Amgen Inc.
Q4 2014 Earnings Call Transcript

Published: 28 Jan 2015

[Operator:]

My name is Marvin, and I will be your conference facilitator today for Amgen’s Fourth Quarter Earnings 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 speakers’ prepared remarks. In order to ensure that everyone has a chance to participate, we would like to request that you limit yourself through asking one question during the Q&A session (Operator Instructions). I would now like to introduce Arvind Sood, Vice President of Investor Relations. Mr. Sood, you may now begin.

[Arvind Sood:]

Thank you, Marvin. Good afternoon, everybody. I hope the blizzard for those of you in the Northeast wasn’t too disruptive. I would like to welcome you to our conference call to review our operating performance for the fourth quarter and full year 2014. We accomplished a lot during 2014 on many fronts, and we look forward to delivering once again for our shareholders in 2015. While 2014 was characterized by significant clinical data flow, 2015 will be characterized by regulatory submissions and new product launches. So leading the call today will be our Chairman and CEO, Bob Bradway, who will provide a strategic report on our performance in 2014 and outlook for 2015. Following Bob, our CFO David Meline, will then review our Q4 and full year results and address financial guidance for 2015. Tony Hooper, our Head of Global Commercial Operations, will discuss our product performance during the quarter and trends that we see going forward. And finally, Sean Harper, our Head of R&D, will provide a pipeline update. After Sean’s comments, we should have ample time for Q&A. We will use slides for presentation today. These slides have been posted on our Web site and a link was sent to you separately by email. 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 Bradway:]

Thank you, Arvind. And thank all of you for joining our call this afternoon. 2014 was really an outstanding year for us. And let me start with the financial highlights, which include revenue growth of 7%, enabling us to eclipse $20 billion for the first time. Consistent with our international expansion objectives, sales outside of the U.S. grew by double-digit rates in 2014. Our adjusted operating income growth of 22% reflects our commitment to generating operating leverage from our business. As you know, one of our objectives for 2014 was to deliver to shareholders $800 million of improved profitability from Enbrel. We exceeded that objective in 2014. In addition, our free cash flow grew by 40% to $7.8 billion. This strong financial performance and our confidence in the longer-term outlook enabled us to increase our dividend by 30% in 2014 and by 30% again for 2015 while increasing our stock buyback plans as well. Turning now to our progress with innovation. We had an extraordinary flow of data from our pipeline of 2014. We generated positive pivotal data for six innovative programs and submitted four of them for regulatory approvals. To remind you, this includes filings for two immuno-oncolocy molecules, BLINCYTO and T-VEC and two cardiovascular molecules, evolocumab and ivabradine. In December, we received FDA approval for two products, including BLINCYTO and our on-body injector for Neulasta. BLINCYTO is an immuno-oncolocy agent, which addresses an important need for acute lymphoblastic leukemia patients, who currently have very limited options. More generally, we’re excited about the proof-of-concept represented by this approval and look forward to progressing our BiTE programs in other forms of cancer as well. On our on-body injector for Neulasta also represents an important innovation for cancer patients, and one which will help improve patient experience for those undergoing chemotherapy and at high risk of infection. I’d like to point out of course that launches are now already underway for both of these products. But 2014 was a watershed year for us in research and development, 2015 is sure to be another important year starting with the prospects of launching three additional innovative products, including evolocumab of course for hypercholesterolemia, ivabradine for heart failure and T-VEC for metastatic melanoma. And in addition to these launches in 2015, we expect regulatory submissions for Kyprolis, which we announced earlier today, blinatumomab and potentially AMG 416 as well as the start of a Phase 3 program for AMG 334 in migraine and Phase 3 readouts from two of our biosimilar programs. As we discussed in July and October, we began last year the process of transforming our Company. And importantly, we initiated this from a position of strength. David will update you momentarily on our progress with that transformation and the benefits achieved in 2014. We’re on track, as reflected in our $1.5 billion growth in operating income and 6 point operating margin improvement last year, even while absorbing the full year impact of Onyx and investing in our launch opportunities. Across our Company, we’ll continue our transformation efforts in 2015 and deliver more progress against our long-term objectives. Before I hand it over to David, let me thank my Amgen colleagues, many of whom are listening to this call for their unwavering focus on delivering for patients and for shareholders. David?

[David Meline:]

Thanks Bob. Turning to the fourth quarter on page five of the slide deck, revenues grew to 5.3 billion, by 6% year-over-year, with 8% product sales growth driven by continued momentum across our product portfolio. Other revenues at a 187 million decreased by 55 million versus the fourth quarter of 2013, reflecting a reduced level of partnership payments received for Brodalumab compared to last year’s fourth quarter. Adjusted operating income at 2 billion grew 15% from prior year. On an adjusted basis, the cost of sales margin at 15.9% improved by point 1 points. Research and development expenses at 1.2 billion were flat versus prior year and included the 60 million upfront payment to Kite Pharma for our cancer immunotherapy collaboration. SG&A expenses were flat year-on-year. On October 31, 2014, the Company passed the one-year anniversary of the first step-down in Enbrel related payments. This resulted in a year-over-year expense decline of approximately 100 million in Q4. This compares to year-over-year expense declines of approximately 250 million per quarter in the first three quarters of 2014. Additionally, we incurred incremental expenses in Q4 in preparation for new product launches. These increased investments were offset through savings from our transformation to a more focused operating model as well as through the reduced Enbrel related payments. Other income and expenses were flat year-over-year at 173 million in the quarter. The tax rate was 10.2% for the quarter, a 2.5 point decrease versus Q4 2013. This decrease was primarily due to the favorable tax benefit from the extension of the 2014 Federal R&D tax credit, which occurred in Q4 of 2014 which was offset partially by unfavorable tax impact of changes in the geographic mix of earnings. As a result, adjusted net income increased 20% and adjusted earnings per share increased 19%. In summary, our fourth quarter results from operations were in line with our previous expectations, while overall results in the quarter benefited from the extension of the R&D tax credit, which was approved in late December and has been removed from our previous guidance. You’ll find a summary of our 2014 full year results on page six of the presentation. Our 2014 full year revenues grew 7% to 20.1 billion and adjusted earnings per share grew 14% to $8.70 per share. Product sales grew 6% year-over-year and other revenues increased by 252 million over the same period a year ago, primarily driven by our Nexavar and Stivarga partnerships. For the full year, adjusted operating income grew to 8.5 billion, a 22% increase based on the combination of solid revenue growth along with stable operating expenses, which were down 1% year-over-year. On an adjusted basis, cost of sales margin was flat at 15.8% year-over-year; research and development expenses increased 5%, driven by the addition of Onyx and support for later stage clinical programs. These increases were offset partially by lower spending associated with marketed product support. SG&A expenses were down 10%, driven primarily by reduced Enbrel related expenses, offset partially by the addition of Onyx and increased commercial expenses in preparation for new product launches. Other income and expenses were unfavorable 7% year-over-year due to higher interest expense and portfolio rebalancing, partially offset by higher interest income. The tax rate was 14.9% for the full year, up 5.7 points versus 2013. The year-over-year increase was primarily due to favorable resolution in 2013 of our federal income tax audit, as well as the retroactive extension of the 2012 Federal R&D tax credit in 2013. During 2014, the impact of the Puerto Rico excise tax was 1.9 points higher in cost of sales and 3.3 points lower in our adjusted tax rate. We would expect the similar impact to continue through 2017. Turning to page seven, I would like to take a moment to provide an update on Amgen’s transformation initiatives, which we previously discussed at our July and October 2014 investor events. 2015 marks an exciting year as we are in full execution mode towards our focused operating model. We are advancing a number of key initiatives to streamline processes, increase agility and efficiency and improve operating performance. We also have completed and largely implemented the first phase of reductions and workforce announced in July, which will total approximately 3,000, and have made significant progress on reducing our facilities’ footprint towards the 23% goal. In terms of the 2014 impact, all areas of operating expense benefited as our transformation to a focused operating model began to generate cost efficiencies. In 2014, we realized approximately 300 million of cost savings towards our 1.5 billion goal. This includes lower labor cost from workforce reductions and sales force optimization. It also includes lower external expenses from improved contracting and sourcing and rationalizing discretionary spend categories. In 2015, we expect incremental savings of at least 400 million. This will in large part be driven by the annualization of savings following the reductions in workforce, which occurred in late 2014. It also includes greater use of shared services and further external spend improvements, resulting from the rigorous transformation initiatives developed over the past year. These savings will be redeployed to underwrite launch investments and one-time transition cost incurred as part of the transformation implementation. As a result of revenue growth and expense discipline in 2015, we will further improve adjusted operating margins on the trajectory to our 2018 target of 52% to 54% through improved operating leverage. We will continue to provide periodic updates on our transformation progress going forward. Turning next to cash flow and the balance sheet on page eight. Based on our confidence in the performance of the business going forward, we announced a commitment to return 60% of adjusted net income to shareholders through 2018, while continuing to invest strongly in our business. For the full year 2014, we generated 7.8 billion in free cash flow, an increase of 2.2 billion over the prior year. This increase was driven by higher sales and profitability as well as improvements in working capital, a portion of which are permanent. As a result of this strong cash flow performance total debt outstanding declined to 30.7 billion and total cash and investments increased to 27 billion; as a result, net debt improved by 5.6 billion to 3.7 billion at year end 2014. Additionally, for 2014, we increased our quarterly dividend per share by 30% to $0.61 with payments totaling 1.9 billion. We also announced another 30% increase to the dividend to $0.79 per share, starting with our first quarter 2015 payment. Finally, at our October meeting, we indicated the intent to accelerate the re-initiation of our share repurchase program with up to 2 billion of repurchases by the end of 2015. In the fourth quarter, we took a first step towards this commitment with 153 million deployed to repurchase approximately 900,000 shares in the period. We intend to continue repurchases at a stepped up level in 2015. At the end of 2014, we had approximately 3.8 billion remaining under our board authorized share repurchase program. I will now turn to guidance for 2015, please turn to page nine. As you will recall, we provided preliminary 2015 guidance at our October business review. In terms of what has changed since that time, we completed 2014 with solid in line operating performance with full year results of 7% revenue growth, 22% adjusted operating income growth and 14% adjusted EPS growth. With this background, we remain confident in the outlook for 2015, despite additional potential foreign exchange headwinds. Today, we are reaffirming our 2015 revenue guidance of 20.8 million to 21.3 million, adjusted tax rate of 18% to 19%, which excludes the benefit of the Federal R&D tax credit in 2015 and adjusted earnings per share of $9.05 to $9.40 a share. Finally, capital expenditures are planned at 800 million this year. This concludes the financial update. I now turn the call over to Tony.

[Tony Hooper:]

Thank you, David. And good afternoon folks, you’ll find the summary of our global sales performance for the fourth quarter starting on Slide number 11. The underlying prescription demand remains strong as we enter 2015. In 2014, the majority of products grew in volume terms across both the U.S. and ex-U.S. markets in quarter four as well on a full year basis. Globally products sales grew 8% year-over-year and 6% for the full year. Our international business grew 11% in the fourth quarter excluding the negative impact of foreign exchange. Our new and emerging markets delivered just over 1 billion in sales in 2014. So far the first quarter of 2015 is playing out as anticipated. We’re on track for the full year and let me remind you that products like Prolia and Enbrel historically experienced slower first quarters. In accessing quarter-over-quarter performance, it’s important to note U.S. wholesale inventory dynamics. On average wholesale inventory levels return to normal from rather low levels at the end of quarter three. There are some exceptions on the product basis which I’ll cover later. Let me now turn to the fourth quarter performance beginning with Enbrel. Enbrel delivered strong growth of 11% year-over-year in the fourth quarter. Underlying demand remains strong as both the rheumatology and dermatology statements grew on a value basis by 24%. As expected in the fourth quarter, we saw inventory level increased from the relatively low levels reported in quarter three. Quarter four ended with approximately $40 million higher wholesale inventories a month. We expect to see the drill down of the slide build along with the typical seasonality in the first quarter. We remain confident in the value potential of Enbrel and expect to continue to drive meaningful growth during 2015. Now turn to our Filgrastim franchise starting with Neulasta. Neulasta delivered year-over-year growth of 7% in the fourth quarter. The growth was driven mainly by price and to a lesser extent unit demand which included the benefit of the commercial rights we’ve acquired outside of the U.S. from Roche as part of our international expansion strategy. As Bob said, the FDA recently approved the Neulasta on-body injector and we look forward to bringing this innovative product to patients in the U.S. shortly. The Neulasta on-body injector better serves patient needs and provides important differentiation from the potential future competition. Next NEUPOGEN, which declined 11% year-over-year in the fourth quarter due to banded short-acting competition in the U.S. as well as unfavorable changes in inventory levels and foreign exchange rates. Like Neulasta this was partially offset by the benefit of the commercial rights we acquired from Roche. In the U.S., 15 months since the launch of its first new competitor NEUPOGEN has obtained over 8% share of the short-acting segment. The balance of the market is split between Granix and Leukine. We continue to compete account by account and reinforce NEUPOGEN’s long track record of clinical efficacy and reliable supply to patients. With potential competition from bio-similars expected in the U.S., we will leverage the success we’ve had in the U.S. versus branded competition as well as our considerable experience with NEUPOGEN bio-similars in Europe. I’ll now move to our Denosumab franchise starting with Prolia. Prolia delivered 33% growth year-over-year as we continue to capture share in both the U.S. and Europe. In the U.S., unit share grew 6 percentage points over the year exiting at 19% in the fourth quarter. We continue to see strong response from our DTC campaign with 1 in 3 patients who start postmenopausal osteoporosis treatment being prescribed Prolia. In Europe, we completed the buyback of the Prolia rights from GSK and transitioned the entire business to Amgen. We now also have reimbursement across all EU countries. Unit share grew 4 percentage points over the year exiting at 13% in the fourth quarter. Both the U.S and Europe have opportunity for continued growth. XGEVA continues to capture share in the U.S. and EU markets and we expect to see continued segment share throughout 2015. U.S unit share increased 4 percentage points over the year and is now just under half segment. In Europe unit share increased 8 percentage points over the year and is now just over one-third of the European market. Our brand strategy continues to focus on XGEVA’s superior clinical profile. Vectibix grew 29% year-over-year and continues to show strong unit growth across all regions, gaining share in first line metastatic colorectal cancer in both the U.S. and Europe. Now let me turn to Kyprolis which delivered year-over-year growth of 25% following the acquisition of Onyx in Quarter 4 2013. Quarter-over-quarter we saw continued unit growth at 6% in the U.S. but overall med sales declined slightly due to an inventory drawdown. Kyprolis continued to maintain leading share in the third-line of multiple myeloma setting. As announced earlier, I am delighted that we completed the submission of the regulatory applications with treatment relapse multiple myeloma in both the U.S. and Europe. Getting this into the label in the U.S. and launching in Europe would be the next major inflexion point for Kyprolis. We look forward to enabling more patients to benefit from Kyprolis following these regulatory approvals. Next is EPOGEN, which grew 3% year-over-year, increases in price were offset by year-end declines. Fourth quarter 2013 volume included a few large customer buy-ins that did not occur in the fourth quarter of 2014. Our net sales grew 2% year-over-year, with unit growth from a few large customer buy-ins in the U.S. Sensipar for year-over-year growth of 3%, as 10% unit growth and higher prices were offset by low inventory levels. Nplate continues to grow in both the U.S. and European markets driving 7% unit growth, quarter four was negatively impacted by inventory declines. Lastly BLINCYTO, we are pleased with the initial launch of BLINCYTO following a swift FDA approval in December. Physician and patient responses are indicative of the significant unmet need for patients with relapsed and refractory ALL. Regarding our coming launches, I’d like to share with you that our cardiovascular specialty sales force is now in place. Focusing on disease state awareness and profiling target statements. We look forward to launching Corlanor, the new brand name for ivabradine in U.S. and Repatha, the new global brand name for evolocumab later this year. We see a significant opportunity to address unmet need with these two medicines. In the U.S., over 1 million medically eligible chronic heart failure patients could benefit from Corlanor treatment once approved. In the U.S., Europe and Japan over 25 million people had risk for cardiovascular disease have LDL above a 100 grams per deciliter despite current treatments and could benefit from Repatha once approved. In closing, I am confident in the strength of our underlying business. I’d like to thank the Amgen teams around the world for their outstanding performance in 2014. Looking forward, our focus in 2015 will be three fold. Firstly, to build on the performance of growth product such as Enbrel, Prolia, XGEVA, Vectibix, Sensipar and Nplate. Secondly, to successfully defend our mature brands for potential new bio-similars and branded competition. And thirdly, to launch several important new medicines. Let me now pass it to Sean.

[Sean Harper:]

Thanks, Tony and good afternoon. 2014 was a very productive year for R&D. And the last several months have been eventful as well with one regulatory highlight being the FDA approval of BLINCYTO in a remarkable 2.5 months after initial submission. I’d like to thank the FDA and Amgen staff who worked tirelessly to drive this outcome. BLINCYTO will provide patients with a breakthrough therapy for a terrible disease relapsed/refractory, acute lymphoblastic leukemia or ALL and clearly validates our BiTE immune-oncology platform. We look forward to introducing our next BiTE AMG 330 into the clinic directly that acute myeloid leukaemia later this year. We were also very pleased to receive FDA approval for the novel On-Body injection system for Neulasta, which will help address the issue of having to administer Neulasta no sooner than 24 hours following chemotherapy, which can be difficult for cancer patients and interfere with optimal use of the product. As we announced today, we have submitted marketing applications for Kyprolis in the U.S. and Europe for relapsed multiple myeloma, based on the inspired which as you know was presented in detail at the ASH meeting and published in the New England Journal of Medicine late last year. We look forward to working with regulators to make Kyprolis available to patients with earlier stage relapsed multiple myeloma global. Two of our submission is under review by FDA did receive three month extensions to their target action dates. T-VEC for metastatic melanoma and Corlanor or ivabradine for chronic heart failure. In the case T-VEC the agency requested additional manufacturing data for this very unique product, which may require additional review time. In the case of Corlanor the agency requested more of the existing clinical data and we originally agreed for our heart failure specific submission, also potentially requiring the additional review time. We provided the data for both programs as requested and we continue to work productively with regulators to bring these innovative medicines to the patients that need them as soon as possible. For Repatha or evolocumab, our coronary Intra Vascular Ultrasound study which is critical for the product has completed enrollment. And our outcome study continues to enroll very well. We’re also working closely with regulators on our filings. We’ll also be presenting some new analyses from our evolocumab clinical program at the upcoming American College of Cardiology Scientific Sessions including analyses of cardiovascular events in our ongoing open label extension studies. AMG 334, our CGRP receptor antibody performed very nicely in the Phase 2b dose ranging study in patients with episodic migraine is taking our decision to move aggressively into Phase 3 later this year. This data will be presented at the scientific forum in the first-half of this year. Our Phase 2b dose ranging study in chronic migraine is currently enrolling. We feel AMG 334 has the clear potential to be a best-in-class agent for migraines prophylaxis with a favorable dose and the schedule as a result of locking receptor rather than the ligand. We generated positive data from three Phase 3 psoriasis studies of Brodalumab our IL-17 receptor antibody in 2014 including two studies that demonstrated superiority to Stelara and we and our partners at AstraZeneca plan to file this data later this year. We also expect Phase 3 head-to-head data for AMG 416 our intravenous calcimimetic again Sensipar in the first half of this year. This year we will also be viewing the results of our Phase 2b study with the oral formulation in AMG 423 or omecamtiv mecarbil, the innovative cardiac myocenyte data that we are developing with cytokinetics. These data will be critical in informing our decisions on advancing AMG 423 into Phase 3. Turning to our oncology pipeline. In addition to our T-VEC combination study with Ipilimumab, we’ve initiated a combination metastatic melanoma study with T-VEC and Merck’s PD-1 antibody and are in the planning stage for additional such combination checkpoint inhibitor studies in other tumor types. We presented BLINCYTO Phase 2 data from both minimal residual disease positive patients with ALL and our pivotal relapsed refractory study in ALL at ASH along with Phase 2 data from our lymphoma study. We also presented data from Vectibix Phase 2 peak study and Phase 3 prime studies supporting our approval for first line use with FOLFOX and metastatic colorectal cancer at the ASCO annual meeting and ASCO Gastrointestinal Cancers Symposium. And we terminated our Trebananib program directed against the angiopoietan axis in recurring ovarian cancer as well as our rilotumumab program directed against stomata access in gastric cancer due to disappointing results. Our recently announced collaboration with Kite Pharma on CAR T-cell technology complements our existing BiTE and oncolytic virus platforms, broadening our overall immunotherapy capabilities. We have a very robust damage and discovery program in Amgen and the tight collaboration provides another modality we can employ against these targets in both liquid and solid tumors. Our bio-similars programs are advancing with Phase 3 data for our Humira bio-similar in moderate to severe rheumatoid arthritis expected this quarter and Phase 3 data for our Avastin bio-similar in advanced non-small cell lung cancer expected in the second half of this year. Finally I’d like to recognize the strong execution of the R&D organization in delivering for patients. 2014 was an unprecedented year for Amgen in terms of the volume of pivotal data and regulatory submissions with multiple clinical and regulatory milestones ahead of us 2015. Bob?

[Bob Bradway:]

Thank you, Sean. Marvin I think we’re ready for Q&A if you’d like to remind our callers of the process for the question-and-answer session please.

[Operator:]

(Operator Instructions). Our first question comes from the line of Matthew Harrison with Morgan Stanley.

[Matthew Harrison:]

So I have two things I want to ask. So first on NEUPOGEN, I think in the past you’ve talked about Teva having single-digit shares, sounds like they’re down to double-digits and if I look back on some of the other quarters where you’re doing this unit growth the second and the third quarter you were down maybe 7 to 8 percentage points in unit growth and you’ve grow to 11. So just wonder what’s happening there? Are you seeing additional traction from competitors? And then separately can you just comment a little bit on FX? I know you said you’re keeping your guidance in light of increasing FX. Just walk us through from a top line and bottom line perspective any hedging that you do? And any offsets that you have there?

[Bob Bradway:]

Sure Matt, why don’t we take that two part question in two parts? We’ll start with Tony and then David can answer your FX question.

[Tony Hooper:]

So Matt it’s Tony. Some of the discussions we have in the past have referred to Granix’s market share as a percentage of the overall Filgrastim market which was within the low-single digits. This quarter we’ve actually split out the both, short-acting and long-acting. So there has been no dramatic change in the fourth quarter the same trend has continued as we’ve seen throughout the year.

[Bob Bradway:]

And on FX, David.

[David Meline:]

So framing the FX question a couple of context points, one is Amgen has about 75% of its sales currently are in the U.S. and 25% are non-U.S. So, these are the other global companies we have a relatively more limited level of exposure. Secondly, we have a three year rolling hedge program. So, we’re able to significantly offset in the short-term foreign exchange movements in plus or minus. And if you then look at where we are in terms of rates on a current basis, if you look at the year-over-year effect on revenue if we were to stay at the current exchange rates through the balance of 2015 that would have about $250 million impact unfavorable year-over-year. So about 1 percentage point in revenue and about $0.05 a share versus what we’ve given as our original guidance. So with that in mind, we felt that it would be appropriate given the range that we’re working with and other developments that we felt it appropriate to maintain our existing guidance, despite those potential headwinds.

[Operator:]

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

[Mark Schoenebaum:]

If I might for Sean on the migraine antibody 334, I noticed during the prepared comments you said that you thought you may have a better dosing interval or schedule than competitors. I think Teva, they are targeting the ligand. I think Teva also has a two monthly dose ongoing. So I was wondering maybe if you could expand on your rationale for that statement if possible, Sean please. And then also the filing strategy for that molecule, can you discuss what the FDA requires for episodic versus chronic, if those need to be linked in the filing or if you think you can do it separately?

[Sean Harper:]

Yes, I think -- I don’t know the details of course of the Teva program beyond what’s in the public domain. But the bottom line is it’s just that this client here is very clear in terms of the relative potency of these approaches. And this has been true kind of on first principles. It’s true in animal models. We’re seeing the same thing in clinic. So it’s likely that that is difficult to overcome. There is a receptor antagonist that's just a more efficient and potent way to address this particular biology, and I think that will translate into a situation where the amount of drug that has to be administered presumably subcutaneously will be an issue for the final product profiles, and I expect us to have the most favorable profile with respect to that, just basically on those dose principles. So we’ll see how it plays out. But that’s what I would expect. We haven’t had our end of Phase 2 discussions with the agencies yet because we just saw the data quite recently. It’s clear that both episodic and chronic migraine are separate regulatory entities and that you can have an approval. For example Botox is approved in chronic and not in episodic. You can have separate approvals. Whether the programs can be prosecuted together with some kind of efficiencies, and how to coordinate those activities is something that we will be exploring with regulators. So it’s a good question. We just don’t have the advice from those interactions yet.

[Operator:]

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

[Eric Schmidt:]

Another one for Sean. It sounds like you’re getting fairly deep in the FDA review prices for Corlanor, pvec and even Repatha. Have you been informed for any of those three molecules that you’ll need an ad comp to it?

[Sean Harper:]

Yes, so we have discussions with the agencies about the possibilities of ad comps. Generally speaking when you're doing innovative new mechanism work in the United States, you can -- the default would typically be to have, but we always agree with the agencies not to disclose anything about their intentions until it's in the federal register. So we can’t comment on the direction they're going with those right now.

[Operator:]

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

[Michael Yee:]

Obviously topical of mind is a lot of context around pricing and what managed care is doing these days. So to the extent we have a multi-billion dollar [indiscernible] product in the future, maybe you could comment to us on how discussions with payers works with that type of molecule pre-outcomes versus post-outcomes and so called value or non-value of the so called exclusive contracts? Maybe you can offer some perspective around those debates.

[Bob Bradway:]

Yes, thanks Michael. I'll let Tony, address that question.

[Tony Hooper:]

Michael, Amgen sees both payers and providers as being essential part of our customer base and we interact with them on a daily basis, both about our products and about the contract with our products. The payers often request information about Amgen’s investigational products in anticipation of upcoming launches so they can make coverage decisions. In these situations, appropriate personnel from our medical team respond to the enquiries in a balanced scientifically rigorous manner, consistent with the FDA guidance.

[Operator:]

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

[Terrence Flynn:]

Maybe just wondering -- it's a two part question. Just wondering if you can offer your perspectives on the bar for interchangeability following the FDA panel on about the biosimilar NEUPOGEN product earlier this month, and wondering if that's something you pursue for your drugs. And then any thoughts on indication extrapolation for both Humira and Avastin, your biosimilars and what can you tell us there? Thanks.

[Bob Bradway:]

Okay, thanks Terrence, Sean why don’t you get those questions.

[Sean Harper:]

Yes, so I think the interchangeability in the United States is clearly going to take a little bit longer than achieving biosimilarity through regulatory files and the agency has been pretty clear about that. I think that all companies, including will of course seek to have that kind of status for the product. It's just a question of what are the rules and guidance and onerous is it go through the process of trying to achieve that. The indication extrapolation is something that we do expect to be up in the general rule. So there may be exceptions to it, but we found generally in Europe that it was the way that things shook out and it is a reasonably scientifically sound concept to have an extrapolation across syndications. But sometimes there are indications in which the pharmacokinetic exposure response relationship is not as clear, and in those cases some additional data can be required.

[Operator:]

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

[Unidentified Company Representative:]

Robyn are you there?

[Robyn Karnauskas:]

All right. So one house keeping. Is PCSK9 included in your guidance and how do we think about Enbrel given the color you gave going into the fourth quarter. And the big picture question for biosimilars. There is a company discussing how you haven’t had IP around your Humira drug and manufacturing process and that you could hurt you on the filing against ABI during the 180 day period where you can -- they could assert their IP. How do we think about your filing timelines for Humira and how you decided to protect yourself against -- finally against the formulation? Thanks.

[Bob Bradway:]

Okay. Well, there's lots of questions in there, Robyn. Let’s see whether we can get those. First, is PCSK9 included in our outlook for the year? Yes it is. Second, I wasn’t clear when you were asking for on Enbrel. Can you reframe the question? You said how we should think about Enbrel given what we -- the guidance we gave from the fourth quarter. Is that right, Robyn?

[Unidentified Company Representative:]

Robyn, did we lose you again.

[Robyn Karnauskas:]

By our map Enbrel sales were positively impacted about $200 million this quarter owing [ph] the inventories. So where does the inventory stand for Enbrel versus normal ranges sort of what was I asking about for the year.

[Tony Hooper:]

So let me answer that one Robyn. It's Tony. As I said we think there was about $40 million of additional inventory that happened in the fourth quarter, and that $40 million will work its way out of the first quarter. But we continue to have very positive views on Enbrel 2015.

[Bob Bradway:]

With respect to our biosimilar programs for Humira and the other molecules that we’re seeking to advance, the other eight molecules, we’re obviously very attentive to the intellectual property and the statutes that exist to enable us to advance a biosimilar program, and you should expect we'll be complaint with those statutes first statue some, and we provided a guidance and we think we would be launching our first biosimilar by 2017.

[Operator:]

Our next question comes from the line of Ying Huang with Bank of America.

[Ying Huang:]

First one to which extent does your 2015 guidance bake in the potential biosimilar competition for NEUPOGEN? And then with will your litigation against Novartis Sandoz delay or even prevent marketing of [indiscernible]. And then another question is, for pieces came out even larger amount. During your discussion with the payers, would you actually go down to path of pursuing exclusive formulary against the other player?

[Bob Bradway:]

Okay. Ying, again, let’s take that in two parts. Why don’t I take the first part? Our 2015 guidance includes our expectations across the product portfolio, including the prospect of competition for NEUPOGEN. With respect to your specific question about the lawsuit versus Novartis and Sandoz, our subsidiary Sandoz, we’re not going to speculate on the outcome of that litigation. As you know that’s going to make it way to the court. And Tony if you want to address the PCSK9.

[Tony Hooper:]

I don’t think we’re going be talking about our rebating strategy or contracting strategy at this particular stage. We come to market with a drug as a unique and definitive value proposition. We're price accordingly and obviously the rebating complex are essential to get a preferred position on formulary.

[Bob Bradway:]

So Marvin let’s take the next question. But before you do I would just like to request that everybody limit themselves to one question, just to be sure that we can get through with everybody that's lined up. Let’s go ahead with the next question please.

[Operator:]

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

[Geoffrey Porges:]

The question, David, could you just comment on your tax rate guidance for last two years? You've kind of had a windfall in the fourth quarter from the reinstatement of the R&D tax credit? Could you give us a sense of what your full year tax rate guidance would be, if we assume that the R&D tax credit was indeed reinstated?

[David Meline:]

Sure. So if you look at the impact on the annual basis of the R&D tax credit, it’s about a percentage point for Amgen. So hence this quarter the gross positive impact was about 4 points, which then netted the 2.5 as I mentioned in the call. Vut I think from a planning perspective we said 18% to 19% for 2015 ex-R&D. So that would a point less if the R&D credit were to be approved again this year.

[Operator:]

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

[Matt Roden:]

Tony you’ve mentioned your confidence in Enbrel outlook for 2015. Maybe can you talk a little bit about the dermatology and rheumatology market share, where it stands; how its changed on a year-on-year basis and how you would expect the Enbrel could be potentially impacted by the IL-17 launching in derm?

[Tony Hooper:]

Okay, so as you’ve seen over the last couple of years, the market continues to grow double digit. Enbrel has been losing market share in both rheumatology and dermatology. From an actual unit perspective we continue to show positive unit growth and we’ve been in a position to drive some of the pricing in the marketplace. From a derm perspective, we take all competition seriously, but the Enbrel as you know has been in the market for 15 years now. And when you treating psoriasis, it’s a long-term chronic disease, and then both efficacy and safety are important for patients. And patients do switch backwards and forwards. So we continue to see a clear place for Enbrel in the marketplace, in spite of the new competition.

[Operator:]

Our next question comes from the line of Cory Kasimov with JPMorgan.

[Cory Kasimov:]

Following up on this derm subject, this morning we heard Novartis talk a lot, at least relatively speaking about the potential of Cosentyx and the IL-17 pathway. So can you just remind us the differences you see between it and Brodalumab and how you see the competitive dynamic playing out there?

[Bob Bradway:]

Sean, why don’t you feel that question.

[Sean Harper:]

I think that the data that we generated with Brodalumab will be included in our filing. Both head to head to Stelara and in placebo controlled trials have generated the best kind of skin clearance data that's significant for any agent and that’s been tested in the disease. Now that said, we don’t obviously have head-to-head data against the other IL-17 molecules, but I think that the general impression that people -- the experts in the field that look at the datasets have is that efficacy of Brodalumab is unmatched in the class so far with the data that’s been generated. So I think that’s probably the key kind of differentiating. Remember this of course is a receptor blocking antibody rather than a ligand sequester and we know there are multiple ligands for the receptor. So it is possible that one we see differences in efficacy. That was always our hope, was that would be the most efficacious approach to this particular access. So we’ll have to get all our data packaged together into a label and then I'll just leave Tony to talk about the competitive environment. But my sense is there may be some differentiation largely on efficacy.

[Tony Hooper:]

I think once we see the labels of all products in the marketplace.

[Operator:]

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

[Yaron Werber:]

I have a question sort of on the epo-franchise. So Roche is now currently testing Mircera at [indiscernible] Clinic sort of what [indiscernible] did back in the days, and as ASPIRE just filed their generic epo for approval. So can you just remind us your agreement with DaVita, does it, if I remember correctly guarantee them? Is this a best price in the market for the epo based on share to 2018? If you don’t mind, just refresh us from that? And then just your thoughts on what have been for biosimilars when you’re looking at two different indications like CKD dialysis and oncology? Is that something that they can get a single label across all through diseases? Thank you.

[Bob Bradway:]

So let me answer those questions one by one. Probably I'll ask Sean to take the last one. From a contract perspective we haven’t made the details of our contract with DaVita, public but the contract is an exclusive contract which extends to 2018. As regards to Mircera, we understand from public statements that Roche had said that they made the product commercially available; but we have not seen any impact on our business yet as regards to the Mircera entry to the marketplace. Sean?

[Sean Harper:]

Again, I think it will differ case by case by different molecules, what the agency holds as approval standards. In general again the default would be indication extrapolation, but it won’t be true in all circumstances.

[Operator:]

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

[Josh Schimmer:]

I was hoping you could discuss the expected cadence of adoption and the eventual penetration levels you may be looking for? But [ph] in the last auto injector and for Corlanor, is there respective markets? Thanks.

[Bob Bradway:]

He was asking penetration from the On-Body injector for Neulasta.

[Sean Harper:]

So let me take those two together. As we look at the marketplace, we know that there are a number of patients that really struggle to come back for injections of Neulasta post chemo, including patients who receive drug on a Friday. We estimate -- I think patients get in the region about 4.4 cycles for chemo, which is way beyond what it should be. So there's fairly large group of patients who benefit definitively from access to the On-Body injector. We’ll be launching this in the not too distant future and will be looking to switch as much of the business is possible to the injector. When I think about Corlanor, Corlanor as you know is an interesting product that will be used as an add-on to existing standard of care. Irrespective of what the standard of care is the product will augment the value and help manage patients with heart failure. So we know exactly where the heart failure clinics are and we know how large the unmet medical need is, and the cardiovascular team that are presently in place are busy segmenting the market as we speak.

[Operator:]

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

[Geoff Meacham:]

Sean, I have a couple of related ones on Kyprolis. When you look beyond the label expansion, would you say that endeavor represents the next inflection point for the product and does recent data at the ASH meeting change your view on the hurdle for that study or other head-to-head studies?

[Sean Harper:]

Yes, I think ASPIRE was of course really an important study for the molecule in and of itself and it performs as well as we could -- one could reasonably expect. Always the question has been how do they compare head-to-head to velcaid. And I think it never will be the first example of that question. And then of course we’ll see clearing, which will look at that same question in the first line setting. I think we continue to have the same point of view that we've since we acquired Onyx -- even before we acquired Onyx which is we believe that Kyprolis is the best-in-class Porteous inhibitor and so we’re looking forward to seeing the results of these studies overtime.

[Operator:]

Our next question comes from the line of Chris Raymond with Robert Baird and Company.

[Chris Raymond:]

I wanted to just expand a little bit on your comments to an earlier question on the ESA franchise and specifically on Epo. I know you guys have talked pretty openly about the Fresenius pilot program that’s going on right now, but it seems from what they're saying that they're moving on pretty quickly here. And I can’t imagine you'd want to talk about specific customer discussions, but given that they are such a big player in the U.S., I wonder if you could maybe frame the situation for us. I know it's probably within the realm of your guidance, but come July 1, is there any scenario perhaps where you might want to revisit sort of what your thinking is on Epo? And maybe just again put some brackets around the range of outcomes here?

[Tony Hooper:]

So this is Tony. The guidance we gave in October included the knowledge that Mesaro will be coming to market. We have competed with Mesaro in the European market now for about five years. They hold between 8% and 10% of the marketplace. As I said we saw no impact yet on our business in the fourth quarter of 2014.

[Operator:]

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

[Eun Yang:]

In 2011 you guys expected total [indiscernible] sales to be around $3 billion to $4 billion in 2015 and current sales run rate is tracking below $3 billion. So can you comment on what changed sort of your original expectation?

[Bob Bradway:]

Sure, we’re taking it in two parts Eun. Obviously as you know, we’re pleased with the progress that we’re making with [indiscernible] both in fully Prolia setting for [ph] osteoporosis and of course XGEVA in oncology. I think the international pricing took longer than we thought for Prolia. So if anything has changed since the original guidance, it was that. Fundamentally we still think this is going to be a big product that continues to grow in the way Tony described, and Tony I’ll invite you to elaborate on the outlook for Prolia initiative in there.

[Tony Hooper:]

So as we continue to watch the marketplace and look at the new naïve or by naïve patients, our market-share on new patients to drug is continually higher than our normal PRH share. We see our share of new patient at about 30% of the market and our actual in market-share of about 19% in the U.S. So as you extrapolate those two, there continues to be room for growth as these patients move in and get their second and third injections.

[Bob Bradway:]

And furthermore the long-term safety and efficacy data continue to be very encouraging for the products. So we continue to think this is a source of growth on the way we outlined earlier on the call.

[Tony Hooper:]

We now have a [indiscernible] safety data in the label, just concerning what Bob just said.

[Operator:]

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

[Ravi Mehrotra:]

Which regard to biosimilars, given your relatively unique decisions being [indiscernible], I'd be interested in your view on the defense mechanism of the originator and regulatory and legal perspective and then flipping that on it's head, how your biosimilars programs could circumvent these defense mechanisms, and linked that very specifically on Humira, there has been a little bit of chatter on the frequency of dosing patters, that I believe [ph] has your comment [indiscernible] defense mechanism would be appreciated as well.

[Tony Hooper:]

Okay Ravi, I guess the couple of points. First, we’ve said for some time that we felt there was benefit from -- for both our innovative products and for our new potential biosimilar products that we participate in both aspects of the market. So through time what we have found is that we continue to learn about our own innovative process development efforts et cetera by virtue of the work that we’re doing in our biosimilar program. And I think our dialog with the regulators around the world is enhanced by the fact that we’re recognized to be both an innovator and the Company that’s seeking to advance biosimilar molecules. So we’ll continue to work both sides of this. We have nine biosimilar molecules that are advancing successfully through the clinic and we continue to believe that this will be a large revenue opportunity for us. So, again with respect to any individual program and the biosimilar to Humira, in particular as we’ve generated Phase 3 -- positive Phase 3 data already. We added on this call that we expect another dataset early in the year and we look forward to having all of that data and filing that as a projected biosimilar alternative to proprietary evolocumab. So, we think we're in good shape there and we look forward to having the data and being able to file it with the regulators.

[Bob Bradway:]

Hey Morgan, as we are going the past the hour, why don’t we take two more questions?

[Operator:]

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

[Ian Somaiya:]

Just a question on the biosimilars, maybe versus typically on potential for interchangeability. I think you had mentioned couple of weeks ago that the FDA might require switch studies in the originator drug to the biosimilar drug to get comfortable on ImmunoGen, sort of your potential for ImmunoGen. I was wondering if there any other clinical trial requirements that you feel the FDA could place before allowing a drug to get interchangeability claim?

[Sean Harper:]

This is Sean. I think that the agency is still very much working internally on their thoughts about interchangeability. That’s the sense I had. They have not put out the same level of clear written guidance that they have for example for achieving biosimilarity. I think that they are in discussion about this with various sponsors. And the switching issue is one that they’ve identified and that make certain first principle sense. It’s hard for me to speculate really about what other requirements they might put in place beyond demonstrating it is possible to switch patients back and forth between the agents without any untold effects.

[Operator:]

Our next question comes from the line of Howard Liang with Leerink.

[Howard Liang:]

Thanks very much. I have a question on the Proteasome inhibitor franchise. With regard to [indiscernible] they will likely would put data sometime this year. How do you -- do you see impact on Kyprolis and then how do you feel about your own oral Proteasome inhibitor, oprozomib?

[Sean Harper:]

So, this is Sean. I think we’re interested in pursuing oprozomib as an agent that may deliver a level of efficacy in chronic maintenance study. Particularly that would be above and beyond what we are imagining is going to come from the [indiscernible] product. So I think these are difficult molecules to develop as oral molecules because of the GI toxicities that can be associated with them. So there is dose limiting toxicities and it can be difficult to manage around that. We’re working on that problem. Tony, obviously you'd be the appropriate person to comment on the competitive environment.

[Tony Hooper:]

Sure, so I think when we think about multiple myeloma we’re talking about a disease that patients will die from and if I think every single physician and patient in this setting thinks about efficacy first. And our belief and commitment to Kyprolis, has it been around the deep science of this product, where we truly believe it will be the best in class in this category, and I think our ability based on the ASPIRE data and potentially elevated coming to show the definitive improvement on progression free survival, with regimens including Kyprolis, stand us in very good stead to maintain a large part of the market.

[Bob Bradway:]

Excellent! Thank you, Tony. I’d like to thank all of you for your participation in our call this afternoon. Of course if you have any follow up questions or comments, the Investor Relations team will be standing by. Thanks again.

[Operator:]

Ladies and gentlemen, this concludes Amgen’s fourth quarter and financial results conference call. You may now disconnect.