Arvind K. Sood - Amgen, Inc. Robert A. Bradway - Amgen, Inc. David W. Meline - Amgen, Inc. Anthony C. Hooper - Amgen, Inc. Sean E. Harper - Amgen, Inc..

Terence Flynn - Goldman Sachs & Co. Matthew K. Harrison - Morgan Stanley & Co. LLC Eric Schmidt, Ph.D. - Cowen & Co. LLC Ying Huang - Bank of America Merrill Lynch Michael Yee - RBC Capital Markets LLC Geoffrey C. Porges - Leerink Partners LLC Joshua E. Schimmer, M.D. - Piper Jaffray & Co.

John Scotti - Evercore Group LLC Robyn Karnauskas - Citigroup Global Markets, Inc. (Broker) Alethia Young - Credit Suisse Securities (USA) LLC (Broker) Aaron Gal - Sanford C. Bernstein & Co. LLC Geoff Meacham - Barclays Capital, Inc. Cory W. Kasimov - JPMorgan Securities LLC M.

Ian Somaiya - BMO Capital Markets (United States) Nick Abbott - Wells Fargo Securities LLC.

My name is Jake and I'll be your conference facilitator today for Amgen's Third Quarter 2016 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. There will be a question-and-answer session at the conclusion of the last speaker's prepared remarks.

In order to ensure everyone has a chance to participate, we would like to request that you limit yourself to asking one question during the Q&A session. I would now like to introduce Arvind Sood, Vice President of Investor Relations. Mr. Sood, you may now begin..

Okay. Thank you, Jake. 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's covering the large cap biotech companies in Mark's absence. Also in acknowledging those who are new in the coverage, I'd like to welcome Carter Gould of UBS, who will be initiating coverage of the sector and our company.

So our performance during the quarter is best characterized by considerable operating leverage, as earnings growth well exceeded 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 our presentation today, which have been posted on our website, and a link was sent to you separately by email. 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 schedules accompanying today's press release, the Form 8-K and also on the Investor Relations section of our website.

So just a reminder that some of the statements made 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. So with that, I would like to turn the call over to Bob..

Okay. Thank you, Arvind. Our businesses 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.

And 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's worth noting as well that our unit volumes grew 12% outside of the U.S.

And with respect to that 12%, recognize that the competition for our legacy products began much earlier outside of the U.S. 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.

And 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've 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 III results from our recent Repatha coronary imaging study constitute one more success in our clinical development program for this molecule.

This study demonstrates the powerful effect 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 the doctors 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're 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're pleased to be in the lead position in the CGRP class.

Rounding out our franchise in bone health, we recently shared more clinical data on 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 at Amgen. As you know, we're in litigation with AbbVie over AMJEVITA, and it's safe to say that there will be more litigation before there's a launch.

Given the pace of that litigation, it's unlikely that this matter will be clarified in time for us to launch in 2017. We've also successfully completed Phase III studies in two more biosimilars and look forward to their regulatory process. 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 any time soon and that all of us in the community must work together to find more affordable healthcare solutions. But as we seek to do that, we shouldn't lose sight of the fact that it's the economic and societal burden of disease that is the enemy.

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 it in cardiovascular medicine, and I think we'll see it in Alzheimer's and other devastating illnesses as well.

But if we're to advance promising new medicines, we'll have to do that with an eye to both the price and the value of these therapies. And 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 shouldn't 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 at 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 improve 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're active in our review of opportunities, principally in our core therapeutic categories, and we're disciplined as to the price that we'll 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'd 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 six of the slide deck, revenues at $5.8 billion grew 2% year-over-year. This quarter we saw steady product sales performance anniversarying against the strong third quarter comparison 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 and 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 4 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 payments 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 seven.

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 eight. 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. And 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 continued to be on track to meet our commitments through 2018 based on our balanced portfolio of launch, growth and legacy products, along with steady progress in 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. And you'll find the 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.

And we're bringing in 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 in changes in inventory levels.

In the U.S., our product sales declined 1% year-over-year and internationally product sales grew 4%, or 7% excluding the impact of foreign exchange. This performance was fueled by 12% of volume growth. Let me start with an update on how we're 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 U.S. are hospitalized due to potentially fatal febrile neutropenia.

Not only are these hospitalizations costly to our healthcare system and potentially devastating to patients, but they also result in potential excessive use of broad spectrum antibiotics, which can contribute to hospital-based antibiotic resistance. This is a prime example of how innovative medicines can deliver value to the healthcare system.

Year-over-year Neulasta declined 5% due to a small segment contraction in the U.S., along with increased competition in our international business. We continue to see strong performance from our Onpro delivery kit in the U.S. 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 U.S. 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 35% (19:26) 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 U.S. dialysis segment.

We have successfully transitioned over 80% of the ESA use in independent and mid-sized 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 remains strong at both 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. Firstly, volume decline due to increased competition.

Sequentially on a value basis, we maintained share in rheumatology and lost 1 percentage point to 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 positioning is essential to ensure patients have access to a drug like ENBREL, which has the longest in-market history of efficacy and safety.

Given this dynamic and present contract 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 passage of the European approval and are working with the FDA to obtain our approval in the U.S.

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 U.S.

and the E.U., as we continue to capture share across these markets. XGEVA showed continued volume growth of about 7% year on year, and we were pleased to see the recent result of the successful Phase III trial with XGEVA in multiple myeloma.

About half the patients diagnosed with multiple myeloma will develop renal impairment, limiting the options for skeletal-related events. We look forward to bringing XGEVA to these patients who, until recently, had no other option. Vectibix and Nplate continue 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, and those would be 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 the 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 unlabeled patient access. We've seen minor improvements in the utilization and management criteria but high hurdles remain for both physicians and patients to gain access.

We are 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 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 U.S. In Europe, KYPROLIS grew 30% year-over-year. Multiple myeloma is a dynamic market, with the entrance of new competitors. In the U.S., we lost some share in the third-line plus as a result of these new entrants.

However, we expect proteasome inhibition 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 are focused on growing a second line based on the strong ASPIRE and ENDEAVOR data.

Both regimens, the triplet and the 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've continued to make very good progress in the third quarter, with numerous regulatory and pipeline milestones. I'll 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 with primary and secondary end points for men.

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 therapy 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're 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've reached agreement with the FDA on the key elements of our omecamtiv mecarbil Phase III cardiovascular outcome study through a special protocol assessment.

The study will enroll approximately 8,000 chronic heart failure patients with reduced ejection fraction with a primary end point 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 the licensing and collaboration agreements with Arrowhead Pharmaceuticals to develop and commercialize R&A interference therapies for Lp(a) and another undisclosed target.

Lp(a) is a target we have gained great confidence in through advanced genetic analysis performed at deCODE. We have also recently entered the clinic with exciting new molecule for heart failure. And our ASGR1 program in atherosclerosis continues to move forward in the pre-clinical phase. Turning to oncology, I'll 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're 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're 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 Ib dose finding combination study.

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

We're also advancing the 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're pleased to report the study met its primary end point of non-inferiority to zoledronic acid in the time to first skeletal-related events. This was expected.

The efficacy was similar between the agents. But in addition, 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 a novel immunotherapy, like BLINCYTO, is an important advance for these patients, where the use of cytotoxic chemotherapies can lead to long-term consequences, such as secondary malignancies.

We're also initiating several Phase III studies of BLINCYTO in non-Hodgkin's lymphoma, including our previously announced combination study with Merck's PD-1 inhibitor, KEYTRUDA.

As we investigate the potential for IMLYGIC in combination with other immunotherapies, we've recently had the opportunity to present encouraging data from an interim analysis of our Phase II 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. This 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-PD-1 antibody, KEYTRUDA. continue to enroll. We also re-acquired the rights to AMG 420, a Phase I 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.

And finally, we announced a pre-clinical 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 III study of Prolia compared with Risedronate in patients receiving glucocorticoid treatment met all primary and secondary end points.

Glucocorticoid-induced osteoporosis is a small and medically important indication for men and women, often under the care of rheumatologists, and we will discuss a label update with regulators soon.

Last month, data from the romosozumab Phase III placebo control 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 2017 PDUFA date.

We also expect to conduct the primary analysis of the Phase III active control 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 III studies in the 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 III study in episodic migraine by the end of this year. We also presented the positive results from our Phase IIB 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.

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

In nephrology, Parsabiv received a positive opinion in Europe for the prevention of secondary hyperparathyroidism in adults with chronic kidney disease on dialysis, and we look forward to receiving market authorization in the EU. In the U.S., we are working with FDA toward an approval.

Finally, we received our first biosimilar approval in Q3 for AMJEVITA, our biosimilar HUMIRA, which was approved in all eligible indications of the referenced product.

We also began enrolling Phase III 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.

And as always, I'd like to thank our staff for their efforts to combat serious disease.

Bob?.

Okay. Thank you, Sean. We'd like to open the call up now to questions, and I'd ask our operator just to remind everybody what the procedure is for asking questions. And with that, let's turn it over to your questions..

And your first question comes from the line of Terence Flynn from 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.

And then, Sean, was wondering on the IVUS data that we'll see, can you just help us think about potential implications for the ongoing CV outcomes trial with respect to potential effect size? Is there any correlation there? Thank you..

Okay. Thanks for your question. Why don't actually 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..

Yeah, certainly. So, yeah, 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've seen thus far is that we're able to fund all of the requirements of the business without having to repatriate the cash and pay a current (37:17) very unfavorable tax rate.

So I think the point is, should we see tax reform in the U.S., would we consider to repatriate the cash? I would say yes. And what we'd look at would be, first, to maintain the lowest weighted average cost of capital for the company.

And 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. And then we'd look at certainly deploying cash, as Bob was saying, towards external opportunities.

But in that instance, we would certainly lead with, are there strategic opportunities that make sense where we could get a return to our own shareholders from such investments? And then finally, we'd look at potentially buying back shares to, again, get to the right and balanced weighted average cost of capital..

Yeah, with regard to the IVUS results and reading them through to see the 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.

And obviously here, patients are already maxed-out on statin therapy and you're doing something you otherwise couldn't do, which is to lower LDL substantially beyond that. But 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.

And I think that the positive IVUS study increases one's confidence about that hypothesis substantially. As you know, the human genetics, which we tend to focus on a lot here at Amgen, were very strongly indicative of that already, but the IVUS data give us much more confidence.

So I generally expect to see something that's generally similar to what you might expect to see if you were reducing LDL in the PCSK9 outcomes trial, were it possible to do so on top of existing maxed-out statin therapy with the statin. So that's kind of how I think about that..

Jake, 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 on with the next question, please..

Your next question comes from the line of Matthew Harrison of 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. So 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 if there's a certain amount of price increase that you're expecting when you make that comment or if the contracts you've written has certain price protections where no matter how much list price you take, you won't see much net price.

And then just related to that, can you tell us exactly what the dollar amount of the inventory headwind was in the third quarter? Thanks..

So let me start with the first one first. The inventory was about $108 million worth of differential. From the net selling price, obviously, we've never given product-specific price guidance and/or the contracts themselves are confidential.

But clearly, my statement around there will be little impact on net selling price changes is indicative of we'll be driving the business on volume, not on net selling price, next year. Jake, let's go on to the next one..

And your next question comes from the line of Eric Schmidt from Cowen & Company..

To follow up on that same topic for Tony, are you suggesting that you've been able to contract in I guess a better way in terms of volumes and that we won't continue to see the mid to high-single digit volume erosions for ENBREL that 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 contract does say it will result in little impact on net selling price..

And your next question comes from the line of Ying Huang of 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 the collaboration with Merck. So I want to ask you, wanted to see your view on anti CSF-1R (42:34) potentially an IO combination and what tumor types you think would benefit the most from this combination..

Well, so this is, of course, for people who aren't – not the cognoscenti in this area, it's an antibody that would address the role of tumor macrophages in maintaining a micro environment for tumors.

There's a lot of very non-causal indirect evidence to suggest that those macrophages do play an important role into regenesis and maintaining surveillance, abating surveillance in the immune system. So 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 an individual patient by the numbers or density of these infiltrating macrophages. So we tended to focus on some of those tumor types.

I wouldn't necessarily get into on this call exactly what tumor types we're exploring because we're in early stages so we're looking at lots of different tumor types in mixed population studies. It's a very interesting program..

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

Thanks for the question. For Sean, I wanted to ask on romo, 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? And do you think the regulatory decision is an efficacy question or a safety question? And how do you think about what's 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 exist in this field is sufficient for registration all over the world.

So we've made a strategic decision to file in some parts of the world with both studies. And that has to do with payer access determinations and so on.

But 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 their interested in them from the 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're talking about when we talk about the primary analysis that comes in the first half of next year.

And then because we never are sure about the event rate that we're 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.

And 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 fracture results from the get-go. And 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. And so that's the idea behind having this second study, largely again to work with payers..

And your next question comes from the line of Geoffrey Porges from Leerink Partners..

Thank you very much. And I'm sorry I 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, or certainly above 20%.

So are we to assume then that your list price increase is more or less completely given up in the contract that you're now engaged in? And then 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? I'm just trying to understand what that will mean..

Okay. So, yeah, the details of the contract we're 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 environment, specifically with anti-TNS, where we have to put large rebates on the table to maintain our formulary position. The large rebates are clearly impacting net selling price.

So let me just go back and say that, as we think about 2017, we will see little impact on 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 PRXs.

As regards 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 ongoing with Corlanor in terms of re-hospitalization.

We have some work that's happening both inside the U.S. and outside the U.S. on Prolia in terms of fractures. So those are three examples..

It total, Geoff, for example, on REPATHA, we're getting up to two handfuls of these contracts.

And is said in my remarks, each one of these takes some time to put in place, but I think we're addressing a 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.

So I think we're at a point where consumers, payers, want to pay for what works and not for what doesn't. And so this is one way to address that need in the marketplace.

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

And your next question comes from the line of Joshua Schimmer from Piper Jaffray..

Thanks for taking my question. I was a little surprised to hear that Corlanor was facing significant reimbursement headwinds. And hoping you can draw a fence around that and help us understand why that's not a harbinger of difficulties and headwinds for REPATHA once you have the cardiovascular (50:28) data in hand for that product? Thank you..

So let me try and answer the question. So 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 really trying to work out, do they displace the ACE inhibitor with Entresto at the moment. And then there's a second add on for patients who have heart rates higher than 70 who would then be eligible for Corlanor. So 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..

And the other thing just to 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. So we're enthusiastic.

We have a set of data for REPATHA that are spectacularly consistent from start to finish and we look forward to adding the outcomes data to that..

And your next question comes from the line of John Scotti from Evercore ISI..

Hi. Thanks for take my question. And, Arvind, thank you so much for the kind words earlier. I really appreciate it. Thank you. So I want to ask on omecamtiv, actually.

Now that you've decided to move to Phase III, Sean, maybe your thoughts on, I guess for everyone, the size of the opportunity, how much would this program cost? And then specifically on the Phase III design, how long do you think it'll take to enroll the trial? Your thoughts.

And then as well, 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.

So how practically do you intend to address that in the Phase III trial? And then just generally, is this an opportunity that you see as the same magnitude as REPATHA or what's your thoughts on the overall size? Thank you..

So what I would say, if you step back and look at chronic heart failure, it's right up there on the top of global epidemic disease burden things. So it's a huge unmet need. And if you compare it to an area like oncology, the amount of work that's going on in terms of innovative mechanisms that are directed at heart failure is night and day.

There's very little. For example, there's absolutely no competition in the space of something that would be an ionic tropic palliative contractile mechanism like omecamtiv. So 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.

So we believe, at this point, that we have a very compelling Phase II experience and a lot of very sophisticated human physiologic experiments that we've done to understand how the product is working. We understand it deeply at a molecular level. And I think that the PK is an important feature.

And one of the reasons that it's taken us the time it has to get the product into Phase III is that this is kind of classic, really tough, relatively narrow window of small molecule drug development. And we had to come up with a formulation that was well behaved and also a drug testing strategy that can be implemented in the clinic to assess.

So we have a titrated regimen where patients get started on a dose, then they get the blood tests to see what level they're at once they're at steady state. And some proportion of patients get increased to a higher dose to ensure that everybody's in a therapeutic range.

And I think we've demonstrated very convincingly that we can keep all the patients out of a range where you're getting too much of the mechanism, too much pharmacodynamic effect and not enough relaxation time. So bottom line is, I think it's an extremely important program.

And I think that these programs are inherently long term because you can't, unlike REPATHA where we could get at least onto the market with a surrogate, you have to have a mortality, 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..

And your next question comes from the line of Robyn Karnauskas from Citigroup..

Hi, guys. Thank you. So just looking big picture of the company, it looks like product sales been stable for a few quarters, or about four or five quarters. And 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..

Robyn, as I said in my remarks, we have a strong balance sheet. I think we have a world-class business development effort. We're looking, and we have been for some time, looking at opportunities.

I think it's important particularly in an environment like this to be disciplined about price so that we can earn a return for our 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 and 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. And for the most part, Robyn, those will be in our six areas of focus, therapeutic focus. And as we've said now for more than a year, we're looking at a wider range of opportunities than we were previously..

And your next question comes from the line of Alethia Young from Credit Suisse..

Hey, guys. Thanks for taking my question. I guess, just can you give us more color on the Onpro kit, maybe what market share you have right now? And also, is the IP different than Neulasta IP? Thanks..

So 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, yes. 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. So good growth.

And we believe we're on track for close to 30% by the end of the year..

And your next question comes from the line of Ronny Gal from Sanford Bernstein..

Thank you for taking my question. So a little bit on KYPROLIS. The concern out there has been that KYPROLIS was going to get squeezed between the IMiD on one side and dara on the other. So the combination with dara is interesting.

I guess the question is, are you thinking about this as a trial that will look at dara plus KYPROLIS against 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.

Yeah, I think that what we're 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're talking about the study with Janssen, at that point you're 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. So that base regimen plus daratumumab versus the regimen alone is what we're thinking about looking at.

And 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've been treated with oftentimes drugs like REVLIMID and steroids and VELCADE in the first-line therapy.

So I think that's an obvious place for us to look at that kind of combination therapy and that's what we're 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 inhibitor, so we're doing studies with that. So it's going continue to be a rapidly evolving field.

And we remain confident that proteasome inhibition is going 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 pertuzumab will end up playing an important role in treatment regimens for sure..

And your next question comes from the line of Geoff Meacham from Barclays..

Hey, guys. Afternoon. Thanks for taking my 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've seen with ARISE and how you view that within the context of cost benefit? And then, Sean, just looking forward for the STRIVE study, could you maybe help us with how that patient population may be different from a placebo response perspective? Thanks..

So let me answer the first question around cost benefit. We haven't set a price for the product yet. But from what we've seen, it's a huge unmet medical need. A large number of patients who suffer from this disease.

It's a debilitating disease that takes away independence and the ability to be productive, to be productive either as a worker or as a mother or a father. The available treatment on the market at the moment does not help patients as much as they'd like. It causes side effects that are sometimes worse than the disease itself.

And it's a disease that patients really know about when they have it. It's 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 pharmaco-economic models that show real value when we come to market.

Sean?.

Yeah, well, in terms of the second Phase III EM study, it's very similar in design. And the inclusion, exclusion criteria are extremely similar to the study that we just saw recently. So 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 to be identical, but there shouldn't be big differences..

And your next question comes from the line of Cory Kasimov from JPMorgan..

Great. Good afternoon, guys. Thanks for taking the question. I guess this is for Bob, and 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..

Yeah, thanks, Cory. It'd come as no surprise to you to learn that we're 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.

So we're working hard to try to make sure that people understand the reasons why we don't think this is in the interest of the citizens of the State of California.

Obviously, this is a populist topic at the moment, Cory, so we think it's 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, 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. And we think innovative therapies are the way to help address that problem.

And 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..

And your next question comes from the line of Ying Huang from BofA Merrill Lynch..

Thanks for the question. Two quick ones from me. On a high level, do you guys have any strategic interest in another product like ENBREL in rheumatology and dermatology, given that there is some evolving change of the approach in treating both of these in oral drugs? And then there's another quick one on biosimilar Solaris.

Given that it's targeting a very rare disease, is it 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, Ying. Again, it's 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, but 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'll 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 -.

Yeah, I think that I would be surprised, as this program you're referring to is quite early in its development process in Phase I. But 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..

And your next question comes from the line of Ian Somaiya from BMO Capital..

Thanks for taking my question. Just wanted to get your sensory level of commitment for developing biosimilar Eculizumab, just given the amount of visibility we've had on 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. Solaris..

And I didn't hear the question..

He's asking....

Yeah, sorry. Let me....

We have a program that we're advancing.

You're aware of it, Ian, because of a regulatory filing we made at the time that the trial began, but we haven't 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 intellectual property patents have lapsed and enable us to launch it.

So if your question is, are we serious about it, do we intend to develop a molecule? Yes..

And your next question comes from the line of Jim Birchenough from Wells Fargo..

Hello. Good afternoon. This is Nick in for Jim this afternoon. Thanks for taking my question. Really, it's about the BiTE strategy. Obviously, you've been investing in ALL. You have a Phase II/III 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. So from one perspective, this could look like this is sub-optimal delivery, but maybe you disagree with that.

So can you discuss the BiTE strategy, particularly against targets where they're are fully human BiTE-specific antibodies and cell therapies also being directed at those targets? Thanks..

Yeah, I think, 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. And so we make choices between those depending on the particular circumstances.

Now obviously with the molecule like BLINCYTO that's already approved, the thing that we're 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.

But 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.

So in the big picture, it turns out, interestingly, that for some of these molecules when they're 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.

And so that's 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 it a short-acting BiTE and then follow in as a sort of next generation with a half-life extended version..

One thing I might also just 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.

And the other thing I would note is we see some significant opportunities from a manufacturing cost standpoint in this area that we're excited about as well, consistent with the look we're doing in our transformation. We think this is an area that has real legs at Amgen. Lets go to the next question..

Yeah, Jake, as we're about 15 minutes past the hour, let's take one last question, please..

And your last question comes from the line of Eric Schmidt from Cowen & Company..

Thanks for the last question. Just a quick one for Sean on Parsabiv. Is it reasonable to expect U.S. approval this year? Thanks..

We're very engaged right now in working toward approval. It's difficult for me to anticipate it. It's obviously the FDA's decision when they're going to grant an approval. So I don't want to set an expectation that that would be this year versus early next year. But I'm hoping that it's going to happen in the reasonably near future..

Thank you..

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

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..