that what we are thinking about is really if you imagine that a lot of patients will see drugs like an IMID and potentially Velcade in earlier lines of therapy.

When you get to the relapsed refractory, which is where we are talking about the study with Janssen, at that point you are really looking at, for example, the ENDEAVOR type regimen which is KYPROLIS at a particular dose with dexamethasone, that's where we were able to demonstrate a doubling of PFS versus Velcade.

That base regimen plus daratumumab is -- versus the regimen alone is what we are thinking about looking at.

You can imagine that this could be an extremely attractive regimen to have KYPROLIS, dex, and daratumumab as a relapsed refractory agent available to patients who have been treated with oftentimes drugs like Revlimid and steroids and Velcade in the first-line therapy.

I think that's an obvious place for us to look at that kind of combination therapy and that's what we are focused on.

In the big picture, I would say that we will be looking -- remember how rapidly moving this field has been in multiple myeloma and how many new entrants have come in place.

There's also a potential role for immunotherapy here with the checkpoint inhibitors, so we are doing studies with that.

It is going to continue to be a rapidly evolving field.

We remain confident that proteasome inhibition is going to be a backbone component of regimens and that because of the limitations that are inherent in trying to treat with a drug that causes the kind of peripheral neuropathy that occurs with Bortezomib will end up playing an important role in the treatment regimens, for sure.

Geoff Meacham, Barclays.

Afternoon, thanks for taking the question.

A lot of questions so far on Repatha from a cost benefit from a payer perspective.

Sean or Tony, I want to get your perspective on Erenumab and what you have seen with ARISE and how you view that as within the context of cost benefit.

Sean, looking forward for the STRIVE study, maybe help us with how those -- that patient population may be different from a placebo response perspective.

Thanks.

Let me answer the first question around cost benefit.

I would say we haven't set a price for the product yet, but from what we've seen, it is a huge unmet medical need.

A large number of patients who suffer from this disease, it is debilitating disease, it takes way independence and the ability to be productive, to be productive either as a worker or as a mother or father.

The available treatments on the market at the moment does not help patients as much is they would like.

It causes side effects that are sometimes worse than the disease itself.

It is a disease that patients really know about when they have it.

It is not a non-observable symptom like some other diseases.

Obviously, I think our ability to take away some of these migraines, to allow people to take back their lives, will allow us to build pharmacoeconomic models to show real value when we come to market.

Sean?

In terms of the second Phase 3 EM study, it is very similar in design and the inclusion/exclusion criteria are extremely similar to the study that we just saw recently.

I don't think there's any reason to expect big differences in things like the placebo response rate, for example, between the trials.

No two trials are going be identical, but there should not be big differences.

Cory Kasimov, JPMorgan.

Good afternoon, guys, thanks for taking the question.

I guess this is for Bob, maybe Tony as well.

Just curious as to your views on Prop 61 in California and maybe how concerned you are about this type of movement gaining steam and further shaping the overall pricing landscape?

Thanks.

Thanks, Corey.

It should come as no surprise to you to learn that we are opposed to Proposition 61.

We think the proposition itself is flawed and so we are joined in our view by most of the major newspapers in California, a very large number of the Veterans groups as well.

I think even, frankly, many of the major California public entities have also come out against Proposition 61.

We are working hard to try to make sure that people understand the reasons why we don't think is in interest of the citizens of the state of California.

Obviously, this is a populist topic at the moment, Cory, so we think it is important to shed light on it here in California and wherever else there might be a similar ballot initiative risk, because I think fundamentally what we support is, as I described earlier, is the role of innovative biopharmaceuticals to try and address what is the real villain here, which is the economic and social burden of serious disease.

We think innovative therapies are the way to help address that problem.

Any initiative that might have the unintended consequences of Proposition 61 could have to the funding of innovative R&D is something we're going to look at very carefully and share our concerns about.

Ying Huang, BFA Merrill Lynch.

Thanks for the question.

Two quick ones from me.

On a high level, do guys have any strategic interest in another product like Enbrel in rheumatology and dermatology, given that there some evolving change of the approaches in treating those disease in oral drugs?

As another quick one on biosimilar Soliris, given that it is targeting a very rare disease, is a possible you could actually go through the approval process without testing the drug in patients, just in healthy volunteers?

Thanks.

Let me take the first one.

Again, it is no surprise that we've looked through the years at a broad number of potential products to treat rheumatologic and dermatologic inflammatory diseases and we continue to do that.

We have a very high bar, obviously, with Enbrel given the years of safety and efficacy data that we have for that product.

We have and will continue to look at other agents.

As you know, we were developing a couple on our own as well and when those no longer had the opportunity to be first or best-in-class, we moved out of them.

But we will continue to look for ways to add value in inflammation.

That's one of our core research focuses.

With respect to your question about our biosimilar program, I don't know --

I think that I would be surprised as this program you are referring to is quite early in its development process and in Phase 1. I think there likely would need to be experience in the patient population.

Clearly, the plan we have at the moment will bring us to market at the earliest time possible within the concept of patent laws.

Ian Somaiya, BMO Capital.

Wanted to get your -- a sense of your level of commitment for developing biosimilar Eculizumab.

Given the amount of visibility we've had on the newer branded approaches in the complement space?

Sorry, say it again, Ian.

We couldn't hear at this end which molecule you were talking about?

Eculizumab.

Soliris.

(Multiple speakers) We have a program that we are advancing.

You are aware of it, Ian, because of a regulatory filing we made at the time that the trial began.

We have not said much about our intention for that molecule other than that we intend to take it through development and as Tony said, have it available as soon as the patent intellectual properties patents have lapsed and enable us to launch it.

If your question is, are we serious about it, do we intend to develop a molecule, yes.

Jim Birchenough, Wells Fargo.

Good afternoon.

It's Nick in for Jim this afternoon.

Really it's about the BiTE strategy.

Obviously you've been investing in ALL.

You have a Phase 2/3 study listed in non-Hodgkin's lymphoma for continuous infusion.

Now you've got the BI product, which is continuous infusion and also subcutaneous administration, I believe.

From one perspective, this could look like this is suboptimal delivery, but maybe you disagree with that.

Can you discuss the BiTE strategy, particularly against targets were there are fully human, bispecific antibodies and cell therapies also being directed at those targets?

Thanks.

I think it's -- first of all, we currently have the ability to develop the very short half-life molecules or much longer half-life versions of these constructs and we've had that in place for some time now, so we make choices between those depending on the particular circumstances.

Now obviously with a molecule like BLINCYTO that's already approved, the thing that we are doing there is looking at induction regimens where an intensive treatment with an intravenous administration for a limited period of time would be acceptable if we were going to drive people into very low minimal residual disease positive state.

It is true that for many solid tumor settings, for example, the development that we would pursue would be with the half-life extended versions of the BiTE.

In the big picture, it turns out, interestingly, that for some of these molecules, when they are being used in hematologic malignancy settings and there's a real potential for these kind of cytokine storm syndromes, the ability to actually turn the drug's infusion off and have it dissipate out of the system in a matter of minutes is a huge advantage.

That is something that you need to take into account.

But we do, as we develop these against targets in solid tumors, we ultimately, and even in settings like lymphoma, you may see us do something with a short acting BiTE and then follow in as sort of the next generation with the half-life extended version.

One thing I might also add because it relates to a comment I made in my opening remarks about our transformation, but the BiTE area is one where we're moving very rapidly internally in our ability to examine targets and incorporate them into our BiTE platform.

The other thing I would note is, we see some significant opportunities from a manufacturing cost standpoint in this area that we are excited about as well, consistent with the work that we're doing in our transformation.

We think this is an area that has real legs at Amgen.

Let's go to the next question.

As it's about 15 minutes past the hour, let's take one last question, please.

Eric Schmidt, Cowen & Company.

Thanks for the last question.

Just a quick one for Sean on Parsabiv.

Is it reasonable to expect US approval this year?

Thanks.

We are very engaged in right now in working toward approval.

It is difficult for me to anticipate it.

It's obviously the FDA's decision when they are going to grant an approval.

I don't want to set an expectation that, that would be this year versus early next year.

I'm hoping that it is going to happen in the reasonably near future.

As you know, Eric, obviously we are thrilled with the progress we're making with that in Europe as well.

Arvind, why don't you go ahead and wrap up.

Thanks, everybody.

Thanks for your participation in our call.

If you have any other follow-on questions, comments, topics you would like to discuss, myself and my team will be standing by for several hours, so feel free to reach out to us.

Thanks again.

Thank you.

Ladies and gentlemen, this concludes Amgen's third-quarter and financial results conference call.

You may now disconnect.