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, 1996
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, 1996, the registrant had 264,453,836 shares of
Common Stock, $.0001 par value, outstanding.
AMGEN INC.
INDEX
Page No.
PART I FINANCIAL INFORMATION
Item 1.Financial Statements .......................3
Condensed Consolidated Statements of
Operations - three and nine months
ended September 30, 1996 and 1995 ...............4
Condensed Consolidated Balance Sheets -
September 30, 1996 and December 31, 1995 ........5
Condensed Consolidated Statements of
Cash Flows - nine months ended
September 30, 1996 and 1995 .................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 .........................19
Item 6.Exhibits and Reports on Form 8-K ..........19
Signatures........................................20
Index to Exhibits.................................21
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The information in this report for the three and nine months
ended September 30, 1996 and 1995 is unaudited but includes all
adjustments (consisting only of normal recurring accruals) which
Amgen Inc. ("Amgen" or the "Company") considers necessary for a fair
presentation of the results of operations for those periods.
The condensed consolidated financial statements should be read
in conjunction with the Company's financial statements and the notes
thereto contained in the Company's Annual Report on Form 10-K for the
year ended December 31, 1995.
Interim results are not necessarily indicative of results for
the full fiscal year.
3
AMGEN INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
-------- -------- -------- --------
Revenues:
Product sales .............. $533.3 $460.6 $1,529.1 $1,334.4
Corporate partner revenues . 23.1 23.8 86.9 65.1
Royalty income ............. 10.6 8.9 30.3 26.9
------ ------ -------- --------
Total revenues ............ 567.0 493.3 1,646.3 1,426.4
------ ------ -------- --------
Operating expenses:
Cost of sales .............. 73.1 64.1 208.3 207.1
Research and development ... 130.4 105.5 384.6 327.7
Marketing and selling ...... 76.4 69.1 222.5 197.8
General and administrative . 42.1 37.6 119.1 106.8
Loss of affiliates, net .... 11.3 15.2 39.5 41.2
------ ------ -------- --------
Total operating expenses .. 333.3 291.5 974.0 880.6
------ ------ -------- --------
Operating income ............ 233.7 201.8 672.3 545.8
------ ------ -------- --------
Other income (expense):
Interest and other income .. 16.8 15.4 48.0 46.7
Interest expense, net ...... (1.2) (3.6) (5.2) (11.2)
------ ------ -------- --------
Total other income
(expense) ................ 15.6 11.8 42.8 35.5
------ ------ -------- --------
Income before income taxes .. 249.3 213.6 715.1 581.3
Provision for income taxes .. 69.8 67.8 213.3 189.2
------ ------ -------- --------
Net income .................. $179.5 $145.8 $ 501.8 $ 392.1
====== ====== ======== ========
Earnings per share:
Primary .................... $.64 $0.52 $1.78 $1.40
Fully diluted .............. $.64 $0.51 $1.78 $1.38
Shares used in calculation of:
Primary earnings per share . 279.4 281.8 281.3 280.2
Fully diluted earnings per
share ..................... 280.8 283.2 282.3 283.8
See accompanying notes.
4
AMGEN INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except per share data)
(Unaudited)
September 30, December 31,
1996 1995
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents ................ $ 227.0 $ 66.7
Marketable securities .................... 767.1 983.6
Trade receivables, net ................... 207.2 199.3
Inventories .............................. 91.0 88.8
Other current assets ..................... 113.7 115.7
-------- --------
Total current assets ................... 1,406.0 1,454.1
Property, plant and equipment at cost, net 831.6 743.8
Investments in affiliated companies....... 106.4 95.7
Other assets.............................. 205.2 139.2
-------- --------
$2,549.2 $2,432.8
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ......................... $ 41.7 $ 54.4
Commercial paper ......................... - 69.7
Accrued liabilities ...................... 405.1 459.7
Current portion of long term debt ........ 118.2 -
-------- --------
Total current liabilities .............. 565.0 583.8
Long-term debt............................. 59.0 177.2
Put warrants............................... 157.4 -
Contingencies
Stockholders' equity:
Common stock and additional paid-in
capital; $.0001 par value; 750.0 shares
authorized; outstanding - 264.5 shares
in 1996 and 265.7 shares in 1995 ........ 963.2 864.8
Retained earnings ........................ 804.6 807.0
-------- --------
Total stockholders' equity ............. 1,767.8 1,671.8
-------- --------
$2,549.2 $2,432.8
======== ========
See accompanying notes.
5
AMGEN INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
Nine Months Ended
September 30,
1996 1995
---------- ----------
Cash flows from operating activities:
Net income .............................. $ 501.8 $ 392.1
Depreciation and amortization ........... 79.9 64.3
Loss of affiliates, net ................. 39.5 41.2
Cash provided by (used in):
Trade receivables, net ................. (7.9) (10.6)
Inventories ............................ (2.2) 12.2
Other current assets ................... 2.0 (11.0)
Accounts payable ....................... (12.7) 16.7
Accrued liabilities .................... (54.6) 43.3
--------- ---------
Net cash provided by operating
activities .......................... 545.8 548.2
--------- ---------
Cash flows from investing activities:
Purchases of property, plant and
equipment .............................. (167.6) (106.8)
Proceeds from maturities of marketable
securities ............................. 135.2 79.8
Proceeds from sales of marketable
securities ............................. 603.6 894.1
Purchases of marketable securities ...... (522.3) (1,335.2)
Increase in investments in affiliated
companies .............................. (10.2) (0.4)
Increase in other assets ................ (66.0) (13.0)
--------- ---------
Net cash used in investing activities . $ (27.3) $ (481.5)
--------- ---------
See accompanying notes.
(Continued on next page)
6
AMGEN INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In millions)
(Unaudited)
Nine Months Ended
September 30,
1996 1995
---------- ----------
Cash flows from financing activities:
Decrease in commercial paper ............ $ (69.7) $ (0.2)
Repayment of long-term debt ............. - (6.2)
Net proceeds from issuance of common
stock upon the exercise of stock
options ............................... 76.8 84.6
Tax benefit related to stock options .... 21.5 23.6
Repurchases of common stock ............. (346.8) (199.9)
Other ................................... (40.0) (34.9)
--------- ---------
Net cash used in financing activities . (358.2) (133.0)
--------- ---------
Increase (decrease) in cash and cash
equivalents ............................. 160.3 (66.3)
Cash and cash equivalents at beginning of
period .................................. 66.7 211.3
--------- ---------
Cash and cash equivalents at end of period $ 227.0 $ 145.0
========= =========
See accompanying notes.
7
AMGEN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
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 condensed consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries as well as
affiliated companies for which the Company has a controlling
financial interest and exercises control over their operations
("majority controlled affiliates"). All material intercompany
transactions and balances have been eliminated in consolidation.
Investments in affiliated companies which are 50% or less owned and
where the Company exercises significant influence over operations are
accounted for using the equity method. All other equity investments
are accounted for under the cost method. The caption "Loss of
affiliates, net" includes Amgen's equity in the operating results of
affiliated companies and the minority interest others hold in the
operating results of Amgen's majority controlled affiliates.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined in a manner which approximates the first-in, first-out
(FIFO) method. Inventories are shown net of applicable reserves and
allowances. Inventories consist of the following (in millions):
September 30, December 31,
1996 1995
------ ------
Raw materials ......... $14.2 $11.8
Work in process ....... 48.9 45.9
Finished goods ........ 27.9 31.1
----- -----
$91.0 $88.8
===== =====
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,
8
seasonal changes in cancer chemotherapy administration, and
wholesaler inventory management practices. Wholesaler inventory
reductions have tended to reduce domestic NEUPOGEN(R) sales in the
first quarter of each year.
The Company has the exclusive right to sell Epoetin alfa for
dialysis, diagnostics and all non-human uses in the United States.
The Company sells Epoetin alfa under the brand name EPOGEN(R). Amgen
has granted to Ortho Pharmaceutical Corporation, a subsidiary of
Johnson & Johnson ("Johnson & Johnson"), a license relating to
Epoetin alfa for sales in the United States for all human uses except
dialysis and diagnostics. Pursuant to this license, Amgen does not
recognize product sales it makes into the exclusive market of Johnson
& Johnson and does recognize the product sales made by Johnson &
Johnson into Amgen's exclusive market. These sales amounts, and
adjustments thereto, are derived from 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).
Stock option and purchase plans
The Company's stock options and purchase plans are accounted for
under Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees".
Earnings per share
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 are outstanding options under the Company's
stock option plans and put warrants on the Company's common stock.
Use of estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results may
differ from those estimates.
Basis of presentation
The financial information for the three and nine months ended
September 30, 1996 and 1995 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.
9
2. Debt
During the first quarter of 1996, the Company paid off all
outstanding commercial paper.
As of September 30, 1996, $150 million was available under the
Company's line of credit for borrowing and to support the Company's
commercial paper program. No borrowings on this line of credit were
outstanding at September 30, 1996.
Long-term debt consists of the following (in millions):
September 30, December 31,
1996 1995
------ ------
Medium Term Notes .......... $109.0 $109.0
Promissory notes ........... 68.2 68.2
------ ------
177.2 177.2
Less current portion ....... (118.2) -
------ ------
$ 59.0 $177.2
====== ======
The Company has registered $200 million of unsecured medium term
debt securities ("Medium Term Notes") of which $109.0 million were
outstanding at September 30, 1996. These Medium Term Notes bear
interest at fixed rates averaging 5.8% and mature in one to seven
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,
1996 1995 1996 1995
------ ------ ------ ------
Federal (including
U.S. possessions) .. $64.9 $63.6 $195.0 $173.8
State ................. 4.9 4.2 18.3 15.4
----- ----- ------ ------
$69.8 $67.8 $213.3 $189.2
===== ===== ====== ======
The current period reduction in the tax rate is primarily due to
a favorable ruling received from the Puerto Rican government.
10
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. 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 audit methodology
currently employed by the Company for Epoetin alfa sales. The
Company and Johnson & Johnson are required to compensate each other
for Epoetin alfa sales which either party makes into the other
party's exclusive market. The Company has established and is
employing an audit methodology to assign the proceeds of sales of
EPOGEN(R) and PROCRIT(R) in Amgen's and Johnson & Johnson's
respective exclusive markets. Based upon this audit methodology, the
Company is seeking payment of approximately $15 million (excluding
interest) from Johnson & Johnson for the period 1991 through 1994.
Johnson & Johnson has disputed this methodology and is proposing an
alternative methodology for adoption by the arbitrator pursuant to
which it is seeking payment of approximately $450 million (including
interest through June 1996) for the period 1989 through 1994. 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 audit 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. 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. While it is impossible to predict
accurately or determine the outcome of these proceedings, based
primarily upon the merits of its claims and based upon certain
liabilities established due to the inherent uncertainty of any
arbitrated result, the Company believes that the outcome of these
proceedings will not have a material adverse effect on its financial
statements. A trial commenced in March 1996 regarding the audit
methodologies and compensation for sales by Johnson & Johnson into
Amgen's exclusive market and sales by Amgen into Johnson & Johnson's
exclusive market.
The Company has filed a demand in the arbitration to terminate
Johnson & Johnson's rights under the License Agreement and to recover
damages for breach of the License Agreement. A hearing on this
11
demand will be scheduled following the adjudication of the audit
methodologies for Epoetin alfa sales. On October 27, 1995, the
Company filed a complaint in the Circuit Court of Cook County,
Illinois, which is now pending in the United States District Court
for the Northern District of Illinois, seeking an order compelling
Johnson & Johnson to arbitrate the Company's claim for termination
before the arbitrator. The Company is unable to predict at this time
the outcome of the demand for termination 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 Judicial Arbitration and Mediation
Services, Inc. discussed above. The Company has also filed an answer
and counterclaim denying that AAA has jurisdiction to hear or decide
the claims stated in the demand, denying the allegations in the
demand and counterclaiming for certain unpaid invoices.
Synergen ANTRIL(TM) litigation
Several lawsuits have been filed against the Company's wholly
owned subsidiary, Amgen Boulder Inc. (formerly Synergen, Inc.),
alleging misrepresentations in connection with Synergen's research
and development of ANTRIL(TM) for the treatment of sepsis. One suit,
filed by a limited partner of a partnership with which Amgen Boulder
Inc. is affiliated, has been certified as a class action. That suit
seeks rescission of certain payments made by the limited partners to
the partnership (or unspecified damages not less than $52 million)
and treble damages based on a variety of allegations relating to
state and federal law claims. The plaintiffs in that suit also have
filed a second amended complaint alleging violations of federal
securities laws. Two 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. On August 6, 1996, the District Court for
the State of Colorado dismissed without prejudice for failure to
prosecute an action brought by three Synergen stockholders that
alleged violations of state securities laws, fraud and
misrepresentation and sought an unspecified amount of compensatory
damages and punitive damages.
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.
12
5. Stockholders' equity
During the nine months ended September 30, 1996, the Company
repurchased 6.1 million shares of its common stock at a total cost of
$346.8 million under its common stock repurchase program. The Board
of Directors has authorized the Company to repurchase up to $450
million of shares during 1996. Stock repurchased under the program
is retired.
In connection with the Company's stock repurchase program, put
warrants were sold to an independent third party during the third
quarter of 1996. Each put warrant entitles the holder to sell one
share of Amgen Inc. common stock to the Company at a specified price.
On September 30, 1996, 2.7 million put warrants were outstanding with
exercise prices ranging from $52.00 to $58.80 per share. The put
warrants are exercisable only at maturity and expire at various dates
between April 1997 and August 1997. In the event the put warrants
are exercised, the Company may elect to pay the holder in cash the
difference between the exercise price and the market price of the
Company's shares, in lieu of repurchasing the stock. The maximum
potential repurchase obligation of $157.4 million has been
reclassified from stockholders' equity to put warrants as of
September 30, 1996. In the event that the put warrants expire
unexercised, the liability associated with these instruments is
extinguished.
Additionally, during the third quarter of 1996, the Company
purchased call options from an independent third party. Each call
option entitles the Company to buy one share of Amgen Inc. common
stock at a specified price. At September 30, 1996, 1.3 million call
options were outstanding, with exercise prices ranging from $58.00 to
$61.90 per share. The call options are exercisable only at maturity
and expire at various dates between April 1997 and August 1997. In
the event the call options are exercised, the Company may elect to
receive cash for the difference between the exercise price and the
market price of the Company's shares, in lieu of repurchasing the
stock. The premiums received from the sale of the put warrants
offset in full the cost of the call options.
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, 1996, operations provided $545.8
million of cash compared with $548.2 million during the same period
last year. The Company had cash, cash equivalents and marketable
securities of $994.1 million at September 30, 1996, compared with
$1,050.3 million at December 31, 1995.
Capital expenditures totaled $167.6 million for the nine months
ended September 30, 1996, compared with $106.8 million for the same
period a year ago. Over the next few years, the Company expects to
13
spend approximately $200 million to $300 million per year on capital
projects and equipment to expand the Company's global operations.
In April 1996, the Company invested $48 million in a corporate
partner, Regeneron Pharmaceuticals, Inc., and acquired 3.0 million
shares of common stock along with warrants to purchase an additional
0.7 million shares.
The Company receives cash from the exercise of employee stock
options. During the nine months ended September 30, 1996, stock
options and their related tax benefits provided $98.3 million of cash
compared with $108.2 million for the period last year. Proceeds from
the exercise of stock options and their related tax benefits will
vary from period to period based upon, among other factors,
fluctuations in the market value of the Company's stock relative to
the exercise price of such options.
The Company has a stock repurchase program to offset the
dilutive effect of its employee benefit stock option and stock
purchase plans. During the nine months ended September 30, 1996, the
Company purchased 6.1 million shares of its common stock at a cost of
$346.8 million compared with 5.6 million shares purchased at a cost
of $199.9 million during the same period last year. The Company
expects to repurchase $400 million to $450 million of its stock under
the program in 1996. To partially hedge the cost of its stock
repurchase program, the Company issued put warrants and purchased
call options in the third quarter of 1996. See Note 5 to the
Condensed Consolidated Financial Statements.
To provide for financial flexibility and increased liquidity,
the Company has established several sources of debt financing. The
Company has a shelf registration under which it could issue up to
$200 million of Medium Term Notes. At September 30, 1996, $109.0
million of Medium Term Notes were outstanding which mature in one to
seven years. The Company has a commercial paper program which
provides for short-term borrowings up to an aggregate face amount of
$200 million. As of September 30, 1996, the Company had no
outstanding commercial paper. The Company also has a $150 million
revolving line of credit. No borrowings on this line of credit were
outstanding at September 30, 1996.
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 majority of the Company's
portfolio is composed of fixed income investments which 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 arising
from international operations. The Company generally hedges the
14
receivables and payables with foreign currency forward contracts,
which typically mature within six months. The Company uses foreign
currency option and forward contracts which generally expire within
12 months to hedge certain anticipated future sales and expenses. At
September 30, 1996, outstanding option and forward contracts totaled
$7.5 million and $60.2 million, respectively.
The Company believes that existing funds, cash generated from
operations, and existing sources of debt financing are adequate to
fund its working capital and capital expenditure requirements for the
foreseeable future, as well as to support its stock repurchase
program. 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 15.8% and 14.6% for the three and nine
months ended September 30, 1996, respectively, compared with the same
periods last year.
NEUPOGEN(R) (Filgrastim)
Worldwide NEUPOGEN(R) sales were $258.8 million and
$746.3 million for the three and nine months ended September 30,
1996, respectively. These amounts represent increases of 12.4% and
8.2%, respectively, over the same periods last year.
Domestic sales of NEUPOGEN(R) were $186.8 million and $533.7
million for the three and nine months ended September 30, 1996,
respectively. These amounts represent increases of $23.1 million and
$46.9 million, or 14.1% and 9.6%, respectively, over the same periods
last year. The increases are primarily due to growth in demand and a
price increase which was in line with the Consumer Price Index. In
1995, wholesalers accelerated their purchasing because of the timing
of the July 4 holiday. As a result, approximately $7 million of
sales were shifted from the third quarter of 1995 into the second
quarter of 1995. Such accelerated wholesaler purchasing did not
occur in 1996.
Quarterly NEUPOGEN(R) sales volume in the United States is
influenced by a number of factors including underlying demand,
seasonal change in cancer chemotherapy administration, and wholesaler
inventory management practices. Wholesaler inventory reductions have
tended to reduce domestic NEUPOGEN(R) sales in the first quarter of
each year.
The ongoing and intensifying cost containment pressures in the
health care marketplace, including use of guidelines in patient care,
have contributed to the slowing of growth in domestic NEUPOGEN(R)
usage over the past several years. These pressures are expected to
continue to influence such growth for the foreseeable future.
15
International sales of NEUPOGEN(R), primarily in Europe, were
$72.0 million and $212.6 million for the three and nine months ended
September 30, 1996, respectively. These amounts represent increases
of $5.4 million and $9.8 million, or 8.1% and 4.8% respectively, over
the same periods last year. Unit demand accounted for most of this
increase but demand benefited in part from the timing of shipments to
certain end users. The impact of foreign currency was slightly
negative.
The Company's overall share of the colony stimulating factor
market in the European Union ("EU") has continued to decrease since
the introduction in 1994 of a competing granulocyte colony
stimulating factor product. The Company does not expect the
competitive intensity to subside in the near future. In addition,
increasing government cost control measures have slowed the growth of
the colony stimulating factor market in the EU.
EPOGEN(R) (Epoetin alfa)
EPOGEN(R) sales were $274.5 million and $782.8 million for the
three and nine months ended September 30, 1996, respectively. The
amounts represent increases of $44.2 million and $138.0 million or
19.2% and 21.4%, respectively, over the same periods last year.
These increases were primarily due to a continued increase in the
U.S. dialysis patient population and the administration of higher
doses.
Increases in both the U.S. dialysis patient population and
dosing is expected to continue to drive EPOGEN(R) sales. However,
the Company believes that as more dialysis patients' hematocrits
reach target levels, dosing increases will diminish.
Corporate partner revenues
Corporate partner revenues decreased $0.7 million, or 2.9% and
increased $21.8 million, or 33.5% during the three and nine months
ended September 30, 1996, respectively, compared with the same periods
last year. The nine month period increase was primarily due to a
$15 million payment received from Yamanouchi Pharmaceutical Co., Ltd.
under a licensing agreement in June 1996. In connection with this
agreement, the Company has licensed the rights to develop,
manufacture and commercialize the Company's proprietary Consensus
Interferon in specified geographic areas of the world. The Company
will receive milestone payments as well as royalties on future
product sales.
Cost of sales
Cost of sales as a percentage of product sales was 13.7% and
13.6% for the three and nine months ended September 30, 1996,
respectively, compared with 13.9% and 15.5% for the same periods last
year. These improvements reflect efficiencies from the fill-and-
finish facility in Puerto Rico. As a result of continued
efficiencies in Puerto Rico in 1996, cost of sales as a percentage of
product sales is expected to range from 13%-14%.
16
Research and development
During the three and nine months ended September 30, 1996,
research and development expenses increased $24.9 million and
$56.9 million, or 23.6% and 17.4%, respectively, compared with the
same periods last year. These increases were primarily due to staff-
related expenses and external costs for clinical and preclinical
activities necessary to support the ongoing product development
activities. Annual research and development expenses are expected to
increase at a rate exceeding the Company's product sales growth rate
due to planned increases in internal efforts on development of
product candidates and discovery.
Marketing and selling
Marketing and selling expenses increased $7.3 million and
$24.7 million, or 10.6% and 12.5%, respectively, during the three and
nine months ended September 30, 1996 compared with the same periods
last year. These increases primarily reflect market research
activities and 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
annual product sales growth rate.
General and administrative
General and administrative expenses increased $4.5 million and
$12.3 million, or 12.0% and 11.5%, respectively, during the three and
nine months ended September 30, 1996 compared with the same periods
last year. These increases were primarily due to higher staff-
related 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 annual
product sales growth rate.
Interest and other income
Interest and other income increased $1.4 million and
$1.3 million, or 9.1% and 2.8%, respectively, during the three and
nine months ended September 30, 1996 compared with the same periods
last year. These increases resulted from fluctuations in interest
rates and cash balances compared with the same period a year ago.
Interest and other income is expected to continue to vary from period
to period primarily due to changes in cash balances, timing of
capital gains/losses, and fluctuations in interest rates.
Income taxes
The Company's effective tax rate for the three and nine months
ended September 30, 1996 was 28.0% and 29.8% compared with 31.7% and
32.5%, respectively, for the same periods last year. The decrease in
the current tax rate is primarily due to a favorable ruling received
from the Puerto Rican government. However, the federal government
also enacted legislation during the current quarter which, beginning
17
in 1998, limits the tax benefits it grants that relate to Puerto
Rican operations. The Company's effective tax rate will rise in 1998
due to this legislation.
Financial Outlook
Worldwide NEUPOGEN(R) sales for 1996 are expected to grow at a
rate lower than the 1995 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 worldwide. In
addition, international NEUPOGEN(R) sales will continue to be subject
to competition, government cost containment measures, and changes in
foreign currency exchange rates.
EPOGEN(R) sales for 1996 are also expected to grow at a rate
lower than the 1995 growth rate. The Company anticipates that
increases in both the U.S. dialysis patient population and dosing
will continue to drive EPOGEN(R) sales. The Company believes that as
more dialysis patients' hematocrits reach target levels, the
contribution of dosing to sales increases will diminish. Patients
receiving treatment for end stage renal disease are covered primarily
under medical programs provided by the federal government.
Therefore, EPOGEN(R) sales may also be affected by future changes in
reimbursement rates or the basis for reimbursement by the federal
government.
The Company 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.
Except for the historical information contained herein, the
matters discussed herein are by their nature forward-looking. For
reasons stated, or for various unanticipated reasons, actual results
may differ materially. Amgen operates in a rapidly changing
environment that involves a number of risks, some of which are beyond
the Company's control. Future operating results and matters which
may affect the Company's stock price may be affected by a number of
factors, certain of which are discussed elsewhere herein and are
discussed in the sections appearing under the heading "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Factors That May Affect Future Results" in the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996,
which sections are incorporated herein by reference and filed
herewith.
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.
18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is engaged in arbitration proceedings with one of
its licensees. For a complete discussion of these matters see Note 4
to the Condensed Consolidated Financial Statements - "Contingencies -
Johnson & Johnson arbitrations." Other legal proceedings are also
reported in Note 4 to the Condensed Consolidated Financial Statements
and in the Company's Form 10-K for the year ended December 31, 1995,
with material developments or new proceedings since that report
described in the Company's Form 10-Q for the quarters ended March 31,
1996 and June 30, 1996 and below. 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 ANTRIL(TM) litigation
Several lawsuits have been filed against the Company's wholly
owned subsidiary, Amgen Boulder Inc. (formerly Synergen, Inc.),
alleging misrepresentations in connection with Synergen's research
and development of ANTRIL (TM) for the treatment of sepsis. On
August 6, 1996, the District Court for the State of Colorado
dismissed one of these lawsuits without prejudice for failure to
prosecute an action brought by three Synergen stockholders that
alleged violations of state securities laws, fraud and
misrepresentation and sought an unspecified amount to compensatory
damages and punitive damages.
Genentech Litigation
On October 16, 1996, Genentech, Inc. filed suit in the United
States District Court for the Northern District of California seeking
an unspecified amount of compensatory damages, treble damages and
injunctive relief on its U.S. Patents 4,704,362, 5,221,619 and
4,342,832 relating to vectors for expressing cloned genes and the
methods for such expression. Genentech, Inc. alleges that Amgen has
infringed its patents by manufacturing and selling NEUPOGEN(R). As
of October 31, 1996, Amgen had not been served with this lawsuit.
Item 6. Exhibits and Reports on Form 8-K
(a) Reference is made to the Index to Exhibits included herein.
(b) No reports on Form 8-K were filed during the three months
ended September 30, 1996.
19
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: 11/05/96 By:/s/ Robert S. Attiyeh
- ------------------ ------------------------------------
Robert S. Attiyeh
Senior Vice President, Finance
and Corporate Development, and
Chief Financial Officer
Date: 11/05/96 By:/s/ Larry A. May
- ------------------ ------------------------------------
Larry A. May
Vice President, Corporate
Controller and Chief
Accounting Officer
20
AMGEN INC.
INDEX TO EXHIBITS
Exhibit No. Description
3.1 Restated Certificate of Incorporation. (6)
3.2 Certificate of Amendment to Restated Certificate of
Incorporation, effective as of July 24, 1991. (11)
3.3 Amended and Restated Bylaws. (22)
4.1 Indenture dated January 1, 1992 between the Company and
Citibank N.A., as trustee. (12)
4.2 Forms of Commercial Paper Master Note Certificates. (15)
*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 Amended and Restated Employee Stock Purchase
Plan.
10.8 Research, Development Technology Disclosure and License
Agreement PPO, dated January 20, 1986, by and between
the Company and Kirin Brewery Co., Ltd. (4)
10.9 Amendment Nos. 4 and 5, dated October 16, 1986
(effective July 1, 1986) and December 6, 1986 (effective
July 1, 1986), respectively, to the Shareholders
Agreement of Kirin-Amgen, Inc. dated May 11, 1984 (with
certain confidential information deleted therefrom). (5)
10.10 Assignment and License Agreement, dated October 16,
1986, between the Company and Kirin-Amgen, Inc. (with
certain confidential information deleted therefrom). (5)
10.11 G-CSF European License Agreement, dated December 30,
1986, between Kirin-Amgen, Inc. and the Company (with
certain confidential information deleted therefrom). (5)
10.12 Research and Development Technology Disclosure and
License Agreement: GM-CSF, dated March 31, 1987, between
21
Kirin Brewery Company, Limited and the Company (with
certain confidential information deleted therefrom). (5)
*10.13 Company's Amended and Restated 1987 Directors' Stock
Option Plan.
*10.14 Company's Amended and Restated 1988 Stock Option Plan.
10.15 Company's Amended and Restated Retirement and Savings
Plan. (22)
10.16 Amendment, dated June 30, 1988, to Research,
Development, Technology Disclosure and License
Agreement: GM-CSF dated March 31, 1987, between Kirin
Brewery Company, Limited and the Company. (6)
10.17 Agreement on G-CSF in the EU, dated September 26, 1988,
between Amgen Inc. and F. Hoffmann-La Roche & Co.
Limited Company (with certain confidential information
deleted therefrom). (8)
10.18 Supplementary Agreement to Agreement dated January 4,
1989 to Agreement on G-CSF in the EU, dated September
26, 1988, between the Company and F. Hoffmann-La Roche &
Co. Limited Company, (with certain confidential
information deleted therefrom). (8)
10.19 Agreement on G-CSF in Certain European Countries, dated
January 1, 1989, between Amgen Inc. and F. Hoffmann-La
Roche & Co. Limited Company (with certain confidential
information deleted therefrom). (8)
10.20 Rights Agreement, dated January 24, 1989, between Amgen
Inc. and American Stock Transfer and Trust Company,
Rights Agent. (7)
10.21 First Amendment to Rights Agreement, dated January 22,
1991, between Amgen Inc. and American Stock Transfer and
Trust Company, Rights Agent. (9)
10.22 Second Amendment to Rights Agreement, dated April 2,
1991, between Amgen Inc. and American Stock Transfer and
Trust Company, Rights Agent. (10)
10.23 Agency Agreement, dated November 21, 1991, between Amgen
Manufacturing, Inc. and Citicorp Financial Services
Corporation. (13)
10.24 Agency Agreement, dated May 21, 1992, between Amgen
Manufacturing, Inc. and Citicorp Financial Services
Corporation. (13)
10.25 Guaranty, dated July 29, 1992, by the Company in favor
of Merck Sharp & Dohme Quimica de Puerto Rico, Inc. (14)
10.26 936 Promissory Note No. 01, dated December 11, 1991,
issued by Amgen Manufacturing, Inc. (13)
10.27 936 Promissory Note No. 02, dated December 11, 1991,
issued by Amgen Manufacturing, Inc. (13)
10.28 936 Promissory Note No. 001, dated July 29, 1992, issued
by Amgen Manufacturing, Inc. (13)
10.29 936 Promissory Note No. 002, dated July 29, 1992, issued
by Amgen Manufacturing, Inc. (13)
10.30 Guaranty, dated November 21, 1991, by the Company in
favor of Citicorp Financial Services Corporation. (13)
10.31 Partnership Purchase Agreement, dated March 12, 1993,
between the Company, Amgen Clinical Partners, L.P.,
Amgen Development Corporation, the Class A limited
partners and the Class B limited partner. (14)
22
10.32 Amgen Supplemental Retirement Plan dated June 1, 1993.
(16)
10.33 Promissory Note of Mr. Kevin W. Sharer, dated June 4,
1993. (16)
10.34 Promissory Note of Mr. Larry A. May, dated February 24,
1993. (17)
10.35 Amgen Performance Based Management Incentive Plan. (17)
10.36 Agreement and Plan of Merger, dated as of November 17,
1994, among Amgen Inc., Amgen Acquisition Subsidiary,
Inc. and Synergen, Inc. (18)
10.37 Third Amendment to Rights Agreement, dated as of
February 21, 1995, between Amgen Inc. and American Stock
Transfer Trust and Trust Company (19)
10.38 Credit Agreement, dated as of June 23, 1995, among Amgen
Inc., the Borrowing Subsidiaries named therein, the
Banks named therein, Swiss Bank Corporation and ABN AMRO
Bank N.V., as Issuing Banks, and Swiss Bank Corporation,
as Administrative Agent. (20)
10.39 Promissory Note of Mr. George A. Vandeman, dated
December 15, 1995. (21)
10.40 Promissory Note of Mr. George A. Vandeman, dated
December 15, 1995. (21)
10.41 Promissory Note of Mr. Stan Benson, dated March 19,
1996. (21)
*10.42 Amendment No. 1 to the Company's Amended and Restated
Retirement and Savings Plan.
*11 Computation of per share earnings.
*27 Financial Data Schedule.
*99 Sections appearing under the heading "Management's
Discussion and Analysis of Financial Condition and
Results of Operations--Factors That May Affect Future
Results" in the Company's quarterly report on Form 10-Q
for the quarter ended March 31, 1996.
- ----------------
* Filed herewith.
(1) Filed as an exhibit to the Annual Report on Form 10-K for the
year ended March 31, 1984 on June 26, 1984 and incorporated
herein by reference.
(2) Filed as an exhibit to Quarterly Report on Form 10-Q for the
quarter ended September 30, 1985 on November 14, 1985 and
incorporated herein by reference.
(3) Filed as an exhibit to Quarterly Report on Form 10-Q for the
quarter ended December 31, 1985 on February 3, 1986 and
incorporated herein by reference.
(4) Filed as an exhibit to Amendment No. 1 to Form S-1 Registration
Statement (Registration No. 33-3069) on March 11, 1986 and
incorporated herein by reference.
(5) Filed as an exhibit to the Form 10-K Annual Report for the year
ended March 31, 1987 on May 18, 1987 and incorporated herein by
reference.
(6) Filed as an exhibit to Form 8 amending the Quarterly Report on
Form 10-Q for the quarter ended June 30, 1988 on August 25, 1988
and incorporated herein by reference.
(7) Filed as an exhibit to the Form 8-K Current Report dated January
24, 1989 and incorporated herein by reference.
23
(8) Filed as an exhibit to the Annual Report on Form 10-K for the
year ended March 31, 1989 on June 28, 1989 and incorporated
herein by reference.
(9) Filed as an exhibit to the Form 8-K Current Report dated January
22, 1991 and incorporated herein by reference.
(10) Filed as an exhibit to the Form 8-K Current Report dated April
12, 1991 and incorporated herein by reference.
(11) Filed as an exhibit to the Form 8-K Current Report dated July
24, 1991 and incorporated herein by reference.
(12) Filed as an exhibit to Form S-3 Registration Statement dated
December 19, 1991 and incorporated herein by reference.
(13) 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.
(14) Filed as an exhibit to the Form 8-A dated March 31, 1993 and
incorporated herein by reference.
(15) 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.
(16) 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.
(17) 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.
(18) Filed as an exhibit to the Form 8-K Current Report dated
November 18, 1994 on December 2, 1994 and incorporated herein by
reference.
(19) Filed as an exhibit to the Form 8-K Current Report dated
February 21, 1995 on March 7, 1995 and incorporated herein by
reference.
(20) 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.
(21) Filed as an exhibit to the Annual Report on Form 10-K for the
year ended December 31, 1995 on March 29, 1996 and incorporated
herein by reference.
(22) Filed as an exhibit to the Form 10-Q for the quarter ended
June 30, 1996 on August 12, 1996 and incorporated herein by
reference.
24