AMGEN Inc (AMGN) — Q3 2016 Earnings Call Transcript

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, a speedy recovery. And I would also like to welcome John Scotti, who is covering the large-cap biotech companies in Mark's absence. Also, I'd like to welcome Carter Gould of UBS, who will be initiating coverage of the sector and our company. Our performance during the quarter is best characterized by considerable operating leverage, as earnings growth well exceeded revenue growth. We successfully executed on our lifecycle management strategies for older products while continuing 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 to use 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. As a reminder, 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. 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. 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. International expansion is an important objective for us, and it's worth noting that our unit volumes grew 12% outside of the U.S. This 12% reflects strong demand for our new innovative medicines emerging internationally, especially since competition for our legacy products began much earlier outside of the U.S. My transformation program, which we announced over two years ago, is foundational for our long-term objectives. We've achieved momentum 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. Importantly, the transformation is improving our agility, which shows in our ability to move a program like erenumab to market ahead of the competition and adapt rapidly to the changing demands of the marketplace, as we've done in the dialysis market with our long-acting Aranesp. This quarter, we generated $2.5 billion of free cash flow. Such stable cash flow enables us to invest for the long-term, both internally and externally, while returning significant cash to our shareholders. We continue to invest globally in the 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. The results were generated on top of maximized statin therapy, which is particularly impressive. Cardiovascular outcomes data are expected in the first quarter next year and will be crucial for Repatha, as they should definitively establish the importance of this therapy for those at risk of cardiovascular disease. In oncology, the Neulasta Onpro Kit continues to impress doctors in the marketplace and 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 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 significantly impact 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 potentially a 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 the 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, our biosimilar to adalimumab, is our first approval among the many biosimilar programs expected to help generate long-term growth at Amgen. We're currently in litigation with AbbVie over AMJEVITA, and it's likely there will be more litigation before a launch. Given the pace of that litigation, it's unlikely 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. The healthcare debate in the U.S. is ongoing, and we must all work together to find affordable healthcare solutions. However, we should not lose sight of the economic and societal burden of disease that is the true enemy. Innovative biopharmaceutical drugs promise to address that burden. We're at the dawn of an exciting era for innovation, whether in cancer, cardiovascular medicine, or Alzheimer’s and other serious illnesses. To advance promising new medicines effectively, we must balance price and value, maintaining the role of physicians in deciding the best for their patients. We price our products to deliver a strong value proposition for patients, payers, and providers. We believe the differentiated efficacy of our products allows us to lead in structuring value-based partnerships for our medicines. We accept that our products must deliver clear benefits and accept that we shouldn't be rewarded when they do not. We already have value-based contracts in place with several payers and expect to do more, even though the regulatory environment makes each contract challenging and time-consuming to establish. We believe we'll see more value-based contracts evolve as a means to enable patient access to the right innovative medicines at the right time. We're committed to working with others to address challenges and improve societal health overall. We have a strong balance sheet and the flexibility and willingness to invest in external innovation. We actively review opportunities, primarily in our core therapeutic areas, and remain disciplined regarding pricing. Recently, we have seen better opportunities to create value with earlier-stage assets. For example, in immuno-oncology, we expanded our arsenal during the quarter with a collaboration with Advaxis and the re-acquisition of a BiTE molecule targeting BCMA for multiple myeloma from Boehringer Ingelheim. We also expanded our cardiovascular franchise with an early-stage collaboration with Arrowhead. In summary, the long-term prospects of our business are bright. I want to thank our teams around the world for their commitment to 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, benefiting primarily from milestone payments related to KYPROLIS approval in Japan. Changes in foreign exchange had less than a 1% negative impact on total revenue and product sales year-over-year. Non-GAAP operating income at $2.9 billion grew 9% from the prior year. Non-GAAP operating margin improved 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. Overall, non-GAAP cost of sales as a percentage of product sales improved by 0.5 points to 13%, driven by manufacturing efficiencies and higher net selling prices, partially offset by product mix. Research and development expenses at $963 million decreased by 11% versus last year, mainly due to lower spending on certain late-stage clinical programs and transformation and process improvement efforts, partially offset by increasing upfront payments for several in-licensing transactions. SG&A expenses increased 1% year-over-year, as increased commercial investments in new product launches, primarily internationally, were enabled by savings from transformation efforts. In total, non-GAAP operating expenses decreased 5% year-over-year. Other income and expenses were a net $109 million expense in Q3, a favorable improvement of $38 million year-over-year due to gains 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, reflecting unfavorable changes in geographic mix of earnings, offset by the benefit from 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 to cash flow and the balance sheet on page seven, free cash flow was $2.5 billion for the quarter compared to $2.8 billion in the third quarter of 2015. We deployed $0.7 billion to repurchase 4.4 million shares in the quarter, with year-to-date repurchases now totaling $2 billion at an average of $157 per share. We plan to repurchase up to $3 billion total this year. Additionally, our third-quarter dividend was $1 per share, a 27% increase 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, with a total debt portfolio having a weighted average interest rate of 3.7% and an average maturity of 12 years. As for our outlook 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 confidence in executing our strategy and business performance through the first three quarters of this year. As a reminder, we expect an increase in operating expenses in Q4 compared to Q3, in line with the typical business pattern. With respect to our updated guidance, our 2016 revenue guidance is now $22.6 billion to $22.8 billion, versus prior guidance of $22.5 billion to $22.8 billion. Our non-GAAP earnings per share guidance is now $11.40 to $11.55 per share, compared to prior guidance of $11.10 to $11.40. Lastly, 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. We will provide 2017 guidance during our January call. We're also on track to meet our commitments through 2018, based on our balanced portfolio of launch, growth, and legacy products, as well as steady progress on expenses due to our transformation efforts. This concludes the financial update. I'd like to turn the call over to Tony.

Thank you, David. 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 across several important brands, including Prolia, Sensipar, XGEVA, Nplate, and Vectibix. We're bringing our new products, notably KYPROLIS and REPATHA, to more patients in more markets. These gains are offset by declines in our legacy products, primarily due to competition along with the negative impact from changes in inventory levels. In the U.S., our product sales declined 1% year-over-year, while internationally product sales grew 4%, or 7% excluding the impact of foreign exchange. This performance was fueled by 12% 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. These hospitalizations strain our healthcare system and can devastate patients, also leading to excessive use of broad-spectrum antibiotics, which contribute to hospital-based antibiotic resistance. Year-over-year, Neulasta declined 5% due to a small segment contraction in the U.S. and increased competition internationally. 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. Onpro improves the patient experience by eliminating the need for a follow-up visit for a Neulasta injection after chemotherapy, translating 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% of the short-acting market as we exit the third quarter. Regarding our ESA business, Aranesp increased 8% year-over-year, mainly due to growth in the U.S. dialysis segment. We've transitioned over 80% of ESA use in independent and mid-sized dialysis centers from EPOGEN to Aranesp, and we don't expect much further transition going forward. EPOGEN declined 31% year-over-year, primarily due to conversion to Mircera by Fresenius, which began in earnest in the fourth quarter of 2015. Now to ENBREL. Segment growth remains strong in both rheumatology and dermatology, with our primary focus in rheumatology, representing over 80% of our business. ENBREL offers a competitive efficacy and safety profile and has strong economic value. ENBREL sales were unchanged year-over-year, driven by several factors, including volume decline due to increased competition and negative impacts from changes in inventory levels. Changes in net selling price offset these dynamics slightly due to pricing challenges. We will continue to compete on a payer contracting basis to maximize patient access to ENBREL, which has the longest in-market history of efficacy and safety. Changes in net selling price will have little benefit for ENBREL in 2017. Sensipar grew 18% year-over-year, driven by net selling price and strong unit growth globally. We look forward to the passage of European approvals and are working with the FDA for U.S. approval as well. Prolia delivered strong growth of 18% year-over-year. Quarter-over-quarter, we saw typical seasonality with a decline of 14%. Prolia remains a crucial growth driver, and we continue to invest to realize its full potential. Volume growth continues at nearly 20% in both the U.S. and the E.U. We see continued volume growth of about 7% year-over-year in XGEVA. Recently, we had a successful Phase III trial with XGEVA in multiple myeloma that we look forward to bringing to patients who previously had no options. Vectibix and Nplate delivered double-digit growth, mainly driven by volume gains, with Vectibix benefiting from shipments to our Japanese partner. Let me now turn to our launch products, REPATHA and KYPROLIS. Both products represent substantial opportunities addressing serious diseases with significant unmet needs. Starting with our cardiovascular franchise, Corlanor helped establish our presence in this space. Corlanor was approved to prevent re-hospitalization, a costly burden in the healthcare system, thus offering strong value for chronic heart failure patients. However, Corlanor sales have been modest to date due to steep payer hurdles. We do not expect a dramatic change in this trend shortly. For REPATHA, we're working with payers and providers to facilitate patient access. We have seen minor improvements in utilization and management criteria, but hurdles remain for both physicians and patients. Nonetheless, we are optimistic about the REPATHA GLAGOV results, which Sean will discuss shortly. As for KYPROLIS, we saw a 34% year-over-year growth due to strong uptake in Europe and continued growth in the U.S. In Europe, KYPROLIS grew 30% year-over-year. Multiple myeloma is a dynamic market with new competitors entering the field. Although we lost some share in the third line due to new entrants, we expect proteasome inhibition to remain foundational therapy, focusing on growing the second line based on strong ASPIRE and ENDEAVOR data. Both regimens have been recognized as preferred second-line treatment in recent guidelines. I want to thank our customer-facing teams around the world. Their focus and agility in delivering for patients in this dynamic environment is inspiring. Let me now pass it to Sean.

Thanks, Tony. Good afternoon. We've made significant progress in the third quarter with numerous regulatory and pipeline milestones. Starting with cardiovascular, in September, we got results from our intravascular ultrasound study in patients with coronary artery disease on intensive statin therapy. The results demonstrate a clear link between the PCSK9 mechanism of action in lowering LDL cholesterol and reducing atherosclerotic plaque burden in patients already treated with intensive statin therapy. We look forward to presenting these results at the American Heart Association Meetings in New Orleans on November 15, where we will also host an investor event. We expect to review results from our cardiovascular outcomes study in the first quarter of next year, which we anticipate presenting at the American College of Cardiology Annual Meeting in March. We've reached an agreement with the FDA on key elements of our omecamtiv mecarbil Phase III cardiovascular outcome study through a special protocol assessment. The study will enroll around 8,000 chronic heart failure patients with reduced ejection fraction, with a primary endpoint of time to cardiovascular death or the first heart failure event. We're finalizing some protocol details with global regulators and anticipate enrolling patients early next year. Omecamtiv is developed in collaboration with Cytokinetics and Servier. In earlier-stage cardiovascular programs, we announced licensing and collaboration agreements with Arrowhead Pharmaceuticals to develop and commercialize RNA interference therapies for Lp(a) and another undisclosed target. Lp(a) is a target we've gained confidence in through genetic analysis at deCODE. We also recently entered clinical development with an exciting new molecule for heart failure, and our ASGR1 program in atherosclerosis continues to move forward in the preclinical phase. Moving on to oncology, regarding KYPROLIS, in Q3, we received results from the CLARION study, which we had the opportunity to discuss in detail during our last conference call. We are committed to advancing KYPROLIS into first-line therapy and are close to finalizing a study design focused on the combination of KYPROLIS, Revlimid, and dexamethasone in newly diagnosed multiple myeloma patients. In fact, many thought leaders in the field now consider KRd the standard of care for first-line patients. We're also exploring additional combination studies with newer therapies and are currently in discussions with Janssen to co-fund a study of carfilzomib in combination with daratumumab and dexamethasone for patients with relapsed or refractory multiple myeloma. We've completed enrollment in the Phase III study of weekly administration in the third-line setting and expect results next year. We're also advancing the reformulated oprozomib molecule into the clinic to assess the potential to develop an oral proteasome inhibitor with a superior benefit-risk profile compared to existing oral therapies. Recently, we reviewed the results of the study of XGEVA in the prevention of bone complications in the multiple myeloma population. We are pleased to report that the study met its primary endpoint of non-inferiority to zoledronic acid in the time to first skeletal-related event. This efficacy was similar between the agents, but the renal safety profile favored the XGEVA arm, which is significant in the multiple myeloma population. We look forward to discussing label updates with global regulators. In our immuno-oncology program, BLINCYTO, our CD19 BiTE, continues to significantly impact the lives of certain ALL patients. In Q3, the FDA expanded the indication to include the pediatric setting. The addition of immunotherapy like BLINCYTO represents a major advance for these patients, where cytotoxic chemotherapies can lead to long-term side effects like secondary malignancies. We're initiating Phase III studies of BLINCYTO in non-Hodgkin's lymphoma, including a previously announced combination study with Merck's PD-1 inhibitor, KEYTRUDA. We recently presented encouraging data from an interim analysis of our Phase II study of IMLYGIC in combination with Yervoy at European cancer meetings, ESMO. The data suggests that combining IMLYGIC and Yervoy has greater efficacy than either agent alone in stage IIIB, IV melanoma patients without an additional safety burden. This study is expected to complete later this year and we plan to submit results for presentation at a 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 targeting BCMA, a multiple myeloma target, which had been licensed to Boehringer Ingelheim prior to our acquisition of Micromet. Lastly, we announced a preclinical collaboration with Advaxis on an innovative approach to generating immune responses against patient-specific tumor neoantigens. In our bone health programs, a Phase III study of Prolia compared with Risedronate in patients on glucocorticoid treatment met all primary and secondary endpoints. Glucocorticoid-induced osteoporosis is a small but important indication for men and women, often managed by rheumatologists. We will soon discuss label updates with regulators. Data from the romosozumab Phase III placebo control fracture study, FRAME, was presented last month at the American Society for Bone and Mineral Research and published in The New England Journal of Medicine. Feedback was positive, indicating a clear desire for new anabolic therapies for osteoporosis treatment. The FDA accepted our romosozumab file, and together with our partners at UCB, we look forward to continued interactions as we approach 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 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. Erenumab administered monthly resulted in a statistically and clinically significant reduction in monthly migraine days, with a safety profile similar to placebo. Results from the second Phase III study in episodic migraine are expected by year-end. We also presented positive results from our Phase IIB chronic migraine study at the European Headache and Migraine Trust International Congress, with over 650 patients involved. We believe results combined with our two Phase III studies could support registration for both chronic and episodic migraine indications. In nephrology, Parsabiv received a positive opinion in Europe for preventing secondary hyperparathyroidism in adults with chronic kidney disease on dialysis, and we anticipate market authorization in the EU. We are working with the FDA toward approval in the U.S. Lastly, we received our first biosimilar approval in Q3 for AMJEVITA, our biosimilar for HUMIRA, approved in all eligible indications of the referenced product. We began enrolling Phase III studies for our biosimilar rituximab, ABP 798, in rheumatoid arthritis and non-Hodgkin's lymphoma, and our biosimilar infliximab, ABP 710, in rheumatoid arthritis. As the year ends, we have important work ahead of us, and as always, I want to thank our staff for their efforts against serious diseases. Bob?

Okay. Thank you, Sean. We'd like to open up the call to questions, and I'd ask our operator to remind everybody of the procedure for asking questions. Let's turn it over to your questions.

Hi. Thanks for taking my question. Maybe just two for me. First, Bob, I was just wondering, if there is a repatriation agreement under a new administration, could you help frame for us maybe some potential uses of your cash? And then, Sean, on the IVUS data that we'll see, can you 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.

Thanks for your question. Why don’t I have David address your question on repatriation? Obviously, we're supportive of corporate tax reform, particularly reform that would allow us to reconsider that cash. David?

Yeah, certainly. The first point is that we continue to generate solid and stable cash flow for the business. So far, we’ve been able to fund all business requirements without having to repatriate cash and pay a current unfavorable tax rate. So, in essence, should we see tax reform in the U.S., we would consider repatriating cash. When we do that, we would prioritize maintaining the lowest weighted average cost of capital for the company. This could involve repaying some of our debt while maintaining a healthy net debt position. We would also look at deploying cash toward strategic opportunities that offer returns for our shareholders, and potentially buying back shares to achieve a balanced weighted average cost of capital.

Regarding the IVUS results and their implications for outcomes, there’s no exact formula for that. The scientific hypothesis is that we should expect a similar impact on atherosclerotic disease from lowering LDL by a given amount, whether through this mechanism or with statins. Patients are already maxed out on statin therapy, so lowering LDL substantially beyond that would probably have a similar outcome effect. The positive IVUS study bolsters confidence in that hypothesis significantly. Given that human genetics strongly indicate this as well, we expect outcomes similar to what one might expect if lowering LDL with the statin worked.

Jake, let's take the next question. And just as a gentle reminder, please limit yourself to one question to ensure that we can accommodate everyone’s questions. Let’s go on with the next question, please.

Great. Thanks for taking the question. If I can ask two related questions on ENBREL. Hopefully, this doesn't get in Arvind's way. First, Tony, you talked about expected little benefit from net selling prices in 2017. I'm wondering if you can expand on that and if there's a certain amount of price increase you expect or if the contracts you've written have protections that limit the impact of list price increases on net price. And can you tell us exactly what the dollar amount of the inventory headwind was in the third quarter? Thanks.

Let me start with that first part. The inventory headwind was about $108 million. As for net selling price specifics, we’ve never disclosed product-specific guidance, and our contracts are confidential. However, my statement regarding little impact on net selling price indicates we'll focus on volume, not on net selling price, next year. Let's move on to the next question.

To follow up on that same topic for Tony, are you suggesting that you’ve contracted better and we won't see the mid- to high-single digit volume erosion for ENBREL that we’ve seen over the course of this year?

Volume is always driven by demand in the marketplace. What I’m stating is that the contracts indicate little impact on net selling price.

Thank you. Question on AMG 820. You had this product in development for a while, but it was quiet until you collaborated with Merck. I want to ask your view on anti-CSF-1R potentially in an IO combination and what tumor types you think would benefit the most from this combination.

This antibody addresses tumor macrophages in maintaining a supportive microenvironment for tumors. Evidence suggests these macrophages play a significant role in tumorigenesis and immune system evasion. It's an interesting target and could synergize well with checkpoint inhibition. We're focusing on cancer types that exhibit higher macrophage infiltration, but I can't specify which ones at this early stage.

Thanks for the question. For Sean, regarding romosozumab, now that you've presented more data and it seems to progress well, the importance of the upcoming active controlled study—what's your expectation for that and its importance in the regulatory filing? Do you think regulatory decision hinges on efficacy or safety? How do you assess what's happening there? Thanks.

Regulators do not require such a study; a large placebo-controlled fracture trial suffices for registration globally. We've strategically opted to file in some regions with both studies to facilitate payer access. Regulators are generally interested in these studies for safety and efficacy insights. This active controlled study will be analyzed primarily on a time-driven basis, with a subsequent analysis for event-driven results. This creates a high hurdle, but demonstrating the product's superiority to a strategy using alendronate underlines its potential.

Thank you very much. I apologize for persistently asking about ENBREL, but revenue was flat this quarter. You noted the dollar impact of inventory in your remarks, but units were down 7%. Given that the list price was above 20%, should we assume your list price increase does not benefit from the contracts you're currently working with? Could you provide examples of value-based contracts and how much of your business is involved in such contracts?

We keep contract details confidential. We're addressing the highly competitive environment, particularly with anti-TNF, where large rebates are necessary to maintain our formulary position. Given that, we anticipate little impact on net selling price for ENBREL in 2017. Demand will be driven by marketplace dynamics. As for value-based contracts, we have one with REPATHA regarding guaranteed lipid lowering, and ongoing work involving Corlanor concerning rehospitalizations. These contracts are growing, and we expect to see more across our product lines.

To clarify further, on REPATHA, we have established several contracts. Although each contract takes time, we're addressing a market need, and we expect to continue seeing more of these arrangements in various healthcare sectors. This notion of paying for what works, not for what doesn't, is increasingly becoming expected.

Thanks for taking my question. I was surprised to hear Corlanor faces significant reimbursement headwinds. Can you clarify how this isn't a signal of potential headwinds for REPATHA once cardiovascular data is available? Thank you.

The FDA label for Corlanor is fairly limited, focusing solely on re-hospitalization. Payor restrictions complicate access. Furthermore, we can differentiate REPATHA's development from what we did with Corlanor, and we maintain confidence in REPATHA’s prospects and forthcoming outcomes data.

Hi. Thanks for taking my question, and Arvind, thank you for the kind words earlier. I appreciate it. I want to ask about omecamtiv. What are your thoughts on the opportunity's size, its cost, and how long do you think it will take to enroll the trial? Also, regarding potential PK risks and how you address that—what’s your view on the overall potential compared to REPATHA?

Chronic heart failure has a vast unmet medical need and remains a huge opportunity. In comparison to oncology, innovative mechanism options are scarce. Omecamtiv's potential, especially as it enhances cardiac contractility without increasing myocardial oxygen demand, represents significant advancement. We've made considerable effort to develop our formulation and protocol, ensuring patient safety through a titrated regimen to maintain therapeutic ranges. I view this program as highly vital, even though they require long-term outcomes for market acceptance. We are committed to advancing this promising mechanism.

Thanks for taking my question. Looking at the company’s broader picture, it appears product sales have stabilized for a handful of quarters. Given the slow uptake of new products, how are you approaching inorganic growth given the current challenges with new product launches? Thank you.

We maintain a strong balance sheet and a world-class business development effort. We're actively seeking opportunities while remaining disciplined on pricing to ensure adequate returns for our shareholders. Recently, we've found interesting opportunities in the early stages and will pursue larger projects in our core therapeutic areas. We're exploring a wider range of potential opportunities than in the past.

Hey, guys. Can you give us more color on the Onpro kit, including your current market share? Also, how does the IP differ from Neulasta IP?

We hold IP on the Onpro kit, which differs from the Neulasta IP. In Q2, we averaged around 34% market share and exited Q3 at about 44%. We are on track for approximately 50% by year-end.

Thank you for taking my question. Regarding KYPROLIS, concerns exist regarding its position against IMiDs and daratumumab. Are you considering trials with daratumumab alongside an IMiD? How do you make a case for KYPROLIS over those agents?

We're exploring combinations of KYPROLIS with dexamethasone and daratumumab for relapsed refractory situations. For example, we could look at the KYPROLIS, dex, and daratumumab regimen, which has shown significant benefits compared to VELCADE in past studies. We are confident that proteasome inhibitors like KYPROLIS will remain foundational therapies despite new entrants and competition.

Hey, guys. Regarding REPATHA, can you discuss the cost-benefit perspective you're considering with erenumab, particularly regarding the ARISE study? What's your outlook for the STRIVE study population, especially regarding potential placebo response rates?

We haven't set a price for erenumab yet, but the unmet need is significant. Migraines are debilitating and inhibit one's independence. Traditional treatments often result in significant side effects. We believe our ability to alleviate migraines will provide us with strong value models as we enter the market. Sean?

For the second Phase III EM study, its design is similar. The inclusion-exclusion criteria align closely with the previous study. We anticipate no substantial differences in variables like placebo response rates between trials, though no two trials are identical.

Good afternoon, guys. Thanks for taking my question. Bob and maybe Tony, what are your views on Prop 61 in California and how concerned are you about similar movements impacting overall pricing?

It won’t be a surprise that we oppose Proposition 61, as we believe it is flawed. Most major California newspapers, a large number of veterans' groups, and many California public entities have also come out against it. We’re working hard to clarify why we think this is not in the best interest of California citizens. This is a populist topic, so it’s important to shed light on it and any similar initiatives. Innovative biopharmaceuticals address real issues, and any initiative that risks funding for innovative R&D is something we will scrutinize closely.

Do you have any strategic interest in products similar to ENBREL in rheumatology and dermatology, given evolving treatment approaches with oral drugs? Also, regarding biosimilar Solaris, could you potentially navigate the approval process without testing in patients?

We've been looking at various potential products for rheumatologic and dermatologic inflammatory diseases and will continue to do so. We maintain a high bar considering ENBREL's long-term safety and efficacy data. We've explored a couple of candidates and will continue to search for ways to add value in inflammation; this remains a core focus. Regarding your biosimilar program, the regulatory pathway indeed often requires data for patient populations, and we’re currently in early stages.

I would be surprised if you could avoid testing in patients, especially for a product targeting a very rare disease, where you typically need to gather clinical evidence.

I'd like to know more about your commitment to developing a biosimilar Eculizumab, given the visibility on newer branded approaches in the complement space.

We have a program for Eculizumab that we're advancing. We're serious about its development and intend to proceed through the development process once the relevant patents lapse, enabling our market launch.

Hello. This is Nick in for Jim this afternoon. Thanks for taking my question. Could you discuss the BiTE strategy? You’re investing in studies of ALL, and there is a Phase II/III study listed in non-Hodgkin's lymphoma. Given that you have continuous infusion, the BI product appears to be just a subcutaneous administration. Can you discuss the BiTE strategy against targets that also have fully human constructs?

We can develop both short half-life and extended half-life BiTE constructs. Choices are made according to the particular circumstances of the trial. Continuous infusion may be advantageous in hematologic malignancies, mitigating cytokine storms, where rapid drug clearance is beneficial. For solid tumors, we're likely to pursue the half-life-extended BiTE constructs. We’re rapidly advancing our BiTE strategies, targeting multiple indications.

I want to add that our internal transformation efforts provide opportunities for us to examine targets and integrate them into our BiTE platform. We see meaningful potential from a manufacturing standpoint here, aligning with our broader initiatives. Let's proceed to the next question.

As we are 15 minutes past the hour, let's take one last question.

Is it reasonable to expect U.S. approval for Parsabiv this year?

We are actively working towards that approval. It’s challenging to predict the FDA’s decision timeline. I won't set expectations on whether it will be this year or early next year, but I hope it happens reasonably soon.

Thank you for your participation in our call. Should you have any follow-up questions or comments, myself and my team will be available for several hours. Feel free to reach out to us. Thank you again.

Thank you.