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, 1995
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, 1995, the registrant had 265,998,635(A)
shares of Common Stock, $.0001 par value, outstanding.
- ---------------
(A)All share numbers have been adjusted retroactively to reflect a
two-for-one split of the common stock effected in the form of a
100 percent stock dividend distributed on August 15, 1995 to
stockholders of record on August 1, 1995.
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, 1995 and 1994 ...............4
Condensed Consolidated Balance Sheets -
September 30, 1995 and December 31, 1994 ........5
Condensed Consolidated Statements of
Cash Flows - nine months
ended September 30, 1995 and 1994 ...........6 - 7
Notes to Condensed Consolidated Financial
Statements ......................................8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations................................13
PART II OTHER INFORMATION
Item 1.Legal Proceedings .........................18
Item 6.Exhibits and Reports on Form 8-K ..........19
Signatures........................................20
Index to Exhibits.................................21
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The information in this report for the three and nine months
ended September 30, 1995 and 1994, 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, 1994.
Interim results are not necessarily indicative of results for
the full fiscal year.
AMGEN INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
-------- -------- -------- --------
Revenues:
Product sales .............. $460.6 $401.7 $1,334.4 $1,136.0
Corporate partner revenues . 23.8 16.9 65.1 49.7
Royalty income ............. 8.9 7.7 26.9 19.3
------ ------ -------- --------
Total revenues ............ 493.3 426.3 1,426.4 1,205.0
------ ------ -------- --------
Operating expenses:
Cost of sales .............. 64.1 59.1 207.1 176.8
Research and development ... 105.5 81.7 327.7 235.6
Marketing and selling ...... 69.1 61.9 197.8 174.7
General and administrative . 37.6 31.9 106.8 90.4
Loss of affiliates, net .... 15.2 9.8 41.2 25.6
------ ------ -------- --------
Total operating expenses .. 291.5 244.4 880.6 703.1
------ ------ -------- --------
Operating Income............. 201.8 181.9 545.8 501.9
------ ------ -------- --------
Other income (expense):
Interest and other income .. 15.4 6.8 46.7 16.0
Interest expense, net ...... (3.6) (3.3) (11.2) (8.7)
------ ------ -------- --------
Total other income
(expense) ................ 11.8 3.5 35.5 7.3
------ ------ -------- --------
Income before income taxes... 213.6 185.4 581.3 509.2
Provision for income taxes... 67.8 71.4 189.2 194.3
------ ------ -------- --------
Net income................... $145.8 $114.0 $ 392.1 $ 314.9
====== ====== ======== ========
Earnings per share:
Primary .................... $0.52 $0.41 $1.40 $1.12
Fully diluted .............. $0.51 $0.41 $1.38 $1.12
Shares used in calculation of:
Primary earnings per share . 281.8 278.5 280.2 280.0
Fully diluted earnings per
share ..................... 283.2 279.1 283.8 281.9
See accompanying notes.
AMGEN INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except per share data)
(Unaudited)
September 30, December 31,
1995 1994
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents ................ $ 145.0 $ 211.3
Marketable securities .................... 846.7 485.4
Trade receivables, net ................... 205.3 194.7
Inventories .............................. 85.8 98.0
Deferred tax assets, net ................. 70.2 70.2
Other current assets ..................... 67.0 56.0
-------- --------
Total current assets ................... 1,420.0 1,115.6
Property, plant and equipment at cost, net 707.9 665.3
Investments in affiliated companies....... 76.4 82.3
Other assets.............................. 143.9 130.9
-------- --------
$2,348.2 $1,994.1
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ......................... $ 47.2 $ 30.5
Commercial paper ......................... 99.5 99.7
Other accrued liabilities ................ 449.5 406.2
-------- --------
Total current liabilities .............. 596.2 536.4
Long-term debt............................ 177.2 183.4
Contingencies
Stockholders' equity:
Common stock, $.0001 par value; 750.0
shares authorized; outstanding - 266.0
shares in 1995 and 264.7 shares in 1994 . - -
Additional paid-in capital ............... 827.6 719.3
Retained earnings ........................ 747.2 555.0
-------- --------
Total stockholders' equity ............. 1,574.8 1,274.3
-------- --------
$2,348.2 $1,994.1
======== ========
See accompanying notes.
AMGEN INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
Nine Months Ended
September 30,
1995 1994
---------- ----------
Cash flows from operating activities:
Net income .......................... $ 392.1 $ 314.9
Depreciation and amortization ....... 64.3 57.9
Deferred income taxes ............... - 3.0
Loss of affiliates, net ............. 41.2 25.6
Cash provided by (used in):
Trade receivables, net ............ (10.6) (21.8)
Inventories ....................... 12.2 (12.5)
Other current assets .............. (11.0) (3.8)
Accounts payable .................. 16.7 (1.2)
Accrued liabilities ............... 43.3 (14.4)
--------- ---------
Net cash provided by operating
activities ...................... 548.2 347.7
--------- ---------
Cash flows from investing activities:
Purchases of property, plant and
equipment ......................... (106.8) (93.7)
Proceeds from maturities of
marketable securities ............. 79.8 82.7
Proceeds from sales of marketable
securities ........................ 894.1 1,174.9
Purchases of marketable securities .. (1,335.2) (1,115.0)
Increase in investments in
affiliated companies .............. (0.4) (18.8)
Increase in other assets ............ (13.0) (9.6)
--------- ---------
Net cash (used in) provided by
investing activities ............ $ (481.5) $ 20.5
--------- ---------
See accompanying notes.
(Continued on next page)
AMGEN INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In millions)
(Unaudited)
Nine Months Ended
September 30,
1995 1994
---------- ----------
Cash flows from financing activities:
Decrease in commercial paper ........ $ (0.2) $ (10.2)
Proceeds from issuance of long-term
debt .............................. - 12.5
Repayment of long-term debt ......... (6.2) (9.3)
Net proceeds from issuance of common
stock upon the exercise of stock
options ........................... 84.6 30.7
Tax benefit related to stock options 23.6 14.5
Net proceeds from issuance of common
stock upon the exercise of warrants - 15.3
Repurchases of common stock ......... (199.9) (226.0)
Other ............................... (34.9) (22.7)
--------- ---------
Net cash used in financing
activities ...................... (133.0) (195.2)
--------- ---------
(Decrease) increase in cash and cash
equivalents ......................... (66.3) 173.0
Cash and cash equivalents at
beginning of period ................. 211.3 128.5
--------- ---------
Cash and cash equivalents at end of
period .............................. $ 145.0 $ 301.5
========= =========
See accompanying notes.
AMGEN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1995
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 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,
1995 1994
------ ------
Raw materials ......... $10.5 $11.0
Work in process ....... 43.8 54.0
Finished goods ........ 31.5 33.0
----- -----
$85.8 $98.0
===== =====
Product sales
Product sales consist of two products, EPOGEN(R) (Epoetin alfa)
and NEUPOGEN(R) (Filgrastim).
Quarterly NEUPOGEN(R) sales volume in the United States is
influenced by a number of factors including underlying demand,
seasonality of cancer chemotherapy administration and wholesaler
inventory management practices. Wholesaler inventory reductions tend
to reduce domestic NEUPOGEN(R) sales in the first quarter each year.
NEUPOGEN(R) sales in the European Union ("EU") have experienced a
decline in the third quarter in prior years due to seasonality.
As a result of 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 (see
Note 4, "Contingencies - Johnson & Johnson arbitrations").
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 during the period in which they were outstanding.
Common stock equivalents include outstanding options under the
Company's stock option plans and warrants to purchase shares of the
Company's common stock. The warrants expired on June 30, 1994.
Basis of presentation
The financial information for the three and nine months ended
September 30, 1995 and 1994 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.
Reclassification
Certain prior period amounts have been reclassified to conform
to the current period presentation.
2. Debt
As of September 30, 1995, $99.5 million of commercial paper was
outstanding. These borrowings generally had maturities of three
months or less and had effective interest rates averaging 5.9%.
In June 1995, the Company replaced its existing unsecured credit
facility with a new unsecured credit facility (the "credit facility").
The credit facility includes a commitment expiring on June 23, 2000
for up to $150.0 million of borrowings under a revolving line of
credit (the "revolving line commitment") and a commitment expiring on
December 5, 1997 for up to an additional $73.0 million of letters of
credit (the "letters of credit commitment"). As of September 30,
1995, $150.0 million was available under the revolving line
commitment for borrowing and to support the Company's commercial
paper program. Also, as of September 30, 1995, letters of credit
totaling $72.4 million were issued and outstanding to secure the
Company's promissory notes and accrued interest thereon. Borrowings
under the revolving line commitment bear interest at various rates
which are a function of, at the Company's option, either the prime
rate of a major bank, the federal funds rate or a Eurodollar base
rate. Under the terms of the credit facility, the Company is
required to meet a minimum interest coverage ratio and maintain a
minimum level of tangible net worth. In addition, the credit
facility contains limitations on investments, liens and
sale/leaseback transactions.
Long-term debt consists of the following (in millions):
September 30, December 31,
1995 1994
------ ------
Medium Term Notes .......... $109.0 $113.0
Promissory notes ........... 68.2 68.2
Other obligations .......... - 2.2
------ ------
$177.2 $183.4
====== ======
The Company has registered $200.0 million of unsecured medium
term debt securities ("Medium Term Notes") of which $109.0 million
were outstanding at September 30, 1995. These Medium Term Notes bear
interest at fixed rates averaging 5.8% and mature in approximately
two to eight years.
3. Income taxes
The provision for income taxes consists of the following (in
millions):
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
----- ----- ------ ------
Federal ............ $63.6 $60.9 $173.8 $166.8
State .............. 4.2 10.5 15.4 27.5
----- ----- ------ ------
Total ............ $67.8 $71.4 $189.2 $194.3
===== ===== ====== ======
The decrease in the current year tax rate is due to tax benefits
from the sale of products manufactured in the Puerto Rico fill-and-
finish facility which began in the first quarter of 1995.
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"). These disputes have been the
subject of arbitration proceedings before Judicial Arbitration and
Mediation Services, Inc. ("JAMS") in Chicago, Illinois commencing in
January 1989. A dispute that has not yet been resolved and is the
subject of the current arbitration proceeding relates to the
accounting 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 contractual market. The Company has
established and is employing an accounting methodology to assign the
proceeds of sales of EPOGEN(R) and PROCRIT(R) in Amgen's and Johnson &
Johnson's respective contractual markets. Johnson & Johnson has
disputed this methodology and is proposing an alternative methodology
for adoption by the arbitrator. If, as a result of the arbitration
proceeding, a methodology different from that currently employed by
the Company is instituted to assign 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 EPOGENR sales than are currently being
recognized. 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
established net liabilities that exceed the amounts paid to Johnson &
Johnson.
A trial date is scheduled for March 1, 1996 regarding 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.
The Company also filed a demand in the arbitration seeking
termination of the License Agreement and damages. A hearing on this
demand will be scheduled following the adjudication of the accounting
methodologies for Epoetin alfa sales. On October 30, 1995 Johnson &
Johnson filed a complaint in the United States District Court for the
District of Delaware seeking to enjoin the arbitrator from hearing
the termination claims and a judgment declaring that JAMS does not have
jurisdiction over the claims. The Company is unable to predict at
this time the outcome of this demand or when it will be resolved.
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. The Company has filed a motion
to stay the arbitration pending the outcome of the existing
arbitration proceedings before JAMS 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 counterclaiming for certain
unpaid invoices.
Synergen litigation
Acquisition litigation
The Company and its wholly owned subsidiary, Amgen Boulder Inc.
(formerly Synergen, Inc.), have been named as defendants in several
lawsuits filed in connection with the Company's December 1994
acquisition of Synergen (the ``Acquisition''). One suit, brought by
plaintiffs seeking to represent a class of Synergen warrant holders
who claim to have been deprived of the benefit of their warrants,
includes a request for an injunction, declaratory relief and general
damages in the sum of $34.3 million and also names Amgen Boulder
Development Corporation as a defendant. The balance of the suits
have been brought by plaintiffs who seek to represent a class of
stockholders of Synergen common stock. These plaintiffs seek an
unspecified amount of compensatory damages, an order rescinding the
Acquisition and related equitable relief based upon allegations that
the defendants breached their fiduciary duties by failing to maximize
stockholder value and defrauded the plaintiffs by omitting to
disclose allegedly material information concerning Synergen's future
prospects.
ANTRIL(TM) litigation
Several lawsuits have been filed against Synergen alleging
misrepresentations in connection with its research and development of
ANTRIL(TM) for the treatment of sepsis. One suit brought by three
Synergen stockholders alleges violations of state securities laws,
fraud and misrepresentation and seeks an unspecified amount of
compensatory damages and punitive damages. Another suit, proposed as
a class action, filed by a limited partner of a partnership with
which Synergen is affiliated, seeks rescission of certain payments
made to one of the defendants (or unspecified damages not less than
$50.0 million) and treble damages based on a variety of allegations.
Broker-dealers who acted as market makers in Synergen options have
also filed a suit claiming in excess of $3.2 million in trading
losses.
While it is not possible to predict accurately or determine the
eventual outcome of the Johnson & Johnson arbitration proceedings,
the Synergen litigation 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. Capital stock
During the nine months ended September 30, 1995, the Company
acquired 5.6 million shares of its common stock at a total cost of
$199.9 million under its common stock repurchase program. At
September 30, 1995, $131.3 million of the amount approved by the
Board of Directors remained available for repurchase through December
31, 1995.
In July 1995, the Board of Directors approved a two-for-one
split of the Company's common stock effected in the form of a 100
percent stock dividend. The dividend was distributed on August 15,
1995, to stockholders of record on August 1, 1995. Accordingly, the
condensed consolidated financial statements and the accompanying
notes have been retroactively adjusted to give recognition to this
stock split.
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, 1995, operations provided $548.2
million of cash compared with $347.7 million during the same period
last year. The Company had cash, cash equivalents and marketable
securities of $991.7 million at September 30, 1995, compared with
$696.7 million at December 31, 1994.
Capital expenditures totaled $106.8 million for the nine months
ended September 30, 1995, compared with $93.7 million for the same
period a year ago. Over the next few years, the Company expects to
spend approximately $150.0 million to $300.0 million per year on
capital projects to expand the Company's global operations.
The Company receives cash from the exercise of employee stock
options. During the nine months ended September 30, 1995, stock
options and their related tax benefits provided $108.2 million of
cash compared with $45.2 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 fluctuations in
the market value of the Company's stock relative to the exercise price
of such options, among other factors.
The Company has a common stock repurchase program to
offset the dilutive effect of its employee benefit stock option and
stock purchase plans. Since its inception in 1992 through September
30, 1995, the Company has repurchased $793.7 million of its common
stock and is authorized to purchase up to an additional $131.3
million through December 31, 1995. During the nine months ended
September 30, 1995, the Company purchased 5.6 million shares of
common stock at a cost of $199.9 million compared with 10.2 million
shares purchased at a cost of $226.0 million during the same period
last year.
To provide for financial flexibility and increased liquidity,
the Company has established several sources of debt financing. The
Company has a shelf registration statement with the Securities and
Exchange Commission under which it could issue up to $200.0 million
of Medium Term Notes. At September 30, 1995, $109.0 million of
Medium Term Notes were outstanding which mature in approximately two
to eight years. The Company has a commercial paper program which
provides for short-term borrowings up to an aggregate face amount of
$200.0 million. At September 30, 1995, $99.5 million of commercial
paper was outstanding, generally with maturities of three months or
less. The Company also has a $150.0 million revolving line of
credit, principally to support the Company's commercial paper
program. No borrowings on this line of credit were outstanding at
September 30, 1995.
The Company invests its cash in accordance with a policy that
seeks to maximize returns while ensuring both liquidity and minimal
risk of principal loss. The 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's fixed income
investments are subject to the risk of market interest rate
fluctuations, and all of the Company's investments are subject to
risks associated with the ability of the issuers to perform their
obligations under the instruments.
The Company has a program to manage certain portions of its
exposure to fluctuations in foreign currency exchange rates. These
exposures primarily result from European sales, partially offset by
costs incurred in Europe. The Company generally hedges the related
receivables 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. At September 30, 1995,
outstanding option and forward contracts totaled $25.7 million and
$63.2 million, respectively.
The Company believes that existing funds, cash generated from
operations, and existing sources of debt financing will 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 raise additional
capital from time to time to take advantage of favorable conditions in
the markets or in connection with the Company's corporate development
activities.
Results of Operations
Product sales
Product sales increased 14.7% and 17.5% for the three and nine
months ended September 30, 1995, respectively, compared with the same
periods last year.
NEUPOGEN(R) (Filgrastim)
The Company's worldwide NEUPOGEN(R) sales were $230.3 million
and $689.6 million for the three and nine months ended September 30,
1995, respectively. These amounts represent increases of 7.3% and
13.3%, respectively, over the same periods last year.
Domestic sales of NEUPOGEN(R) were $163.7 million and $486.8
million for the three and nine months ended September 30, 1995,
respectively. These amounts represent increases of $3.6 million and
$36.3 million, or 2.2% and 8.1%, respectively, over the same periods
last year. These increases are primarily due to increased usage of
NEUPOGEN(R) and to price increases. Current quarter results were
influenced by accelerated wholesaler purchasing just before the
extended July 4 holiday period, which created artificially high
inventory levels at the end of the second quarter, suppressing the
increase in third quarter sales of NEUPOGEN(R). Current quarter
results also reflect the ongoing and intensifying cost reduction
pressure in the health care marketplace, including the growing
influence of managed care organizations and the use of guidelines in
patient care. This pressure has contributed to the slowing of growth
in domestic NEUPOGEN(R) usage over the past several years and is
expected to continue to influence such growth for the forseeable
future.
International sales of NEUPOGEN(R), primarily in Europe, were
$66.6 million and $202.8 million for the three and nine months ended
September 30, 1995, respectively. These amounts represent increases
of $12.0 million and $44.8 million, or 22.0% and 28.4%, respectively,
over the same periods last year. Three factors account for these
increases: (1) the inclusion of sales from three additional
countries as the result of Austria, Sweden, and Finland joining the
EU on January 1, 1995, (2) increased market penetration, and (3) the
favorable effects of strengthened foreign currencies. Prior to the
entry of these countries into the EU, F. Hoffmann La Roche paid the
Company royalties on sales in these countries under a license
agreement. The Company's overall share of the colony-stimulating
factor market in the EU has decreased slightly since the introduction
in 1994 of competing colony stimulating factor products.
Quarterly NEUPOGEN(R) sales volume in the United States is
influenced by a number of factors including underlying demand,
seasonality of cancer chemotherapy administration and wholesaler
inventory management practices. Wholesaler inventory reductions tend
to reduce domestic NEUPOGEN(R) sales in the first quarter each year.
In prior years, NEUPOGEN(R) sales in the EU have experienced a
decline to varying degrees in the third quarter due to seasonality.
EPOGEN(R) (Epoetin alfa)
EPOGEN(R) sales were $230.3 million and $644.8 million for the
three and nine months ended September 30, 1995, respectively. These
amounts represent increases of $43.3 million or 23.2% and $117.3
million or 22.2% over the same periods last year. These increases
were primarily due to an increase in the U.S. dialysis patient
population, the administration of higher doses of EPOGEN(R) per
patient, and, to a lesser extent, increased penetration of the
dialysis market.
Cost of sales
Cost of sales as a percentage of product sales was 13.9% and
15.5% for the three and nine months ended September 30, 1995,
respectively, compared with 14.7% and 15.6% for the same periods last
year. Cost of sales as a percentage of product sales declined
slightly in the current quarter as benefits of the Puerto Rico fill-
and-finish facility were realized. The fourth quarter margin is
expected to be similar to the third quarter margin. In 1996, cost of
sales as a percentage of product sales is expected to range from 14%
to 16%.
Research and development
Research and development expenses increased $23.8 million or
29.1% and $92.1 million or 39.1% for the three and nine months ended
September 30, 1995, respectively, compared with the same periods last
year. These increases are primarily due to an expansion of the
Company's internal research and development staff, partially as a
result of the acquisition of Synergen in December 1994. In addition,
the current year nine month period includes a $20.0 million signing
payment made in the first quarter to The Rockefeller University for
an exclusive license to certain technologies. Annual research and
development expenses in 1996 are expected to increase at an annual
rate exceeding the anticipated 1996 product sales growth rate.
Marketing and selling
Marketing and selling expenses increased $7.2 million or 11.6%
and $23.1 million or 13.2%, for the three and nine months ended
September 30, 1995, respectively, compared with the same periods last
year. These increases primarily reflect marketing efforts to
increase the number of patients receiving NEUPOGEN(R) and to bring
more patients receiving EPOGEN(R) within the target hematocrit
range. In 1996, marketing and selling expenses combined with general
and administrative expenses are expected to have an aggregate annual
growth rate lower than the anticipated 1996 annual growth in product
sales.
General and administrative
General and administrative expenses increased $5.7 million or
17.9% and $16.4 million or 18.1%, for the three and nine months ended
September 30, 1995, respectively, compared with the same periods last
year. These increases are primarily due to staff-related and legal
expenses. In 1996, general and administrative expenses combined with
marketing and selling expenses are expected to have an aggregate
annual growth rate lower than the anticipated 1996 annual growth in
product sales.
Interest and other income
Interest and other income increased $8.6 million or 126.5% and
$30.7 million or 191.9% during the three and nine months ended
September 30, 1995, respectively, compared with the same periods last
year. These increases are primarily due to: (1) higher current year
cash balances, (2) capital gains realized in the Company's investment
portfolio during the current year periods while capital losses were
incurred in the prior year periods, (3) higher interest rates earned
by the Company's investment portfolio during the current year
periods, and (4) gains on foreign currency transactions. Interest and
other income is expected to fluctuate from period to period primarily
due to changes in interest rates and cash balances.
Income taxes
The Company's effective tax rate for the three and nine months
ended September 30, 1995 was 31.7% and 32.5% compared to 38.5% and
38.2%, respectively, for the same periods last year. These decreases
in the tax rate were due to tax benefits from the sale of products
manufactured in the Puerto Rico fill-and-finish facility which began
in the first quarter of 1995. These tax benefits are expected to
result in an annualized effective tax rate of 31-33% in 1995.
Financial Outlook
Worldwide NEUPOGEN(R) sales for 1995 are expected to grow at a
double digit rate but lower than the 1994 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. NEUPOGEN(R) usage is expected to continue to be
affected by cost containment pressures on health care providers, which
are intensifying because of managed care and guidelines. In addition,
international NEUPOGEN(R) sales will continue to be subject to
changes in foreign currency exchange rates and increased competition.
EPOGEN(R) sales for 1995 are anticipated to grow at an annual
rate of more than 20%. The Company anticipates that increases in
both the U.S. dialysis patient population and dosing will continue to
drive EPOGEN(R) sales. EPOGEN(R) sales may also be affected by
future changes in reimbursement rates or the basis for reimbursement
by the federal government.
The Company expects double digit earnings growth in 1995
primarily as a result of the anticipated increases in product sales,
increases realized in interest and other income, and the decrease in
the 1995 tax rate. The Company currently anticipates that total
product sales and earnings will grow at double digit rates in 1996,
but these growth rates are expected to be lower than 1995 growth
rates. Estimates of future product sales and earnings, however,
are necessarily speculative in nature and are difficult to predict
with accuracy.
Legal Matters
The Company is engaged in arbitration proceedings with one of
its licensees and various legal proceedings relating to Synergen.
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 - "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, 1994, with
material developments since that report described below except to the
extent otherwise reported in the Company's Form 10-Qs for the periods
ended March 31, 1995 and June 30, 1995. While it is not possible to
predict accurately 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.
Synergen litigation
Acquisition litigation
In Livergood v. Synergen, Inc., et al., Weld, et al. v. Amgen
Inc., et al., and Reineke v. Synergen, Inc., et al., purported class
action suits previously filed on behalf of former Synergen
stockholders challenging the acquisition price, all three suits were
consolidated in United States District Court, County of Boulder,
State of Colorado, and the court has stayed the proceedings pending
the outcome of the Stanley, et al. v. Soll, et al. suit involving
similar claims previously filed in the Delaware Chancery Court. In
Glick v. Synergen, Inc., et al., a lawsuit previously brought by a
class of Synergen warrant holders who claim to have been deprived of
the benefit of their warrants, the court has dismissed the third
amended complaint but granted leave to amend the complaint. The
plaintiffs have amended the complaint to seek declaratory relief
and an injunction.
ANTRIL(TM) litigation
In Temple, et al. v. Synergen, Inc., et al., a suit previously
filed in the District Court for the City and County of Denver, State
of Colorado, alleging misrepresentations in connection with
Synergen's research and development of ANTRIL(TM) for the treatment
of sepsis, the court has stayed the proceedings pending an appeal
filed by the plaintiffs in the United States District Court for the
Tenth Circuit. The appeal seeks to reverse a Federal court ruling
which denied the plaintiffs' exclusion from a prior class action
settlement. If the Tenth Circuit affirms the ruling, the plaintiffs
will be foreclosed from proceeding in the above mentioned state court
action.
Erythropoietin patent litigation
This lawsuit was terminated on October 2, 1995 when the United
States Supreme Court denied Johnson & Johnson's petition for
certiorari which sought review of an April 5, 1995 decision by the
United States Court of Appeals for the Federal Circuit.
Item 6. Exhibits and Reports on Form 8-K
(a) Reference is made to the Index to Exhibits included herein.
(b) Reports on Form 8-K
The Company filed a report on Form 8-K dated August 31, 1995
reporting a demand filed in an arbitration proceeding with Johnson &
Johnson seeking: (1) termination of the product license agreement
between the Company and Johnson & Johnson, (2) an accounting of
Johnson & Johnson's spillover sales and (3) damages.
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: 11/13/95 By:/s/ Robert S. Attiyeh
- ------------------ ------------------------------------
Robert S. Attiyeh
Senior Vice President Finance
and Corporate Development, and
Chief Financial Officer
Date: 11/13/95 By:/s/ Larry A. May
- ------------------ ------------------------------------
Larry A. May
Vice President, Corporate
Controller and Chief
Accounting Officer
AMGEN INC.
INDEX TO EXHIBITS
Exhibit No. Description
3.1 Restated Certificate of Incorporation. (7)
3.2 Certificate of Amendment to Restated Certificate of
Incorporation, effective as of July 24, 1991. (14)
3.3 Bylaws, as amended to date. (19)
4.1 Indenture dated January 1, 1992 between the Company and
Citibank N.A., as trustee. (15)
4.2 Forms of Commercial Paper Master Note Certificates. (18)
10.1* Company's Amended and Restated 1991 Equity Incentive
Plan.
10.2* Company's Amended and Restated 1984 Stock Option Plan.
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 Amended and Restated 1987 Directors' Stock
Option Plan.
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 Amended and Restated 1988 Stock Option Plan.
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 EU, 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 EU, 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 Deed of Trust and Security Agreement, dated June 1,
1989, between the Company and UNUM Life Insurance
Company of America. (10)
10.32 Note, dated June 1, 1989, between the Company and UNUM
Life Insurance Company of America. (10)
10.33 Agency Agreement, dated November 21, 1991, between Amgen
Manufacturing, Inc. and Citicorp Financial Services
Corporation. (16)
10.34 Agency Agreement, dated May 21, 1992, between Amgen
Manufacturing, Inc. and Citicorp Financial Services
Corporation. (16)
10.35 Guaranty, dated July 29, 1992, by the Company in favor
of Merck Sharp & Dohme Quimica de Puerto Rico, Inc. (17)
10.36 936 Promissory Note No. 01, dated December 11, 1991,
issued by Amgen Manufacturing, Inc. (16)
10.37 936 Promissory Note No. 02, dated December 11, 1991,
issued by Amgen Manufacturing, Inc. (16)
10.38 936 Promissory Note No. 001, dated July 29, 1992, issued
by Amgen Manufacturing, Inc. (16)
10.39 936 Promissory Note No. 002, dated July 29, 1992, issued
by Amgen Manufacturing, Inc. (16)
10.40 Guaranty, dated November 21, 1991, by the Company in
favor of Citicorp Financial Services Corporation. (16)
10.41 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)
10.42 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)
10.43* Amgen Supplemental Retirement Plan dated June 1, 1993.
(20)
10.44 Promissory Note of Mr. Kevin W. Sharer, dated June 4,
1993. (20)
10.45 Promissory Note of Mr. Larry A. May, dated February 24,
1993. (21)
10.46* First Amendment dated October 26, 1993 to the Company's
Retirement and Savings Plan. (21)
10.47* Amgen Performance Based Management Incentive Plan. (21)
10.48 Agreement and Plan of Merger, dated as of November 17,
1994, among Amgen Inc., Amgen Acquisition Subsidiary,
Inc. and Synergen, Inc. (22)
10.49 Third Amendment to Rights Agreement, dated as of
February 21, 1995, between Amgen Inc. and American Stock
Transfer Trust and Trust Company (23)
10.50 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.(24)
11 Computation of per share earnings.
27 Financial Data Schedule.
- ----------------
* 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 the Form 8-K Current Report dated July
24, 1991 and incorporated herein by reference.
(15) Filed as an exhibit to Form S-3 Registration Statement dated
December 19, 1991 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.
(22) Filed as an exhibit to the Form 8-K Current Report dated
November 18, 1994 on December 2, 1994 and incorporated herein by
reference.
(23) Filed as an exhibit to the Form 8-K Current Report dated
February 21, 1995 on March 7, 1995 and incorporated herein by
reference.
(24) 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.