Arvind Sood - VP of Investor Relations Bob Bradway - Chairman and CEO David Meline - CFO Tony Hooper - Head of Global Commercial Operations Sean Harper - Head of R&D.

Matthew Harrison - Morgan Stanley Robyn Karnauskas - Deutsche Bank Eric Schmidt - Cowen & Company Terence Flynn - Goldman Sachs Geoffrey Porges - Sanford C.

Bernstein Josh Schimmer - Piper Jaffray Yaron Werber - Citi Mark Schoenebaum - ISI Group Michael Yee - RBC Capital Markets Geoff Meacham - JPMorgan Matt Roden - UBS Eun Yang - Jefferies Ian Somaiya - Nomura Securities Ravi Mehrotra - Credit Suisse Howard Liang - Leerink Swann.

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 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 to you 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.

Bob?.

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 want to 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, the results for which will be announced as soon as they are available.

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

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 five 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 U.S. and internationally. We also saw a nearly $150 million increase in other revenues, primarily due to our Nexavar and [Stivagar] 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 six.

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 prefunding a majority of our $2 billion debt maturity later this year.

Turning to page seven, 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. 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 eight, 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 franchisees remained stable despite new competition and our growth phase products continued to increase demand from both share and market growth.

As a result, we delivered 8% year on 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 a Medicaid rebate adjustment in the amount of $185 million, which [inevitably] impacted the year on year comparison this year by about 4 percentage points. This adjustment mostly impacted our [unintelligible] and [filgrastim] products.

Our performance was particularly strong in the international markets, with 15% year on year growth driven by strong performance in Europe, and we also benefited from the acquisition of the filgrastim 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 for 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.

To date, we’ve only seen a slight impact from the new filgrastim competition in both the U.S. and Europe. Turning now to Enbrel, on slides 15 and 16. Underlying demand continued to be strong, as sales were up 7% year on year, primarily driven by price. Most of the inventory dynamic we saw last 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 were partially offset by last year’s Medicaid rebate adjustment. Unit demand has been relatively stable, as 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 U.S. 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 U.S., our improved sales force focus on high-prescribing physicians continues to drive both [unintelligible] and [unintelligible] prescriptions.

In fact, new patient Rx is up 33% year on year, and our DTC programs are driving increases in patient awareness and patient requests. As a result, in the U.S. we grew market share as measured by days of therapy by 3 percentage points in the quarter, up to 17%, shown on slide 21. U.S.

repeat injection rates are over 60% on second injection and over 70% on third injections, 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, Q2 sales grew 15% year on year. Growth included both unit demand and price.

Nplate grew 12% year over 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 for first line metastatic colorectal cancer in combination with an [unintelligible] based regimen of [unintelligible], in [unintelligible] patients, and will address an important unmet need in these patients.

Finally, Kyprolis sales were up 15% globally, and 23% in the U.S. on a sequential basis. In the U.S., 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 a 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, and 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. Let me pass you to Sean. .

Thanks, Tony, and 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 U.S. and E.U. this quarter.

These submissions for evolocumab will include both Q2 week and Q2 monthly dosing. However, in order to maximize the probability of a first cycle approval for evolocumab delivered via our auto-injector, 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 [unintelligible] 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 U.S. for chronic heart failure, an epidemic condition with a high degree of unmet need, based on a large data set including outcomes data.

We anticipate that the successful launch of evolocumab and ivabradine will meaningfully benefit many patients at cardiovascular risk.

We are look 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 immuno-oncology programs continue to advance, and we had several data presentations at ASCO. We presented the overall survival data from our Phase III TVEC 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 of our durable response rate primary endpoint, make for a very compelling data set, and we recently submitted a BLA for this agent in the U.S., 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 the compelling opportunity for TVEC to prime the immune system with checkpoint inhibitors. We’re currently investigating TVEC in combination with [unintelligible], or [unintelligible], 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 move forward aggressively with our collaborative efforts with Merck on PD1, 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 U.S. where we were granted breakthrough therapy designation this year, and are also in discussions with regulators about our E.U. submission.

Our Phase II study of Vectibix versus Avastin in first line wild-type KRAS metastatic colorectal cancer suggested a survival advantage for Vectibix in this population, which also garnered interest at ASCO. As you will recall, we recently received U.S. approval for first line use with [unintelligible] 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 II study in recurrent ovarian cancer, our latest estimates for the results from this event-driven overall survival secondary endpoint is now the fourth quarter of this year.

Recall that Trebananib is a peptibody that inhibits Ang 1 and 2, 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, consisted of three Phase III studies, one placebo controlled and two head to head studies comparing it to ustekinumab, or STELARA.

The efficacy data we will be reporting from the placebo controlled study was very positive, and the other two studies will 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 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 a head to head comparison 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 lymphopoeitin monoclonal antibody AMG 157 also highlighted in the New England Journal recently.

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

And 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, and 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’ll 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 will follow. .

[Operator instructions.] Our first question comes from the line of Matthew Harrison with Morgan Stanley. .

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, 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 $165 million.

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

I guess a couple of 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 than usual, as we begin investing in the prelaunch activities for the medicines that we’ve filed..

Our next question comes from the line of Robyn Karnauskas with Deutsche Bank..

I have one question regarding AMG 416. Regarding the head to head study you are doing comparing to Sensipar, what do you expect to see from this trial, apart from the primary endpoint? Which other secondary endpoint should we look at as well? And then do you expect to conduct an outcomes study for this [unintelligible]..

I would say that the comparison to Sensipar is important because we need to understand both at 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 114 versus the current Sensipar dosing, understanding the tolerability issues, which as you know, are quite limiting for Sensipar, given the large [unintelligible] that these hemodialysis 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..

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

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?.

Let me just make clear that the changes we announced today are company-wide changes. So while the facilities, particularly in Washington and to an extent in Colorado, that we’re closing, are primarily research and development and process development related.

The cuts themselves are companywide, 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 return areas into what we expect to be higher growth, higher return opportunities for us.

So that’s how I’d characterize it. And you’re right, in the context of our full business review we’ll able to, I think, spend enough time with you to elaborate on how we expect the cost structure to evolve as we reshape the business. .

Our next question comes from the line of Terence Flynn with Goldman Sachs..

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 that you’ve cited in your restructuring. And then another question, Bob, in your prepared remarks, you mentioned the well-designed Aspire trial.

I was wondering if you would care to expand here, as we feel that there are a number of questions on some of the limitations of the trial design and just wondering if you could help us out there. .

I’ll 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.

But Sean, if you want to elaborate on any of the specific incremental programs that we’ve 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 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 this sense that the R&D organization has about the Aspire study, in general terms, which is I would agree entirely, and do agree, that the study is well-designed. It’s 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, we could talk about that offline. But I would agree that it’s a well-designed study..

It’s a large study, 800 patients..

And I think we expect it to provide a pretty good window into the truth about the molecules. That’s what I would expect from a well-designed study. .

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

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

And could I ask you, are you suggesting to us that the operating expenses net will be flat in 2015 and 2016 because you’ll 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, 2016, with that same reallocation.

Because I’m struggling to understand what it means..

What we were trying to convey is that the changes that we’ve announced in this first step of restructuring would aggregate to $700 million of operating expense when compared to 2013. So the things that we’re eliminating, for example, were [$700 million] dollars of operating expenses 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, what we’re saying is first, in 2014, we had contemplated these actions, and they take 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 an order of magnitude of $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, in that year. Now, one of the things, just to reiterate, 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..

Our next question comes from the line of Josh Schimmer with Piper Jaffray..

I guess just 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?.

Yeah, 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, and this restructuring doesn’t reflect any change to that..

Our next question comes from the line of Yaron Werber of Citi..

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

You know, the markets you’re going to go into are going to be a lot more competitive, and I just want to understand how you sort of 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 of the two formulations..

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

But you’re right, we’re entering a new era in the sense that we will be 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 past couple of years.

And we’re excited and looking forward to having the opportunity to show what we can do and 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, and which form the basis of a clear approach for our developing these new product areas. .

You’re right that initially Amgen specialized in building markets, as we did with both filgrastim and [unintelligible] franchise. But as you look back at the legacy portfolio, now our European team have been defending against a number of competitors in the market the last seven years. We truly have built a competitive skill and ability.

When we look at Enbrel in the U.S. we compete on a daily basis against at least nine other competitors. And when we launched denosumab, we went into launch against a branded Zometa, which became generic at six competitors. We still grew 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, again, as they go into new therapeutic areas, building therapeutic competence, understanding the relationships, and ensuring that we can be maximally competitive as we go to market..

And let me clarify on the issue around the evolocumab device. This is not a formulation issue. The formulation is the formulation that’s going to be registered along with the every two week and every month dosing data.

The auto-injector, which is the SureClick auto-injector, which we have many, many patient years of exposure and the regulators are very familiar, will also be registered. What we are 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 auto-injector, delaying the entire drug submission by including that rather than get it approved, get the auto-injector 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..

Our next question comes from the line of Mark Schoenebaum with ISI Group..

I just had a question for Bob, and then just 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 rates are very low, but much of your cash is generated ex-U.S.

and getting access to it is maybe a bit more complicated under ideal situations. So as a 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 then just a quick clarification for Tony.

Tony, there’s a lot going on with inventory this quarter, but I just 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?.

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

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

Correct. Yes..

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 would 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.

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 to 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. .

Our next question comes from the line of Michael Yee with RBC Capital Markets. .

Maybe a question for Sean, going back to some [unintelligible] data, which is coming up.

Maybe you could clarify for us, and I know there’s multiple interims, so just wanted to clarify, is this a 50% or 75% interim? Did prior wins not stop? And should we have the 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 second line, understanding it should be positive, but what would you be very pleased with?.

This particular interim on Aspire comes up with a reasonable number of events and power. It’s not, of course, fully powered, as the final analysis would be. And whether this study is well-designed or not has, in my view, nothing to do with the question of whether the result is going to be positive in an interim.

It’s the question of the statistical power that you have to detect the effect size. So depending on whether you’re very ambitious and you’re 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.

You know, 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’s just enrolled fully, Endeavor, and will come later.

So 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 have access to most of the really key opinion leaders in this disease around the world, and we’ll have them help us understand how they feel about the results, assuming that we do get a read out, because the study is stopped early for efficacy.

That may or may not occur at this [DSMB] review. .

Our next question comes from the line of Geoff Meacham with JPMorgan..

What can you tell us about the pace of commercial investments in evolocumab, just especially given the earlier filing?.

As Sean said earlier, we’ve filed now for ivabradine, the drug for cardiac heart failure, which obviously will be the critical path to Amgen moving into the cardiovascular space. Clearly, that drug will 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..

And then on the restructuring, 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 their revenue potential?.

Great, 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 the biosimilar portfolio that we’re developing. I’ll just remind you, we have six programs advancing, three of which are already in pivotal trial.

So we’re excited about the prospect of developing and launching those beginning in 2017. And you’re right to point out that this 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 what 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 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 rationalize and, we think, make product more reliably and more cost effectively..

Our next question comes from the line of Matt Roden with UBS..

I have one for Tony on the EPOGEN and dialysis market. As both branded and potentially biosimilars begin to come to market in the U.S., we wanted to get your thoughts on how you view the impact of some of the large dialysis providers and potential volume deals, and how you see that moving forward once Roche comes in and the biosimilars as well..

So just to remind you again that Roche have the right to enter the market at present with MIRCERA, and then patent will expire during 2015. The market is divided into three large chunks. Obviously, [DaVita] and [FMC] each holding about a third of the business, and the other third being held or managed by some of the small providers.

As regards DaVita, we have an exclusive supply contract with them that runs until 2018. And with FMC, we have a nonexclusive agreement at present. So obviously, all the experience at both FMC and a few of the others have had in Europe, which include a number of other alternative products, is something we take into act.

We have continued to maintain a fairly large portion of the dialysis market share in Europe. So we’re modeling ourselves on that, but the market, of course, in the U.S., is fundamentally different..

Our next question comes from the line of Eun Yang with Jefferies..

Question on romosozumab 4785. In [Phase III], patients are treated with 785 for 12 months, then followed by 24 months of Prolia.

Wouldn’t that be less favorable for a primary outcome measure like 24 months compared to 24 months continuous [unintelligible] treatment?.

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 was that while one does see the most rapid increase in bone marrow density that 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 [unintelligible] resorptives.

And so at that point, it didn’t seem prudent to continue to dose people with an anabolic agent which has a novel mechanism, etc., when we had 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 a surprise to us, of course, because this is completely novel biology and it wasn’t until we got into the clinic and worked with an agent in Phase II that we found that it really wasn’t sensible to use the product on a chronic basis..

Our next question comes from the line of Ian Somaiya from Nomura Securities..

Just a question on the restructuring.

Should we expect any sort 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, the SG&A, is sort of one-time, in support of launching of these products, and how much of it should we assume is recurring?.

I’ll just remind you that we’ve been doing a fair amount of reprioritization of the pipeline over the past two years, but Sean, you can reiterate the actions that we’ve taken there if you’d like. And of course we’ll talk about where we’re 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 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, 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, etc., 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’re capturing innovation appropriately.

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

Our next question comes from the line of Ravi Mehrotra with Credit Suisse..

Sorry, another one on the headcount reduction. 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 new structural advantages with a view of dominating select R&D and operational domains? And if it’s 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?.

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, 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’re trying to do, both as regards the numbers, the locations, and what we’re trying to do with our fixed costs from a site standpoint.

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

And our last question comes from the line of Howard Liang with Leerink Swann..

Can you talk about what additional commercial infrastructure you think you’ll 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’ll need more buildup from other investments to build the infrastructure?.

It’s clearly a very sensitive and competitive debate we’ll have about this now, but we are 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 fall pretty much within our existing organization in terms of the oncology skills. But that’s about as much as we would want to disclose at this point in time..

Arvind Sood:.

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