Forward looking statements

This report and other documents we file with the Securities and Exchange Commission (“SEC”) contain forward looking statements that are based on current expectations, estimates, forecasts and projections about us, our future performance, our business or others on our behalf, our beliefs and our management’s assumptions. In addition, we, or others on our behalf, may make forward looking statements in press releases or written statements, or in our communications and discussions with investors and analysts in the normal course of business through meetings, webcasts, phone calls and conference calls. Words such as “expect,” “anticipate,” “outlook,” “could,” “target,” “project,” “intend,” “plan,” “believe,” “seek,” “estimate,” “should,” “may,” “assume,” “continue,” variations of such words and similar expressions are intended to identify such forward looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. We describe our respective risks, uncertainties and assumptions that could affect the outcome or results of operations in “Item 1A. Risk Factors.” We have based our forward looking statements on our management’s beliefs and assumptions based on information available to our management at the time the statements are made. We caution you that actual outcomes and results may differ materially from what is expressed, implied or forecast by our forward looking statements. Reference is made in particular to forward looking statements regarding product sales, regulatory activities, clinical trial results, reimbursement, expenses, EPS, liquidity and capital resources and trends. Except as required under the federal securities laws and the rules and regulations of the SEC, we do not have any intention or obligation to update publicly any forward looking statements after the distribution of this report, whether as a result of new information, future events, changes in assumptions or otherwise.

Overview

The following MD&A is intended to assist the reader in understanding Amgen’s business. MD&A is provided as a supplement to, and should be read in conjunction with, our condensed consolidated financial statements and accompanying notes included in this Quarterly Report on Form 10-Q and our consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2006.

We are a global biotechnology company that discovers, develops, manufactures and markets human therapeutics based on advances in cellular and molecular biology. Our mission is to serve patients. As a science-based, patient-focused organization, we discover and develop innovative therapies to treat grievous illness. We operate in one business segment – human therapeutics. Therefore, our results of operations are discussed on a consolidated basis.

We primarily earn revenues and income and generate cash from sales of human therapeutic products in the areas of supportive cancer care, nephrology, inflammation and, beginning in the third quarter 2006, oncology when we received U.S. Food and Drug Administration (“FDA”) approval and launched Vectibix™ (panitumumab), our first cancer therapeutic. For the three and six months ended June 30, 2007, total revenues were $3.7 billion and $7.4 billion, respectively. For the three and six months ended June 30, 2007, net income and diluted earnings per share were $1.0 billion and $2.1 billion and $0.90 per share and $1.84 per share, respectively. As discussed in more detail below, the results of our operations for the three and six months ended June 30, 2007 reflect charges for asset impairment and related costs of $289 million primarily associated with reduced capital investments as part of the

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rationalization of our worldwide network of manufacturing facilities and, to a lesser degree, moderation of the expansion of our research facilities. As of June 30, 2007, cash, cash equivalents and marketable securities were $5.3 billion, of which approximately $4.2 billion was generated from operations in foreign tax jurisdictions and is intended for use outside the United States. The total debt outstanding was $11.3 billion as of June 30, 2007.

Our principal products include Aranesp ^® , EPOGEN ^® , Neulasta ^® /NEUPOGEN ^® and ENBREL, all of which are sold in the United States. ENBREL is marketed under a co-promotion agreement with Wyeth in the United States and Canada. Our international product sales consist principally of European sales of Aranesp ^® and Neulasta ^® /NEUPOGEN ^® . International product sales represented approximately 20% of total product sales for each of the three and six months ended June 30, 2007. Most patients receiving our principal products for approved indications are covered by either government or private payer health care programs. Therefore, sales of our principal products and sales growth are and will continue to be affected by the availability and extent of reimbursement from third-party payers, including government and private insurance plans and administration of those programs. For additional information about our principal products, their approved indications and where they are marketed, see “Item 1. Business – Principal products” in Part I of our Annual Report on Form 10-K for the year ended December 31, 2006.

For the three and six months ended June 30, 2007, product sales, which are mainly comprised of our principal products, represented 97% of total revenues. Total product sales for the three and six months ended June 30, 2007 grew 3% and 8%, respectively, principally driven by demand for ENBREL and Neulasta ^® . Total product sales growth for the three and six months ended June 30, 2007 was adversely impacted by Aranesp ^® sales. In particular, for the three months ended June 30, 2007, U.S. Aranesp ^® sales declined 19% primarily reflecting a decrease in demand as discussed in more detail below. We believe that future product sales growth will be more difficult than in previous years since, as discussed below, certain of our principal products, principally Aranesp ^® and EPOGEN ^® , face various challenges primarily arising from clinical trial results that led to regulatory activities, including revisions to labeling and loss of reimbursement coverage for certain of our products, and the potential for further label and reimbursement changes, and legislative reviews. In addition, increased competition, including additional approved indications for existing competitive products, is also presenting challenges to certain of our principal products, as discussed below.

In particular, our products used to treat anemia, Aranesp ^® and EPOGEN ^® , have and are continuing to experience significant regulatory and legislative challenges. Aranesp ^® and EPOGEN ^® belong to a class of drugs used to treat anemia referred to as erythropoiesis-stimulating agents, or ESAs. Aranesp ^® is used primarily in the United States and in Europe for the treatment of anemia both in supportive cancer care and in nephrology. EPOGEN ^® is used in the United States to treat anemia associated with chronic kidney disease. Due to negative safety results of various clinical studies involving ESAs in off-label uses performed by us, including our Anemia of Cancer phase 3 study (the “AoC 103 Study”) and by third-parties, our anemia products, and Aranesp ^® in particular in the oncology setting, have experienced significant regulatory challenges. For example:

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Sales growth slowed for Aranesp ^® in the United States in the latter part of the three months ended March 31, 2007 and declined significantly in the three months ended June 30, 2007 principally driven by a decrease in demand. This decrease in demand primarily reflects customer reaction in the oncology setting to these label and reimbursement changes. In addition, in Europe, there has been slight dosing conservatism in oncology, in the three months ended June 30, 2007, in part, as a result of recent developments in the United States.

Further, on July 30, 2007, the Centers for Medicare and Medicaid Services (“CMS”) issued its National Coverage Decision Memorandum for Use of Erythropoiesis Stimulating Agents in Cancer and Related Neoplastic Conditions (the “Decision Memorandum”). The Decision Memorandum sets the coverage policy for Medicare and other government beneficiaries who account for approximately 50% of cancer patients receiving Aranesp®. We are in continuing discussions with CMS regarding the Decision Memorandum and are in the process of evaluating the impact the Decision Memorandum will have on the use, reimbursement and sales of Aranesp® and currently believe that the majority of cancer patients who receive treatment with Aranesp® are initiated at hemoglobin (“Hb”) levels above 10g/dL and maintain Hb levels above 10g/dL with continued therapy. Given that the Decision Memorandum contains a coverage restriction for Hb levels greater than 10g/dL, we believe that such restriction will change the way ESAs are used in clinical practice, for example, by decreasing the number of treated patients, dose and duration of therapy. We expect this restriction on reimbursement of ESAs in the Decision Memorandum would have a material adverse effect on our sales of Aranesp®, and our business and results of operations. Additionally, we believe that the Decision Memorandum may be followed and implemented by some private payers. See the “Reimbursement” section, which follows for further discussion of the Decision Memorandum.

In addition, the outcome of recent and pending developments could have a material adverse impact on future product sales in the United States or internationally, as applicable, for Aranesp ^® and/or EPOGEN ^® as they may negatively impact healthcare provider prescribing behavior, use of our products, regulatory or private healthcare organization medical guidelines and reimbursement practices.

For example, the following could further impact future Aranesp ^® sales:

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For example, the following could further impact future EPOGEN ^® sales:

Our anemia products and certain other principal products are also facing a number of competitive challenges as well. For example:

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Further, as a result of safety concerns related to patient survival, we previously announced that we had discontinued Vectibix™ treatment in our Panitumumab Advanced Colorectal Cancer Evaluation (“PACCE”) trial, a non-registration-enabling trial evaluating the addition of Vectibix™ to standard chemotherapy and Avastin ^® (bevacizumab) for the treatment of first-line metastatic colorectal cancer. We are in continuing discussions with the FDA with respect to the Vectibix™ label, and expect to provide additional prominence to data from the PACCE trial. The language is still in development, discussions with the FDA are on-going and any label change is subject to FDA approval. Our registrational studies to explore the utility of Vectibix™ in combination with chemotherapy in first and second line metastatic colorectal cancer continue and are not being modified at this time as a result of the PACCE trial. Further, on May 25, 2007, the CHMP adopted a negative opinion with respect to the approval of Vectibix ^TM in the EU to treat patients with metastatic colorectal cancer whose disease has progressed on or following all standard chemotherapy regimens. In accordance with European regulations, we have requested a re-examination of the CHMP opinion as part of the EU regulatory process.

For further discussion on the above matters, refer to “Reimbursement” below and to “Item 1A. Risk Factors” in Part II herein.

As a result of these challenges, we have commenced a global review of the Company’s business plans to identify opportunities to improve our cost structure in response to any resulting declines in revenues. In connection with these efforts, we have begun taking certain actions to moderate our operating expense growth. In addition, we will refocus spending on critical R&D and operational priorities and seek greater efficiencies in how we conduct our business while continuing to make significant innovative R&D investments and build the framework for the Company’s future growth.

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As part of these efforts, we have decided to make changes to various ongoing capital projects. These decisions were primarily focused on rationalizing our worldwide network of manufacturing facilities in order to gain cost efficiencies while continuing to meet future commercial and clinical demand for our products and product candidates. In particular, these decisions included a re-scoping of our Ireland manufacturing operations, the construction of which was previously reported to have been delayed, certain revisions to our planned manufacturing expansion in Puerto Rico and, to a lesser degree, moderated expansion of our research facilities. As a result of these decisions, the Company recorded charges for asset impairment and related costs of $289 million during the three months ended June 30, 2007. These charges are included in other operating expenses in the Condensed Consolidated Statement of Operations.

We are continuing our review of the Company’s operations and depending, in part, on the outcome of certain future developments, including the impact of CMS’ Decision Memorandum related to the use of ESAs in oncology and the results of the upcoming joint meeting of the CRDAC and Drug Safety and Risk Management Advisory Committee, we may be required to take further actions to reduce costs. As a result, we may incur additional related charges in the near term, certain of which may be material.

For the three and six months ended June 30, 2007 and 2006, operating income was as follows (in millions):

Operating income as a percentage of product sales was 31% and 8% for the three months ended June 30, 2007 and 2006, respectively. For the six months ended June 30, 2007 and 2006, operating income as a percentage of product sales was 35% and 23%, respectively. Operating income for the three and six months ended June 30, 2006 was impacted by the $1.1 billion write-off of acquired IPR&D incurred in connection with the Abgenix acquisition.

We focus our R&D on novel human therapeutics for the treatment of grievous illness. We have substantially expanded our R&D capabilities to manage and execute increasingly larger and more complex clinical trials and to build the capacity to advance more compounds into and through the clinic. Based on current business trends, we expect to see further growth in R&D expense in 2007, but not to the same extent experienced in 2006, in order to support the increased number and expense of studies to advance our late-stage pipeline, including previously initiated mega-trials, as well as the continued advancement of earlier stage compounds. However, as a result of recent regulatory and legislative challenges discussed above, we have and will continue to assess the optimal level of our R&D investment. To the extent future sales are negatively impacted as a result of these challenges, we may be required to adjust our R&D investment plans.

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On July 16, 2007, we completed our acquisition of Alantos, which will be accounted for as a business combination. Alantos was a privately held company that specialized in the development of drugs for the treatment of diabetes and inflammatory diseases. Pursuant to the merger agreement, we agreed to pay cash of approximately $300 million to acquire via merger all of the outstanding shares of Alantos. The transaction provides Amgen with Alantos’ lead drug candidate, a DPP-IV inhibitor in clinical development (Phase 2a) for the treatment of type II diabetes.

On July 18, 2007, we completed our acquisition of Ilypsa, which will be accounted for as a business combination. Ilypsa was a privately held company that specialized in the development of non-absorbed drugs for renal disorders. Pursuant to the merger agreement, we agreed to pay cash of approximately $420 million to acquire via merger all of the outstanding shares of Ilypsa. The transaction provides Amgen with Ilypsa’s lead drug candidate, a phosphate binder in clinical development (Phase 2) for the treatment of hyperphosphatemia in chronic kidney disease patients on hemodialysis.

There are also many economic and industry-wide factors that affect our business generally and uniquely, including, among others, those relating to increased complexity and cost of R&D due, in part, to greater scrutiny of clinical trials with respect to safety which may lead to fewer treatments being approved by the FDA or other regulatory bodies and/or safety-related label changes for approved products; increasingly intense competition for marketed products and product candidates; reimbursement changes; healthcare provider prescribing behavior, regulatory or private healthcare organization medical guidelines and reimbursement practices; complex and expanding regulatory requirements; and intellectual property protection. See “Item 1. Business” in Part I of our Annual Report on Form 10-K for the year ended December 31, 2006 and “Item 1A. Risk Factors” in Part II herein for further information on these economic and industry-wide factors and their impact and potential impact on our business.

Reimbursement

Sales of all of our principal products are dependent, in part, on the availability and extent of reimbursement from third-party payers, including governments and private insurance plans. Generally, in Europe and other countries outside the United States, the government sponsored healthcare system is the primary payer of healthcare costs of patients. Governments may regulate access to, prices or reimbursement levels of our products to control costs or to affect levels of use of our products. Worldwide use of our products may be affected by these cost containment pressures and cost shifting from governments and private insurers to healthcare providers in response to ongoing initiatives to reduce or reallocate healthcare expenditures. Further, adverse events or results from clinical trials or studies performed by us or by others or from the marketed use of our drugs may expand safety labeling for our approved products and may negatively impact worldwide reimbursement for our products. On May 14, 2007, CMS issued its Proposed National Coverage Decision Memorandum for Use of Erythropoiesis Stimulating Agents in Cancer and Related Neoplastic Conditions (the “Proposed NCD”) and on July 30, 2007, issued its Decision Memorandum. We are in the process of evaluating what impact the Decision Memorandum will have on the use, reimbursement and sales of Aranesp ^® , and our business and results of operations. A complete discussion of the Decision Memorandum follows below. (See also “Item 1A. Risk Factors” – “ Our current products and products in development cannot be sold if we do not gain or maintain regulatory approval of our products and we may be required to perform additional clinical trials or change the labeling of our products or take other potentially limiting or costly actions if we or others identify side effects after our products are on the market. ” and “ Guidelines and recommendations published by various organizations can reduce the use of our products .” in Part II herein.) In addition, Senator Charles Grassley from the United States Senate Finance Committee sent letters to the FDA, CMS and to us expressing interest in the use of ESAs in cancer and End Stage Renal Disease (“ESRD”)

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patients and has requested meetings with each of the three. To the extent that there is resulting legislation or changes in CMS or FDA policy as a result of Senator Grassley’s concerns, such changes could have a material or adverse effect on the use of our ESA products.

Most patients receiving Aranesp ^® , Neulasta ^® and NEUPOGEN ^® for approved indications are covered by both government and private payer healthcare programs. Government healthcare programs are governed by the Medicare Prescription Drug Improvement and Modernization Act (the “MMA”) which was enacted into law in December 2003 and became effective January 1, 2005. Since January 1, 2005, in the physician clinic setting and since January 1, 2006, in the hospital outpatient setting, Aranesp ^® , Neulasta ^® and NEUPOGEN ^® have been reimbursed under a Medicare Part B payment methodology that reimburses each product at 106% of its ASP (sometimes referred to as “ASP+6%”). ASP is calculated by the manufacturer based on a statutorily defined formula and submitted to CMS. A product’s ASP is calculated on a quarterly basis and therefore may change each quarter. The ASP in effect for a given quarter (the “Current Period”) is based upon certain historical sales and sales incentive data covering a statutorily defined period of time preceding the Current Period. For example, the ASP for Aranesp ^® that will be in effect for the third quarter of 2007 will be based in part on certain historical sales and sales incentive data for Aranesp ^® from June 1, 2006 through May 30, 2007. CMS publishes the ASPs for products in advance of the quarter in which they go into effect. Any changes to the ASP calculations directly affect the Medicare reimbursement for our products administered in the physician office and the hospital outpatient setting. These calculations are regularly reviewed for completeness and based on such review, we have had to revise our interpretation and methodology of such interpretation to reflect such calculation changes both prospectively and retroactively. Partially as a result of our methodology changes, our ASP reimbursement rate for EPOGEN ^® was reduced for the third quarter of 2007. Prior to January 1, 2006, Medicare’s hospital outpatient prospective payment system (“OPPS”), which determines payment rates for specified covered outpatient drugs and biologics in the hospital outpatient setting, utilized the average wholesale price (“AWP”) as the basis of Medicare Part B payment for covered outpatient drugs and biologics administered in the hospital outpatient setting. From 2003 to 2005, CMS applied an “equitable adjustment” such that the Aranesp ^® reimbursement rate was based on the AWP of PROCRIT ^® , Johnson & Johnson’s recombinant human erythropoietin product marketed in the United States, using a dose conversion ratio. In 2006 and 2007, CMS did not apply an “equitable adjustment” to tie the reimbursement rate for Aranesp ^® to PROCRIT ^® . On July 16, 2007, CMS released its 2008 OPPS proposed rule that did not propose to apply an “equitable adjustment” to the reimbursement rate for Aranesp ^® to PROCRIT ^® , however, CMS has maintained that it reserves the right to apply an “equitable adjustment” to the payment rate for Aranesp ^® in future years.

In the United States, dialysis providers are primarily reimbursed for EPOGEN ^® by the federal government through the ESRD Program of Medicare. The ESRD Program reimburses approved providers for 80% of allowed dialysis costs; the remainder is paid by other sources, including patients, state Medicaid programs, private insurance, and to a lesser extent, state kidney patient programs. The ESRD Program reimbursement rate is established by federal law and is monitored and implemented by CMS. Effective January 1, 2006, the payment mechanism for separately reimbursed dialysis drugs in both free-standing and hospital-based dialysis centers, including EPOGEN ^® and Aranesp ^® , is reimbursed by Medicare at ASP+6% using the same payment amounts used in the physician clinic setting. On May 18, 2007, CMS released a notice, based on its ongoing assessment for payment of Part B drugs, that there would be a single payment limit for Epoetin alfa (EPOGEN ^® and PROCRIT ^® ) beginning in the third quarter of 2007. Further, on July, 24, 2007, the U.S. House of Representatives Committees on Ways & Means and Energy & Commerce released the Proposed CHAMP Legislation which would reduce ESA payment to large dialysis organizations to ASP+2% in 2008 and 2009. Although we cannot predict the payment levels of EPOGEN ^® in future quarters, a decrease in the reimbursement rate for EPOGEN ^® may have a material adverse effect on our business and results of operations.

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Since April 1, 2006, the ESRD Program reimbursement has been subject to a revised Hematocrit Measurement Audit Program Memorandum (“HMA-PM”), a Medicare payment review mechanism used by CMS to audit EPOGEN ^® and Aranesp ^® (when used in dialysis) utilization and appropriate hematocrit outcomes of dialysis patients. This policy, EMP, was revised, effective October 1, 2006, to provide that if a patient’s Hb is greater than 13 g/dL, providers are instructed to reduce the patient’s EPOGEN ^® and Aranesp ^® dose and report this reduction on claims using a coding modifier. If the provider does not reduce the patient’s EPOGEN ^® and Aranesp ^® dose and the provider does not submit medical documentation to support maintaining a patient’s Hb above 13 g/dL, reimbursement will be reduced to the level it would have been had the provider reduced dosage by 25%. On July 20, 2007, CMS published revisions to the EMP, effective January 1, 2008, requiring a 50% reduction in Medicare reimbursement if a patient’s Hb is above 13 g/dL for three or more consecutive months and a reduction of the monthly dosing limits to 400,000 IUs of EPOGEN ^® from 500,000 IUs, and to 1,200 mcgs of Aranesp ^® from 1,500 mcgs.

Changes resulting from the MMA, which beginning in 2005 lowered reimbursement for our products, could negatively affect product sales of some of our marketed products. However, we believe that our product sales for 2005 and 2006 were not significantly impacted by the reimbursement changes resulting from the MMA. While we cannot accurately predict the impact of any such changes on how, or under what circumstances, healthcare providers will prescribe or administer our products and we cannot estimate the full impact of the MMA on our business, we believe that it is likely to be significant to our business in 2007. However, additional provisions of the MMA and other regulations affecting reimbursement that have gone or may go into effect could affect our product sales and related sales growth in the future. For example, the MMA required a demonstration project of a bundled payment system for dialysis, including separately billable drugs and EPOGEN ^® . The demonstration project was scheduled to start in January 2006, but has been delayed with no announced start date. However, the Proposed CHAMP Legislation would bundle payment to large dialysis organizations (“LDOs”) for dialysis services, including but not limited to composite rate services, ESAs, other drugs and labs common in dialysis, and home dialysis training beginning in 2010. The Proposed CHAMP Legislation also requires that aggregate payment be reduced by 4% in 2010, and allows CMS four years to phase in bundling to non-LDO providers. Bundling initiatives that have been implemented in other healthcare settings have resulted in lower utilization of services that had not previously been a part of the bundled payment. Because CMS is continuing to study bundled payments in the ESRD setting, we cannot predict what impact a bundled payments system would have on sales of EPOGEN ^® or Aranesp ^® used in the treatment of persons receiving outpatient dialysis services.

In addition, on December 29, 2006, the Medicare Payment Advisory Commission (“MedPAC”) released its second Congressionally-mandated report on the impact of changes in Medicare payments for Part B Drugs specifically recommending that the Secretary of the Department of Health and Human Services clarify ASP reporting requirements “to ensure that ASP calculations allocate discounts to reflect the transaction price for each drug.” Under the ASP system, the Company allocates its discounts based on the prices paid for individual drugs, according to the terms of its contracts with physicians and other purchasers, and we believe that the resulting ASPs reflect the transaction prices for individual drugs. Referencing MedPAC’s December 2006 report, CMS proposed in the Medicare Physician Fee Schedule Proposed Rule for 2008 revising the methodology for calculating ASP to require the reallocation of price concessions of drugs sold under “bundled arrangements,” described by CMS in part as an arrangement regardless of physical packaging under which the rebate, discount or other price concession is conditioned upon the purchase of the same drug or

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biological or other drugs or biologicals or some other performance requirement. As it is premature to speculate on how CMS will finalize the proposed methodology, we cannot predict the potential impact this revised methodology may have on our business.

Other initiatives reviewing the coverage or reimbursement of our products, including those related to safety, could result in less extensive coverage or lower reimbursement and could negatively affect sales of some of our marketed products. For example, on March 14, 2007, shortly after the label changes for all ESAs, CMS announced that the agency had begun reviewing all Medicare policies related to the administration of ESAs in non-renal disease applications as part of a national coverage analysis (“NCA”) which is generally CMS’ first step toward developing a NCD. Generally, a NCD is a national policy statement granting, limiting or excluding Medicare coverage or reimbursement for a specific medical item or service. During the initial comment period which ended on April 13, 2007, we submitted comments to CMS which included a detailed and thorough review of the available clinical data, noted a series of important considerations and made a number of specific recommendations for the agency to consider in developing a NCD. On May 14, 2007, CMS issued the Proposed NCD following a review of data and public comments submitted as part of the NCA, which under the MMA, was subject to a 30-day public comment period that ended June 13, 2007.

On July 30, 2007, CMS issued its Decision Memorandum which was substantially altered from the Proposed NCD. In the Decision Memorandum, CMS determined that ESA treatment was not reasonable and necessary for certain clinical conditions. These conditions include:

Additionally, in the Decision Memorandum, CMS provides coverage for ESA treatment for the anemia secondary to myelosuppressive anticancer chemotherapy in solid tumors, multiple myeloma, lymphoma, and lymphocytic leukemia under the following criteria:

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Under the provisions of the Decision Memorandum, Medicare contractors may continue to issue local coverage determinations based on the existing Medicare policy of “reasonable and necessary determinations” on all uses of ESAs that are not determined by the NCD, including Myelodysplastic syndrome (“MDS”).

The Decision Memorandum sets the coverage policy for Medicare and other government beneficiaries who account for approximately 50% of cancer patients receiving Aranesp®. We are in continuing discussions with CMS regarding the Decision Memorandum and are in the process of evaluating the impact the Decision Memorandum will have on the use, reimbursement and sales of Aranesp® and currently believe that the majority of cancer patients who receive treatment with Aranesp® are initiated at Hb levels above 10g/dL and maintain Hb levels above 10g/dL with continued therapy. Given that the Decision Memorandum contains a coverage restriction for Hb levels greater than 10g/dL, we believe that such restriction will change the way ESAs are used in clinical practice, for example, by decreasing the number of treated patients, dose and duration of therapy. We expect this restriction on reimbursement of ESAs in the Decision Memorandum would have a material adverse effect on our sales of Aranesp®, and our business and results of operations. Additionally, we believe that the Decision Memorandum may be followed and implemented by some private payers.

In addition, the FDA has stated that it intends to hold a joint meeting of the CRDAC and the Drug Safety and Risk Management Advisory Committee on September 11, 2007, to evaluate the safety data on ESA use in renal disease. We cannot predict what action the FDA may take as a result of such committee meeting or what impact it may have on our sales of our ESAs and on our business. Although the revisions to the EMP made no announcement of a nephrology focused NCA, any NCD for ESAs in the renal setting, which may include non-coverage and/or new dosing and treatment restrictions similar to those proposed in the Proposed NCD for treatment of anemia in oncology with ESAs, would negatively effect use, reduce reimbursement and coverage, negatively affect product sales of our ESA products and may have a material adverse effect on our business and results of operations.

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Further, the Deficit Reduction Act of 2005 (“DRA”) included provisions, which are phased in over time, regarding state collection and submission of data for the purpose of collecting Medicaid drug rebates from manufacturers for physician-administered drugs. We expect that state compliance with elements of these provisions that became effective on January 1, 2006, will increase the level of Medicaid rebates paid by us. We are currently in the process of further evaluating the impact of the DRA and are uncertain as to the potential full impact on our business. Related to this issue, CMS issued a final Medicaid rule on July 6, 2007 that covered a broad range of topics concerning the calculation and use of Average Manufacturer Price (“AMP”) and best price as well as a definition for bundled sales under the Medicaid program. Although it has minor differences, the definition of “bundled sale” under this rule is essentially the same as what CMS proposed under the definition of “bundled price concessions” in the Medicare Physician Fee Schedule Proposed Rule for 2008. Given its recent release, we are in the process of evaluating what impact the final rule will have on our business.

Product sales are influenced by a number of factors, including demand, third-party reimbursement availability and policies, government programs, regulatory developments or guidelines, clinical trial outcomes, clinical practice, pricing strategies, wholesaler and end-user inventory management practices, patient population, fluctuations in foreign currency exchange rates, new product launches and indications, competitive products, product supply and acquisitions.

Product sales growth for the three and six months ended June 30, 2007 was principally driven by increased demand for ENBREL and Neulasta ^® . Total product sales growth for the three and six months ended June 30, 2007 was adversely impacted by Aranesp ^® sales. In particular, for the three months ended June 30, 2007, U.S. Aranesp ^® sales declined 19% primarily reflecting a decrease in demand as a result of customer reaction to certain label and reimbursement changes. International product sales for the

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three and six months ended June 30, 2007 were favorably impacted by $41 million and $83 million, respectively, from foreign currency exchange rate changes. Excluding the favorable impact of foreign currency exchange rate changes, international product sales increased 9% and 12% over the three and six months ended June 30, 2006, respectively.

The decrease in U.S. Aranesp ^® sales for the three and six months ended June 30, 2007 was principally driven by a decline in demand. Additionally, to a lesser degree, U.S. sales were adversely impacted by unfavorable wholesaler inventory changes which were offset by end-user inventory build. The decline in demand primarily reflects customer reaction in the oncology setting to the ESA safety-related label change and the reimbursement change related to the discontinued Medicare reimbursement of Aranesp ^® for use in the treatment of AoC, which occurred primarily in the latter half of the first quarter of 2007, as discussed above in the “Overview” section. The impact of these label and reimbursement changes was not fully reflected in sales in the three months ended March 31, 2007 given the timing of their development.

The increase in international Aranesp ^® sales for the three months ended June 30, 2007 was primarily due to changes in foreign exchange which positively impacted sales by approximately $21 million. Excluding the impact of foreign currency exchange rate changes, international Aranesp ^® sales for the three month period increased 2%. International sales for the three months ended June 30, 2007 also reflect increased demand in the European nephrology segment partially offset by slight dosing conservatism in the European oncology segment. Although we are maintaining our competitive share position in oncology in Europe, the slight dosing conservatism may have been influenced, in part, by recent developments in the United States. The increase in international sales for the six months ended June 30, 2007 was favorably impacted by foreign currency exchange rate changes of $45 million. Excluding the impact of foreign currency exchange rate changes, international Aranesp ^® sales for the six month period increased 8%. International sales for the six months ended June 30, 2007 also reflect certain segment growth and share gains, largely occurring during the first quarter of 2007.

In addition to the factors mentioned in the “ Product sales ” section above, future worldwide Aranesp ^® sales growth will be dependent, in part, on such factors as:

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any or all of which could have a material adverse impact on future sales of Aranesp ^® .

(See “Item 1A. Risk Factors” in Part II herein for further discussion of certain of the above factors that could impact our product sales.)

EPOGEN ^®

For the three and six months ended June 30, 2007 and 2006, total EPOGEN ^® sales were as follows (in millions):

EPOGEN ^® sales for the three and six months ended June 30, 2007 increased primarily due to patient population growth, positive revised estimates of dialysis demand (spillover) for prior quarters (see Note 1, “Summary of significant accounting polices – Product sales ” to the Condensed Consolidated Financial Statements for further discussion), and favorable wholesaler inventory changes, partially offset by changes in customer purchasing patterns. EPOGEN ^® sales for the three months ended June 30, 2007 were also negatively impacted by low single digit decline in dose/utilization.

In addition to the factors mentioned in the “ Product sales ” section above, future EPOGEN ^® sales will be dependent, in part, on such factors as:

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any or all of which could have a material adverse impact on future sales of EPOGEN ^® .

(See “Item 1A. Risk Factors” in Part II herein for further discussion of certain of the above factors that could impact our product sales.)

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The decline in U.S. sales of Neulasta ^® /NEUPOGEN ^® for the three months ended June 30, 2007 primarily reflects unfavorable wholesaler inventory changes and increased sales discounts that offset growth in unit demand. The increase in international Neulasta ^® /NEUPOGEN ^® sales for the three months ended June 30, 2007 was driven by the continued conversion to Neulasta ^® and changes in foreign exchange, which positively impacted second quarter international sales by $16 million. Excluding the favorable impact of foreign currency exchange rate changes, international Neulasta ^® /NEUPOGEN ^® sales increased 15%.

The increase in U.S. Neulasta ^® /NEUPOGEN ^® sales for the six months ended June 30, 2007 was principally driven by demand for Neulasta ^® due to segment growth. Segment growth is attributable to increase in patients, in part, due to the continued increase of Neulasta ^® in first cycle use as well as a higher net sales price. The increase in international Neulasta ^® /NEUPOGEN ^® sales for the six months ended June 30, 2007 was driven by the continued conversion to Neulasta ^® from NEUPOGEN ^® and changes in foreign currency exchange rate changes, which positively impacted the six months ended June 30, 2007 sales by $32 million. Excluding the favorable impact of foreign currency exchange rate changes, international Neulasta ^® /NEUPOGEN ^® sales increased 11%.

For the remainder of 2007, we believe sales growth for Neulasta ^® /NEUPOGEN ^® will depend on patient growth and further segment penetration of Neulasta ^® in the moderate-risk population that would benefit from its use in first and subsequent chemotherapy cycles. NEUPOGEN ^® competes with Neulasta ^® in the United States and Europe. Worldwide NEUPOGEN ^® sales have been adversely impacted by conversion to Neulasta ^® . However, we believe that most of the conversion in the United States and Europe has occurred.

In addition to the factors mentioned in the “ Product sales ” section above, future worldwide Neulasta ^® /NEUPOGEN ^® sales growth will be dependent, in part, on such factors as:

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(See “Item 1A. Risk Factors” in Part II herein for further discussion of certain of the above factors that could impact our product sales.)

ENBREL sales growth for the three and six months ended June 30, 2007 was driven by demand due to increases in both patients and net sales price. While ENBREL continued to maintain a leading position in both rheumatology and dermatology, the sales growth during the three and six months ended June 30, 2007 was affected by slight share declines in the United States in both segments versus the corresponding prior year periods due to increased competitive activity.

We believe sales growth for the remainder of 2007 will be principally driven by growth in the rheumatology and dermatology segments.

In addition to the factors mentioned in the “ Product sales ” section above, future worldwide ENBREL sales growth will be dependent, in part, on such factors as:

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(See “Item 1A. Risk Factors” in Part II herein for further discussion of certain of the above factors that could impact our product sales.)

Selected operating expenses

The following table summarizes selected operating expenses for the three and six months ended June 30, 2007 and 2006 (in millions):