AMGN

Amgen Inc. (AMGN)

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Amgen (AMGN)

Q1 2011 Earnings Call

April 20, 2011 4:30 pm ET

Executives

Arvind Sood - Vice President of Investor Relations

Jonathan Peacock - Chief Financial Officer and Executive Vice President

Roger Perlmutter - Executive Vice President of Research & Development

Kevin Sharer - Chairman of the Board, Chief Executive Officer, Chairman of Executive Committee and Member of Equity Award Committee

Robert Bradway - President and Chief Operating Officer

Analysts

Robyn Karnauskas - Deutsche Bank AG

Ravi Mehrotra - Crédit Suisse AG

Geoffrey Porges - Sanford C. Bernstein & Co., Inc.

Joel Sendek - Lazard Capital Markets LLC

Ian Somaiya - Piper Jaffray Companies

John Newman - Citadel Securities, LLC

Yaron Werber - Citigroup Inc

Michael Yee - RBC Capital Markets, LLC

Eun Yang - Jefferies & Company, Inc.

Eric Schmidt - Cowen and Company, LLC

Mark Schoenebaum - ISI Group Inc.

Rachel McMinn - BofA Merrill Lynch

Matthew Roden - UBS Investment Bank

Geoffrey Meacham - JP Morgan Chase & Co

Presentation

Operator

My name is Christian, and I will be your facilitator today for Amgen's First Quarter 2011 Financial Results Conference Call. [Operator Instructions] I would now like to introduce Arvind Sood, Vice President of Investor Relations. Mr. Sood, you may now begin.

Arvind Sood

Okay, thank you, Christian. Good afternoon, everybody. I would like to welcome you to our first quarterly results conference call. We decided to have this call today ahead of our Business Review Meeting so we can get our Q1 communications out of the way and engage in a broader dialogue with you tomorrow about the longer-term outlook for our company. Our Business Review Meeting will begin at 8:00 tomorrow morning and will be held at the Mandarin Hotel. Because of this upcoming meeting we'll keep the duration of our Q1 conference call rather brief. I would suggest 30 minutes or so, including questions and answers. I would also like to request that you limit your questions to topics relevant to the first quarter, as we expect to address all other issues tomorrow.

Our Chairman and CEO, Kevin Sharer, will begin our prepared remarks with a few introductory comments. Our Chief Financial Officer, Jon Peacock will then walk you through aspects of our Q1 performance, followed by our President, Bob Bradway, who will provide a brief commercial review. Our Head of R&D, Roger Perlmutter, will also provide a brief R&D update.

Our comments today will be governed by our Safe Harbor statements. In summary, it says that through the course of our presentation today, we may make certain forward-looking statements, and actual results could vary materially. So with that, I would like to turn the call over to Kevin. Kevin?

Kevin Sharer

Thanks, Arvind. Good afternoon, everyone. Thanks for joining us today, and I look forward to being with many of you tomorrow here in New York. We are pleased with the progress of the business in the first quarter. XGEVA is off to a strong start. Prolia is making good progress, and Enbrel and our Filgrastim franchise had a strong quarter. We also made very good progress on the pipeline.

You will notice that operating expenses this quarter show a 13% increase compared to the first quarter of '10, amounting to an increase of about $260 million. This increase is unusual for Amgen, which has been and remains disciplined about having revenues lead expenses. I want to explain this difference. Jon will talk, as will Bob and Roger, a bit more about it.

2011 is an investment year for Amgen, as we launch two new products in the United States and internationally and add additional support for our emerging pipeline. And as we transition 3 promising programs from Phase II to Phase III. These new costs in support of Prolia and XGEVA and additional R&D support amount to approximately $130 million of this expense increase.

Secondly, approximately $50 million of the expenses are triggered by the first quarterly payment about the new Healthcare Reform Fee and the new Puerto Rico excise tax fee, neither of which was reflected in our Q1 '10 expenses. Finally, approximately $60 million of these new costs reflect higher Enbrel profit share triggered by strong first quarter Enbrel sales and a onetime adjustment in expenses associated with our Kirin-Amgen partnership agreements. As I mentioned, Jon and Roger will have more to say about this in a few minutes.

Our 2011 investments and the new expenses I have described are incorporated in our 2011 guidance. A number of you have asked about Amgen's plans regarding payment of a dividend. We will cover Amgen's capital allocation plans, including dividends, in detail at our investor meeting tomorrow. Jon?

Jonathan Peacock

Thanks, Kevin. So ahead of the broader review of the business tomorrow, I'll take a few minutes to walk through our results for the quarter and reinforce some of the comments just made by Kevin.

So if you turn to Page 5 of the presentation deck. I'll walk through the P&L here with you. So in summary, we grew revenues to $3.7 billion in the quarter, an increase of 3% compared to the first quarter of 2010. Bob will take you through the highlights on product sales later on the call. You'll also see that other revenues grew in the quarter by $24 million. This was due to a couple of items. First a milestone payment received from Astellas for the filing of AMG 223 in Japan. And secondly, recoveries on AMG 827 development costs from our partner Kirin-Amgen.

Also as highlighted by Kevin, operating costs increased by 13% in the quarter compared to last year. You'll recall that we highlighted in our guidance for 2011 that R&D costs would be higher this year relative to 2010. As I'll outline tomorrow, we expect to maintain our investment level in R&D of between 18% and 20% of sales. Quarter 1 2010 costs at 17.5% of sales benefited from some onetime true-ups on XGEVA clinical trial costs.

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