Analyst Conference Summary


conference date: July 11, 2007 @ 2:15 PM Pacific Time
for quarter ending: June 30, 2007 (2nd quarter)

Forward-looking statements

Overview: Revenues surge over prior guidance.

Basic data:

Revenues of $3.0 billion, up 7% sequentially from $2.8 billion and up 37% from $2.2 billion year-earlier.

GAAP net income of $747 million, up 5.7% sequentially from $707 and up 41% from $531 million year-earlier. Non-GAAP net income reported at $834 million, up from $602 million year-earlier.

GAAP EPS (earnings per share) $0.70, up 6% sequentially from $0.66, and up 43% from $0.49 year-earlier. Non-GAAP EPS $0.78.


28 to 32% growth over 2006 or non-GAAP EPS $2.85 to $2.95 per share in 2007.

Conference Highlights:

U.S. product sales were $2.15 billion, up 25% year-over-year.

Product sales:

 Sales (millions) Q2 2007 Q2 2006 % change








































Royalty revenues were $484 million, including $65 million in one-time revenue. Due to a charge, then impact of the $65 million deal was neutral to EPS.

$77 million in contract revenues. $294 million in sales to collaborators.

Cost of sales (non-GAAP) was $413 million, up 45% y/y. R&D was $564 million, up 58%. MG&A was $485 million, up 13%. Cost of sales expected to remain at 16% in 2007. R&D expected at 20% of revenues for 2007. But MG&A to be 17 to 18% of revenues in 2007.

42% pre-tax operating margin, with 40% expected for 2007 as a whole.

37% tax rate expected for 2007.

$450 million free cash flow in quarter. $1.1 billion expected for capital expenditures in full 2007.

Eight Phase III clinical trials were initiated during th quarter. Two supplemental BLA's were submitted, for which a 10 month review period is anticipated. The FDA approved the cell manufacturing facility to produce bulk Avastin. Singapore and Vacaville facilities also made progress.

Top priority is to fill early stage pipeline with new molecules. Currently has 20 new molecules in pipeline. Research program will produce more. Anti-angiogenesis is a focus. Also good progress up the phase ladder with current candidates. Also engaging in collaborations.

Question of Avastin dosage continues to be troubling, as a trial has indicated a lower dose may be as effective as the standard, higher dose.

Follow-on biologics (generics) applications legislation in Congress is a concern. Continues to engage in process of development of this potential law.

Xolair anaphalaxis questions have been resolved, hence resumption of growth. But two Phase 4 studies are planned for Xolair now. Lucentis dosages were as expected, but it is hard to predict prescriptions for patients going into their second year.

Avastin with Interferon for renal cancer did well in Phase II trials (20906 study). Not enough death events to report main end point results.

Key events expected through early 2008: FDA action on Herceptin SBLA on October 22nd. Avastin Phase II brain study in glioblastoma multiformi results are expected in Q2 2007. Lucentis first cohort data in AMD are expected Q4. 2 Rituxan RA study results expected late this year or early 2008.

Tanox deal expected to close in Q3.


Lucentis for diabetic macular edema? DME study has been publically discussed, FDA has strong views, hence 24 month following period. Fair sized market, epidemic growth of diabetics.

Guidance color? Some non-US sales were unnaturally high in first half of year, including royalties. Expenses also tend to be higher in second half of year. Lots of new molecules are going into development, so R&D expense will climb significantly.

CD20 arbitration? Biogen-IDEC agreement, BIIB's request for injunction and summary judgement was denied, but don't expect a full decision until 2008.

$60 million payment? No money actually changed hands, was an exchange of assets. Another company owed them money and in effect paid with intellectual property. Future royalties will be reduced by about $20 million per year.

Avail trial survival data timeline? Expects Roche will update survival by mid 2008.

Reason for not starting anti-CD20 with CLL is past history of non-predictability of effectiveness for CLL; chose types were data is more supportive, but will do CLL when data makes sense.

On brink of starting critical Phase III clinical trials for Avastic for breast cancer.

TALTB 92401 prostate cancer trial. Enrollment is ongoing. Has overall survival endpoint. Interim analysis will be event driven. Not fully enrolled yet.

Erbitux data on liver cancer to impact Avastin sales? Erbitux may have used good prognosis patients. Data not overwhelming, so commercial impact not to be major. But they do not have full access to the data, so can't be sure.

Lucentis Avastin trial? Not our trial, our understanding is it will start in second half of 2007.

Avastin revenues going forward? Not much growth in colorectal or breast cancer, only about half-way to potential patients in lung cancer. Change in dosage may have impact. Breast cancer jump could come with label change in mid-2008.

Tycarb impact on Herceptin? Very early, use is in line with label. Some Tycarb patients may not have been on Herceptin. So limited impact so far.

Collaboration color? Works closely with R&D groups, starting with science. Deals are driven by scientifically important targets that are likely to be first in class or best in class.

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Disclaimer: Our analyst summaries may include both our condensations of statements made by company representatives and our own analysis. They are not covered by any warranty. We cannot guarantee anything said by company representatives is true. We try not to make errors, but it is possible. Before making or terminating an investment you should always verify any factual basis of your decision.

Copyright 2007 William P. Meyers