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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-12477
AMGEN INC.
(Exact name of registrant as specified in its charter)
Delaware 95-3540776
------------------------------- -----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1840 DeHavilland Drive, Thousand Oaks, California 91320-1789
---------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (805) 447-1000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
As of September 30, 1997, the registrant had 263,197,006 shares of
Common Stock, $.0001 par value, outstanding.
AMGEN INC.
INDEX
Page No.
PART I FINANCIAL INFORMATION
Item 1.Financial Statements .......................3
Condensed Consolidated Statements of
Operations - three and nine months
ended September 30, 1997 and 1996 ...............4
Condensed Consolidated Balance Sheets -
September 30, 1997 and December 31, 1996 ........5
Condensed Consolidated Statements of
Cash Flows - nine months
ended September 30, 1997 and 1996 .............6-7
Notes to Condensed Consolidated Financial
Statements ...................................8-16
Item 2.Management's Discussion and Analysis
of Financial Condition and Results of
Operations .............................16-22
PART II OTHER INFORMATION
Item 1.Legal Proceedings ......................22-24
Item 6.Exhibits and Reports on Form 8-K ..........24
Signatures........................................25
Index to Exhibits.................................26
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The information in this report for the three and nine months
ended September 30, 1997 and 1996 is unaudited but includes all
adjustments (consisting only of normal recurring accruals) which
Amgen Inc. ("Amgen" or the "Company") considers necessary for a fair
presentation of the results of operations for those periods.
The condensed consolidated financial statements should be read
in conjunction with the Company's financial statements and the notes
thereto contained in the Company's Annual Report on Form 10-K for the
year ended December 31, 1996.
Interim results are not necessarily indicative of results for
the full fiscal year.
3
AMGEN INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
-------- -------- -------- --------
Revenues:
Product sales ............... $552.8 $533.3 $1,655.5 $1,529.1
Corporate partner revenues .. 30.8 23.1 98.2 86.9
Royalty income .............. 14.7 10.6 40.6 30.3
------ ------ -------- --------
Total revenues ............ 598.3 567.0 1,794.3 1,646.3
------ ------ -------- --------
Operating expenses:
Cost of Sales ............... 74.3 73.1 223.1 208.3
Research and development .... 172.6 130.4 465.7 384.6
Marketing and selling ....... 73.2 76.4 223.1 222.5
General and administrative .. 46.2 42.1 134.3 119.1
Loss of affiliates, net ..... 4.1 11.3 24.7 39.5
Legal assessment ............ 157.0 - 157.0 -
------ ------ -------- --------
Total operating expenses .... 527.4 333.3 1,227.9 974.0
------ ------ -------- --------
Operating income ............. 70.9 233.7 566.4 672.3
------ ------ -------- --------
Other income (expense):
Interest and other income ... 17.5 16.8 51.4 48.0
Interest expense, net ....... (0.1) (1.2) (0.8) (5.2)
------ ------ -------- --------
Total other income
(expense) ................ 17.4 15.6 50.6 42.8
------ ------ -------- --------
Income before income taxes ... 88.3 249.3 617.0 715.1
Provision for income taxes ... 4.5 69.8 152.4 213.3
------ ------ -------- --------
Net income ................... $ 83.8 $179.5 $ 464.6 $ 501.8
====== ====== ======== ========
Earnings per share:
Primary ..................... $0.31 $0.64 $1.68 $1.78
Fully diluted ............... $0.31 $0.64 $1.68 $1.78
Shares used in calculation
of earnings per share:
Primary ..................... 273.9 279.4 276.1 281.3
Fully diluted ............... 273.9 280.8 276.1 282.3
See accompanying notes.
4
AMGEN INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except per share data)
(Unaudited)
September 30, December 31,
1997 1996
-------- --------
ASSETS
Current assets:
Cash and cash equivalents ............... $ 239.9 $ 169.3
Marketable securities ................... 861.8 907.7
Trade receivables, net .................. 235.5 225.4
Inventories ............................. 110.5 97.4
Other current assets .................... 78.3 102.8
-------- --------
Total current assets................. 1,526.0 1,502.6
Property, plant and equipment at cost, net 1,111.8 910.5
Investments in affiliated companies....... 116.7 109.6
Other assets.............................. 247.9 242.9
-------- --------
$3,002.4 $2,765.6
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................ $ 71.5 $ 75.0
Accrued liabilities ..................... 532.5 449.7
Current portion of long-term debt ....... 30.0 118.2
-------- --------
Total current liabilities............ 634.0 642.9
Long-term debt............................ 129.0 59.0
Put warrants.............................. - 157.4
Commitments and contingencies
Stockholders' equity:
Common stock, and additional paid-in
capital; $.0001 par value; 750 shares
authorized; outstanding - 263.2 shares
in 1997 and 264.7 shares in 1996 ...... 1,154.5 1,026.9
Retained earnings ....................... 1,084.9 879.4
-------- --------
Total stockholders' equity........... 2,239.4 1,906.3
-------- --------
$3,002.4 $2,765.6
======== ========
See accompanying notes.
5
AMGEN INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
Nine Months Ended
September 30,
1997 1996
------ ------
Cash flows from operating activities:
Net income ................................... $ 464.6 $501.8
Depreciation and amortization ................ 95.7 79.8
Loss of affiliates, net ...................... 24.7 39.5
Cash provided by (used in):
Trade receivables, net ...................... (10.1) (7.9)
Inventories ................................. (13.1) (2.2)
Other current assets ........................ 24.5 2.0
Accounts payable ............................ (3.5) (12.7)
Accrued liabilities ......................... 82.8 (54.6)
------- ------
Net cash provided by operating activities 665.6 545.7
------- ------
Cash flows from investing activities:
Purchases of property, plant and equipment ... (292.0) (167.6)
Proceeds from maturities of marketable
securities ................................. 184.3 135.2
Proceeds from sales of marketable securities . 543.7 603.6
Purchases of marketable securities ........... (682.1) (522.3)
Increase in investments in affiliated
companies .................................. (3.2) (10.2)
Increase in other assets ..................... (5.0) (66.0)
------- ------
Net cash used in investing activities ..... $(254.3) $(27.3)
------- ------
See accompanying notes.
(Continued on next page)
6
AMGEN INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In millions)
(Unaudited)
Nine Months Ended
September 30,
1997 1996
------ -------
Cash flows from financing activities:
Repayment of long-term debt ................... $(118.2) $ -
Proceeds from issuance of long-term debt ...... 100.0 -
Decrease in commercial paper .................. - (69.7)
Net proceeds from issuance of common
stock upon the exercise of stock options .... 90.8 76.9
Tax benefits related to stock options ......... 36.8 21.5
Repurchases of common stock ................... (416.5) (346.8)
Other ......................................... (33.6) (40.0)
------- ------
Net cash used in financing activities ....... (340.7) (358.1)
------- ------
Increase in cash and cash equivalents .......... 70.6 160.3
Cash and cash equivalents at beginning of
period ....................................... 169.3 66.7
------- ------
Cash and cash equivalents at end of period ..... $ 239.9 $227.0
======= ======
See accompanying notes.
7
AMGEN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
1. Summary of significant accounting policies
Business
Amgen Inc. ("Amgen" or the "Company") is a global biotechnology
company that discovers, develops, manufactures and markets human
therapeutics based on advances in cellular and molecular biology.
Principles of consolidation
The consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries as well as affiliated
companies for which the Company has a controlling financial interest
and exercises control over their operations ("majority controlled
affiliates"). All material intercompany transactions and balances
have been eliminated in consolidation. Investments in affiliated
companies which are 50% or less owned and where the Company exercises
significant influence over operations are accounted for using the
equity method. All other equity investments are accounted for under
the cost method. The caption "Loss of affiliates, net" includes
Amgen's equity in the operating results of affiliated companies and
the minority interest others hold in the operating results of Amgen's
majority controlled affiliates.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined in a manner which approximates the first-in, first-out
(FIFO) method. Inventories are shown net of applicable reserves and
allowances. Inventories consist of the following (in millions):
September 30, December 31,
1997 1996
------ -------
Raw materials ...... $ 15.9 $15.9
Work in process .... 48.6 56.2
Finished goods ..... 46.0 25.3
------ -----
$110.5 $97.4
====== =====
Product sales
Product sales consist of two products, EPOGEN(R) (Epoetin alfa),
NEUPOGEN(R) (Filgrastim).
Quarterly NEUPOGEN(R) sales volume in the United States is
influenced by a number of factors including underlying demand and
8
wholesaler inventory management practices. Wholesaler inventory
reductions tend to reduce domestic NEUPOGEN(R) sales in the first
quarter each year. In addition, the discretionary aspects of some
cancer chemotherapy administration has had a slight seasonal effect
on NEUPOGEN(R) sales.
The Company has the exclusive right to sell Epoetin alfa for
dialysis, diagnostics and all non-human uses in the United States.
The Company sells Epoetin alfa under the brand name EPOGEN(R). Amgen
has granted to Ortho Pharmaceutical Corporation, a subsidiary of
Johnson & Johnson ("Johnson & Johnson"), a license relating to
Epoetin alfa for sales in the United States for all human uses except
dialysis and diagnostics. Pursuant to this license, Amgen does not
recognize product sales it makes into the exclusive market of Johnson
& Johnson and does recognize the product sales made by Johnson &
Johnson into Amgen's exclusive market. These sales amounts, and
adjustments thereto, are derived from Company shipments and from
third-party data on shipments to end users and their usage (see Note
4, "Contingencies - Johnson & Johnson arbitrations").
Foreign currency transactions
The Company has a program to manage foreign currency risk. As
part of this program, it has purchased foreign currency option and
forward contracts to hedge against possible reductions in values of
certain anticipated foreign currency cash flows generally over the
next 12 months, primarily resulting from its sales in Europe. At
September 30, 1997, the Company had option and forward contracts to
exchange foreign currencies for U.S. dollars of $49.1 million and
$15.2 million, respectively, all having maturities of nine months or
less. The option contracts, which have only nominal intrinsic value
at the time of purchase, are designated and effective as hedges of
anticipated foreign currency transactions for financial reporting
purposes, and accordingly, the net gains on such contracts are
deferred and will be recognized in the same period as the hedged
transactions. The forward contracts do not qualify as hedges for
financial reporting purposes, and accordingly, are marked-to-market.
Net gains on option contracts (including option contracts for hedged
transactions whose occurrence are no longer probable) and changes in
market values of forward contracts are reflected in interest and
other income. The deferred premiums on option contracts and fair
values of forward contracts are included in other current assets.
The Company has additional foreign currency forward contracts to
hedge exposures to foreign currency fluctuations of certain
receivables and payables denominated in foreign currencies. At
September 30, 1997, the Company had forward contracts to exchange
foreign currencies, primarily Swiss francs, for U.S. dollars of $62.9
million, all having maturities of eight months or less. These
contracts are designated and effective as hedges, and accordingly,
gains and losses on these forward contracts are recognized in the
same period the offsetting gains and losses of hedged assets and
liabilities are realized and recognized. The fair values of the
forward contracts are included in the corresponding captions of the
hedged assets and liabilities. Gains and losses on forward
9
contracts, to the extent they differ in amount from the hedged
receivables and payables, are included in interest and other income.
Income taxes
Income taxes are accounted for in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109 (Note 3).
Stock option and purchase plans
The Company's stock options and purchase plans are accounted for
under Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees".
Earnings per share
Primary and fully diluted earnings per share are based upon the
weighted average number of common shares and dilutive common stock
equivalents during the period in which they were outstanding. Common
stock equivalents are outstanding options under the Company's stock
option plans which are included in the earnings per share computation
under the treasury stock method. Put warrants on the Company's
common stock may also be dilutive and included in earnings per share
under the reverse treasury stock method.
In February 1997, SFAS No. 128, "Earnings Per Share" was issued
and is required to be adopted on December 31, 1997. At that time,
the Company will be required to change the method currently used to
compute earnings per share and to restate all prior periods. Under
the new requirements, primary and fully diluted earnings per share
will be replaced with basic and diluted earnings per share. Basic
earnings per share excludes the dilutive effect of stock options and
will therefore be higher than primary earnings per share. Basic
earnings per share for the three and nine months ended September 30,
1997 were $.32 and $1.75, respectively. Basic earnings per share for
the three and nine months ended September 30, 1996 were $.68 and
$1.89, respectively. Diluted earnings per share under the new
standard is expected to be essentially the same as primary earnings
per share amounts calculated under principles currently used.
Use of estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results may
differ from those estimates.
Basis of presentation
The financial information for the three and nine months ended
September 30, 1997 and 1996 is unaudited but includes all adjustments
(consisting only of normal recurring accruals) which the Company
considers necessary for a fair presentation of the results of
operations for these periods. Interim results are not necessarily
indicative of results for the full fiscal year.
10
Reclassification
Certain prior period amounts have been reclassified to conform
to the current period presentation.
2. Debt
During the nine months ended September 30, 1997, the Company
repaid $118.2 million of maturing debt consisting of $68.2 million of
promissory notes and $50 million of debt securities.
Long-term debt consists of the following (in millions):
September 30, December 31,
1997 1996
-------- --------
Debt securities ........... $159.0 $109.0
Promissory notes .......... - 68.2
------ ------
159.0 177.2
Less current portion ...... (30.0) (118.2)
------ ------
$129.0 $ 59.0
====== ======
At September 30, 1997, the Company had $159 million of unsecured
debt outstanding. Of this total, $100 million are debt securities
which bear interest at a fixed rate of 8.1% and mature on April 1,
2097. These debt securities may be redeemed in whole or in part at
the Company's option at any time for a redemption price equal to the
greater of the principal amount to be redeemed or the sum of the
present values of the principal and remaining interest payments
discounted at a determined rate plus, in each case, accrued interest.
These securities place limitations on liens and sale/leaseback
transactions. The remaining $59 million of debt securities bear
interest at fixed rates averaging 5.8% and mature in approximately
one to six years.
At September 30, 1997, $150 million was available under the
Company's line of credit for borrowing and to support the Company's
commercial paper program. No borrowings on this line of credit were
outstanding at September 30, 1997.
11
3. Income taxes
The provision (benefit) for income taxes consists of the
following (in millions):
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
------ ------ ------ ------
Federal(including
U.S. possessions)... $8.2 $64.9 $145.6 $195.0
State ................ (3.7) 4.9 6.8 18.3
---- ----- ------ ------
$4.5 $69.8 $152.4 $213.3
==== ===== ====== ======
The decrease in the effective tax rate in the current year is
primarily the result of reduced pretax income due to the legal
assessment recorded in the third quarter of 1997 (see Note 4,
"Contingencies - Johnson & Johnson arbitrations") without a
corresponding reduction in tax benefits related to Puerto Rican
operations. The current year tax rate also benefited from the
extension of the federal research and experimentation tax credit
enacted during the third quarter of 1997. Tax rates have been
reduced during the last five quarters due to a favorable ruling
received in the third quarter of 1996 from the Puerto Rican
government with respect to tollgate taxes applicable to earnings in
Puerto Rico.
4. Contingencies
Johnson & Johnson arbitrations
In September 1985, the Company granted Johnson & Johnson a
license relating to certain patented technology and know-how of the
Company to sell a genetically engineered form of recombinant human
erythropoietin, called Epoetin alfa, throughout the United States for
all human uses except dialysis and diagnostics. Johnson & Johnson
sells Epoetin alfa under the brand name PROCRIT(R). A number of
disputes have arisen between Amgen and Johnson & Johnson as to their
respective rights and obligations under the various agreements
between them, including the agreement granting the license (the
"License Agreement").
A dispute between Amgen and Johnson & Johnson that is the
subject of a current arbitration proceeding relates to the audit
methodology currently employed by the Company for Epoetin alfa sales.
The Company and Johnson & Johnson are required to compensate each
other for Epoetin alfa sales which either party makes into the other
party's exclusive market. The Company has established and is
employing an audit methodology to assign the proceeds of sales of
EPOGEN(R) and PROCRIT in the Company's and Johnson & Johnson's
respective exclusive markets. In March 1996, an arbitration hearing
commenced regarding the audit methodologies and compensation for
sales by Johnson & Johnson into the Company's exclusive market
12
(dialysis) and sales by the Company into Johnson & Johnson's
exclusive market (non-dialysis). Spillover occurs when a hospital or
other purchaser buys one brand for use in both dialysis and non-
dialysis. On September 12, 1997, the arbitrator in this matter (the
"Arbitrator") issued an opinion adopting the Company's audit
methodology. For the free standing dialysis center segment of the
Epoetin alfa market, which accounts for about two-thirds of the
Company's EPOGEN sales, the Arbitrator ruled that the Company's audit
accurately determined that all Epoetin alfa sales to free standing
dialysis centers are made for dialysis. For the other segments of
the Epoetin alfa market, the Arbitrator ruled that the detailed
methodology used by Amgen accurately measured and allocated Epoetin
alfa sales for all but the Hospital and Home Health Care segments,
for which he ordered certain adjustments to the results of the audit
for the specified time periods. The Arbitrator also ruled that no
payments are due for the 1989-90 period. Subject to further guidance
from the Arbitrator to clarify his opinion, the Company estimated
that the effect of the opinion would be a net spillover payment to
Johnson & Johnson which, after benefit of income tax effects, was $78
million for the 1991-94 period and interest in the amount of $18
million after tax. As a result of the opinion, the Company took a
charge in its third quarter for the spillover payment and interest of
$0.35 per share.
Johnson & Johnson asserted that the Company owes more for the
1991-94 period than the Company calculated for that period. A hearing
before the Arbitrator was held on October 27, 1997 to clarify, among
other issues, the calculation for the amount of the spillover payment
due to Johnson & Johnson for the 1991-94 time period. As a result of
that hearing, the Company will pay an additional amount to Johnson &
Johnson for the 1991-94 period which is covered by amounts previously
provided for by the Company. Further rulings clarifying the
Company's entitlement to attorney's fees and costs and audit costs as
well as the calculation of spillover payments, if any, that may be
due to the Company or Johnson & Johnson for 1995, 1996 and 1997 will
be sought by the parties before a final order is issued. Pending
determination by the Arbitrator, the Company has not taken any
benefit for the possible recovery of attorneys' fees and costs or
audit costs and has retained spillover reserves. Johnson & Johnson
also disputes the Company's entitlement to reimbursement for
attorneys' fees and costs or audit costs. Accordingly, there can be
no assurance that the Arbitrator will award such reimbursement.
If, as a result of these further arbitration rulings, any
adjustments to the results of the Company's audit yield results that
are different from the results of the audit currently employed by the
Company, the Company may be required to pay additional compensation
to Johnson & Johnson for sales during 1995, 1996 and 1997, or Johnson
& Johnson may be required to pay compensation to the Company for such
prior period sales.
The Company has filed a demand in the arbitration to terminate
Johnson & Johnson's rights under the License Agreement and to recover
damages for breach of the License Agreement. Johnson & Johnson
disputes Arbitrator McGarr's jurisdiction to decide the Company's
demand. A hearing before Arbitrator McGarr on the Company's demand
13
will be scheduled following his adjudication of the audit
methodologies for Epoetin alfa sales.
On October 2, 1995, Johnson & Johnson filed a demand for a
separate arbitration proceeding against the Company before the
American Arbitration Association ("AAA") in Chicago, Illinois.
Johnson & Johnson alleges in this demand that the Company has
breached the License Agreement. The demand also includes allegations
of various antitrust violations. In this demand, Johnson & Johnson
seeks an injunction, declaratory relief, unspecified compensatory
damages, punitive damages and costs. On October 27, 1995, the
Company filed a complaint in the Circuit Court of Cook County,
Illinois seeking an order compelling Johnson & Johnson to arbitrate
the Company's claim for termination before Arbitrator McGarr as well
as all related counterclaims asserted in Johnson & Johnson's October
2, 1995 AAA arbitration demand. The Company is unable to predict at
this time the outcome of the demand for termination or when it will
be resolved. The Company has filed a motion to stay the AAA
arbitration pending the outcome of the existing arbitration
proceedings before Judicial Arbitration and Mediation Services, Inc.
discussed above. The Company has also filed an answer and
counterclaim denying that AAA has jurisdiction to hear or decide the
claims stated in the demand, denying the allegations in the demand
and counter claiming for certain unpaid invoices.
On June 5, 1997, Ortho Biotech, Inc., a Johnson & Johnson
affiliate, filed a demand for arbitration against Kirin-Amgen, Inc.
("Kirin-Amgen"), before the American Arbitration Association ("AAA").
The demand alleges that Amgen's novel erythropoiesis stimulating
protein ("NESP") is covered by a license granted by Kirin-Amgen to
Ortho Pharmaceutical Corporation in 1985 for the development,
manufacture and sale of Epoetin alfa in certain territories outside
the United States, Japan and China. In 1996 Kirin-Amgen acquired
exclusive worldwide rights in NESP from Amgen. Kirin-Amgen, in turn,
transferred certain rights in NESP to Kirin and certain rights to
Amgen. Ortho Biotech alleges that Ortho Pharmaceutical's 1985
license agreement with Kirin-Amgen effectively grants Ortho Biotech
the same right to develop, manufacture and sell NESP as Kirin-Amgen
previously granted to Ortho Pharmaceutical in 1985 for the
development, manufacture and sale of Epoetin alfa. On June 20, 1997
Kirin-Amgen initiated suit in the Circuit Court of Cook County,
Illinois seeking a judicial determination of Ortho Biotech's standing
to seek arbitration of claims under Kirin-Amgen's 1985 license
agreement with Ortho Pharmaceutical. At the same time, Kirin-Amgen
filed a motion with AAA to dismiss or stay the arbitration pending
judicial resolution of Ortho Biotech's standing to arbitrate claims
under Kirin-Amgen's license agreement with Ortho Pharmaceutical.
Synergen ANTRIL(TM) litigation
Lawsuits have been filed against the Company's wholly-owned
subsidiary, Amgen Boulder Inc. (formerly Synergen, Inc.), alleging
misrepresentations in connection with Synergen's research and
development of ANTRIL(TM) for the treatment of sepsis. One suit,
filed by a limited partner of the partnership with which Amgen
Boulder Inc. is affiliated, has been certified as a class action.
14
That suit seeks rescission of certain payments made by the limited
partners to the partnership (or unspecified damages not less than $52
million) and treble damages based on a variety of allegations
relating to state and federal law claims. The plaintiffs in that
suit also have filed a second amended complaint alleging violations
of federal securities laws. In August and September 1996, the
parties filed cross-motions for summary judgement. The Court heard
argument on November 1, 1996. Since then, the parties'
representatives have reached a tentative settlement agreement which
is subject to final approval by the Court and the approval of the
limited partners of the partnership. Under its terms, the
plaintiffs, who include present limited partners of the partnership,
will receive $14.5 million in exchange for the transfer of ownership
of their units; the suit will be dismissed with prejudice and the
parties will exchange mutual releases.
FoxMeyer Health Corporation
On January 10, 1997, FoxMeyer Health Corporation, now known as
Avatex Corporation ("Avatex"), filed suit (the "FoxMeyer Lawsuit") in
the District Court of Dallas County, Dallas, Texas, alleging that
defendant McKesson Corporation ("McKesson") defrauded Avatex, misused
confidential information received from Avatex about subsidiaries of
Avatex (FoxMeyer Corporation and FoxMeyer Drug Corporation,
collectively the "FoxMeyer Subsidiaries"), and attempted to
monopolize the market for pharmaceutical and health care product
distribution by attempting to injure or destroy the FoxMeyer
Subsidiaries. The Company is named as one of twelve "Manufacturer
Defendants" alleged to have conspired with McKesson Corporation in
doing, among other things, the above and (i) inducing Avatex to
refrain from seeking other suitable purchasers for the FoxMeyer
Subsidiaries and (ii) causing Avatex to believe that McKesson was
serious about purchasing Avatex's assets at fair value, when, in
fact, McKesson was not. The Manufacturer Defendants and McKesson are
also alleged to have intentionally and tortiously interfered with a
number of business expectancies and opportunities. The complaint
seeks from the Manufacturer Defendants and McKesson compensatory
damages of at least $400 million and punitive damages in an
unspecified amount, as well as Avatex's costs and attorney's fees.
The Company has filed an answer denying Avatex's allegations. The
matter has been transferred to the Federal Bankruptcy Court in
Dallas, Texas (the "Texas Bankruptcy Court"). The Manufacturer
Defendants subsequently sought to transfer the matter to the Federal
Bankruptcy Court in Delaware (the "Delaware Bankruptcy Court"), where
the FoxMeyer Subsidiaries' Chapter 7 bankruptcy action is pending.
The Company is a creditor in such bankruptcy proceeding. On August
27, 1997, the Texas Bankruptcy Court denied the motion to transfer
venue to the Delaware Bankruptcy Court, but decided that it would
adhere to any decision made by the Delaware Bankruptcy Court
regarding, among other things, ownership of claims asserted by
Avatex, as described below. McKesson and the Manufacturer
Defendant's have intervened in an action brought by the Chapter 7
trustee in the Delaware Bankruptcy Court that seeks to enjoin the
FoxMeyer Lawsuit and have moved for partial summary judgment in that
proceeding, asserting that Avatex is not the owner of the alleged
causes of action. To date, no discovery has occurred in either the
15
Texas Bankruptcy Court adversary proceedings or the Delaware
Bankruptcy Court adversary proceeding for injunction.
While it is not possible to predict accurately or determine the
eventual outcome of the above described legal matters or various
other legal proceedings (including patent disputes) involving Amgen,
the Company believes that the outcome of these proceedings will not
have a material adverse effect on its financial statements.
5. Stockholders' equity
During the nine months ended September 30, 1997, the Company
repurchased 7.4 million shares of its common stock at a total cost of
$416.5 million which substantially completed the $450 million amount
authorized for 1997 under its common stock repurchase program. In
October 1997, the Board of Directors authorized the Company to
repurchase up to an additional $1 billion of common stock through
December 31, 1998. Stock repurchased under the program is retired.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
Cash provided by operating activities has been and is expected
to continue to be the Company's primary source of funds. During the
nine months ended September 30, 1997, operations provided $665.6
million of cash compared with $545.7 million during the same period
last year. The Company had cash, cash equivalents and marketable
securities of $1,101.7 million at September 30, 1997, compared with
$1,077 million at December 31, 1996.
Capital expenditures totaled $292 million for the nine months
ended September 30, 1997, compared with $167.6 million for the same
period a year ago. The Company anticipates spending approximately
$350 million to $400 million on capital projects and equipment to
expand the Company's global operations in 1997. Thereafter over the
next few years, capital expenditures are expected to average
approximately $350-$450 million per year.
The Company receives cash from the exercise of employee stock
options. During the nine months ended September 30, 1997, stock
options and their related tax benefits provided $127.6 million of
cash compared with $98.4 million for the same period last year.
Proceeds from the exercise of stock options and their related tax
benefits will vary from period to period based upon, among other
factors, fluctuations in the market value of the Company's stock
relative to the exercise price of such options.
The Company has a stock repurchase program primarily to offset
the dilutive effect of its employee stock option and stock purchase
plans. During the nine months ended September 30, 1997, the Company
purchased 7.4 million shares of its common stock at a cost of $416.5
16
million compared with 6.1 million shares purchased at a cost of
$346.8 million during the same period last year. In October 1997,
the Board of Directors authorized the Company to repurchase up to $1
billion of common stock through December 31, 1998. During the
remainder of 1997, the Company expects to complete the $450 million
previously authorized for 1997 repurchases and to utilize a portion
of the additional $1 billion recently authorized for the repurchase
program.
During the nine months ended September 30, 1997, the Company
repaid $118.2 million of maturing debt consisting of $68.2 million of
promissory notes and $50 million of debt securities. At September
30, 1997, the Company had $159 million of unsecured debt outstanding.
Of this total, $59 million bears interest at fixed rates averaging
5.8% and matures in approximately one to six years. In April 1997,
the Company issued $100 million of debt securities which bear
interest at a fixed rate of 8.1% and mature on April 1, 2097. These
debt securities were issued to refinance a portion of debt that has
matured in 1997.
The Company also has sources of debt financing in order to
provide for financial flexibility and increased liquidity. The
Company has a commercial paper program which provides for short-term
borrowings up to an aggregate face amount of $200 million. The
Company also has a $150 million revolving line of credit for
borrowings and to support the commercial paper program. As of
September 30, 1997, no amounts were outstanding under either source.
The primary objectives for the Company's investment portfolio
are liquidity and safety of principal. Investments are made to
achieve the highest rate of return to the Company, consistent with
these two objectives. The Company's investment policy limits
investments to certain types of instruments issued by institutions
with investment grade credit ratings and places restrictions on
maturities and concentration by type and issuer. The Company invests
its excess cash in securities with varying maturities to meet
projected cash needs.
The Company believes that existing funds, cash generated from
operations and existing sources of debt financing are adequate to
satisfy its working capital and capital expenditure requirements for
the foreseeable future. However, the Company may raise additional
capital from time to time.
Results of Operations
Product sales
Product sales increased 4% and 8% for the three and nine months
ended September 30, 1997, respectively, compared with the same
periods last year.
NEUPOGEN(R) (Filgrastim)
Worldwide NEUPOGEN(R) sales were $267.9 million and $784.1
million for the three and nine months ended September 30, 1997,
17
respectively. These amounts represent increases of $9.1 million and
$37.8 million or 4% and 5%, respectively, over the same periods last
year. These increases are primarily due to demand growth, higher
prices and the favorable effects of wholesaler buying patterns.
Unfavorable foreign currency effects and European Union ("EU")
government initiatives to lower health care expenditures reduced
growth in EU sales. In addition, the Company believes that the use
of protease inhibitors as a treatment for AIDS has reduced sales of
NEUPOGEN(R) for off-label use as a supportive therapy in this
setting. NEUPOGEN(R) is not approved or promoted for such use,
except in Australia and Canada.
Quarterly NEUPOGEN(R) sales volume in the United States is
influenced by a number of factors including underlying demand and
wholesaler inventory management practices. Wholesaler inventory
reductions tend to reduce domestic NEUPOGEN(R) sales in the first
quarter each year. In addition, the discretionary aspects of some
cancer chemotherapy administration has had a slight seasonal effect
on NEUPOGEN(R) sales.
Cost containment pressures in the health care marketplace have
contributed to the slowing of growth in domestic NEUPOGEN(R) usage
over the past several years. These pressures are expected to
continue to influence such growth for the foreseeable future.
The growth of the colony stimulating factor ("CSF") market in
the EU in which NEUPOGEN(R) competes has slowed, principally due to
EU government pressures on physician prescribing practices in
response to on-going government initiatives to reduce health care
expenditures. Additionally, the Company faces competition from
another granulocyte CSF product. Although the Company's CSF market
share in the EU has remained relatively constant over the last
several quarters, the Company does not expect the competitive
intensity to subside in the near future.
EPOGEN(R) (Epoetin alfa)
EPOGEN(R) sales were $284.9 million and $871.4 million for the
three and nine months ended September 30, 1997, respectively. These
amounts represent increases of $10.4 million and $88.6 million or 4%
and 11%, respectively, over the same periods last year. For the nine
months ended September 30, 1997, the increase was primarily due to
continued increases in the U.S. dialysis patient population.
Although sales for the three months ended September 30, 1997
benefited from increases in the U.S. dialysis patient population,
EPOGEN(R) sales during this period continued to be adversely affected
by reimbursement changes implemented on September 1, 1997 by the
Health Care Finance Administration ("HCFA"). Prior to these changes,
Fiscal Intermediaries under contract to HCFA were authorized to pay
reimbursement claims for patients whose hematocrits were above the
FDA approved level of 36 percent with adequate medical justification.
Under the new rules, medical justification will no longer be accepted
for payment of claims above 36 percent, and reimbursement will be
denied if the current month's hematocrit is 36 or above and the
patient's hematocrit exceeds 36.5 percent on an historical 90-day
"rolling average" basis. It has been and remains difficult to
18
predict EPOGEN(R) usage under this policy because individual patient
hematocrit variability is high, the timing and nature of dialysis
center actions varies widely, and the twice postponed implementation
date has lengthened the duration of the implementation period.
Beginning in the second quarter of 1997, the Company experienced and
continues to experience an impact on EPOGEN(R) sales of lowered and
withheld doses as some dialysis providers attempt to reduce
hematocrits to avoid or minimize future claim denials. The Company
anticipates that because patient hematocrits can vary significantly
from month to month, physicians will continue to administer lowered
doses and withhold doses to maintain hematocrits at a level which, in
their judgment, is sufficiently low to avoid or minimize claim
denials. Amgen is aggressively providing information and guidance to
dialysis providers on changes in their practices to both maximize
patient outcomes to the greatest extent permitted by the new policy
and to avoid or minimize the potential that claims will be denied.
It is not possible to predict which practices will be adopted by each
dialysis center or when they will do so.
Corporate partner revenues
Corporate partner revenues increased by $7.7 million and $11.3
million, or 33% and 13%, during the three and nine months ended
September 30, 1997, respectively, compared with the same periods last
year. These increases are primarily due to increased revenues from
Yamanouchi Pharmaceutical Co., Ltd.
Cost of sales
Cost of sales as a percentage of product sales was 13.4% and
13.5% for the three and nine months ended September 30, 1997,
respectively, compared to 13.7% and 13.6% for the same periods last
year. In 1997, cost of sales as a percentage of product sales is
expected to range from 13%-14% reflecting continuing efficiencies of
the Puerto Rican operations.
Research and development
During the three and nine months ended September 30, 1997,
research and development expenses increased $42.2 million and $81.1
million, or 32% and 21%, respectively, compared with the same periods
last year. These increases are primarily due to higher clinical and
pre-clinical activities, including staff-related expenses, necessary
to support ongoing product development activities, and in the third
quarter of 1997, a $15 million initial payment to Guilford
Pharmaceuticals pursuant to a licensing agreement. In 1997, research
and development expenses are expected to increase at a rate exceeding
the Company's product sales growth rate. This increase is planned
for internal efforts on development of product candidates, for
discovery, and for licensing efforts.
Marketing and selling/General and administrative
Marketing and selling expenses decreased $3.2 million, or 4%,
and increased $0.6 million, or 0.3%, during the three and nine months
ended September 30, 1997, respectively, compared with the same
19
periods last year. The three and nine month periods both benefited
from lower European marketing expenses resulting from the favorable
effects of foreign currency exchange rates and lower expenses related
to the Johnson & Johnson arbitration. These reductions were
partially or fully offset by higher staff-related costs and higher
outside marketing expenses.
General and administrative expenses increased $4.1 million and
$15.2 million, or 10% and 13%, respectively, during the three and
nine months ended September 30, 1997 compared with the same periods
last year. These increases were primarily due to higher staff-
related expenses.
In 1997, marketing and selling expenses combined with general
and administrative expenses are expected to have an aggregate annual
growth rate lower than the anticipated annual product sales growth
rate due in part to the favorable impact of foreign currency exchange
rates on European expenses and reduced expenses related to the
Johnson & Johnson arbitration.
Legal assessment
During the three months ended September 30, 1997, the Company
recorded a pre-tax charge of $157 million relating to a spillover
arbitration award to Johnson & Johnson. See Note 4 to the Condensed
Consolidated Financial Statements - "Johnson & Johnson arbitrations".
Interest and other income
Interest and other income increased $0.7 million and $3.4
million, or 4% and 7%, respectively, during the three and nine months
ended September 30, 1997 compared with the same periods last year.
The increases are principally due to higher income from the Company's
investment portfolio and gains on foreign currency denominated
contracts, and are partially offset by certain non-operating
expenses. Interest and other income is expected to fluctuate from
period to period primarily due to changes in cash balances and
interest rates.
Income taxes
The Company's effective tax rates for the three and nine months
ended September 30, 1997 was 5.1% and 24.7% compared with 28% and
29.8%, respectively, for the same periods last year. These decreases
are primarily the result of reduced pretax income due to the legal
assessment recorded in the third quarter of 1997 (see "--Legal
assessment") without a corresponding reduction in tax benefits
related to Puerto Rican operations. The rates for the 1997 periods
also benefited from the extension of the federal research and
experimentation tax credit enacted during the third quarter of 1997.
Tax rates have been reduced during the last five quarters due to a
favorable ruling received in the third quarter of 1996 from the
Puerto Rican government with respect to tollgate taxes applicable to
earnings in Puerto Rico. In 1998, the Company expects the tax rate
to increase to approximately 30%, due to a change in the U.S. federal
20
tax law which limits the tax benefits related to manufacturing in
Puerto Rico, the location of the Company's fill-and-finish facility.
Foreign currency transactions
The Company has a program to manage certain portions of its
exposure to fluctuations in foreign currency exchange rates arising
from international operations. The Company generally hedges the
receivables and payables with foreign currency forward contracts,
which typically mature within six months. The Company uses foreign
currency option and forward contracts which generally expire within
12 months to hedge certain anticipated future sales and expenses. At
September 30, 1997, outstanding foreign currency option and forward
contracts totaled $49.1 million and $78.1 million, respectively.
Financial Outlook
Worldwide NEUPOGEN(R) (Filgrastim) sales for 1997 are expected
to grow at a rate lower than the 1996 growth rate. Future
NEUPOGEN(R) sales increases are dependent primarily upon further
penetration of existing markets, the timing and nature of additional
indications for which the product may be approved and the effects of
competitive products. Although not approved or promoted for use in
Amgen's domestic or foreign markets, except for Australia and Canada,
the Company believes that approximately 10% of its worldwide
NEUPOGEN(R) sales are from off-label use as a supportive therapy to
various AIDS treatments. Changes in AIDS therapies, including
therapies that may be less myelosuppressive, are believed to have
adversely affected and are expected to continue to adversely affect
such sales. NEUPOGEN(R) usage is expected to continue to be affected
by cost containment pressures on health care providers worldwide. In
addition, international NEUPOGEN(R) sales will continue to be subject
to changes in foreign currency exchange rates and government budgets.
The Company anticipates a single-digit sales growth rate for
EPOGEN(R) (Epoetin alfa) in 1997. The Company also anticipates that,
without any modifications to the reimbursement changes implemented by
HCFA, additional sales growth due to dose, if any, is likely to be
minimal; however, the Company believes that increases in the U.S.
dialysis patient population will continue to grow EPOGEN(R) sales in
the near term. Patients receiving treatment for end stage renal
disease are covered primarily under medical programs provided by the
federal government. Therefore, EPOGEN(R) sales may also be affected
by future changes in reimbursement rates or the basis for
reimbursement by the federal government. The Company is aware of
reports that a draft report by the Inspector General recommends a 10%
cut in Medicare reimbursement for EPOGEN. The Company believes that
the Inspector General's report is now in a period of comment and
cannot predict when a final recommendation will be publicly issued.
In October 1997, the Company launched its third product,
INFERGEN(R) (Interferon alfacon-1), for the treatment of chronic
Hepatitis C Virus infection. There are currently other existing
treatments for this infection against which INFERGEN(R) will compete.
The Company cannot predict the extent to which it will penetrate this
market. The Company is presently engaged in certain litigation
21
related to INFERGEN(R), as described in the Company's Form 10-K for
fiscal year ended December 31, 1996 and the quarterly reports on Form
10-Q for the quarters ended March 31, 1997 and June 30, 1997.
The Company anticipates a single digit total product sales
growth rate for 1997. Excluding the third quarter 1997 legal
assessment, earnings per share is expected to grow at a low double
digit rate in 1997. Estimates of future product sales and earnings
per share, however, are necessarily speculative in nature and are
difficult to predict with accuracy.
In the third quarter of 1997, the Company announced that it is
seeking a corporate partner for its ongoing inflammation research and
development program located in Boulder, Colorado, which includes the
product candidates IL-1ra (interleukin-1 receptor antagonist), TNFbp
(tumor necrosis factor binding protein) and SLPI (secretory leukocyte
protease inhibitor). However, there can be no assurance that the
Company will be successful in finding an acceptable corporate partner
or acceptable business terms.
Except for the historical information contained herein, the
matters discussed herein are by their nature forward-looking. For
reasons stated, or for various unanticipated reasons, actual results
may differ materially. Amgen operates in a rapidly changing
environment that involves a number of risks, some of which are beyond
the Company's control. Future operating results and matters which
may affect the Company's stock price may be affected by a number of
factors, certain of which are discussed elsewhere herein and are
discussed in the sections appearing under the heading "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Factors That May Affect Future Results" in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996,
which sections are incorporated herein by reference and filed as an
exhibit hereto.
Legal Matters
The Company is engaged in arbitration proceedings with one of
its licensees and various other legal proceedings. For a discussion
of these matters, see Note 4 to the Condensed Consolidated Financial
Statements.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is engaged in arbitration proceedings with one of
its licensees. For a complete discussion of these matters see Note 4
to the Condensed Consolidated Financial Statements - "Contingencies -
Johnson & Johnson arbitrations". Other legal proceedings are also
reported in Note 4 to the Condensed Consolidated Financial Statements
and in the Company's Form 10-K for the year ended December 31, 1996,
with material developments since that report described in the
Company's Form 10-Q for the quarters ended March 31, 1997 and June
30, 1997 and below. While it is not possible to predict accurately
22
or to determine the eventual outcome of these matters, the Company
believes that the outcome of these legal proceedings will not have a
material adverse effect on the financial statements of the Company.
Biogen litigation
On March 10, 1995, Biogen Inc. ("Biogen"), filed suit in the
United States District Court for the District of Massachusetts
alleging infringement by the Company of certain claims of U.S. Patent
4,874,702 (the "`702 Patent"), relating to vectors for expressing
cloned genes. Biogen alleges that Amgen has infringed its patent by
manufacturing and selling NEUPOGEN(R). On March 28, 1995, Biogen
filed an amended complaint further alleging that the Company is also
infringing the claims of two additional patents allegedly assigned to
Biogen, U.S. Patent 5,401,642 (the "`642 Patent") and U.S. Patent No.
5,401,658 (the "`658 Patent"), relating to vectors, methods for
making vectors and expressing closed genes. The amended complaint
seeks injunctive relief, unspecified compensatory damages and treble
damages. On April 24, 1995, the Company answered Biogen's amended
complaint, denying its material allegations and pleading
counterclaims for declaratory judgment of non-infringement, patent
invalidity and unenforceability. On January 19, 1996, the Court
decided, upon Biogen's motion to dismiss certain of Amgen's
counterclaims, that it will exert jurisdiction over claims 9 and 17
of the `702 Patent, and dismissed all claims and counterclaims
relating to any other claims of the `702 Patent. Amgen moved for
Summary Judgment of invalidity of claim 9 of the `702 Patent. On
July 7, 1997, the Company's Summary Judgment Motion was denied. On
August 14, 1997, Amgen filed a Motion for Reconsideration of the
Courts ruling on invalidity of claim 9 of the `702 patent. On
October 20, 1997, the Motion for Reconsideration was also denied.
These denials are not dispositive of the case, and the effect of the
ruling is to reserve certain issues for trial. On October 22, 1997,
Amgen moved for summary judgment of invalidity of the certain claims
of the `702 and `651 Patents based on prior public uses of the
claimed subject matter. Amgen concurrently moved for a partial
interpretation of the claims at issue. In addition, on October 24,
1997, Amgen filed a motion for summary judgment of invalidity of
particular claims of the patents-in-suit based on abandonment of the
invention. Amgen also concurrently filed a motion to dismiss the
lawsuit in its entirety based on Biogen's lack of standing to bring
the lawsuit in view of Biogen's lack of ownership of the patents-in-
suit. Discovery in the case is substantially completed. A trial
date has not been set.
In a separate matter, on July 30, 1997, Biogen filed a complaint
in the United States District Court for the District of Massachusetts
in Boston alleging that Amgen infringes claims 9 and 17 of the `702
Patent, and the `642 Patent and `658 Patent by making and using the
claimed subject matter in the United States in the manufacture of
INFERGEN(R), the Company's consensus interferon product. On
September 17, 1997, Amgen responded to the Complaint by filing a
motion to dismiss the case in its entirety due to Biogen's lack of
standing to bring the lawsuit in view of Biogen's lack of ownership
of the patents-in-suit. Amgen also filed a motion for summary
judgment of patent invalidity of particular claims of the patents-in-
23
suit due to abandonment of the invention. Biogen is seeking to
consolidate this case with above-described case pertaining to
NEUPOGEN(R). Discovery has not begun and a trial date has not been
set.
Genentech litigation
On October 16, 1996, Genentech, Inc. filed suit in the United
States District Court for the Northern District of California seeking
an unspecified amount of compensatory damages, treble damages and
injunctive relief on its U.S. Patents 4,704,362, 5,221,619 and
4,342,832 ( the "'362, `619 and `832 Patents"), relating to vectors
for expressing cloned genes and the methods for such expression.
Genentech, Inc. alleges that Amgen has infringed its patents by
manufacturing and selling NEUPOGEN(R). On December 2, 1996, Amgen
was served with this lawsuit. On January 21, 1997, the Company
answered the complaint and asserted counterclaims relating to
invalidity and non-infringement of the patents-in-suit. On February
10, 1997, Genentech, Inc. served Amgen with a reply to the
counterclaim and an additional counterclaim asserting U.S. Patent
5,583,013 (the "'013 Patent"), issued December 10, 1996, seeking
relief similar to that sought for the '362, `619 and `832 Patents.
On March 31, 1997, Amgen answered this pleading and asserted
counterclaims relating to invalidity and non-infringement of the `013
Patent. Discovery is currently ongoing. The parties are in the
process of exchanging papers pertaining to interpretation of the
patent claims. A "Markman hearing" on claim construction is
scheduled for March 1998.
FoxMeyer Health Corporation
See Note 4 to the Condensed Consolidated Financial Statements-
"Contingencies - FoxMeyer Health Corporation".
Item 6. Exhibits and Reports on Form 8-K
(a) Reference is made to the Index to Exhibits included herein.
(b) No reports on Form 8-K were filed during the three months
ended September 30, 1997.
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Amgen Inc.
(Registrant)
Date: 11/11/97 By:/s/ Robert S. Attiyeh
------------------ ---------------------------------
Robert S. Attiyeh
Senior Vice President, Finance
and Corporate Development, and
Chief Financial Officer
Date: 11/11/97 By:/s/ Kathryn E. Falberg
------------------ ---------------------------------
Kathryn E. Falberg
Vice President, Corporate
Controller and Chief
Accounting Officer
25
AMGEN INC.
INDEX TO EXHIBITS
Exhibit No. Description
3.1 Restated Certificate of Incorporation as amended. (26)
3.2 Amended and Restated Bylaws. (27)
4.1 Indenture dated January 1, 1992 between the Company and
Citibank N.A., as trustee. (11)
4.2 Forms of Commercial Paper Master Note Certificates. (14)
4.3 First Supplement to Indenture, dated February 26, 1997
between the Company and Citibank N.A., as trustee. (23)
4.4 Officer's Certificate pursuant to Sections 2.1 and 2.3
of the Indenture, as supplemented, establishing a series
of securities "8-1/8% Debentures due April 1, 2097."
(25)
4.5 8-1/8% Debentures due April 1, 2097. (25)
4.6 Form of stock certificate for the common stock, par
value $.0001 of the Company. (26)
10.1 Company's Amended and Restated 1991 Equity Incentive
Plan. (24)
10.2 Company's Amended and Restated 1984 Stock Option Plan.
(21)
10.3 Shareholder's Agreement of Kirin-Amgen, Inc., dated May
11, 1984, between the Company and Kirin Brewery Company,
Limited (with certain confidential information deleted
therefrom). (1)
10.4 Amendment Nos. 1, 2, and 3, dated March 19, 1985, July
29, 1985 and December 19, 1985, respectively, to the
Shareholder's Agreement of Kirin-Amgen, Inc., dated May
11, 1984 (with certain confidential information deleted
therefrom). (3)
10.5 Product License Agreement, dated September 30, 1985, and
Technology License Agreement, dated, September 30, 1985
between the Company and Ortho Pharmaceutical Corporation
(with certain confidential information deleted
therefrom). (2)
10.6 Product License Agreement, dated September 30, 1985, and
Technology License Agreement, dated September 30, 1985
between Kirin-Amgen, Inc. and Ortho Pharmaceutical
Corporation (with certain confidential information
deleted therefrom). (3)
10.7 Company's Amended and Restated Employee Stock Purchase
Plan. (21)
10.8 Research, Development Technology Disclosure and License
Agreement PPO, dated January 20, 1986, by and between
the Company and Kirin Brewery Co., Ltd. (4)
10.9 Amendment Nos. 4 and 5, dated October 16, 1986
(effective July 1, 1986) and December 6, 1986 (effective
July 1, 1986), respectively, to the Shareholders
Agreement of Kirin-Amgen, Inc. dated May 11, 1984 (with
certain confidential information deleted therefrom). (5)
26
10.10 Assignment and License Agreement, dated October 16,
1986, between the Company and Kirin-Amgen, Inc. (with
certain confidential information deleted therefrom). (5)
10.11 G-CSF European License Agreement, dated December 30,
1986, between Kirin-Amgen, Inc. and the Company (with
certain confidential information deleted therefrom). (5)
10.12 Research and Development Technology Disclosure and
License Agreement: GM-CSF, dated March 31, 1987, between
Kirin Brewery Company, Limited and the Company (with
certain confidential information deleted therefrom). (5)
10.13 Company's Amended and Restated 1987 Directors' Stock
Option Plan. (24)
10.14 Company's Amended and Restated 1988 Stock Option Plan.
(21)
10.15 Company's Amended and Restated Retirement and Savings
Plan. (21)
10.16 Amendment, dated June 30, 1988, to Research,
Development, Technology Disclosure and License
Agreement: GM-CSF dated March 31, 1987, between Kirin
Brewery Company, Limited and the Company. (6)
10.17 Agreement on G-CSF in the EU, dated September 26, 1988,
between Amgen Inc. and F. Hoffmann-La Roche & Co.
Limited Company (with certain confidential information
deleted therefrom). (8)
10.18 Supplementary Agreement to Agreement dated January 4,
1989 to Agreement on G-CSF in the EU, dated September
26, 1988, between the Company and F. Hoffmann-La Roche &
Co. Limited Company, (with certain confidential
information deleted therefrom). (8)
10.19 Agreement on G-CSF in Certain European Countries, dated
January 1, 1989, between Amgen Inc. and F. Hoffmann-La
Roche & Co. Limited Company (with certain confidential
information deleted therefrom). (8)
10.20 Rights Agreement, dated January 24, 1989, between Amgen
Inc. and American Stock Transfer and Trust Company,
Rights Agent. (7)
10.21 First Amendment to Rights Agreement, dated January 22,
1991, between Amgen Inc. and American Stock Transfer and
Trust Company, Rights Agent. (9)
10.22 Second Amendment to Rights Agreement, dated April 2,
1991, between Amgen Inc. and American Stock Transfer and
Trust Company, Rights Agent. (10)
10.23 Agency Agreement, dated November 21, 1991, between Amgen
Manufacturing, Inc. and Citicorp Financial Services
Corporation. (12)
10.24 Agency Agreement, dated May 21, 1992, between Amgen
Manufacturing, Inc. and Citicorp Financial Services
Corporation. (12)
10.25 Guaranty, dated July 29, 1992, by the Company in favor
of Merck Sharp & Dohme Quimica de Puerto Rico, Inc. (13)
10.26 936 Promissory Note No. 01, dated December 11, 1991,
issued by Amgen Manufacturing, Inc. (12)
10.27 936 Promissory Note No. 02, dated December 11, 1991,
issued by Amgen Manufacturing, Inc. (12)
10.28 936 Promissory Note No. 001, dated July 29, 1992, issued
by Amgen Manufacturing, Inc. (12)
27
10.29 936 Promissory Note No. 002, dated July 29, 1992, issued
by Amgen Manufacturing, Inc. (12)
10.30 Guaranty, dated November 21, 1991, by the Company in
favor of Citicorp Financial Services Corporation. (12)
10.31 Partnership Purchase Agreement, dated March 12, 1993,
between the Company, Amgen Clinical Partners, L.P.,
Amgen Development Corporation, the Class A limited
partners and the Class B limited partner. (13)
10.32 Amgen Supplemental Retirement Plan dated June 1, 1993.
(15)
10.33 Promissory Note of Mr. Kevin W. Sharer, dated June 4,
1993. (15)
10.34 Promissory Note of Mr. Larry A. May, dated February 24,
1993. (16)
10.35 Amgen Performance Based Management Incentive Plan. (24)
10.36 Agreement and Plan of Merger, dated as of November 17,
1994, among Amgen Inc., Amgen Acquisition Subsidiary,
Inc. and Synergen, Inc. (17)
10.37 Third Amendment to Rights Agreement, dated as of
February 21, 1995, between Amgen Inc. and American Stock
Transfer Trust and Trust Company (18)
10.38 Credit Agreement, dated as of June 23, 1995, among Amgen
Inc., the Borrowing Subsidiaries named therein, the
Banks named therein, Swiss Bank Corporation and ABN AMRO
Bank N.V., as Issuing Banks, and Swiss Bank Corporation,
as Administrative Agent. (19)
10.39 Promissory Note of Mr. George A. Vandeman, dated
December 15, 1995. (20)
10.40 Promissory Note of Mr. George A. Vandeman, dated
December 15, 1995. (20)
10.41 Promissory Note of Mr. Stan Benson, dated March 19,
1996. (20)
10.42 Amendment No. 1 to the Company's Amended and Restated
Retirement and Savings Plan. (21)
10.43 Amendment Number 5 to the Company's Amended and Restated
Retirement and Savings Plan dated January 1, 1993. (24)
10.44 Amendment Number 2 to the Company's Amended and Restated
Retirement and Savings Plan dated April 1, 1996. (24)
10.45 First Amendment to Credit Agreement, dated as of
December 12, 1996, among Amgen Inc., the Borrowing
Subsidiaries named therein, and Swiss Bank Corporation
as Administrative Agent. (24)
10.46 Fourth Amendment to Rights Agreement, dated February 18,
1997 between Amgen Inc. and American Stock Transfer and
Trust Company, Rights Agent. (22)
10.47 Preferred Share Rights Agreement, dated February 18,
1997, between Amgen Inc. and American Stock Transfer and
Trust Company, Rights Agent. (22)
10.48 Consulting Agreement, dated November 15, 1996, between
the Company and Daniel Vapnek. (24)
10.49 Agreement, dated May 30, 1995, between the Company and
George A. Vandeman. (24)
10.50 First Amendment, effective January 1, 1998, to the
Company's Amended and Restated Employee Stock Purchase
Plan. (27)
28
10.51 Third Amendment, effective January 1, 1997, to the
Company's Amended and Restated Retirement and Savings
Plan dated April 1, 1996. (27)
10.52 Heads of Agreement dated April 10, 1997, between the
Company and Kirin Amgen, Inc., on the one hand, and F.
Hoffmann-La Roche Ltd., on the other hand (with certain
confidential information deleted therefrom). (27)
10.53 Binding Term Sheet, dated August 20, 1997, between
Guilford Pharmaceuticals Inc. ("Guilford") and GPI NIL
Holdings, Inc., and Amgen Inc. (with certain
confidential information deleted therefrom). (28)
*11 Computation of per share earnings.
*27 Financial Data Schedule.
*99 Sections appearing under the heading "Management's
Discussion and Analysis of Financial Condition and
Results of Operations-Factors That May Affect Future
Results" in the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.
----------------
* Filed herewith.
(1) Filed as an exhibit to the Annual Report on Form 10-K for the
year ended March 31, 1984 on June 26, 1984 and incorporated
herein by reference.
(2) Filed as an exhibit to Quarterly Report on Form 10-Q for the
quarter ended September 30, 1985 on November 14, 1985 and
incorporated herein by reference.
(3) Filed as an exhibit to Quarterly Report on Form 10-Q for the
quarter ended December 31, 1985 on February 3, 1986 and
incorporated herein by reference.
(4) Filed as an exhibit to Amendment No. 1 to Form S-1 Registration
Statement (Registration No. 33-3069) on March 11, 1986 and
incorporated herein by reference.
(5) Filed as an exhibit to the Form 10-K Annual Report for the year
ended March 31, 1987 on May 18, 1987 and incorporated herein by
reference.
(6) Filed as an exhibit to Form 8 amending the Quarterly Report on
Form 10-Q for the quarter ended June 30, 1988 on August 25, 1988
and incorporated herein by reference.
(7) Filed as an exhibit to the Form 8-K Current Report dated January
24, 1989 and incorporated herein by reference.
(8) Filed as an exhibit to the Annual Report on Form 10-K for the
year ended March 31, 1989 on June 28, 1989 and incorporated
herein by reference.
(9) Filed as an exhibit to the Form 8-K Current Report dated January
22, 1991 and incorporated herein by reference.
(10) Filed as an exhibit to the Form 8-K Current Report dated April
12, 1991 and incorporated herein by reference.
(11) Filed as an exhibit to Form S-3 Registration Statement dated
December 19, 1991 and incorporated herein by reference.
(12) Filed as an exhibit to the Annual Report on Form 10-K for the
year ended December 31, 1992 on March 30, 1993 and incorporated
herein by reference.
29
(13) Filed as an exhibit to the Form 8-A dated March 31, 1993 and
incorporated herein by reference.
(14) Filed as an exhibit to the Form 10-Q for the quarter ended March
31, 1993 on May 17, 1993 and incorporated herein by reference.
(15) Filed as an exhibit to the Form 10-Q for the quarter ended
September 30, 1993 on November 12, 1993 and incorporated herein
by reference.
(16) Filed as an exhibit to the Annual Report on Form 10-K for the
year ended December 31, 1993 on March 25, 1994 and incorporated
herein by reference.
(17) Filed as an exhibit to the Form 8-K Current Report dated
November 18, 1994 on December 2, 1994 and incorporated herein by
reference.
(18) Filed as an exhibit to the Form 8-K Current Report dated
February 21, 1995 on March 7, 1995 and incorporated herein by
reference.
(19) Filed as an exhibit to the Form 10-Q for the quarter ended
June 30, 1995 on August 11, 1995 and incorporated herein by
reference.
(20) Filed as an exhibit to the Annual Report on Form 10-K for the
year ended December 31, 1995 on March 29, 1996 and incorporated
herein by reference.
(21) Filed as an exhibit to the Form 10-Q for the quarter ended
September 30, 1996 on November 5, 1996 and incorporated herein
by reference.
(22) Filed as an exhibit to the Form 8-K Current Report dated
February 18, 1997 on February 28, 1997 and incorporated herein
by reference.
(23) Filed as an exhibit to the Form 8-K Current Report dated March
14, 1997 on March 14, 1997 and incorporated herein by reference.
(24) Filed as an exhibit to the Annual Report on Form 10-K for the
year ended December 31, 1996 on March 24, 1997 and incorporated
herein by reference.
(25) Filed as an exhibit to the Form 8-K Current Report dated April
8, 1997 on April 8, 1997 and incorporated herein by reference.
(26) Filed as an exhibit to the Form 10-Q for the quarter ended March
31, 1997 on May 13, 1997.
(27) Filed as an exhibit to the Form 10-Q for the quarter ended June
30, 1997 on August 12, 1997.
(28) Filed as exhibit 10.47 to the Guilford Form 8-K Current Report
dated August 20, 1997 on September 4, 1997 and incorporated
herein by reference.
30
EXHIBIT 11
AMGEN INC.
COMPUTATION OF PER SHARE EARNINGS
PRIMARY COMPUTATION
(In millions, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
------ ------- ------ ------
Net income .................. $83.8 $179.5 $464.6 $501.8
====== ====== ====== ======
Applicable common and common
stock equivalent shares:
Weighted average shares of
common stock outstanding
during the period .......... 264.7 264.4 265.3 265.1
Incremental number of shares
outstanding during the
period resulting from the
assumed exercises of stock
options .................... 9.2 15.0 10.8 16.2
------ ------ ------ ------
Weighted average shares of
common stock and common
stock equivalents
outstanding during the
period ..................... 273.9 279.4 276.1 281.3
====== ====== ====== ======
Earnings per common share
primary .................... $ .31 $ .64 $ 1.68 $ 1.78
====== ====== ====== ======
EXHIBIT 11
AMGEN INC.
COMPUTATION OF PER SHARE EARNINGS
FULLY DILUTED COMPUTATION
(In millions, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
------ ------ ------ ------
Net income .................. $83.8 $179.5 $464.6 $501.8
====== ====== ====== ======
Applicable common and common
stock equivalent shares:
Weighted average shares of
common stock outstanding
during the period .......... 264.7 264.4 265.3 265.1
Incremental number of shares
outstanding during the
period resulting from the
assumed exercises of stock
options .................... 9.2 16.4 10.8 17.2
------ ------ ------ ------
Weighted average shares of
common stock and common
stock equivalents
outstanding during the
period ..................... 273.9 280.8 276.1 282.3
====== ====== ====== ======
Earnings per common share
fully diluted .............. $ .31 $ .64 $ 1.68 $ 1.78
====== ====== ====== ======
EXHIBIT 99
AMGEN INC.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Factors That May Affect Future Results
Amgen operates in a rapidly changing environment that
involves a number of risks, some of which are beyond the
Company's control. The following discussion highlights some
of these risks and others are discussed elsewhere herein and
in other documents filed by the Company with the Securities
and Exchange Commission.
Period to period fluctuations
The Company's operating results may fluctuate for a
number of reasons. The forecasting of revenue is inherently
uncertain for a variety of reasons. Because the Company
plans its operating expenses, many of which are relatively
fixed in the short term, on the basis that revenues will
continue to grow, even a relatively small revenue shortfall
may cause a period's results to be below expectations. Such
a revenue shortfall could arise from any number of factors,
including lower than expected demand, wholesalers' buying
patterns, product pricing strategies, fluctuations in
foreign currency exchange rates, changes in government or
private reimbursement, transit interruptions, overall
economic conditions or natural disasters (including
earthquakes).
See "Results of Operations - Product sales -
NEUPOGEN(R) (Filgrastim)" for a discussion regarding
quarterly NEUPOGEN(R) sales.
The Company's stock price, like that of other
biotechnology companies, is subject to significant
volatility. If revenues or earnings in any quarter fail to
meet the investment community's expectations, there could be
an immediate impact on the Company's stock price. The stock
price may also be affected by, among other things, clinical
trial results and other product development related
announcements by Amgen or its competitors, regulatory
matters, intellectual property and legal matters, or broader
industry and market trends unrelated to the Company's
performance.
Rapid growth
In light of management's views of the potential for
future growth of the Company's business, the Company has
adopted an aggressive growth plan that includes substantial
and increased investments in research and development and
1
investments in facilities that will be required to support
significant growth. This plan carries with it a number of
risks, including a higher level of operating expenses, the
difficulty of attracting and assimilating a large number of
new employees, and the complexities associated with managing
a larger and faster growing organization.
Product development
The Company intends to continue to develop product
candidates. Successful product development in the
biotechnology industry is highly uncertain and only a small
minority of research and development programs ultimately
result in commercially successful drugs. Product
development is dependent on numerous factors, many of which
are beyond the Company's control. Product candidates that
appear promising in the early phases of development may fail
to reach market for numerous reasons. They may be found to
be ineffective or to have harmful side effects in clinical
or preclinical testing, fail to receive necessary regulatory
approvals, be uneconomic because of manufacturing costs or
other factors, or be precluded from commercialization by the
proprietary rights of others. Success in preclinical and
early clinical trials does not ensure that large scale
clinical trials will be successful. Clinical results are
frequently susceptible to varying interpretations which may
delay, limit or prevent further clinical development or
regulatory approvals. The length of time necessary to
complete clinical trials and receive approval for product
marketing by regulatory authorities varies significantly by
product and indication and is often difficult to predict.
Regulatory approvals
The success of current products and future product
candidates of the Company will depend in part upon
maintaining and obtaining regulatory approval to market
products. Domestic and foreign statutes and regulations
govern matters relating to the Company's products and
product candidates and the research and development
activities associated with them. The Company's product
candidates may prove to have undesirable side effects that
may interrupt or delay clinical studies and could ultimately
prevent or limit their commercial use. The Company or
regulatory authorities may suspend or terminate clinical
trials at any time if the participants in such trials are
believed to be exposed to unacceptable health risks. Even
if regulatory approval is obtained, a marketed product and
its manufacturer are subject to continued review. Later
discovery of previously unknown problems with a product or
manufacturer may result in restrictions on such product or
manufacturer, including withdrawal of the product from the
market. Failure to obtain necessary approvals, or the
restriction, suspension, or revocation of any approvals, or
2
the failure to comply with regulatory requirements could
have a material adverse effect on the Company.
Reimbursement
The success of the Company's products partially depends
upon the extent to which a consumer is willing to pay the
price or able to obtain reimbursement for the cost of these
products from government health administration authorities,
private health insurers, and other organizations.
Significant uncertainties exist as to the reimbursement
status of newly approved therapeutic products, and current
reimbursement policies for existing products may change. It
is possible that changes in reimbursement or failure to
obtain reimbursement may reduce the demand for or the price
of the Company's products.
Several factors could influence the pricing or
reimbursement for the Company's products including: (1)
third-party payors continuing to challenge the prices
charged for medical services and products, (2) the trend
towards managed care in the United States, (3) the growth of
organizations which could control or significantly influence
the purchase of health care services and products, and (4)
legislative proposals to reform health care or reduce
government insurance programs. NEUPOGEN(R) usage has been
and is expected to continue to be affected by cost
containment pressures on health care providers worldwide.
In addition, patients receiving EPOGEN(R) in connection with
treatment for end stage renal disease are covered primarily
under medical programs provided by the federal government.
Therefore, EPOGEN(R) sales may also be affected by future
changes in reimbursement rates or the basis for
reimbursement by the federal government.
Competition
Substantial competition exists in the biotechnology
industry from pharmaceutical and biotechnology companies
which may have technical or competitive advantages. The
Company competes with these companies in the development of
technologies and processes and sometimes competes with them
in acquiring technology from academic institutions,
government agencies, and other private and public research
organizations. There can be no assurance that the Company
will be able to produce or acquire rights to products that
have commercial potential. Even if the Company achieves
product commercialization, there can be no assurance that
one or more of the Company's competitors may not: (1)
achieve product commercialization earlier than the Company,
(2) receive patent protection that dominates or adversely
affects the Company's activities, or (3) have significantly
greater marketing capabilities.
3
The field of biotechnology has undergone rapid and
significant technological change. The Company expects that
the technology associated with the Company's research and
development will continue to develop rapidly, and the
Company's future success will depend in large part on its
ability to maintain a competitive position with respect to
this technology. Rapid technological development by the
Company or others may result in some of the Company's
product candidates, products, or processes becoming obsolete
before the Company recovers a significant portion of the
research, development, manufacturing, and commercialization
expenses it incurs. This could have a material adverse
effect on the Company.
Intellectual property and legal matters
The patent positions of pharmaceutical and
biotechnology companies can be highly uncertain and involve
complex legal and factual questions. Accordingly the
breadth of claims allowed in such companies' patents cannot
be predicted. Patent disputes are frequent and can preclude
commercialization of products. The Company is and may in
the future be involved in material patent litigation. Such
litigation, if decided adversely, could subject the Company
to significant liabilities and cause the Company to obtain
third party licenses or cease using the technology or
product in dispute.
The Company is involved in arbitration proceedings with
Ortho Pharmaceutical Corporation, a subsidiary of Johnson &
Johnson ("Johnson & Johnson"), relating to a license granted
by the Company to Johnson & Johnson for sales of Epoetin
alfa in the United States for all human uses except dialysis
and diagnostics. See Note 4 to the Condensed Consolidated
Financial Statements - "Contingencies - Johnson and Johnson
arbitrations." While it is impossible to predict accurately
or determine the outcome of these proceedings, based
primarily upon the merits of its claims and based upon
certain liabilities established due to the inherent
uncertainty of any arbitrated result, the Company believes
that the outcome of these proceedings will not have a
material adverse effect on its financial statements.
However, it is possible that an adverse decision could,
depending on its magnitude, have a material adverse effect
on the financial statements.
4