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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 March 31, 1994
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 March 31, 1994, the registrant had 133,008,514 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 months
ended March 31, 1994 and 1993 ...............4 - 5
Condensed Consolidated Balance Sheets -
March 31, 1994 and December 31, 1993 ............6
Condensed Consolidated Statements of
Cash Flows - three months
ended March 31, 1994 and 1993 ...............7 - 8
Notes to Condensed Consolidated Financial
Statements ......................................9
Item 2.Management's Discussion and Analysis
of Financial Condition and Results of
Operations ................................13
PART II OTHER INFORMATION
Item 1.Legal Proceedings .........................19
Item 6.Exhibits and Reports on Form 8-K ..........21
Signatures........................................22
Index to Exhibits.................................23
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The information in this report for the three months ended
March 31, 1994 and 1993, 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 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 fiscal
year ended December 31, 1993.
Interim results are not necessarily indicative of results for
the full fiscal year.
AMGEN INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended
March 31,
1994 1993
---------- ----------
Revenues:
Product sales $345,731 $295,452
Corporate partner revenues 13,991 10,900
Royalty income 4,276 3,891
-------- --------
Total revenues 363,998 310,243
-------- --------
Operating expenses:
Cost of sales 53,283 50,904
Research and development 73,725 56,125
Marketing and selling 53,173 46,733
General and administrative 28,308 27,743
(Earnings) loss of
affiliates, net 7,257 2,124
-------- --------
Total operating expenses 215,746 183,629
-------- --------
Operating income 148,252 126,614
-------- --------
Other income (expense):
Interest and other income 5,511 5,869
Interest expense, net (2,640) (9)
Total other income -------- --------
(expense) 2,871 5,860
-------- --------
Income before income taxes
and cumulative effect of
a change in accounting
principle 151,123 132,474
Provision for income taxes 57,663 51,914
-------- --------
Income before cumulative
effect of a change in
accounting principle 93,460 80,560
Cumulative effect of a
change in accounting
principle - 8,738
-------- --------
Net income $ 93,460 $ 89,298
======== ========
See accompanying notes.
(Continued on next page)
AMGEN INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
(In thousands, except per share data)
(Unaudited)
Three Months Ended
March 31,
1994 1993
---------- ----------
Earnings per share:
Primary:
Income before cumulative
effect of a change in
accounting principle $ .66 $ .55
Cumulative effect of a
change in accounting
principle - .06
-------- --------
Net income $ .66 $ .61
======== ========
Fully diluted:
Income before cumulative
effect of a change in
accounting principle $ .66 $ .55
Cumulative effect of a
change in accounting
principle - .06
-------- --------
Net income $ .66 $ .61
======== ========
Shares used in calculation of:
Primary earnings per share 141,371 145,696
Fully diluted earnings per
share 141,371 145,696
See accompanying notes.
AMGEN INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
March 31, December
31,
1994 1993
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 147,731 $ 128,505
Marketable securities, at cost which
approximates market 572,333 594,679
Trade receivables, net 171,120 164,337
Inventories 81,912 74,712
Deferred tax assets, net 56,430 58,937
Other current assets 32,573 33,340
---------- ----------
Total current assets 1,062,099 1,054,510
Property, plant and equipment at cost, net 606,101 586,912
Investments 79,118 78,778
Other assets 55,490 45,323
---------- ----------
$1,802,808 $1,765,523
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 20,710 $ 23,056
Commercial paper 99,847 109,767
Other accrued liabilities 297,889 279,438
---------- ----------
Total current liabilities 418,446 412,261
Long-term debt 183,439 181,242
Commitments and contingencies
Stockholders' equity:
Common stock, $.0001 par value;
750,000 shares authorized;
outstanding - 133,009 shares in
1994 and 134,214 shares in 1993 13 13
Additional paid-in capital 646,798 636,217
Retained earnings 554,112 535,790
---------- ----------
Total stockholders' equity 1,200,923 1,172,020
---------- ----------
$1,802,808 $1,765,523
========== ==========
See accompanying notes.
AMGEN INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
March 31,
1994 1993
-------- --------
Cash flows from operating activities:
Net income $93,460 $89,298
Depreciation and amortization 17,789 12,047
Cumulative effect of an accounting
change - (8,738)
Other non-cash expenses 57 57
Deferred income taxes 2,507 13,000
(Earnings) loss of affiliates, net 7,257 2,124
Cash provided by (used in):
Trade receivables, net (6,783) (38,118)
Inventories (7,200) (7,942)
Other current assets 767 (4,371)
Accounts payable (2,346) (14,885)
Accrued liabilities 11,172 (48,209)
-------- --------
Net cash provided by (used in)
operating activities 116,680 (5,737)
-------- --------
Cash flows from investing activities:
Purchases of property, plant
and equipment (36,978) (67,276)
Increase in marketable securities 22,346 85,063
Decrease (increase) in investments 651 (8,349)
Distributions from affiliated
companies - 257
Increase in other assets (10,167) (20,864)
-------- --------
Net cash used in investing
activities (24,148) (11,169)
-------- --------
See accompanying notes.
(Continued on next page)
AMGEN INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)
(Unaudited)
Three Months Ended
March 31,
1994 1993
-------- --------
Cash flows from financing activities:
Decrease in commercial paper $(9,920) $ -
Proceeds from issuance of
long-term debt 10,000 53
Repayment of long-term debt (524) (482)
Net proceeds from issuance of
common stock 5,278 6,934
Tax benefit related to
stock options 4,400 4,000
Net proceeds from issuance
of warrants 846 1,151
Repurchases of common stock (75,138) (60,056)
Other (8,248) (4,724)
-------- --------
Net cash used in
financing activities (73,306) (53,124)
-------- --------
Increase (decrease) in cash and
cash equivalents 19,226 (70,030)
Cash and cash equivalents at
beginning of period 128,505 92,048
-------- --------
Cash and cash equivalents at
end of period $147,731 $ 22,018
======== ========
See accompanying notes.
AMGEN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1994
1. Summary of significant accounting policies
Business
Amgen Inc. ("Amgen" or the "Company") is a global biotechnology
company that develops, manufactures and markets human therapeutics
based on advanced 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% owned and/or where the Company exercises
significant influence over operations are accounted for using the
equity method. All other investments are accounted for under the
cost method. (Earnings) 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 thousands):
March 31, December
31,
1994 1993
------- -------
Raw materials $12,735 $ 8,001
Work in process 46,794 47,138
Finished goods 22,383 19,573
------- -------
$81,912 $74,712
======= =======
Product sales
Product sales consist of two products, EPOGEN(R) (Epoetin alfa)
and NEUPOGEN(R) (Filgrastim).
As a result of arbitration proceedings involving an agreement
between Amgen and Ortho Pharmaceutical Corporation, a subsidiary of
Johnson & Johnson ("Johnson & Johnson") covering the U.S. market for
the Company's Epoetin alfa product, Amgen does not recognize product
sales it makes into the contractual market of Johnson & Johnson and
does recognize the product sales made by Johnson & Johnson into
Amgen's contractual market. These sales amounts, and adjustments
thereto, are derived from third-party data on shipments to end users
and their usage as the data becomes available (see Note 4,
"Commitments and contingencies - Johnson & Johnson arbitration").
Income taxes
Income taxes are accounted for in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109 (Note 3).
Earnings per share
Earnings per share are computed in accordance with the treasury
stock method. Primary and fully diluted earnings per share are based
upon the weighted average number of common shares and dilutive common
stock equivalents outstanding. Common stock equivalents include
outstanding options under the Company's stock option plans and
outstanding warrants to purchase shares of the Company's common
stock.
Basis of presentation
The financial information for the three months ended March 31,
1994 and 1993, are unaudited but include 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.
Reclassification
Certain prior period amounts have been reclassified to conform
to the current period presentation.
2. Debt
As of March 31, 1994, $99.8 million of commercial paper was
outstanding. These borrowings had maturities of three months or less
and had effective interest rates averaging 3.3%.
As of March 31, 1994, $150 million was available under the
Company's line of credit for borrowing and to support the Company's
commercial paper program.
Long-term debt consists of the following (in thousands):
March 31, December 31,
1994 1993
-------- --------
Medium Term Notes $113,000 $103,000
Promissory notes 68,200 68,200
Other long-term obligations 11,247 11,771
-------- --------
192,447 182,971
Less current portion (9,008) (1,729)
-------- --------
$183,439 $181,242
======== ========
The Company has registered $200 million of unsecured medium term
debt securities ("Medium Term Notes") of which $113 million were
outstanding at March 31, 1994. During the three months ended
March 31, 1994, the Company issued an additional $10 million of
Medium Term Notes with five year maturities at a fixed rate of 5.5%.
3. Income taxes
The provision for income taxes consists of the following (in
thousands):
Three Months Ended
March 31,
1994 1993
-------- --------
Current income taxes:
Federal $49,861 $42,588
State 7,802 9,326
------- -------
Total $57,663 $51,914
======= =======
4. Commitments and contingencies
Johnson & Johnson arbitration
In September 1985, the Company granted Johnson & Johnson an
exclusive license under certain patented technology and know how of
the Company to sell erythropoietin throughout the United States for
all human uses except dialysis and diagnostics.
In January 1989, Johnson & Johnson initiated arbitration
proceedings with respect to a number of disputes which had arisen
between Amgen and Johnson & Johnson as to the respective rights and
obligations of the parties under the various agreements between them.
Amgen filed a cross petition for arbitration raising additional
disputes for resolution by the arbitrator. The scope of the
arbitration covers erythropoietin, hepatitis B vaccine and
interleukin-2.
In April 1990, the arbitrator ruled that Johnson & Johnson must
purchase from Amgen all of Johnson & Johnson's actual United States
sales requirements of recombinant human erythropoietin. In December
1990, the U.S. Food and Drug Administration approved Amgen's
application to name Johnson & Johnson a distributor of Epoetin alfa
under the trademark PROCRIT(R). In January 1991, Johnson & Johnson
began distributing Epoetin alfa.
In June 1991, the arbitrator issued an opinion awarding Johnson
& Johnson $164 million on its claims regarding erythropoietin. In
September 1992, the arbitrator found that Johnson & Johnson had
breached its obligations regarding hepatitis B vaccine and
interleukin-2, and in January 1993 awarded the Company approximately
$90 million in damages against Johnson & Johnson. In January 1993,
the Company paid Johnson & Johnson the sum of $82.4 million,
representing the difference between the damages awarded Johnson &
Johnson as a result of its erythropoietin claims, less the amounts
awarded Amgen against Johnson & Johnson as a result of its hepatitis
B vaccine and interleukin-2 claims, plus interest. Johnson & Johnson
returned to the Company the rights to develop and market hepatitis B
vaccine and interleukin-2 in March 1991.
The Company and Johnson & Johnson are required to compensate
each other for Epoetin alfa sales which either party makes into the
other party's contractual market. The Company has established and is
employing an accounting methodology to allocate the proceeds of sales
of EPOGEN(R) and PROCRIT(R) in Amgen's and Johnson & Johnson's
respective contractual markets. Johnson & Johnson has disputed the
methodology employed by the Company and is proposing an alternative
methodology for adoption by the arbitrator. If as a result of the
arbitration proceeding, a methodology different than that currently
employed by the Company is instituted to allocate the proceeds of
sales between the parties, it may yield results that are different
from the results of the accounting methodology currently employed by
the Company. As a result of the arbitration, it is possible that the
Company would recognize a different level of EPOGEN(R) sales than are
currently being recognized. Periodically, the Company makes payments
to Johnson & Johnson when a net liability to Johnson & Johnson is
calculated based upon the Company's accounting methodology. As a
result of the arbitration, the Company may be required to pay
additional compensation to Johnson & Johnson for sales during prior
periods, or Johnson & Johnson may be required to pay compensation to
the Company for such prior period sales. Due to the uncertainties of
any arbitrated result, the Company has recorded net liabilities that
exceed the amounts paid to Johnson & Johnson.
No date has been set for the trial before the arbitrator of the
accounting methodologies and compensation for sales by Johnson &
Johnson into Amgen's contractual market and sales by Amgen into
Johnson & Johnson's contractual market. Discovery as to these issues
is in progress.
While it is not possible to predict accurately or determine the
eventual outcome of this matter, the Company believes that the
outcome of this legal proceeding will not have a material adverse
effect on the operations or financial position of the Company.
Other litigation
The Company is engaged in various other legal proceedings
including patent disputes. While it is not possible to predict
accurately or determine the eventual outcome of these matters, the
Company believes that the outcome of these proceedings will not have
a material adverse effect on the operations or financial position of
the Company.
5. Stockholders' equity
During the three months ended March 31, 1994, the Company
repurchased 1.8 million shares of its common stock at a total cost of
$75.1 million under its common stock repurchase program. At March
31, 1994, $256.5 million of the amount approved by the Board of
Directors remained available for repurchase through December 31,
1994. Stock repurchased under the program is retired and such
repurchases offset the dilutive effects of the Company's employee
benefit stock option and stock purchase plans.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
The Company had cash, cash equivalents and marketable securities
of $720.1 million at March 31, 1994, compared with $723.2 million at
December 31, 1993. Cash provided by operating activities has been
and is expected to continue to be the Company's primary source of
funds. During the three months ended March 31, 1994, operations
provided $116.7 million of cash. During the three months ended March
31, 1993, operations used $5.7 million of cash primarily as a result
of making an $82.4 million payment to Johnson & Johnson in settlement
of an obligation resulting from an arbitration proceeding (see "Legal
Matters - Johnson & Johnson arbitration") and an increase in trade
accounts receivable due to a temporary extension of payment terms to
EPOGEN(R) customers.
Capital expenditures totaled $37 million for the three months
ended March 31, 1994, compared with $67.3 million for the same period
a year ago. The reduction in capital expenditures is due to the
completion of several facilities in 1993, including the Puerto Rico
finish and fill facility. Over the next few years, the Company
expects to spend approximately $150 million to $200 million per year
on capital projects. These expenditures will primarily be used to
expand the Company's operations.
The Company has an ongoing common stock repurchase program to
offset dilutive effects of its employee benefit stock option and
stock purchase plans. Since its inception in 1992 through March 31,
1994, the Company has repurchased $368.5 million of its common stock
and is authorized to purchase up to an additional $256.5 million
through December 31, 1994. During the three months ended March 31,
1994, the Company purchased 1.8 million shares of common stock at a
cost of $75.1 million.
To provide for financial flexibility and increased liquidity,
the Company has established several sources of debt financing. The
Company has filed a shelf registration statement with the Securities
and Exchange Commission under which it could issue up to $200 million
of Medium Term Notes. At March 31, 1994, $113 million of Medium Term
Notes were outstanding with maturities of five to ten years. The
Company has a commercial paper program which provides for short-term
borrowings up to an aggregate of $200 million. At March 31, 1994,
$99.8 million of commercial paper was outstanding all with maturities
of three months or less. As individual issuances under this program
mature, the Company may issue new debt either in the form of
commercial paper or Medium Term Notes depending on interest rates and
other market factors. The Company also has a $150 million revolving
line of credit, principally to support the Company's commercial paper
program. No borrowings on this line of credit were outstanding at
March 31, 1994.
The Company hedges certain portions of its exposure to
anticipated foreign currency cash flows through the use of forward
and option foreign exchange contracts. At March 31, 1994, the
Company had forward and option foreign exchange contracts of
approximately $302 million and $14 million, respectively, all having
maturities of less than one year. The Company's net economic
exposure is substantially less than the absolute dollar value of
these contracts.
Cash is invested in accordance with a policy objective that
seeks to ensure both liquidity and safety of principal. Investments
are made to achieve the highest rate of return to the Company,
consistent with the policy objectives. The policy limits investments
to certain types of instruments issued by institutions with strong
investment grade credit ratings, and places restrictions on their
terms and concentration by type and issuer. The Company's
investments are subject to the risk of market interest rate
fluctuations and risks associated with the ability of the issuers to
perform their obligations under the instruments.
The Company believes that existing funds, cash generated from
operations and external sources of financing should be adequate to
satisfy its working capital and capital expenditure requirements and
to support its common stock repurchase program for the foreseeable
future. However, the Company may take advantage of favorable
conditions in the capital markets to raise additional capital from
time to time.
Results of Operations
Product sales
Product sales increased $50.3 million or 17% for the three
months ended March 31, 1994, compared with the same period last year.
NEUPOGEN(R) (Filgrastim)
NEUPOGEN(R) sales were $181.7 million for the three months ended
March 31, 1994, an increase of $23.2 million or 15% over the same
period last year.
Domestic sales of NEUPOGEN(R) were $132 million for the three
months ended March 31, 1994, an increase of $12.3 million or 10% over
the same period last year. This increase was primarily due to
increased penetration of the colony-stimulating factor market,
partially offset by a reduction in inventory held by wholesalers.
The Company anticipates that the inventory held by wholesalers
will increase during the remainder of the current year.
NEUPOGEN(R) sales outside the United States, primarily in
Europe, were $49.7 million for the three months ended March 31, 1994,
an increase of $10.9 million over the same period last year. Unit
sales volume increased 39% during the three months ended March 31,
1994 compared with the same period last year due to increased market
penetration of NEUPOGEN(R). However, unfavorable fluctuations in
foreign currency exchange rates reduced the sales increase to 28%
when measured in U.S. dollars.
During the three months ended March 31, 1994, Rhone-Poulenc-
Rorer and Chugai Pharmaceutical Co., Ltd. began jointly marketing a
G-CSF product in the EC. Although there has been no significant
effect on the Company's sales, it is not possible to predict the
ultimate impact this competitive product will have on future
EC NEUPOGEN(R) sales.
Quarterly NEUPOGEN(R) sales volumes in both the United States
and Europe are influenced by a number of factors including underlying
demand, seasonality of cancer chemotherapy administration, and
wholesaler inventory management practices. The Company's experience
has shown that reduced chemotherapy usage occurs in the third
calendar quarter in Europe and in the fourth calendar quarter in the
United States. The corresponding effects on the Company's sales have
occurred in the third calendar quarter in Europe, and have been
delayed until the first calendar quarter in the United States.
The Company believes that NEUPOGEN(R) sales in 1994 will exceed
the 1993 level, but that the growth rate of NEUPOGEN(R) sales in the
future will be lower than the growth rate in 1993. NEUPOGEN(R) sales
increases are dependent 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.
In addition, international NEUPOGEN(R) sales revenues are subject to
fluctuations in foreign currency exchange rates.
EPOGEN(R) (Epoetin alfa)
EPOGEN(R) sales were $164 million for the three months ended
March 31, 1994, an increase of $27 million or 20% over the same
period last year. This increase was primarily due to an increase in
the U.S. dialysis patient population and the administration of higher
doses of EPOGEN(R) per patient. The Company anticipates that
increases in the U.S. dialysis patient population, currently estimated
to grow at an annual rate of 8% - 10%, and increases in dose per
patient will continue to drive the growth of EPOGEN(R) sales in the
current year. However, the annual growth rate for 1994 is expected
to be lower than the growth rate realized in the first quarter.
The federal government enacted legislation effective January 1,
1994 to lower reimbursement provided to facilities that administer
EPOGEN(R) from $11 per thousand units administered to $10 per
thousand units administered. During the three months ended March 31,
1994, the change in reimbursement did not have a material adverse
effect on EPOGEN(R) sales.
Cost of sales
Cost of sales as a percentage of product sales was 15.4% and
17.2% for the three months ended March 31, 1994 and 1993,
respectively. The decrease in cost of sales as a percentage of
product sales is primarily due to a reduction in royalties on
NEUPOGEN sales as a result of the purchase of the limited partners'
interests in Amgen Clinical Partners, L.P. in March 1993, partially
offset by increases in overhead costs. Cost of sales as a percentage
of product sales is not expected to vary significantly for the
foreseeable future.
Research and development
During the three months ended March 31, 1994, research and
development expenses increased $17.6 million or 31% compared with the
same period last year. This increase was primarily due to expansion
of the Company's research and development staffs and increased
expenditures on external research collaborations. Annual research
and development expenses are expected to increase at a rate exceeding
the anticipated annual product sales growth rate due to planned
increases in internal efforts on new product discovery and
development and increases in external research collaboration costs,
including acquisitions of product and technology rights from third
parties.
Marketing and selling
Marketing and selling expenses increased $6.4 million or 14%
during the three months ended March 31, 1994 compared with the same
period last year. These increases were primarily due to: 1) domestic
and international marketing expenses to support continued NEUPOGEN(R)
market penetration and, 2) to support EPOGEN(R) marketing efforts
focused on educating users on the importance of maintaining patients
within the target hematocrit range. The future growth rate of
marketing and selling expenses is expected to approximate the
anticipated annual product sales growth rate.
General and administrative
General and administrative expenses increased $.6 million or 2%
during the three months ended March 31, 1994 compared with the same
period last year. The future growth rate of general and
administrative expenses is expected to be less than the anticipated
annual product sales growth rate.
Income taxes
The Company's effective tax rate for the three months ended
March 31, 1994 was 38.2% compared to 39.2% for the same period last
year. The decrease in the tax rate was primarily due to a reduction
in state taxes which resulted from changes in the apportionment of
taxable income among states.
In the future, the Company expects to receive tax benefits from
manufacturing products at its facility in Puerto Rico, which is
currently awaiting licensure by regulatory bodies. Realization of
these tax benefits is expected to result in an effective tax rate of
32%-34%. These benefits are expected to begin after the plant is
licensed and sales of commercial products manufactured there
commence.
Legal Matters
Johnson & Johnson arbitration
In September 1985, the Company granted Johnson & Johnson an
exclusive license under certain patented technology and know how of
the Company to sell erythropoietin throughout the United States for
all human uses except dialysis and diagnostics.
In January 1989, Johnson & Johnson initiated arbitration
proceedings with respect to a number of disputes which had arisen
between Amgen and Johnson & Johnson as to the respective rights and
obligations of the parties under the various agreements between them.
Amgen filed a cross petition for arbitration raising additional
disputes for resolution by the arbitrator. The scope of the
arbitration covers erythropoietin, hepatitis B vaccine and
interleukin-2.
In April 1990, the arbitrator ruled that Johnson & Johnson must
purchase from Amgen all of Johnson & Johnson's actual United States
sales requirements of recombinant human erythropoietin. In December
1990, the U.S. Food and Drug Administration approved Amgen's
application to name Johnson & Johnson a distributor of Epoetin alfa
under the trademark PROCRIT(R). In January 1991, Johnson & Johnson
began distributing Epoetin alfa.
In June 1991, the arbitrator issued an opinion awarding Johnson
& Johnson $164 million on its claims regarding erythropoietin. In
September 1992, the arbitrator found that Johnson & Johnson had
breached its obligations regarding hepatitis B vaccine and
interleukin-2, and in January 1993 awarded the Company approximately
$90 million in damages against Johnson & Johnson. In January 1993,
the Company paid Johnson & Johnson the sum of $82.4 million,
representing the difference between the damages awarded Johnson &
Johnson as a result of its erythropoietin claims, less the amounts
awarded Amgen against Johnson & Johnson as a result of its hepatitis
B vaccine and interleukin-2 claims, plus interest. Johnson & Johnson
returned to the Company the rights to develop and market hepatitis B
vaccine and interleukin-2 in March 1991.
The Company and Johnson & Johnson are required to compensate
each other for Epoetin alfa sales which either party makes into the
other party's contractual market. The Company has established and is
employing an accounting methodology to allocate the proceeds of sales
of EPOGEN(R) and PROCRIT(R) in Amgen's and Johnson & Johnson's
respective contractual markets. Johnson & Johnson has disputed the
methodology employed by the Company and is proposing an alternative
methodology for adoption by the arbitrator. If as a result of the
arbitration proceeding, a methodology different than that currently
employed by the Company is instituted to allocate the proceeds of
sales between the parties, it may yield results that are different
from the results of the accounting methodology currently employed by
the Company. As a result of the arbitration, it is possible that the
Company would recognize a different level of EPOGEN(R) sales than are
currently being recognized. Periodically, the Company makes payments
to Johnson & Johnson when a net liability to Johnson & Johnson is
calculated based upon the Company's accounting methodology. As a
result of the arbitration, the Company may be required to pay
additional compensation to Johnson & Johnson for sales during prior
periods, or Johnson & Johnson may be required to pay compensation to
the Company for such prior period sales. Due to the uncertainties of
any arbitrated result, the Company has recorded net liabilities that
exceed the amounts paid to Johnson & Johnson.
No date has been set for the trial before the arbitrator of the
accounting methodologies and compensation for sales by Johnson &
Johnson into Amgen's contractual market and sales by Amgen into
Johnson & Johnson's contractual market. Discovery as to these issues
is in progress.
While it is not possible to predict accurately or determine the
eventual outcome of this matter, the Company believes that the
outcome of this legal proceeding will not have a material adverse
effect on the operations or financial position of the Company.
Other litigation
The Company is engaged in various other legal proceedings,
including patent disputes. While it is not possible to predict
accurately or determine the eventual outcome of these matters, the
Company believes that these proceedings will not have a material
adverse effect on the operations or financial position of the
Company.
Outlook
The Company has submitted additional data to the U.S. Food and
Drug Administration ("FDA") to seek expansion of the target
hematocrit range for patients with chronic renal failure receiving
Epoetin alfa from the current range of 30 to 33 percent to a range of
30 to 36 percent. This data is currently being reviewed by the FDA.
The Company has also filed a product license amendment with the
FDA to expand the approved uses of NEUPOGEN(R) to include a reduction
in the duration of neutropenia for patients undergoing myeloablative
therapy followed by bone marrow transplantation. This amendment is
currently being reviewed by the FDA for approval.
In February 1994, the FDA completed the prelicensure inspection
of the Puerto Rico manufacturing facility. It is anticipated that
licensure may occur in 1994.
Operating in rapidly changing health care policy arenas and
market environments presents many significant and unique challenges.
While the federal government continues to formulate legislation for
health care reform, the Company is adapting to market-driven forces
in the United States and legislative mandates in foreign markets.
Market forces are changing the economics of health care in the United
States through voluntary limits on price increases by the
pharmaceutical industry, increases in the purchasing power of large
buying groups, and increased influence on medical care and treatment
decisions by managed care organizations.
The Company is adapting to this changing health care environment
through programs that work to optimize the use of its products in the
treatment of patients and clinical trials designed to evaluate cost
and quality-of-life parameters as well as clinical safety and
efficacy.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is engaged in arbitration proceedings with Ortho
Pharmaceutical Corporation, a subsidiary of Johnson & Johnson. For a
complete discussion of this matter see Part I, Item 2, "Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Legal Matters." Other legal proceedings are discussed
below.
Elanex Pharmaceuticals litigation
In October of 1993, the Company filed a complaint for patent
infringement against defendants Elanex Pharmaceuticals, Inc.
("Elanex"), Laboratorios Elanex De Costa Rica, S. A., Bio Sidus S.A.,
Merckle GmbH, Biosintetica S. A. and other unknown defendants. The
complaint, filed in the United States District Court for the Western
District of Washington at Seattle, seeks injunctive relief and
damages for Elanex' infringement of the Company's patent for DNA
sequences and host cells useful in producing recombinant
erythropoietin. The complaint also alleges that the foreign
defendants entered into agreements with Elanex relating to the
production or sale of recombinant erythropoietin and thereby have
induced Elanex' infringement.
In December 1993, Elanex responded to the complaint denying the
material allegations thereof, and filed a counterclaim seeking a
declaratory judgment that the Company's patent is invalid, and that
Elanex recombinant erythropoietin technology does not infringe any
valid claims of the Company's patent. The counterclaim also seeks an
award of reasonable attorneys' fees and other costs of defense.
While it is not possible to predict accurately or to determine
the eventual outcome of this matter, the Company believes that the
outcome of this legal proceeding will not have a material adverse
effect on the operations or financial position of the Company.
Erythropoietin patent litigation
Amgen has been engaged in litigation (the "Amgen suit") with
Genetics Institute, Inc. ("Genetics Institute") and its commercial
partner, Chugai Pharmaceutical Co., Ltd., regarding the infringement
of Amgen's patent on the DNA sequence used in the production of
erythropoietin (the "Amgen Patent") and the infringement by Amgen's
erythropoietin product of a patent held by Genetics Institute.
Genetics Institute and the Company announced on May 11, 1993
that they agreed to settle all outstanding patent disputes between
them regarding erythropoietin in the United States. As part of the
settlement, Genetics Institute paid the Company $13,900 during the
quarter ended September 30, 1993. An additional $2,000 may be paid
to the Company contingent upon the outcome of certain future events.
As a result of the settlement of the litigation, Amgen expects to
receive patents on the process for producing recombinant
erythropoietin and on the recombinant erythropoietin product.
In August 1991, Johnson & Johnson, together with eleven of
Johnson & Johnson's Cilag European subsidiaries, filed a suit in the
United States District Court for the District of Massachusetts in
Boston, the site of the Amgen suit against Genetics Institute (the
"Boston Court"), seeking damages from Genetics Institute for
infringement of the Amgen Patent (the "Johnson & Johnson suit") and
moved to consolidate the Johnson & Johnson suit with the original
suit filed by Amgen. The two suits were consolidated by the Boston
Court. Amgen was allowed to intervene in the Johnson & Johnson suit
for the limited purpose of seeking a summary judgment dismissing the
Johnson & Johnson suit. In December 1992, the Boston Court
determined that Johnson & Johnson had no standing to sue Genetics
Institute and entered judgment and dismissed the Johnson & Johnson
suit. Also, in December 1992, the Boston Court denied motions by
Johnson & Johnson to intervene in the Amgen suit for the limited
purpose of seeking a summary judgment limiting Amgen's damages
against Genetics Institute. Johnson & Johnson has appealed the
Boston Court's December 1992 rulings. The appeal by Johnson &
Johnson, together with eleven of its Cilag European subsidiaries, is
pending.
While it is not possible to predict accurately or determine the
eventual outcome of this matter, the Company believes that the
outcome of the appeal by Johnson & Johnson will not have a material
adverse effect on the operations or financial position of the
Company.
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 March 31, 1994.
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: 5/11/94 By:/s/ Gordon M. Binder
------------------ --------------------------------
Gordon M. Binder
Chairman of the Board,
Chief Executive Officer and
Acting Chief Financial Officer
Date: 5/11/94 By:/s/ Larry A. May
------------------ -------------------------------
Larry A. May
Vice President, Corporate
Controller and Chief
Accounting Officer
AMGEN INC.
INDEX TO EXHIBITS
Exhibit No. Description
4.1 Warrant Agreement, dated September 1, 1990, between the
Company, PaineWebber R&D Partners, L.P. and American
Stock Transfer and Trust Company as Warrant Agent. (13)
4.2 Warrant Agreement, dated November 26, 1991, between the
Company and American Stock Transfer and Trust Company as
Warrant Agent. (15)
4.3 Indenture dated January 1, 1992 between the Company and
Citibank N.A., as trustee. (14)
4.4 Forms of Commercial Paper Master Note Certificates. (18)
10.1* Company's 1991 Equity Incentive Plan, as amended. (15)
10.2* Company's 1984 Stock Option Plan, as amended, and forms
of Incentive Stock Option Grant and Nonqualified Stock
Option Grant used in connection therewith. (15)
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 Employee Stock Purchase Plan, amended April 1,
1992. (16)
10.8 Agreement, dated February 12, 1986, between the Company
and Sloan-Kettering Institute for Cancer Research (with
certain confidential information deleted therefrom). (4)
10.9 Amendment No. 2, dated November 13, 1990, to Agreement,
dated February 12, 1986, between the Company and Sloan-
Kettering Institute for Cancer Research (with certain
confidential information deleted therefrom). (13)
10.10 Research, Development Technology Disclosure and License
Agreement PPO, dated January 20, 1986, by and between
the Company and Kirin Brewery Co., Ltd. (4)
10.11 Research Collaboration Agreement, dated August 31, 1990,
between Amgen Inc. and Regeneron Pharmaceuticals, Inc.
(with certain confidential information deleted
therefrom). (13)
10.12 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)
10.13 Assignment and License Agreement, dated October 16,
1986, between the Company and Kirin-Amgen, Inc. (with
certain confidential information deleted therefrom). (5)
10.14 G-CSF European License Agreement, dated December 30,
1986, between Kirin-Amgen, Inc. and the Company (with
certain confidential information deleted therefrom). (5)
10.15 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)
10.16* Company's 1987 Directors' Stock Option Plan, as amended.
(13)
10.17 Cross License Agreement, dated June 1, 1987, between
Amgen Inc. and Amgen Clinical Partners, L.P. (6)
10.18 Development Agreement, dated June 1, 1987, between Amgen
Inc. and Amgen Clinical Partners, L.P. (6)
10.19 Joint Venture Agreement, dated June 1, 1987, between
Amgen Inc. and Amgen Clinical Partners, L.P. (6)
10.20 Partnership Purchase Option Agreement, dated June 1,
1987, between Amgen Inc. and Amgen Clinical Partners,
L.P. (6)
10.21* Company's 1988 Stock Option Plan, as amended. (15)
10.22* Company's Retirement and Savings Plan, amended and
restated as of January 1, 1993. (16)
10.23 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. (7)
10.24 Amending Agreement, dated June 30, 1988, to Development
Agreement, Partner Purchase Option Agreement, Cross
License Agreement and Joint Venture Agreement, dated
June 1, 1987, between the Company and Amgen Clinical
Partners, L.P. (7)
10.25 Agreement on G-CSF in the EC, dated September 26, 1988,
between Amgen Inc. and F. Hoffmann-La Roche & Co.
Limited Company (with certain confidential information
deleted therefrom). (9)
10.26 Supplementary Agreement to Agreement dated January 4,
1989 to Agreement on G-CSF in the EC, dated September
26, 1988, between the Company and F. Hoffmann-La Roche &
Co. Limited Company, (with certain confidential
information deleted therefrom). (9)
10.27 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). (9)
10.28 Rights Agreement, dated January 24, 1989, between Amgen
Inc. and American Stock Transfer and Trust Company,
Rights Agent. (8)
10.29 First Amendment to Rights Agreement, dated January 22,
1991, between Amgen Inc. and American Stock Transfer and
Trust Company, Rights Agent. (11)
10.30 Second Amendment to Rights Agreement, dated April 2,
1991, between Amgen Inc. and American Stock Transfer and
Trust Company, Rights Agent. (12)
10.31 Credit Agreement, dated as of November 15, 1991, among
Amgen Inc., The Borrowing Subsidiaries therein named,
the Banks therein named, Swiss Bank Corporation, as
issuing Bank and Swiss Bank Corporation and Citicorp
USA, Inc., as Co-Agents. (16)
10.32 Deed of Trust and Security Agreement, dated June 1,
1989, between the Company and UNUM Life Insurance
Company of America. (10)
10.33 Note, dated June 1, 1989, between the Company and UNUM
Life Insurance Company of America. (10)
10.34 Agency Agreement, dated November 21, 1991, between Amgen
Manufacturing, Inc. and Citicorp Financial Services
Corporation. (16)
10.35 Agency Agreement, dated May 21, 1992, between Amgen
Manufacturing, Inc. and Citicorp Financial Services
Corporation. (16)
10.36 Guaranty, dated July 29, 1992, by the Company in favor
of Merck Sharp & Dohme Quimica de Puerto Rico, Inc. (16)
10.37 936 Promissory Note No. 01, dated December 11, 1991,
issued by Amgen Manufacturing, Inc. (16)
10.38 936 Promissory Note No. 02, dated December 11, 1991,
issued by Amgen Manufacturing, Inc. (16)
10.39 936 Promissory Note No. 001, dated July 29, 1992, issued
by Amgen Manufacturing, Inc. (16)
10.40 936 Promissory Note No. 002, dated July 29, 1992, issued
by Amgen Manufacturing, Inc. (16)
10.41 Guaranty, dated November 21, 1991, by the Company in
favor of Citicorp Financial Services Corporation. (16)
10.42 First Amendment, dated as of June 16, 1992, to the
Credit Agreement, dated as of November 15, 1991, among
Amgen Inc., The Borrowing Subsidiaries therein named,
the Banks therein named, Swiss Bank Corporation, as
issuing Bank and Swiss Bank Corporation and Citicorp
USA, Inc., as Co-Agents. (16)
10.43 Second Amendment, dated as of November 6, 1992, to the
Credit Agreement, dated as of November 15, 1991, among
Amgen Inc., The Borrowing Subsidiaries therein named,
the Banks therein named, Swiss Bank Corporation, as
issuing Bank and Swiss Bank Corporation and Citicorp
USA, Inc., as Co-Agents. (16)
10.44 Lease and Agreement relating to Lease, dated March 27,
1986 and April 1, 1986, respectively, for 2003 Oak
Terrace Lane between 2001 Hillcrest Partnership and the
Company. (19)
10.45 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. (17)
10.46* Amgen Supplemental Retirement Plan dated June 1, 1993.
(20)
10.47 Promissory Note of Mr. Kevin W. Sharer, dated June 4,
1993. (20)
10.48 Amendment No. 3 dated June 25, 1993 to the Credit
Agreement, dated November 15, 1991, among the Company,
The Borrowing Subsidiaries therein named, the Banks
therein named, the Swiss Bank Corporation, as issuing
Bank and Swiss Bank Corporation and Citicorp USA, Inc.,
as Co-Agents. (20)
10.49 Promissory Note of Mr. Larry A. May, dated February 24,
1993. (21)
10.50* First Amendment dated October 26, 1993 to the Company's
Retirement and Savings Plan. (21)
10.51* Amgen Performance Based Management Incentive Plan. (21)
11 Computation of earnings per share.
-------------
* Management contract or compensatory plan or arrangement.
(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 the Quarterly Report on Form 10-Q for the
quarter ended June 30, 1987 on August 12, 1987 and incorporated
herein by reference.
(7) 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.
(8) Filed as an exhibit to the Form 8-K Current Report dated January
24, 1989 and incorporated herein by reference.
(9) 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.
(10) Filed as an exhibit to the Quarterly Report on Form 10-Q for the
quarter ended June 30, 1989 on August 14, 1989 and incorporated
herein by reference.
(11) Filed as an exhibit to the Form 8-K Current Report dated January
22, 1991 and incorporated herein by reference.
(12) Filed as an exhibit to the Form 8-K Current Report dated April
12, 1991 and incorporated herein by reference.
(13) Filed as an exhibit to the Annual Report on Form 10-K for the
year ended March 31, 1991 on July 1, 1991 and incorporated
herein by reference.
(14) Filed as an exhibit to Form S-3 Registration Statement dated
December 19, 1991 and incorporated herein by reference.
(15) Filed as an exhibit to the Annual Report on Form 10-K for the
year ended December 31, 1991 on March 30, 1992 and incorporated
herein by reference.
(16) 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.
(17) Filed as an exhibit to the Form 8-A dated March 31, 1993 and
incorporated herein by reference.
(18) 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.
(19) Filed as an exhibit to the Form 10-Q for the quarter ended June
30, 1993 on August 16, 1993 and incorporated herein by
reference.
(20) 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.
(21) 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.
EXHIBIT 11
AMGEN INC.
COMPUTATION OF PER SHARE EARNINGS
PRIMARY AND FULLY DILUTED COMPUTATION
(In thousands except per share data)
(Unaudited)
Three Months Ended
March 31,
1994 1993
-------- --------
Income before cumulative effect of a change
in accounting principle $93,460 $80,560
Cumulative effect of a change in accounting
principle - 8,738
------- -------
Net income $93,460 $89,298
======= =======
Applicable common and common stock
equivalent shares:
Weighted average shares of common
stock outstanding during the
period 133,961 136,383
Incremental number of shares
outstanding during the period
resulting from the assumed
exercises of stock options and
warrants 7,410 9,313
-------- --------
Weighted average shares of common stock
and common stock equivalents
outstanding during the period 141,371 145,696
======== ========
Earnings per common share primary and fully
diluted:
Income before cumulative effect of a
change in accounting principle $ .66 $ .55
Cumulative effect of a change in
accounting principle - .06
------- -------
Net income $ .66 $ .61
======= =======