SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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
Securities registered pursuant to Section 12(g) of the Act:
Common stock, $.0001 par value, Common shares purchase rights,
Contractual contingent payment rights
(Title of class)
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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. [X]
The approximate aggregate market value of voting stock held by non-
affiliates of the registrant was $15,957,482,000 as of February 28,
1997 (A)
265,393,070
(Number of shares of common stock outstanding as of February 28, 1997)
Documents incorporated by reference:
Document Form 10-K Parts
Definitive 1997 Proxy Statement, to be filed within 120 days of
December 31, 1996 (specified portions) III
(A) Excludes 4,329,964 shares of common stock held by directors and
officers, and any stockholders whose ownership exceeds five percent
of the shares outstanding, at February 28, 1997. Exclusion of shares
held by any person should not be construed to indicate that such
person possesses the power, directly or indirectly, to direct or
cause the direction of the management or policies of the registrant,
or that such person is controlled by or under common control with the
registrant.
PART I
Item 1. BUSINESS
Overview
Amgen Inc. ("Amgen" or the "Company") is a global biotechnology
company that discovers, develops, manufactures and markets human
therapeutics based on advances in cellular and molecular biology.
The Company manufactures and markets two human therapeutic
products, NEUPOGEN(R) (Filgrastim) and EPOGEN(R) (Epoetin alfa).
NEUPOGEN(R) selectively stimulates the production of neutrophils, one
type of white blood cell. The Company markets NEUPOGEN(R) in the
United States, countries of the European Union ("EU"), Canada and
Australia for use in decreasing the incidence of infection in
patients undergoing myelosuppressive chemotherapy. In addition,
NEUPOGEN(R) is marketed in most of these countries for use in
reducing the duration of neutropenia for patients undergoing
myeloablative therapy followed by bone marrow transplantation, for
treating patients with severe chronic neutropenia and to support
peripheral blood progenitor cell ("PBPC") transplantations.
EPOGEN(R) stimulates the production of red blood cells and is
marketed by Amgen in the United States for the treatment of anemia
associated with chronic renal failure in patients on dialysis.
The Company focuses its research on biological cell/tissue
events and its development efforts on human therapeutics in the areas
of hematopoiesis, neurobiology, endocrinology, inflammation and soft
tissue repair and regeneration. The Company has research facilities
in the United States and Canada and has clinical development staff in
the United States, the EU, Canada, Australia, Japan and Hong Kong.
To augment internal research and development efforts, the Company has
established external research collaborations and has acquired certain
product and technology rights.
Amgen operates commercial manufacturing facilities located in
the United States and Puerto Rico. A sales and marketing force is
maintained in the United States, the EU, Canada and Australia. In
addition, Amgen has entered into licensing and co-promotion
agreements to market NEUPOGEN(R) and EPOGEN(R) in certain geographic
areas.
The Company was incorporated in California in 1980 and was
merged into a Delaware corporation in 1987. Amgen's principal
executive offices are located at 1840 DeHavilland Drive, Thousand
Oaks, California 91320-1789.
Products
Recombinant human granulocyte colony-stimulating factor
NEUPOGEN(R) (proper name - Filgrastim) is Amgen's trademark for
its recombinant human methionyl granulocyte colony-stimulating factor
("G-CSF"), a protein that selectively stimulates production of
certain white blood cells known as neutrophils. Neutrophils are the
body's first defense against infection. Treatments for various
diseases and diseases themselves can result in extremely low numbers
2
of neutrophils, a condition called neutropenia. Myelosuppressive
chemotherapy, one treatment option for individuals with cancer,
targets cell types which grow rapidly, such as tumor cells,
neutrophils and other types of blood cells. Providing NEUPOGEN(R) as
an adjunct to myelosuppressive chemotherapy can reduce the duration
of neutropenia and thereby reduce the potential for infection.
Congenital neutropenia is an example of disease-related
neutropenia. In congenital neutropenia, the body fails to
manufacture sufficient neutrophils. Chronic administration of
NEUPOGEN(R) has been shown to reduce the incidence and duration of
neutropenia-related consequences such as fever and infections in
patients with congenital neutropenia.
Patients undergoing bone marrow transplantation are treated with
NEUPOGEN(R) to accelerate recovery of neutrophils following
chemotherapy and bone marrow infusion. NEUPOGEN(R) also has been
shown to induce immature blood cells (progenitor cells) to migrate
(mobilize) from the bone marrow into the blood circulatory system.
When these progenitor cells are collected from the blood, stored and
re-infused after chemotherapy (transplanted), recovery of platelets,
red blood cells and neutrophils is accelerated. PBPC transplantation
is becoming an alternative to autologous bone marrow transplantation
for some patients.
The Company began selling NEUPOGEN(R) in the United States in
February 1991 (see "Joint Ventures and Business Relationships - Kirin
Brewery Company, Limited"). NEUPOGEN(R) was initially indicated to
decrease the incidence of infection as manifested by febrile
neutropenia for patients with non-myeloid malignancies undergoing
myelosuppressive chemotherapy. Subsequently, the U.S. Food and Drug
Administration ("FDA") cleared NEUPOGEN(R) for three additional
indications: (1) to reduce the duration of neutropenia for patients
with non-myeloid malignancies undergoing myeloablative therapy
followed by bone marrow transplantation, (2) to reduce the incidence
and duration of neutropenia-related consequences in symptomatic
patients with congenital neutropenia, cyclic neutropenia or
idiopathic neutropenia, and (3) for use in mobilization of PBPC for
stem cell transplantation.
In the EU, Canada and Australia, NEUPOGEN(R) is marketed as an
adjunct to chemotherapy and as a treatment for patients with severe
chronic neutropenia. NEUPOGEN(R) is also marketed in these
geographic areas for use in reducing the duration of neutropenia for
patients undergoing myeloablative therapy followed by bone marrow
transplantation and to support PBPC transplantations. Amgen and F.
Hoffmann-La Roche Ltd. ("Roche") jointly market NEUPOGEN(R) in the EU
under a co-promotion agreement (see "Marketing").
In March 1996, NEUPOGEN(R) was approved for use in the United
Kingdom (the "UK") as a supportive therapy to treat neutropenia in
people with advanced HIV infection. The initial submission to the UK
was made as part of the EU mutual recognition procedure that enables
companies to seek approvals in other EU countries. Due to the
completion of a randomized trial in 1996 that served as the basis for
the FDA submission, the Company intends to supplement the original
3
filing in Europe by submitting these additional data, again using the
mutual recognition procedure. To facilitate this procedure, it was
necessary for the Company to request in February 1997 the withdrawal
of the original approval in the UK.
In Japan, Taiwan and Korea, Kirin Brewery Company, Limited
("Kirin"), was granted rights to market G-CSF under licensing
agreements with Kirin-Amgen, Inc. ("Kirin-Amgen"). Kirin-Amgen is a
joint venture between the Company and Kirin (see "Joint Ventures and
Business Relationships - Kirin Brewery Company, Limited"). Kirin
markets its G-CSF product in these countries under the trademark
GRAN(R).
The Company is pursuing additional indications with NEUPOGEN(R).
Clinical trials were completed examining NEUPOGEN(R) as an adjunct to
chemotherapy in patients with acute myelogenous leukemia ("AML").
License applications for marketing clearance of this supplemental
indication were submitted to the U.S., European, Canadian and
Australian regulatory authorities in 1996. In addition, a trial for
the treatment of neutropenia in HIV-infected patients was completed,
and a supplemental licensing application for approval of this
indication was submitted to the FDA in 1996. Later stage trials are
examining NEUPOGEN(R) as an adjunct to dose-intensified chemotherapy
in patients with various tumor types. The Company is also continuing
to investigate NEUPOGEN(R)'s potential benefits for patients in
severe infectious disease settings.
In December 1996, the U.S. Patent and Trademark Office issued to
the Company a patent covering product rights to recombinant human
methionyl G-CSF or NEUPOGEN(R). The patent provides protection
against unauthorized making, importation, use or sale of recombinant
G-CSF in the United States until 2013. Also in December 1996, the
U.S. Patent and Trademark Office issued to the Company a patent
covering methods of using recombinant G-CSF. This patent may be
enforced in the United States until 2013. Previously issued patents
cover aspects of DNA, vectors and processes related to recombinant G-
CSF.
For the years ended December 31, 1996, 1995 and 1994, sales of
NEUPOGEN(R) accounted for approximately 45%, 48% and 50%,
respectively, of total revenues.
Recombinant human erythropoietin
EPOGEN(R) (proper name - Epoetin alfa) is Amgen's trademark for
its recombinant human erythropoietin product, a protein that
stimulates red blood cell production. Red blood cells transport
oxygen to all cells of the body. Without adequate amounts of
erythropoietin, the red blood cell count is reduced thereby
diminishing the ability of the blood to deliver sufficient amounts of
oxygen to the body, resulting in anemia. People with chronic renal
failure suffer from anemia because they do not produce sufficient
amounts of erythropoietin. EPOGEN(R) is effective in the treatment
of anemia associated with chronic renal failure for patients on
dialysis and is indicated to elevate or maintain the red blood cell
level (as manifested by hematocrit or hemoglobin determinations) and
to decrease the need for blood transfusions in these patients.
4
In the United States, Amgen was granted rights to market
recombinant human erythropoietin under a licensing agreement with
Kirin-Amgen (see "Joint Ventures and Business Relationships - Kirin
Brewery Company, Limited"). The Company began selling EPOGEN(R) in
1989 when the FDA gave clearance for its use in the treatment of
anemia associated with chronic renal failure. The FDA designated
EPOGEN(R) as an orphan drug, and such designation expired in 1996.
In 1994, the FDA cleared a supplement to the Epoetin alfa product
license which included an expanded target hematocrit range for
patients with chronic renal failure. The target hematocrit, or
percentage of red blood cells, was expanded to a range of 30 to 36
percent from the previously indicated range of 30 to 33 percent.
The Company filed an additional license supplement with the FDA
for the use of EPOGEN(R) in pediatric dialysis patients in 1996. Also
during 1996, the Company discontinued the EPOGEN(R) Normal Hematocrit
study. In this study, patients with symptomatic heart disease were
randomized to a control group targeted at a hematocrit of 30 percent
or an intervention group targeted toward a hematocrit of 42 percent
(the average hematocrit level of people not undergoing dialysis
treatment). In the 631 patient control group, 185 died compared with
221 of 634 in the intervention group. Subsequently, the Company
revised the EPOGEN(R) package insert to incorporate language
pertaining to the related mortality risks in dialysis patients with
heart disease being treated with EPOGEN(R). The revised package
insert states that hemodialysis patients with heart disease receiving
EPOGEN(R) should have their hematocrit maintained carefully not to
exceed 36 percent.
The Company has retained exclusive rights to market EPOGEN(R) in
the United States for dialysis patients. Amgen has granted Ortho
Pharmaceutical Corporation, a subsidiary of Johnson & Johnson,
hereafter referred to as "Johnson & Johnson", a license to pursue
commercialization of recombinant human erythropoietin as a human
therapeutic in the United States in all markets other than dialysis
and diagnostics. See Note 1 to the Consolidated Financial Statements
- - "Product sales" and Note 4 to the Consolidated Financial Statements
- - "Johnson & Johnson arbitrations".
In Japan, Kirin was granted rights to market recombinant human
erythropoietin under a licensing agreement with Kirin-Amgen (see
"Joint Ventures and Business Relationships - Kirin Brewery Company,
Limited"). Kirin markets its recombinant human erythropoietin
product under the trademark ESPO(R).
In countries other than the United States (except as described
above), the People's Republic of China and Japan, Johnson & Johnson
was granted rights to pursue the commercialization of erythropoietin
as a human therapeutic under a licensing agreement with Kirin-Amgen.
Affiliates of Johnson & Johnson market erythropoietin for treatment
of anemia associated with chronic renal failure under the trademark
EPREX(R) in several countries.
5
In August 1996, the U.S. Patent and Trademark Office issued to
the Company a patent covering product rights to erythropoietin or
EPOGEN(R). This patent provides broad protection against
unauthorized making, importation, use or sale of erythropoietin in
the United States until 2013. Previously issued patents cover
aspects of DNA and host cells and the manufacturing process for
erythropoietin.
For the years ended December 31, 1996, 1995 and 1994, sales of
EPOGEN(R) accounted for approximately 48%, 46% and 44%, respectively,
of total revenues.
Product Candidates
Consensus interferon
Interferons are a class of naturally occurring proteins with
anti-viral and anti-tumor activity that also modulate the immune
system. INFERGEN(R) (proper name - Interferon alfacon-1), Amgen's
consensus interferon, is a non-naturally occurring protein that
combines structural features of many interferon sub-types. A Phase 3
clinical trial for treatment of chronic hepatitis C with INFERGEN(R),
completed in 1995, indicated that INFERGEN(R) may be safe and
effective in treating this disease. Hepatitis C viral infection is a
potentially deadly disease that, if not treated, may lead to
cirrhosis and hepatocellular carcinoma. Amgen filed license
applications in 1996 with the U.S. and Canadian regulatory
authorities requesting clearance for marketing INFERGEN(R) for
treatment of hepatitis C virus. The Company expects to launch
INFERGEN(R) following regulatory approval. Also in 1996, Amgen
licensed to Yamanouchi Pharmaceutical Co., Ltd. of Tokyo the rights
to develop, manufacture and commercialize Amgen's consensus
interferon for all indications around the world except in the United
States and Canada. (See "Joint Ventures and Business Relationships -
Yamanouchi Pharmaceutical Co., Ltd."). Amgen has the right to market
INFERGEN(R) in these two countries.
Hematopoietic growth factors
Hematopoietic growth factors are proteins which influence
growth, migration, and maturation of certain types of blood cells.
Stem cell factor ("SCF") or STEMGEN(TM), one of the Company's
hematopoietic growth factors, has been shown to influence the
production, mobilization, and maturation of progenitor cells. Human
clinical trials have been completed which investigated the utility of
SCF in combination with NEUPOGEN(R) for improved mobilization of
progenitor cells prior to PBPC transplantation in patients with
breast cancer. License applications for marketing clearance of SCF
in this indication are expected to be submitted to the U.S.,
European, Canadian and Australian regulatory authorities in 1997.
The Company's novel platelet growth factor, MGDF, another
hematopoietic growth factor, has been shown in preclinical and early
clinical research to be a promising agent for ameliorating the
thrombocytopenia caused by intensive chemotherapy or irradiation.
Thrombocytopenia, or severely depressed platelet numbers, can result
6
in severe internal bleeding. The Company expanded its investigation
of MGDF in 1996 to include several cancer-support treatments and into
a setting where normal platelet donors receive MGDF before platelet
donation. The initial clinical trial in AML demonstrated modest
benefit, and the Company is engaged in ongoing trials in this and
other indications. The Company is collaborating in the development
of MGDF with Kirin (see "Joint Ventures and Business Relationships -
Kirin Brewery Company, Limited"), and human clinical testing is
ongoing. In 1995, Amgen, Kirin, and Kirin-Amgen signed agreements
with Novo Nordisk A/S and certain of its subsidiaries (including
ZymoGenetics, Inc.) for rights to thrombopoietin, a protein hormone
that stimulates the production of platelets in the blood. The
acquisition of these rights complements the development of MGDF.
Another hematopoietic growth factor in development at Amgen is
novel erythropoiesis stimulating protein ("NESP"). Human clinical
trials for NESP in the treatment of anemia in patients with chronic
renal failure began in January 1997. The Company has entered into an
agreement with Kirin to jointly develop and market NESP through its
joint venture, Kirin-Amgen (see "Joint Ventures and Business
Relationships - Kirin Brewery Company, Limited").
Neurobiology
The Company has extensive discovery programs in neurological and
neuroendocrine disorders. Neurotrophic factors are proteins which
play a role in nerve cell protection and regeneration and which may
therefore be useful in treating a variety of neurological disorders,
including neurodegenerative diseases of the central and peripheral
nervous systems, and also nerve injury or trauma. Glial cell line
derived neurotrophic factor ("GDNF") is in clinical studies for
possible use in the treatment of Parkinson's disease and amyotrophic
lateral sclerosis ("ALS" or Lou Gehrig's disease). GDNF was added to
the Company's neurobiology research program through the acquisition
of Synergen, Inc. ("Synergen") (see Note 1 to the Consolidated
Financial Statements - "Research and development costs").
Human clinical testing of two neurotrophic factors,
neurotrophin-3 ("NT-3") and brain-derived neurotrophic factor
("BDNF"), is currently being conducted in collaboration with
Regeneron Pharmaceuticals, Inc. ("Regeneron") (see "Joint Ventures
and Business Relationships - Regeneron Pharmaceuticals, Inc."). NT-3
is being investigated as a potential treatment for diabetic
neuropathy. The Phase 3 clinical trial of BDNF with subcutaneous
delivery for the treatment of ALS did not demonstrate clinical
efficacy in the endpoints measured in patients with this disease.
The trial showed no statistically significant or clinically relevant
difference in breathing capacity or survival between treatment and
placebo groups. No further development of subcutaneous delivery for
ALS is planned. Small, early stage clinical trials of BDNF
investigating intrathecal administration for ALS and subcutaneous
delivery for diabetic neuropathy are in progress.
7
Endocrinology
Leptin is the protein produced by the obesity gene which is made
in fat cells and is believed to help regulate the amount of fat
stored by the body. This protein has been shown in some early
preclinical animal models to produce a reduction in body weight and
body fat. In 1995, The Rockefeller University granted to the Company
an exclusive license which allows the Company to develop products
based on the obesity gene (see "Joint Ventures and Business
Relationships - Other business relationships"). A human clinical
trial of leptin was begun in 1996. Amgen also plans to begin
clinical trials to study leptin in non-insulin dependent type II
diabetes within the next 12 months. The Company also entered into a
licensing agreement in 1996 with Progenitor, Inc., a majority-owned
subsidiary of Interneuron Pharmaceuticals, Inc., for certain
exclusive rights for the development and commercialization of
products using Progenitor Inc.'s leptin receptor technology.
Primary hyperparathyroidism ("HPT") is a disorder that causes
excessive secretion of parathyroid hormone from the parathyroid
gland, leading to elevated serum calcium, called hypercalcemia.
Symptoms may include bone loss, gastrointestinal distress, muscle
weakness, depression and forgetfulness. This disorder currently
lacks effective treatment other than surgery. Secondary HPT is
commonly seen as a result of kidney failure, affecting as much as 80
percent of dialysis patients. The Company has entered into an
agreement with NPS Pharmaceuticals, Inc. ("NPS") for Amgen to develop
and commercialize NPS's calcimimetic small molecules based on NPS's
proprietary calcium receptor technology for the treatment of HPT (see
"Joint Ventures and Business Relationships - Other business
relationships"). The first product candidate in this class of
compounds is being investigated in a human clinical trial as a
treatment for secondary HPT.
Inflammation
The inflammatory response is essential for defense against
harmful micro-organisms and for the repair of damaged tissues. The
failure of the body's control mechanisms regulating inflammatory
response occurs in conditions such as rheumatoid arthritis, acute
respiratory distress syndrome and asthma. Tumor necrosis factor
binding protein ("TNFbp") and interleukin-1 receptor antagonist ("IL-
1ra") are two product candidates added to the Company's inflammation
research program through the acquisition of Synergen. First
generation molecules of TNFbp and Il-1ra have been in human clinical
trials. A human clinical trial for TNFbp was completed for possible
use in the treatment of rheumatoid arthritis. A human clinical trial
for IL-1ra in combination with methotrexate for treatment of
rheumatoid arthritis is ongoing. (See "Joint Ventures and Business
Relationships - Synergen Clinical Partners.") The Company has
developed second generation molecules as a potential replacement for
TNFbp and as a sustained delivery formulation for IL-1ra, both of
which have demonstrated some additional benefit in preclinical
studies over the first generation product candidates. Although the
Company does not intend to pursue further clinical development of
first generation TNFbp, it plans to continue clinical development of
first generation IL-1ra. The Company is also conducting research to
discover and develop other molecules for the treatment of
inflammtory diseases.
8
Soft tissue repair and regeneration
Soft tissue growth factors are believed to play a role in
accelerating or improving tissue regeneration and wound healing. In
some cases, these agents may also protect tissues from injuries such
as irradiation, chemotherapy, and hyperoxia. These growth factors
likely regulate a broad range of cellular activities. Amgen
currently is conducting research on certain tissue growth factors
including keratinocyte growth factor ("KGF"). Human clinical trials
for KGF were initiated in 1996 for the treatment of mucositis, a side
effect often experienced by patients undergoing chemotherapy.
Cell therapy
Cell selection technology complements the Company's research and
development efforts in hematopoiesis. Amgen's hematopoietic growth
factors, together with selected hematopoietic cells, enable the
Company to pursue the investigation of new and potentially more
effective cancer therapy protocols. In 1994, Amgen acquired an
equity interest in AmCell Inc. ("AmCell"), a U.S. company which plans
to manufacture cell selection and characterization devices based on
the technology of Miltenyi Biotec GmbH. Amgen and AmCell entered
into an agreement whereby AmCell has the right to manufacture certain
cell selection devices for Amgen, and Amgen has the right to
clinically develop and commercialize these devices (see "Joint
Ventures and Business Relationships - AmCell Inc."). Amgen conducted
clinical trials in cell selection in Europe in 1996. The development
of future clinical strategies is ongoing.
Joint Ventures and Business Relationships
The Company intends to self-market its products where possible.
From time to time it may supplement this effort by using joint
ventures and other business relationships to provide additional
marketing and product development capabilities. The Company also
supplements its internal research and development efforts with
acquisitions of product and technology rights and external research
collaborations. Amgen has established the relationships described
below and may establish others in the future.
F. Hoffmann-La Roche Ltd.
Amgen and Roche entered into a co-promotion agreement in 1988
for the sale of NEUPOGEN(R) (Filgrastim) in the EU. Under this
agreement, Amgen and Roche share the clinical development, regulatory
and commercialization responsibilities for the product. Amgen
manufactures NEUPOGEN(R), and the two companies share in the profits
from sales of NEUPOGEN(R) in the EU. This agreement allowed Amgen
the option to regain complete control for marketing the product. The
Company exercised this option and has informed Roche that it intends
to assume complete distribution responsibilities beginning in 1998.
In 1989, Amgen and Roche entered into another agreement to
commercialize NEUPOGEN(R) in certain European countries not located
within the EU. Under this agreement, Roche markets NEUPOGEN(R) in
these countries and pays a royalty to Amgen on these sales.
9
Johnson & Johnson
Amgen granted Johnson & Johnson a license to pursue
commercialization of recombinant human erythropoietin as a human
therapeutic in the United States in all markets other than dialysis
and diagnostics. The Company is engaged in arbitration proceedings
regarding this agreement. For a complete discussion of this matter,
see Note 4 to the Consolidated Financial Statements - "Johnson &
Johnson arbitrations". In countries other than the United States
(except as described above), the People's Republic of China and
Japan, Johnson & Johnson was granted rights to pursue the
commercialization of erythropoietin as a human therapeutic under a
licensing agreement with Kirin-Amgen.
Kirin Brewery Company, Limited
The Company has a 50-50 joint venture (Kirin-Amgen) with Kirin.
Kirin-Amgen was formed in 1984 to develop and commercialize certain
of the Company's technologies. Amgen and Kirin have been exclusively
licensed by Kirin-Amgen to manufacture and market recombinant human
erythropoietin in the United States and Japan, respectively. Kirin-
Amgen has also granted Amgen an exclusive license to manufacture and
market G-CSF in the United States, Europe, Canada, Australia and New
Zealand. Kirin has been licensed by Kirin-Amgen with similar rights
for G-CSF in Japan, Taiwan and Korea. Kirin markets recombinant
human granulocyte colony-stimulating factor and recombinant human
erythropoietin in the People's Republic of China under a separate
agreements.
In 1994, Kirin-Amgen licensed to Amgen and Kirin the rights to
develop and market MGDF, and in 1996, to develop and market NESP.
Amgen has been granted an exclusive license from Kirin-Amgen to
manufacture and market these two product candidates in the United
States, the EC countries, Canada, Australia, Mexico and New Zealand.
In addition, for NESP, Amgen's license extends to certain Central and
South American countries. Kirin has been licensed by Kirin-Amgen
with similar rights for these two product candidates in Japan, the
People's Republic of China, Taiwan, Korea and certain other countries
in Southeast Asia.
Pursuant to the terms of agreements entered into with Kirin-
Amgen, the Company conducts certain research and development
activities on behalf of Kirin-Amgen and is paid for such services at
a negotiated rate. Included in revenues from corporate partners in
the Company's Consolidated Financial Statements for the years ended
December 31, 1996, 1995 and 1994, are $79.9 million, $72.6 million
and $58.6 million, respectively, related to these agreements.
In connection with its various agreements with Kirin-Amgen, the
Company has been granted sole and exclusive licenses for the
manufacture and sale of certain products in specified geographic
areas of the world. In return for such licenses, the Company paid
Kirin-Amgen stated amounts upon the receipt of the licenses and/or
10
pays Kirin-Amgen royalties based on sales. During the years ended
December 31, 1996, 1995 and 1994, Kirin-Amgen earned royalties from
Amgen of $86.2 million, $74.2 million and $67.5 million,
respectively, under such agreements.
Yamanouchi Pharmaceutical Co., Ltd.
In June 1996, Amgen licensed to Yamanouchi Pharmaceutical Co.,
Ltd. ("Yamanouchi") of Tokyo, Japan the rights to develop,
manufacture and commercialize a potential product for the treatment
of hepatitis C and any additional indications around the world except
in the United States and Canada. Amgen will market the potential
product in these countries. Amgen earned $15 million on signing,
will earn additional amounts if certain milestones are achieved by
Yamanouchi and will receive royalties on sales. Yamanouchi has
granted to Amgen K.K., the Company's Japanese subsidiary, certain co-
development and co-promotion/co-marketing rights in Japan and has
granted to Amgen Greater China, Ltd., Amgen's subsidiary in Hong
Kong, certain co-development and co-promotion rights in China, Hong
Kong and Taiwan.
Regeneron Pharmaceuticals, Inc.
In 1990, the Company entered into a collaboration agreement with
Regeneron to co-develop and commercialize BDNF and NT-3 in the United
States. In addition, Regeneron licensed these potential products to
Amgen for development in certain other countries. To facilitate this
collaboration, the Company and Regeneron formed Amgen-Regeneron
Partners, a 50-50 partnership. Amgen-Regeneron Partners commenced
operations with respect to BDNF and NT-3 in June 1993 and January
1994, respectively.
AmCell Inc.
During 1994, Amgen acquired an equity interest in AmCell, a
company which plans to manufacture cell selection and
characterization devices based on the technology of Miltenyi Biotec
GmbH ("Miltenyi"). Amgen has an exclusive license to clinically
develop and commercialize selected products of AmCell incorporating
Miltenyi technology in exchange for development funding and milestone
payments.
Synergen Clinical Partners
Synergen Clinical Partners, L.P. ("SCP"), a limited partnership,
was formed to fund development and commercialization of IL-1ra in
certain geographic areas. The general partner of SCP was a wholly-
owned subsidiary of Synergen and is now a wholly-owned subsidiary of
the Company. This wholly-owned subsidiary would be obligated to pay
SCP royalties on sales of such products and a milestone payment upon
receiving the first FDA marketing approval of an IL-1ra product. In
connection with the formation of SCP, Synergen was granted options to
purchase all of the limited partners' interests in SCP upon the
occurrence of certain future events for a specified amount of
consideration. See Item 3. Legal Proceedings - "Synergen ANTRIL(TM)
litigation".
11
Other business relationships
In 1995, the Company obtained an exclusive license from The
Rockefeller University which allows the Company to develop products
based on the obesity gene. Amgen made a $20 million payment upon
signing the agreement and will make payments for milestones and
royalties on sales of any resulting products. The Company also
entered into an agreement with NPS Pharmaceuticals, Inc. for Amgen to
develop and commercialize calcimimetic small molecules based on NPS's
proprietary technology. Under this agreement, Amgen made a $10
million signing payment and will make milestone payments and royalty
payments on sales of any resulting products. In addition to these
agreements, the Company has an extensive number of other corporate
and academic research collaborations.
Marketing
In the United States, the Company's sales force markets its
products to physicians and pharmacists primarily in hospitals,
dialysis centers and clinics. The Company has chosen to use major
wholesale distributors of pharmaceutical products as the principal
means of distributing EPOGEN(R) (Epoetin alfa) and NEUPOGEN(R)
(Filgrastim) to clinics, hospitals and pharmacies. Sales to Bergen
Brunswig Corporation and Cardinal Distribution, two major
distributors of these products, accounted for 24% and 14%, 21% and
15%, and 22% and 16% respectively, of total revenues for the years
ended December 31, 1996, 1995 and 1994, respectively.
NEUPOGEN(R) is reimbursed by both public and private payors, and
changes in coverage and reimbursement policies of these payors could
have a material adverse effect on sales of NEUPOGEN(R). EPOGEN(R) is
primarily reimbursed by the Federal Government through the End Stage
Renal Disease Program ("ESRD Program") of Medicare. The ESRD Program
reimburses approved providers for 80% of allowed dialysis costs; the
remainder is paid by other sources, including Medicaid, private
insurance, and to a lesser extent, state kidney patient programs.
The reimbursement rate is established by Congress and is monitored by
the Health Care Financing Administration. The reimbursement rate for
EPOGEN(R) is subject to yearly review. Changes in coverage and
reimbursement policies could have a material adverse effect on
EPOGEN(R) sales.
Except for purchases pursuant to a contract with the Department
of Veterans Affairs, including purchases by Veterans Administration
hospitals and the Department of Defense, the Company does not receive
any payments directly from the Federal Government, nor does it have
any significant supply contracts with the Federal Government.
However, the use of NEUPOGEN(R) and EPOGEN(R) by hospitals, clinics,
and physicians may be impacted by the amount and methods of
reimbursement that they receive from the Federal Government.
In the EU, Amgen and Roche share clinical development,
regulatory and commercialization responsibilities for NEUPOGEN(R)
under a co-promotion agreement (See "Joint Ventures and Business
Relationships - F. Hoffmann-La Roche Ltd."). In addition, Amgen
manufactures NEUPOGEN(R) for sale in the EU, and the two companies
12
share in the profits from sales of the product. NEUPOGEN(R) is
distributed to wholesalers and/or hospitals in all EU countries
depending upon the distribution practice of hospital products in each
country. Patients receiving NEUPOGEN(R) for approved indications are
covered by government health care programs. The consumption of
NEUPOGEN(R) is affected by government budget issues and cost controls
in the EU countries, and to a lesser extent, competition.
NEUPOGEN(R) sales volumes in both the United States and Europe
are influenced by a number of factors including underlying demand and
wholesaler inventory management practices. Wholesaler inventory
reductions tend to reduce domestic NEUPOGEN(R) sales in the first
quarter of each year. In addition, the discretionary aspects of some
cancer chemotherapy administration has had a slight seasonal effect
on NEUPOGEN(R) sales.
In Canada and Australia, NEUPOGEN(R) is marketed by the Company
directly to hospitals, pharmacies and medical practitioners.
Distribution is handled by third party contractors.
Competition
Competition is intense among companies that develop and market
products based on advances in cellular and molecular biology. For
products which the Company manufactures and markets, it faces
significant competition from biotechnology and pharmaceutical firms
in the United States, Europe and elsewhere, some of which have
greater resources than the Company. Certain specialized
biotechnology firms have also entered into cooperative arrangements
with major companies for development and commercialization of
products, creating an additional source of competition.
Any products or technologies that successfully address anemias
could negatively impact the market for recombinant human
erythropoietin. Similarly, any products or technologies that
successfully address the causes or incidence of low levels of
neutrophils could negatively impact the market for G-CSF. These
include products that could receive approval for indications similar
to those for which NEUPOGEN(R) (Filgrastim) has been approved,
development of chemotherapy treatments that are less myelosuppressive
than existing treatments and the development of anti-cancer
modalities that reduce the need for myelosuppressive chemotherapy.
NEUPOGEN(R) currently faces market competition from a competing
CSF product, granulocyte macrophage colony-stimulating factor ("GM-
CSF") and from the chemoprotectant, amifostine (WR-2721). Potential
future sources of competition include other GM-CSF products, PGG-
glucan, FLT-3 ligand and IL-11, among others.
Chugai Pharmaceuticals Co., Ltd. ("Chugai") markets a G-CSF
product in Japan as an adjunct to chemotherapy and as a treatment for
bone marrow transplant patients. In early 1994, Chugai and Rhone-
Poulenc Rorer Inc. began marketing a G-CSF product in certain EU
countries as an adjunct to chemotherapy and as a treatment in bone
marrow transplant settings. Chugai, through its licensee, AMRAD,
markets this G-CSF product in Australia as an adjunct to chemotherapy
13
and as a treatment for patients receiving bone marrow transplants.
Under an agreement with Amgen, Chugai is precluded from selling its
G-CSF product in the United States, Canada and Mexico.
Immunex Corp. markets two formulations of GM-CSF in the United
States for bone marrow transplant and PBPC transplant patients and as
an adjunct to chemotherapy treatments for acute non-lymphocytic
leukemia ("ANLL") and AML. Immunex Corp. is also pursuing other
indications for its GM-CSF product including use in treating HIV-
infected patients, other infectious diseases and as an adjunct to
chemotherapy outside the limited setting of ANLL. Behringwerke AG
markets this GM-CSF product in Europe in similar settings. Novartis
(Sandoz Ltd.) markets another GM-CSF product for use in bone marrow
transplant patients, as an adjunct to chemotherapy and as an adjunct
to gancyclovir treatment of HIV-infected patients in the EU and
certain other countries. This GM-CSF product is currently being
developed for similar indications in the United States and Canada.
Alpha Beta Technologies is developing PGG-glucan in the United
States for the treatment of certain infectious diseases, as an
adjunct to chemotherapy and for use in PBPC transplantation.
Other products which address potential markets for G-CSF may be
identified and developed by competitors in the future. Such products
could also present competition in potential markets for SCF.
Research and development of other hematopoietic growth factors,
including those that may compete with MGDF, is being conducted by
several companies including Genentech, Inc., Immunex Corp., Novartis
(Sandoz Ltd.) and Genetics Institute, Inc.
Although not approved or promoted for use in the United States,
the Company believes that approximately 20% of its domestic
NEUPOGEN(R) sales are from off-label use as supportive therapy for
various AIDS-related treatments. Changes in AIDS treatments,
including therapies that may be less myelosuppressive, may affect
such sales.
INFERGEN(R) will face competition from interferons and other
related products, several of which are in development or on the
market. Schering-Plough Corp. and Roche are major suppliers of
interferons. Interferon Sciences could be a potential competitor in
this arena. (See "Item 3. Legal Proceedings - Consensus interferon
litigation").
Several companies are developing neurotrophic factors including
Cephalon Inc., Genentech, Inc. and Regeneron.
Many companies currently market or are believed to be developing
obesity treatments. Wyeth Ayerst (American Hospital Products)
currently has the greatest market share in obesity treatments with
Redux (co-developed and marketed with Interneuron) and Pondimen.
Other potential competitors include Millennium Pharmaceuticals, Inc.
(in collaboration with Roche), Progenitor Inc. (a subsidiary of
Interneuron Pharmaceuticals Inc.), Neurogen Inc. (in collaboration
with Pfizer), Bristol Myers Squibb, Novartis, Eli Lilly and Merck.
14
Knoll/BASF and Roche are expected to launch new therapeutics for
obesity in the next few years.
Calcimimetic small molecules would face competition from a
product currently marketed by Abbott Laboratories which treats
secondary HPT. In addition, other products to treat primary and
secondary HPT are currently being developed by Abbott Laboratories,
Lunar, GelTex, and Chugai.
The Company faces competition from a number of companies in the
inflammation disease arena, particularly for rheumatoid arthritis
treatments. Current anti-arthritic treatments include generic
methotrexate and other products marketed by Sanofi-Winthrop and
Novartis (Sandoz Ltd.). In addition, a number of companies have
cytokine inhibitors in development including Immunex Corp., Centocor,
Inc. and Roche.
Companies believed to be developing certain tissue growth
factors include Creative Biomolecules, Inc., Chiron Corp. (in
collaboration with Johnson & Johnson), Genentech, Inc., Immunex
Corp., Scios Nova Inc. and ZymoGenetics, Inc.
The Company faces competition from several companies in the
development and utilization of cell selection and characterization
devices. Companies involved in the development of these devices and
ex-vivo cell expansion with growth factors are Baxter, Cellpro, Rhone
Poulenc Rorer Inc./Applied Immune Sciences, Systemix in collaboration
with Novartis (Sandoz Ltd.) and Aastrom Biosciences Inc. in
collaboration with COBE BCT.
Research and Development
The Company's two primary sources of new product candidates are
internal research and development and acquisition and licensing from
third parties. Research and development expense, which includes
technology license fees paid to third parties, for the years ended
December 31, 1996, 1995 and 1994 were $528.3 million, $451.7 million
and $323.6 million, respectively. The amount for the year ended
December 31, 1994 excludes a $116.4 million write-off of in-process
technology purchased in connection with the acquisition of Synergen.
See Note 1 to the Consolidated Financial Statements - "Research and
development costs".
15
Government Regulation
Regulation by governmental authorities in the United States and
other countries is a significant factor in the production and
marketing of the Company's products and its ongoing research and
development activities. In order to clinically test, manufacture and
market products for therapeutic use, Amgen must satisfy mandatory
procedures and safety standards established by various regulatory
bodies.
In the United States, the Company's products and product
candidates are regulated primarily on a product by product basis
under federal law and are subject to rigorous FDA approval
procedures. After purification, laboratory analysis and testing in
animals, an investigational new drug application is filed with the
FDA to begin human testing. A three-phase human clinical testing
program must then be undertaken. In Phase 1, studies are conducted
to determine the safety and optimal dosage for administration of the
product. In Phase 2, studies are conducted to gain preliminary
evidence of the efficacy of the product. In Phase 3, studies are
conducted to provide sufficient data for the statistical proof of
safety and efficacy. The time and expense required to perform this
clinical testing can far exceed the time and expense of the research
and development initially required to create the product. No action
can be taken to market any therapeutic product in the United States
until an appropriate license application has been cleared by the FDA.
Even after initial FDA clearance has been obtained, further studies
are required to provide additional data on safety and would be
required to gain clearance for the use of a product as a treatment
for clinical indications other than those initially approved. In
addition, use of products during testing and after initial marketing
could reveal side effects that could delay, impede or prevent
marketing approval, limit uses or expose the Company to product
liability claims.
In addition to human clinical testing, the FDA inspects
equipment and facilities prior to providing clearance to market a
product. If, after receiving clearance from the FDA, a material
change is made in manufacturing equipment, location or process,
additional regulatory review may be needed.
In the EU countries, Canada and Australia, regulatory
requirements and approval processes are similar in principle to those
in the United States.
Amgen's research and manufacturing activities are conducted in
voluntary compliance with the National Institutes of Health
Guidelines for Recombinant DNA Research. The Company's present and
future business has been and will continue to be subject to various
other laws and regulations, including environmental laws and
regulations.
16
Patents and Trademarks
Patents are very important to the Company in establishing
proprietary rights to the products it has developed. The Company has
filed applications for a number of patents and it has been granted
patents relating to recombinant human erythropoietin, G-CSF,
consensus interferon and various potential products. The Company has
obtained licenses from and pays royalties to third parties. Other
companies have filed patent applications or have been granted patents
in areas of interest to the Company. There can be no assurance any
licenses required under such patents would be available for license
on reasonable terms or at all. The Company is engaged in arbitration
proceedings with Johnson & Johnson and various patent litigation.
For a discussion of these matters see Note 4 to the Consolidated
Financial Statements - "Johnson & Johnson arbitrations" and Item 3,
"Legal Proceedings".
The Company has obtained U.S. registration of its EPOGEN(R),
NEUPOGEN(R) and INFERGEN(R) trademarks. In addition, these
trademarks have been registered in several other countries. Amgen's
trademark for its stem cell factor product is STEMGEN(TM).
Human Resources
As of December 31, 1996, the Company had 4,646 employees of
which 2,527 were engaged in research and development and 878 were
engaged in sales and marketing, and 1,241 were engaged in other
areas. There can be no assurance that the Company will be able to
continue attracting and retaining qualified personnel in sufficient
numbers to meet its needs. None of the Company's employees are
covered by a collective bargaining agreement, and the Company has
experienced no work stoppages. The Company considers its employee
relations to be excellent.
Executive Officers of the Registrant
The executive officers of the Company, their ages as of
February 28, 1997 and positions are as follows:
Mr. Gordon M. Binder, age 61, has served as a director of the
Company since October 1988. He joined the Company in 1982 as Vice
President-Finance and was named Senior Vice President-Finance in
February 1986. In October 1988, Mr. Binder was elected Chief
Executive Officer. In July 1990, Mr. Binder became Chairman of the
Board.
Dr. N. Kirby Alton, age 46, became Senior Vice President,
Development, in August 1992, having served as Vice President,
Therapeutic Product Development, Responsible Head, from October 1988
to August 1992. Dr. Alton previously served as Director, Therapeutic
Product Development, from February 1986 to October 1988.
Dr. Bruce W. Altrock, age 49, became Vice President , Research,
in October 1996, having served as Vice President, Biology and
Biochemistry, since October 1988. Dr. Altrock previously had served
as Director, Biology and Biochemistry, since 1985.
17
Mr. Robert S. Attiyeh, age 62, has served as Senior Vice
President, Finance and Corporate Development, since joining the
Company in July 1994. Prior to joining the Company, Mr. Attiyeh
served as a director of McKinsey & Company, a consulting firm, in its
Los Angeles, Japan and Scandinavian offices from 1967 to 1994.
Mr. Stanley M. Benson. age 45, has served as Senior Vice
President, Sales and Marketing, since joining the Company in June
1995. Prior to joining the Company, Mr. Benson held a number of
executive management positions at Pfizer Inc., a pharmaceutical
company, from 1987 to 1995.
Dr. Dennis M. Fenton, age 45, became Senior Vice President,
Operations, in January 1995, having served as Senior Vice President,
Sales and Marketing, since August 1992, and having served as Vice
President, Process Development, Facilities and Manufacturing
Services, from July 1991 to August 1992. Dr. Fenton previously had
served as Vice President, Pilot Plant Operations and Clinical
Manufacturing, from October 1988 to July 1991, and as Director, Pilot
Plant Operations, from 1985 to October 1988.
Mr. Daryl D. Hill, age 51, became Senior Vice President, Quality
and Compliance, in January 1997, having served as Senior Vice
President, Asia Pacific, from January 1994 to January 1997. Mr. Hill
previously had served as Vice President, Quality Assurance, from
October 1988 to January 1994, and as Director of Quality Assurance
from January 1984 to October 1988.
Mr. Larry A. May, age 47, became Vice President, Corporate
Controller and Chief Accounting Officer in October 1991, having
served as Corporate Controller and Chief Accounting Officer from
October 1988 to October 1991, and as Controller from January 1983 to
October 1988.
Mr. Kevin W. Sharer, age 48, has served as a director of the
Company since November 1992. He also has served as President and
Chief Operating Officer since October 1992. Prior to joining the
Company, Mr. Sharer served as President of the Business Markets
Division of MCI Communications Corporation, a telecommunications
company, from April 1989 to October 1992, and served in numerous
executive capacities at General Electric Company from February 1984
to March 1989. Mr. Sharer also serves as a director of Geotek
Communications, Inc.
Mr. George A. Vandeman, age 57, has served as Senior Vice
President, General Counsel and Secretary since joining the Company in
June 1995. Prior to joining the Company, Mr. Vandeman was a partner
of Latham & Watkins, an international law firm, from June 1966 to
July 1995.
18
Geographic Area Financial Information
For financial information concerning the geographic areas in
which the Company operates see Note 11 to the Consolidated Financial
Statements.
Item 2. PROPERTIES
Amgen's principal executive offices and a majority of its
administrative, manufacturing and research and development facilities
are located in 35 buildings in Thousand Oaks, California. Thirty of
the buildings are owned and five are leased. Adjacent to these
facilities are five buildings that are under construction and other
property acquired in anticipation of future expansion. The Thousand
Oaks, California facilities include manufacturing plants licensed by
various regulatory bodies that produce commercial quantities of
Epoetin alfa and NEUPOGEN(R) (Filgrastim).
Elsewhere in North America, Amgen owns nine buildings in
Boulder, Colorado housing research facilities and a pilot plant. The
Company is building a new EPOGEN(R) manufacturing plant in Longmont,
Colorado, on a site which can accommodate additional manufacturing
capacity for new products. The Company owns a distribution center in
Louisville, Kentucky and leases a research facility and
administrative offices in Toronto, Canada, an administrative office
in Washington, D.C. and five regional sales offices in the U.S.
Outside North America, the Company has a formulation, fill-and-
finish facility in Juncos, Puerto Rico which has been licensed by
various regulatory bodies. The Company leases facilities in thirteen
European countries, Australia, Japan, Hong Kong and the People's
Republic of China for administration, marketing and research and
development. In addition, the Company has started construction of a
European distribution center in Breda, the Netherlands.
Amgen believes that its current facilities plus anticipated
additions are sufficient to meet its needs for the next several
years.
Item 3. LEGAL PROCEEDINGS
The Company is engaged in arbitration proceedings with one of
its licensees. For a complete discussion of this matter see Note 4
to the Consolidated Financial Statements - "Johnson & Johnson
arbitrations". Other legal proceedings are discussed below. While
it is impossible to predict accurately or to determine the eventual
outcome of these matters, except with respect to the False Claims Act
matter, the Company believes that the outcome of these proceedings
will not have a material adverse effect on the financial statements
of the Company.
19
Synergen ANTRIL(TM) litigation
Lawsuits have been filed against Synergen, Inc. (now Amgen
Boulder Inc.) alleging misrepresentations in connection with its
research and development of ANTRIL(TM) for the treatment of sepsis.
In Johnson v. Amgen Boulder Inc., et al., suits filed on
February 14, 1995 in the Superior Court for the State of Washington,
King County (the "Superior Court") and in the United States District
Court for the Western District of Washington, plaintiff seeks
rescission of certain payments made to one of the defendants (or
unspecified compensatory damages not less than $52.0 million) and
treble damages. The Superior Court action has been removed to
federal court and consolidated with the suit filed in the United
States District Court for the Western District of Washington.
Plaintiff, a limited partner of defendant Synergen Clinical Partners,
L.P. (the "Partnership"), represents a class of other limited
partners. The complaints allege violations of federal and state
securities laws, violations of other federal and state statutes,
fraud, misrepresentation and breach of fiduciary duty. The
defendants include Synergen, the Partnership, Synergen Development
Corporation and former officers and directors of Synergen. The
lawsuit has been certified as a class action lawsuit. On June 25,
1996, the plaintiff in this suit also filed a second amended
complaint alleging violations of federal securities laws. Amgen Inc.
has answered the complaint and the second amended complaint, denying
plaintiffs' claims and asserting various affirmative defenses. In
August and September 1996 the parties filed cross motions for summary
judgment. The Court heard argument on November 1, 1996. Since then,
the parties' representatives have reached a tentative settlement
agreement which is subject to final approval by the Court and the
approval of the limited partners of the Partnership. Under its
terms, the plaintiffs, who include present limited partners of the
Partnership, will receive $14.5 million in exchange for the transfer
of ownership of their units; the suit will be dismissed with
prejudice and the parties will exchange mutual releases.
Susquehanna Investment Group, et al. v. Amgen Boulder, Inc., et
al., was filed in the United States District Court in Denver,
Colorado against Synergen and certain of its former officers and
directors. The suit, filed on May 19, 1995, has been brought by
broker-dealers who acted as market makers in Synergen options. The
plaintiffs claim in excess of $3.2 million in trading losses on
option positions as the result of alleged misrepresentations.
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.
20
Elanex Pharmaceuticals litigation
In October 1993, the Company filed a complaint for patent
infringement against defendants Elanex Pharmaceuticals, Inc.
("Elanex"), Laboratorios Elanex De Costa Rica, S.A., Bio Sidus S.A.,
Merckle GmbH, Biosintetica S.A. and other unknown defendants. The
complaint, filed in the United States District Court for the Western
District of Washington in Seattle, seeks injunctive relief and
damages for Elanex's infringement of the Company's patent for DNA
sequences and host cells useful in producing recombinant
erythropoietin. The complaint also alleges that the foreign
defendants entered into agreements with Elanex relating to the
production or sale of recombinant erythropoietin and thereby have
induced Elanex's infringement.
In December 1993, Elanex responded to the complaint denying the
material allegations thereof, and filed a counterclaim seeking a
declaratory judgment that the Company's patent is invalid and that
Elanex's recombinant erythropoietin technology does not infringe any
valid claims of the Company's patent. The counterclaim also seeks an
award of reasonable attorneys' fees and other costs of defense but
does not seek damages against the Company. The case is currently in
discovery. In February 1996, Merckle GmbH was dismissed from the
case.
Genetics Institute litigation
On June 21, 1994, Genetics Institute filed suit in the United
States District Court for the District of Delaware in Wilmington,
against Johnson & Johnson, a licensee and distributor of the Company,
seeking damages for the alleged infringement of a recently issued
U.S. Patent 5,322,837 relating to Johnson & Johnson's manufacture,
use, and sale of erythropoietin.
On September 12, 1994, the Company filed suit in the United
States District Court for the District of Massachusetts in Boston,
against Genetics Institute, seeking declaratory judgment of patent
non-infringement, invalidity and unenforceability against Genetics
Institute in respect to U. S. Patent 5,322,837 issued to Genetics
Institute, which relates to homogeneous erythropoietin. Genetics
Institute answered the complaint and filed a counterclaim against the
Company alleging infringement of the same patent. On February 14,
1995, the United States District Court for the District of
Massachusetts granted Amgen's motion for a summary judgment enforcing
a prior judgment against Genetics Institute and barring Genetics
Institute from asserting its U. S. Patent 5,322,837 against Amgen's
recombinant erythropoietin. On March 13, 1995, Genetics Institute
filed notice of appeal with the United States Court of Appeals for
the Federal Circuit. On October 25, 1996, the Federal Circuit
affirmed the District Court's ruling that Genetics Institute could
not assert the U.S. Patent 5,322,837 patent claim against Amgen's
recombinant erythropoietin. The Federal Circuit denied Genetics
Institute's request for a rehearing on January 3, 1997.
21
Biogen litigation
On March 10, 1995, Biogen Inc. ("Biogen"), filed suit in the
United States District Court for the District of Massachusetts
alleging infringement by the Company of certain claims of U.S. Patent
4,874,702 (the "`702 Patent"), relating to vectors for expressing
cloned genes. Biogen alleges that Amgen has infringed its patent by
manufacturing and selling NEUPOGEN(R). On March 28, 1995, Biogen
filed an amended complaint further alleging that the Company is also
infringing the claims of two additional patents allegedly assigned to
Biogen, U.S. Patent 5,401,642 and U.S. Patent No. 5,401,658, relating
to vectors, methods for making vectors and expressing cloned genes.
The amended complaint seeks injunctive relief, unspecified
compensatory damages and treble damages. On April 24, 1995, the
Company answered Biogen's amended complaint, denying its material
allegations and pleading counterclaims for declaratory judgment of
non-infringement, patent invalidity and unenforceability. On January
19, 1996, the Court decided, upon Biogen's motion to dismiss certain
of Amgen's counterclaims, that it will exert jurisdiction over claims
9 and 17 of the `702 Patent, and dismissed all claims and
counterclaims relating to any other claims of the `702 Patent. Amgen
has moved for summary judgment of invalidity of claim 9 of the `702
Patent. This matter was heard on February 6, 1997. Discovery is
ongoing.
Consensus interferon litigation
On June 15, 1994, Biogen filed suit in the Tokyo District Court
in Japan, against Amgen K.K., a subsidiary of the Company, seeking
injunctive relief for the alleged infringement of two Japanese
patents relating to alpha-interferon by the clinical use of
INFERGEN(R), the Company's consensus interferon product. Amgen K.K.
has answered the complaint and has denied the allegations of
infringement. The case is ongoing.
On December 20, 1995, Roche Holding A.G., parent corporation of
F. Hoffmann-La Roche and Company, filed suit in the Tokyo District
Court in Japan, against Amgen K.K., a subsidiary of the Company,
seeking injunctive relief for the alleged infringement of a patent
relating to alpha-interferon by the clinical use of INFERGEN(R), the
Company's consensus interferon product. The Company subsequently
answered the complaint, denying allegations of infringement.
On December 3, 1996, Schering Corporation filed suit in the U.S.
District Court for the District of Delaware against the Company
alleging infringement of U.S. Patent No. 4,530,901 (the "`901
Patent") by the manufacture and use of the Company's consensus
interferon product, INFERGEN(R). The complaint seeks unspecified
damages and injunctive relief. The Company filed a motion to dismiss
the action on January 24, 1997. On January 22, 1997, the Company
filed an action for declaratory relief in the United States District
Court for the Central District of California in Los Angeles naming
Biogen Inc. and Schering Corporation as parties. The action seeks a
declaration that the `901 Patent is not infringed by the Company's
use of INFERGEN(R) and/or that the `901 Patent is invalid.
22
Genentech litigation
On October 16, 1996, Genentech, Inc. ("Genentech") filed suit in
the United States District Court for the Northern District of
California seeking an unspecified amount of compensatory damages,
treble damages and injunctive relief on its U.S. Patents 4,704,362,
5,221,619 and 4,342,832 (the "`362, `619 and `832 Patents"), relating
to vectors for expressing cloned genes and the methods for such
expression. Genentech alleges that Amgen has infringed its patents
by manufacturing and selling NEUPOGEN(R). On December 2, 1996, Amgen
was served with this lawsuit. On January 21, 1997, the Company
answered the complaint and asserted counterclaims relating to
invalidity and non-infringement of the patents-in-suit. On February
10, 1997, Genentech served Amgen with a reply to the counterclaim and
an additional counterclaim asserting U.S. Patent 5,583,013, issued
December 10, 1996, seeking relief similar to that sought for the
`362, `619 and `832 Patents.
Foxmeyer Health Corporation
On January 10, 1997, FoxMeyer Health Corporation ("FMHC") filed
suit in the District Court of Dallas County, Dallas, Texas, alleging
that defendant McKesson Corporation defrauded FMHC, misused
confidential information received from FMHC about subsidiaries of
FMHC (FoxMeyer Corporation and FoxMeyer Drug Corporation,
collectively the "FoxMeyer Subsidiaries"), and attempted to
monopolize the market for pharmaceutical and health care product
distribution by attempting to injure or destroy the FoxMeyer
Subsidiaries. The Company is named as one of twelve "Manufacturer
Defendants" alleged to have conspired with McKesson Corporation in
doing, among other things, the above and (i) inducing FMHC to refrain
from seeking other suitable purchasers for the FoxMeyer Subsidiaries
and (ii) causing FMHC to believe that McKesson Corporation was
serious about purchasing FMHC's assets at fair value, when, in fact,
McKesson Corporation was not. The Manufacturer Defendants and
McKesson Corporation are also alleged to have intentionally and
tortiously interfered with a number of business expectancies and
opportunities. The complaint seeks from the Manufacturer Defendants
and McKesson Corporation compensatory damages of at least $400
million and punitive damages in an unspecified amount, as well as
FMHC's costs and attorney's fees. On January 31, 1997, the Company
filed an answer denying FMHC's allegations. On February 4, 1997, a
notice of removal was filed in the Federal District Court for Dallas,
Texas (the "District Court"), which was referred by the District
Court to the Federal Bankruptcy Court in Dallas, Texas.
Subsequently, on February 7, 1997, a motion to transfer venue was
filed in the Federal Bankruptcy Court in Dallas, Texas, requesting
that this matter be transferred to the Federal Bankruptcy Court in
Delaware, where the FoxMeyer Subsidiaries' Chapter XI bankruptcy
action is pending. The Company is a creditor in such bankruptcy
proceeding.
23
False Claims Act matter
Amgen has been advised that it and certain purchasers of its
products have been named as defendants in a civil lawsuit initiated
by a former employee of Amgen in the United States District Court for
the Eastern District of Pennsylvania. This suit was filed under the
qui tam provisions of the Federal False Claims Act (the "Act") which
permit an individual to bring suit in the name of the United States
and share in any recovery. The suit alleges, among other things,
that Amgen individually and in conspiracy with some of its customers
violated the Act as a result of certain of its sales and reporting
practices relating to its products. Under the law, the government
must investigate the allegations and determine whether it wishes to
intervene and take responsibility for the lawsuit. The lawsuit will
remain under seal until the government completes its investigation
and determines whether to intervene. However, permission from the
Court has been obtained by Amgen to make the disclosures contained
herein. The Complaint seeks an order requiring Amgen to cease and
desist from such allegedly improper practices, as well as treble
damages in an unspecified amount plus a civil penalty of not less
than $5,000 and not more than $10,000 for each alleged violation of
the Act. If the government does not intervene, the plaintiff has the
right to continue to pursue the claim on the government's behalf.
Amgen is fully cooperating with the government's investigation and is
engaged in ongoing discussions with it regarding the allegations.
Amgen has advised the government that it disputes and will vigorously
contest the allegations in the Complaint. Although it is too early
in this action for Amgen to fully assess this matter or reliably
predict its outcome, an unfavorable result in this matter could have
a material adverse effect on the Company's results of operations in
that period.
24
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security
holders during the last quarter of its fiscal year ended
December 31, 1996.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Price Range of Common Stock
The Company's common stock trades on The Nasdaq Stock Market
under the symbol AMGN. As of March 13, 1997, there were
approximately 14,000 holders of record of the Company's common stock.
No cash dividends have been paid on the common stock to date, and the
Company currently intends to retain any earnings for development of
the Company's business and for repurchases of its common stock.
The following table sets forth, for the fiscal periods
indicated, the range of high and low closing sales prices of the
common stock as quoted on The Nasdaq Stock Market for the years 1996
and 1995:
High Low
1996 ------- -------
4th Quarter ................. $64 $54-3/8
3rd Quarter ................. 63-3/8 51-1/2
2nd Quarter ................. 61 52-3/8
1st Quarter ................. 65-1/2 52-3/4
1995
4th Quarter ................. $59-3/8 $43-1/2
3rd Quarter ................. 52 39-1/4
2nd Quarter ................. 40-7/32 33-1/16
1st Quarter ................. 35-3/8 28-1/4
Recent Sales of Unregistered Securities
In connection with the Company's stock repurchase program, Amgen
sold put warrants on its common stock (see Note 6 to the Consolidated
Financial Statements - "Stock repurchase program"). Each put warrant
entitles the holder to sell one share of Amgen Inc. common stock to
the Company at a specified price on its maturity date. During 1996,
the Company sold 2.7 million put warrants for $10.8 million in six
separate transactions to Goldman Sachs and Co. The put warrants had
terms ranging from approximately eight to eleven months and exercise
prices ranging from $52.00 to $58.80 per share.
The Company believes that the sales of these securities were
exempt from registration under the Securities Act of 1933, as
amended, pursuant to Section 4(2) thereof.
25
Item 6. SELECTED FINANCIAL DATA (in millions, except per share
data)
Years Ended December 31,
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Consolidated Statement of
Operations Data:
Revenues:
Product sales ..............$1,050.7 $1,306.3$1,549.6 $1,818.6 $2,088.2
Other revenues ............. 42.3 67.5 98.3 121.3 151.6
Total revenues............... 1,093.0 1,373.8 1,647.9 1,939.9 2,239.8
Research and development
expenses .................. 182.3 255.3 323.6 451.7 528.3
Write-off of in-process
technology purchased ...... - - 116.4 - -
Marketing and selling
expenses .................. 184.5 214.1 236.9 272.9 310.1
General and administrative
expenses .................. 107.7 114.3 122.9 145.5 160.5
Legal award.................. (77.1) (13.9) - - -
Net income(1)................ 357.6 383.3 319.7 537.7 679.8
Primary earnings per 1.21 1.33 1.14 1.92 2.42
share(1) ..................
Cash dividends declared per
share ..................... - - - - -
At December 31,
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Consolidated Balance Sheet
Data:
Total assets.................$1,374.3 $1,765.5 $1,994.1$2,432.8 $2,765.6
Long-term debt............... 129.9 181.2 183.4 177.2 59.0
Stockholders' equity......... 933.7 1,172.0 1,274.3 1,671.8 1,906.3
(1) Includes an increase to net income of $8.7 million, or $.03 per
share, to reflect the cumulative effect of a change in
accounting principle to adopt Statement of Financial Accounting
Standards No. 109 in 1993. Also includes the write-off of in-
process technology purchased of $116.4 million, or $.42 per
share, associated with the acquisition of Synergen in 1994 (see
Note 1 to Consolidated Financial Statements).
26
ITEM 7. 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. In 1996,
operations provided $822.6 million of cash compared with
$773.2 million in 1995. The Company had cash, cash equivalents and
marketable securities of $1,077 million at December 31, 1996,
compared with $1,050.3 million at December 31, 1995.
Capital expenditures totaled $266.9 million in 1996 compared
with $162.7 million in 1995. Over the next few years, the Company
expects to spend approximately $350 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., to acquire 3 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. In 1996, stock options and their related tax benefits
provided $162.1 million of cash compared with $145.5 million in 1995.
Proceeds from the exercise of stock options and their related tax
benefits have varied and are expected to continue to 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. Shares repurchased exceeded the number of option
grants for 1995 and 1996. In 1996, the Company purchased 7.7 million
shares of common stock at a cost of $450 million, and in 1995, the
Company purchased 7.3 million shares at a cost of $285.7 million.
The Company expects to spend up to $450 million on stock repurchases
in 1997. To partially hedge the cost of its stock repurchase
program, the Company sold put warrants and purchased call options in
1996 (see Note 6 to the Consolidated Financial Statements).
To provide for financial flexibility and increased liquidity,
the Company has established several sources of debt financing. The
Company has $100 million available under its $213 million debt shelf
registration. The shelf registration was increased in January 1997
from $200 million to $213 million. At December 31, 1996,
$109 million of debt securities were outstanding and bear interest at
fixed rates averaging 5.8%. The current portion of these debt
securities is $50 million, and the remaining debt securities mature
in two to seven years. The Company has $68.2 million of promissory
notes maturing in 1997. The Company also has a commercial paper
program which provides for short-term borrowings up to an aggregate
face amount of $200 million. As of December 31, 1996, the Company
had no outstanding commercial paper. The Company also has a
27
$150 million revolving line of credit, on which there were no
borrowings outstanding at December 31, 1996.
The primary objectives for the Company's investment portfolio
are liquidity and safety of principal. Investments are made to
achieve the highest rate of return to the Company, consistent with
these two objectives. The Company's investment policy limits
investments to certain types of instruments issued by institutions
with investment grade credit ratings and places restrictions on
maturities and concentration by type and issuer. The Company invests
its excess cash in securities with varying maturities to meet
projected cash needs.
The Company believes that existing funds, cash generated from
operations and existing sources of debt financing are adequate to
satisfy its working capital and capital expenditure requirements for
the foreseeable future, 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 $269.6 million or 15% in 1996 over the
prior year. In 1995, product sales increased $269 million or 17%
over the prior year.
NEUPOGEN(R) (Filgrastim)
The Company's worldwide NEUPOGEN(R) sales were $1,016.3 million
in 1996, an increase of $80.3 million or 9% over the prior year. In
1995, sales were $936 million, an increase of $107 million or 13%
over the prior year.
Domestic sales of NEUPOGEN(R) were $731.6 million in 1996, an
increase of $69.8 million or 11% over the prior year due primarily to
growth in demand and a price increase which was in line with the
Consumer Price Index. In 1995, domestic sales were $661.8 million,
an increase of $44.6 million or 7% over the prior year due primarily
to the increased usage of NEUPOGEN(R) and price increases.
Quarterly NEUPOGEN(R) sales volume in the United States is
influenced by a number of factors including underlying demand and
wholesaler inventory management practices. Wholesaler inventory
reductions tend to reduce domestic NEUPOGEN(R) sales in the first
quarter each year. In addition, the discretionary aspects of some
cancer chemotherapy administration has had a slight seasonal effect
on NEUPOGEN(R) sales.
Cost containment pressures in the health care marketplace have
contributed to the slowing of growth in domestic NEUPOGEN(R) usage
over the past several years. These pressures are expected to
continue to influence such growth for the foreseeable future.
28
Despite these pressures, the Company believes that NEUPOGEN(R)
sales have continued to grow in 1996 because the Company focused its
marketing efforts on specific tumor types and on the ability
NEUPOGEN(R) to partially offset its own costs by decreasing the
likelihood of infections requiring hospitalization. The introduction
and use of new myelosuppressive chemotherapy agents and the approval
of NEUPOGEN(R) for use in peripheral blood progenitor cell
transplants is also believed to have contributed to sales growth.
International sales of NEUPOGEN(R), primarily in Europe, were
$284.7 million in 1996, an increase of $10.5 million or 4% over the
prior year. Unit demand accounted for most of this increase but was
partially offset by the weakening of foreign currencies. In 1995,
international sales of NEUPOGEN(R) were $274.2 million, an increase
of $62.4 million or 29% over the prior year. Three factors, each
contributing approximately one third, accounted for this increase in
1995: (1) strong unit demand growth, (2) the inclusion of sales from
three additional countries as the result of Austria, Sweden and
Finland joining the European Union ("EU") on January 1, 1995, and (3)
the favorable effects of strengthened foreign currencies. Prior to
the entry of the three additional 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
("CSF") market in the EU in which NEUPOGEN(R) competes has continued
to decrease since the introduction in 1994 of a competing granulocyte
CSF product. The Company does not expect the competitive intensity
to subside in the near future. While sales in the EU have continued
to increase, government budget issues and cost controls have also
slowed the growth of the CSF market in the EU.
EPOGEN(R) (Epoetin alfa)
EPOGEN(R) sales were $1,071.9 million in 1996, an increase of
$189.3 million or 21% over the prior year. In 1995, EPOGEN(R) sales
were $882.6 million, an increase of $162 million or 22% over the
prior year. These increases were primarily due to increases in the
U.S. dialysis patient population and the administration of higher
doses, and to a lesser extent, increased penetration of the dialysis
market.
Increases in both the U.S. dialysis patient population and
dosing are expected to continue to drive EPOGEN(R) sales. These
drivers remained strong throughout 1996 as the Company focused its
marketing efforts on the benefits of increasing patients' hematocrit
levels. However, the Company believes that as more dialysis
patients' hematocrits reach target levels, dosing increases will
diminish.
Cost of sales
Cost of sales as a percentage of product sales was 13.6%, 15.0%
and 15.4% for the years ended December 31, 1996, 1995 and 1994,
respectively. The improvement in the current year reflects
efficiencies from the Company's fill-and-finish facility in Puerto
29
Rico. In 1997, cost of sales as a percentage of product sales is
expected to be in the range of 13% to 14% as a result of continuing
efficiencies in the Puerto Rico facility.
Research and development
In 1996 and 1995, research and development expenses increased
$76.6 million or 17% and $128.1 million or 40%, respectively,
compared with the respective prior years. These increases were
primarily due to staff-related expenses and external costs for
clinical and preclinical activities necessary to support ongoing
product development activities. In 1997, annual research and
development expenses are expected to increase at a rate slightly
exceeding the Company's product sales growth rate. Increases are
planned for internal efforts on development of product candidates,
for discovery and for licensing efforts.
Write-off of in-process technology purchased
In December 1994, the Company acquired Synergen, Inc.
("Synergen"), a biotechnology company engaged in the discovery and
development of protein-based pharmaceuticals. Synergen was acquired
for $254.5 million in cash, including related acquisition costs. The
purchase price was assigned to the acquired tangible and intangible
assets based on their estimated fair values at the date of
acquisition. The value assigned to in-process technology of
$116.4 million was expensed during the quarter ended
December 31, 1994.
Marketing and selling/general and administrative
In 1996 and 1995, marketing and selling expenses increased
$37.2 million or 14% and $36 million or 15%, respectively, compared
with the respective prior years. These increases primarily reflect
market research activities, 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 and 1995, general and administrative expenses increased
$15 million or 10% and $22.6 million or 18%, respectively, compared
with the respective prior years. These increases are primarily due
to staff-related expenses.
In 1997, marketing and selling expenses combined with general
and administrative expenses are expected to have an aggregate annual
growth rate that approximates the anticipated 1997 annual growth in
product sales.
Interest and other income
In 1996, interest and other income decreased $2.5 million or 4%
compared with the prior year. This decrease resulted from lower
interest rates and lower capital gains related to the Company's
investment portfolio, partially offset by higher cash balances. In
1995, interest and other income increased $44.6 million or 207% over
the prior year. This increase was primarily due to capital gains
30
realized in the Company's investment portfolio during 1995 while
capital losses were incurred in 1994 and from higher interest rates
and cash balances compared with the prior year. 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 tax rate was 29.4%, 32.3% and 45.7% for the years
ended December 31, 1996, 1995 and 1994, respectively. The decrease
in 1996 is primarily the result of a favorable ruling received from
the Puerto Rican government with respect to tollgate taxes applicable
to earnings in Puerto Rico. The decrease in 1995 was 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.
The tax rate in 1994 was higher than the statutory rate due to the
write-off of in-process technology purchased in connection with the
Synergen acquisition, which was not deductible for income tax
purposes. In 1997, the tax rate is expected to decrease to
approximately 28%. In 1998, the tax rate is expected to increase to
approximately 31%-32% due to a change in the U.S. federal tax law
which limits the tax benefits from manufacturing in Puerto Rico to
1995 levels.
Foreign currency transactions
The Company has a program to manage certain portions of its
exposure to fluctuations in foreign currency exchange rates arising
from international operations. The Company generally hedges the
receivables and payables with foreign currency forward contracts,
which typically mature within six months. The Company uses foreign
currency option and forward contracts which generally expire within
12 months to hedge certain anticipated future sales and expenses. At
December 31, 1996, outstanding foreign currency option and forward
contracts totaled $39.7 million and $93 million, respectively.
Financial Outlook
Worldwide NEUPOGEN(R) (Filgrastim) sales for 1997 are expected
to grow at a rate lower than the 1996 growth rate. Future
NEUPOGEN(R) sales increases are dependent primarily upon further
penetration of existing markets, the timing and nature of additional
indications for which the product may be approved and the effects of
competitive products. Although not approved or promoted for use in
the United States, the Company believes that approximately 20% of its
domestic NEUPOGEN(R) sales are from off-label use as a supportive
therapy for various AIDS-related treatments. Changes in AIDS
therapies, including therapies that may be less myelosuppressive, may
affect such sales. NEUPOGEN(R) usage is expected to continue to be
affected by cost containment pressures on health care providers
worldwide. In addition, international NEUPOGEN(R) sales will
continue to be subject to changes in foreign currency exchange rates.
EPOGEN(R) (Epoetin alfa) sales for 1997 are expected to remain
strong but grow at a rate lower than the 1996 growth rate. The
31
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 1997, but these growth rates are
expected to be lower than 1996 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 in this Annual Report on Form 10-K are by their
nature forward-looking. For the reasons stated in this Annual Report
or in the Company's other Securities and Exchange Commission filings,
or for various unanticipated reasons, actual results may differ
materially.
Legal Matters
The Company is engaged in arbitration proceedings with one of
its licensees and various other legal proceedings. For a complete
discussion of these matters, see Note 4 to the Consolidated Financial
Statements.
Factors That May Affect Future Results
Amgen operates in a rapidly changing environment that involves a
number of risks, some of which are beyond the Company's control. The
following discussion highlights some of these risks, and others are
discussed elsewhere herein and in other documents filed by the
Company with the Securities and Exchange Commission.
Product development
The Company intends to continue an aggressive product
development program. Successful product development in the
biotechnology industry is highly uncertain, and only a small minority
of research and development programs ultimately result in the
commercialization of a product. Of the candidates that are
commercialized, all may not be commercially successful. Product
candidates that appear promising in the early phases of development
may fail to reach the market for numerous reasons, including, without
limitation, results indicating lack of effectiveness or harmful side
effects in clinical or preclinical testing, failure to receive
necessary regulatory approvals, uneconomical manufacturing costs, the
existence of third party proprietary rights, failure to be cost
effective in light of existing therapeutics or other factors. There
can be no assurance that the Company will be able to produce future
products that have commercial potential.
32
Additionally, success in preclinical and early clinical trials
does not ensure that large scale clinical trials will be successful.
Clinical results are frequently susceptible to varying
interpretations which may delay, limit or prevent further clinical
development or regulatory approvals. The length of time necessary to
complete clinical trials and receive approval for product marketing
by regulatory authorities varies significantly by product and
indication and is often difficult to predict. See "--Regulatory
approvals."
Regulatory approvals
The Company's research and development, preclinical testing,
clinical trials, facilities, manufacturing and marketing of its
products are subject to extensive regulation by numerous governmental
authorities in the U.S. and other countries. The success of the
Company's current products and future product candidates will depend
in part upon obtaining and maintaining regulatory approval to market
products in approved indications. Even if regulatory approval is
obtained, a marketed product and its manufacturer are subject to
continued review. Later discovery of previously unknown problems
with a product or manufacturer may result in restrictions on such
product or manufacturer, including withdrawal of the product from the
market. Failure to obtain necessary approvals, or the restriction,
suspension or revocation of any approvals or the failure to comply
with regulatory requirements could have a material adverse effect on
the Company.
Reimbursement; Third party payors
In both domestic and foreign markets, sales of the Company's
products are dependent in part on the availability of reimbursement
from third party payors such as governments and private insurance
plans. In certain foreign markets pricing and profitability of
prescription pharmaceuticals are subject to government controls. In
the United States, there has been, and the Company expects there to
continue to be, a number of state and federal proposals to implement
price controls. In addition, an increasing emphasis on managed care
in the United States has and will continue to increase the pressure
on pharmaceutical pricing and usage. Further, significant
uncertainties exist as to the reimbursement status of newly approved
therapeutic products, and current reimbursement policies for existing
products may change. Changes in reimbursement or failure to obtain
reimbursement may reduce the demand for, or the price of, the
Company's products which could have a material adverse effect on the
Company including results of operations. Specifically, patients in
the U.S. receiving EPOGEN(R) in connection with treatment for end
stage renal disease are covered primarily under medical programs
provided by the federal government. Therefore, EPOGEN(R) sales may
be affected by future changes in reimbursement rates or the basis for
reimbursement by the federal government.
Guidelines
In addition to government agencies that promulgate regulations
and guidelines directly applicable to the Company and its products,
33
private health/science foundations and organizations involved in
various diseases may also publish, from time to time, guidelines or
recommendations to the healthcare and patient communities. These
private organizations may make recommendations that affect the usage
of certain therapies, drugs or procedures, including the Company's
products. Such recommendations may relate to such matters as usage,
dosage, route of administration and use of concomitant therapies.
Recommendations or guidelines that are followed by patients and
healthcare providers and that result in, among other things,
decreased use of the Company's products could have a material adverse
effect on the Company. In addition, the perception that such
recommendations or guidelines will be followed could adversely affect
prevailing market prices for the Company's common stock.
Intellectual property and legal matters
The patent positions of pharmaceutical and biotechnology
companies can be highly uncertain and involve complex legal,
scientific and factual questions. To date there has emerged no
consistent policy regarding breadth of claims allowed in such
companies' patents. Accordingly, there can be no assurance that
patents and patent applications relating to the Company's products
and technologies will not be challenged, invalidated or circumvented
or will afford protection against competitors with similar products
or technology. Patent disputes are frequent and can preclude
commercialization of products. The Company currently is, and may in
the future be, involved in patent litigation. Such litigation, if
decided adversely, could subject the Company to significant
liabilities, cause the Company to obtain third party licenses or
cease using the technology or product in dispute. However, there can
be no assurance that such licenses will be available on terms
acceptable to the Company, or at all.
The Company is currently involved in arbitration proceedings
with Ortho Pharmaceutical Corporation, a subsidiary of Johnson &
Johnson ("Johnson & Johnson"), relating to a license granted by the
Company to Johnson & Johnson for sales of Epoetin alfa in the United
States for all human uses except dialysis and diagnostics. See Note
4 to the Consolidated Financial Statements, "Contingencies - Johnson
& Johnson arbitrations."
Competition
Amgen operates in a highly competitive environment. The Company
competes with pharmaceutical and biotechnology companies, some of
which may have technical or competitive advantages, for, among other
things, the development of technologies and processes and the
acquisition of technology from academic institutions, government
agencies and other private and public research organizations. There
can be no assurance that the Company will be able to produce or
acquire rights to products that have commercial potential. Even if
the Company achieves product commercialization, there can be no
assurance that one or more of the Company's competitors will not: (1)
achieve product commercialization earlier than the Company, (2)
receive patent protection that dominates or adversely affects the
34
Company's activities or (3) have significantly greater marketing
capabilities.
Fluctuations in operating results
The Company's operating results may fluctuate from period to
period for a number of reasons. Historically the Company has planned
its operating expenses, many of which are relatively fixed in the
short term, on the basis that revenues will continue to grow.
Accordingly, even a relatively small revenue shortfall may cause a
period's results to be below Company expectations. Such a revenue
shortfall could arise from any number of factors, including, without
limitation, lower than expected demand, changes in wholesaler buying
patterns, changes in product pricing strategies, increased
competition from new and existing products, fluctuations in foreign
currency exchange rates, changes in government or private
reimbursement, transit interruptions, overall economic conditions or
natural disasters (including earthquakes). The Company also
experiences a degree of seasonality in its operating results. See
"Results of Operations - Product sales - NEUPOGEN(R) (Filgrastim)."
Rapid growth
The Company has adopted an aggressive growth plan that includes
substantial and increased investments in research and development and
investments in facilities that will be required to support
significant growth. This plan carries with it a number of risks,
including a higher level of operating expenses, the difficulty of
attracting and assimilating a large number of new employees, and the
complexities associated with managing a larger and faster growing
organization.
Stock price volatility
The Company's stock price, like that of other biotechnology
companies, is subject to significant volatility. The stock price may
be affected by, among other things, clinical trial results and other
product development related announcements by Amgen or its
competitors, regulatory matters, announcements in the scientific and
research community, intellectual property and legal matters, changes
in reimbursement policies or medical practices or broader industry
and market trends unrelated to the Company's performance. In
addition, if revenues or earnings in any quarter fail to meet the
investment community's expectations, there could be an immediate
adverse impact on the Company's stock price.
35
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated herein by
reference to the financial statements listed in Item 14(a) of Part IV
of this Form 10-K Annual Report.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the directors of the Company is
incorporated by reference to the section entitled "Election of
Directors" in the Company's definitive Proxy Statement with respect
to the Company's 1997 Annual Meeting to be filed with the Securities
and Exchange Commission within 120 days of December 31, 1996 (the
"Proxy Statement"). For information concerning the executive
officers of the Company see Item 1. - "Executive Officers of the
Registrant".
Item 11. EXECUTIVE COMPENSATION
The section labeled "Executive Compensation" appearing in the
Company's Proxy Statement is incorporated herein by reference, except
for such information as need not be incorporated by reference under
rules promulgated by the Securities Exchange Commission.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The section labeled "Security Ownership of Directors and
Executive Officers and Certain Beneficial Owners" appearing in the
Company's Proxy Statement is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section labeled "Certain Transactions" appearing in the
Company's Proxy Statement is incorporated herein by reference.
36
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
(a) 1. Index to Financial Statements
The following Financial Statements are included herein:
Page
Number
Report of Ernst & Young LLP, Independent Auditors .................F-1
Consolidated Statements of Operations for each of the three
years in the period ended December 31, 1996.....................F-2
Consolidated Balance Sheets at December 31, 1996 and 1995 .........F-3
Consolidated Statements of Stockholders' Equity for each of
the three years in the period ended December 31, 1996...........F-4
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 1996...............F-5 - F-6
Notes to Consolidated Financial Statements .................F-7 - F-26
(a) 2. Index to Financial Statement Schedules
The following Schedules are filed as part of this Form 10-K
Annual Report:
Page
Number
II Valuation Accounts ......................................F-27
All other schedules are omitted because they are not applicable,
or not required, or because the required information is included in
the consolidated statements or notes thereto.
(a) 3. 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)
4.3 First Supplement to Indenture, dated February 26, 1997
between the Company and Citibank N.A., as trustee.(23)
+*10.1 Company's Amended and Restated 1991 Equity Incentive
Plan.
+10.2 Company's Amended and Restated 1984 Stock Option Plan.
(22)
10.3 Shareholder's Agreement of Kirin-Amgen, Inc., dated May
11, 1984, between the Company and Kirin Brewery Company,
37
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. (22)
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
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
(22).
+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)
38
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)
+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. (25)
+*10.35 Amgen Performance Based Management Incentive Plan.
10.36 Agreement and Plan of Merger, dated as of November 17,
1994, among Amgen Inc., Amgen Acquisition Subsidiary,
Inc. and Synergen, Inc. (17)
10.37 Third Amendment to Rights Agreement, dated as of
February 21, 1995, between Amgen Inc. and American Stock
Transfer Trust and Trust Company (18)
10.38 Credit Agreement, dated as of June 23, 1995, among Amgen
Inc., the Borrowing Subsidiaries named therein, the
Banks named therein, Swiss Bank Corporation and ABN AMRO
Bank N.V., as Issuing Banks, and Swiss Bank Corporation,
as Administrative Agent. (19)
10.39 Promissory Note of Mr. George A. Vandeman, dated
December 15, 1995. (20)
39
10.40 Promissory Note of Mr. George A. Vandeman, dated
December 15, 1995. (20)
10.41 Promissory Note of Mr. Stan Benson, dated March 19,
1996. (20)
+10.42 Amendment No. 1 to the Company's Amended and Restated
Retirement and Savings Plan. (22)
+*10.43 Amendment Number 5 to the Company's Amended and Restated
Retirement and Savings Plan dated January 1, 1993.
+*10.44 Amendment Number 2 to the Company's Amended and Restated
Retirement and Savings Plan dated April 1, 1996.
*10.45 First Amendment to Credit Agreement, dated as of
December 12, 1996, among Amgen Inc., the Borrowing
Subsidiaries named therein, and Swiss Bank Corporation
as Administrative Agent.
10.46 Fourth Amendment to Rights Agreement, dated February 18,
1997 between Amgen Inc. and American Stock Transfer and
Trust Company, Rights Agent. (24)
10.47 Preferred Share Rights Agreement, dated February 18,
1997, between Amgen Inc. and American Stock Transfer and
Trust Company, Rights Agent. (24)
+*10.48 Consulting Agreement, dated November 15, 1996, between
the Company and Daniel Vapnek.
+*10.49 Agreement, dated May 30, 1995, between the Company and
George A. Vandeman.
*11 Computation of per share earnings.
*21 Subsidiaries of the Company.
23 Consent of Ernst & Young LLP, Independent Auditors. The
consent set forth as page 44 is incorporated herein by
reference.
24 Power of Attorney. The Power of Attorney set forth on
page 43 is incorporated herein by reference.
*27 Financial Data Schedule.
- ----------------
* Filed herewith.
+ 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 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.
40
(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 Form 8-K Current Report dated
November 18, 1994 on December 2, 1994 and incorporated herein by
reference.
(18) Filed as an exhibit to the Form 8-K Current Report dated
February 21, 1995 on March 7, 1995 and incorporated herein by
reference.
(19) Filed as an exhibit to the Form 10-Q for the quarter ended
June 30, 1995 on August 11, 1995 and incorporated herein by
reference.
(20) Filed as an exhibit to the Annual Report on Form 10-K for the
year ended December 31, 1995 on March 29, 1996 and incorporated
herein by reference.
(21) Filed as an exhibit to the Form 10-Q for the quarter ended
June 30, 1996 on August 12, 1996 and incorporated herein by
reference.
(22) Filed as an exhibit to the Form 10-Q for the quarter ended
September 30, 1996 on November 5, 1996 and incorporated herein
by reference.
(23) Filed as an exhibit to the Form 8-K Current Report dated March
14, 1997 on March 14, 1997 and incorporated herein by reference.
(24) Filed as an exhibit to the Form 8-K Current Report dated
February 18, 1997 on February 28, 1997 and incorporated herein
by reference.
(25) 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.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
three months ended December 31, 1996.
41
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this Annual Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Amgen Inc.
(Registrant)
Date: 3/24/97 By: /s/ ROBERT S. ATTIYEH
------------------------
Robert S. Attiyeh
Senior Vice President,
Finance and Corporate
Development, and
Chief Financial Officer
42
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Robert S. Attiyeh and Larry A.
May, or either of them, his attorney-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any
amendments to this Report, and to file the same, with exhibits
thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming
all that each of said attorneys-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated:
/s/GORDON M. BINDER 3/24/97 /s/WILLIAM K. BOWES, JR. 3/24/97
- ---------------------------- ---------------------------
Gordon M. Binder William K. Bowes, Jr.
Chairman of the Board Director
Chief Executive Officer and
Director
(Principal Executive Officer) /s/FRANKLIN P. JOHNSON,JR. 3/24/97
--------------------------
Franklin P. Johnson, Jr.
Director
/s/KEVIN W. SHARER 3/24/97
- ----------------------------
Kevin W. Sharer
President, Chief Operating /s/STEVEN LAZARUS 3/24/97
Officer and Director --------------------------
Steven Lazarus
Director
/s/ROBERT S. ATTIYEH 3/24/97
- ----------------------------
Robert S. Attiyeh /s/EDWARD J. LEDDER 3/24/97
Senior Vice President, ---------------------------
Finance and Corporate Edward J. Ledder
Development, and Director
Chief Financial Officer
/s/GILBERT S. OMENN 3/24/97
---------------------------
Gilbert S. Omenn
/s/LARRY A. MAY 3/24/97 Director
- ----------------------------
Larry A. May
Vice President,
Corporate Controller and /s/JUDITH C. PELHAM 3/24/97
Chief Accounting Officer ---------------------------
Judith C. Pelham
Director
/s/RAYMOND F. BADDOUR 3/24/97
- ----------------------------
Raymond F. Baddour
Director
43
EXHIBIT 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 33-5111) pertaining to the 1984 Stock Option
Plan, 1981 Incentive Stock Option Plan and Nonqualified Stock Option
Plan of Amgen Inc., in the Registration Statement (Form S-8 No. 33-
24013) pertaining to the Amended and Restated 1988 Stock Option Plan
of Amgen Inc., in the Registration Statement (Form S-8 No. 33-39183)
pertaining to the Amended and Restated Employee Stock Purchase Plan,
in the Registration Statement (Form S-8 No. 33-39104) pertaining to
the Amended and Restated Amgen Retirement and Savings Plan, in the
Registration Statements (Form S-3/S-8 No. 33-29791 and Form S-8 No.
33-42501) pertaining to the Amended and Restated 1987 Directors'
Stock Option Plan, in the Registration Statement (Form S-8 No. 33-
42072) pertaining to the Amgen Inc. Amended and Restated 1991 Equity
Incentive Plan, in the Registration Statement (Form S-8 No. 33-47605)
pertaining to the Retirement and Savings Plan for Amgen Puerto Rico,
Inc. and in the Registration Statements (Form S-3 No. 33-22544, Form
S-3 No. 33-44454 and Form S-3 No. 333-19931) of Amgen Inc. and in the
related Prospectuses of our report dated January 22, 1997 with
respect to the consolidated financial statements and financial
statement schedule of Amgen Inc. included in this Annual Report (Form
10-K) for the year ended December 31, 1996.
/s/ ERNST & YOUNG LLP
Los Angeles, California
March 24, 1997
44
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders of
Amgen Inc.
We have audited the accompanying consolidated balance sheets of
Amgen Inc. as of December 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31,
1996. Our audits also included the financial statement schedule
listed in the Index at Item 14(a). These financial statements and
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Amgen Inc. at December 31, 1996 and 1995, and
the consolidated results of its operations and its cash flows for
each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles. Also, in
our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set
forth therein.
/s/ ERNST & YOUNG LLP
Los Angeles, California
January 22, 1997
F-1
AMGEN INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1996, 1995 and 1994
(In millions, except per share data)
1996 1995 1994
-------- -------- --------
Revenues:
Product sales ................. $2,088.2 $1,818.6 $1,549.6
Corporate partner revenues .... 109.9 85.2 70.4
Royalty income ................ 41.7 36.1 27.9
-------- -------- --------
Total revenues .............. 2,239.8 1,939.9 1,647.9
-------- -------- --------
Operating expenses:
Cost of sales ................. 283.2 272.9 238.1
Research and development ...... 528.3 451.7 323.6
Write-off of in-process
technology purchased ........ - - 116.4
Marketing and selling ......... 310.1 272.9 236.9
General and administrative .... 160.5 145.5 122.9
Loss of affiliates, net ....... 52.8 53.3 31.2
-------- -------- --------
Total operating expenses .... 1,334.9 1,196.3 1,069.1
-------- -------- --------
Operating income ................ 904.9 743.6 578.8
Other income (expense):
Interest and other income ..... 63.6 66.1 21.5
Interest expense, net ......... (6.2) (15.3) (12.0)
-------- -------- --------
Total other income (expense). 57.4 50.8 9.5
-------- -------- --------
Income before income taxes ...... 962.3 794.4 588.3
Provision for income taxes ...... 282.5 256.7 268.6
-------- -------- --------
Net income ...................... $ 679.8 $ 537.7 $ 319.7
======== ======== ========
Earnings per share:
Primary ....................... $2.42 $1.92 $1.14
Fully diluted ................. $2.42 $1.88 $1.13
Shares used in calculation of:
Primary earnings per share .... 280.7 280.7 279.6
Fully diluted earnings per
share ....................... 280.9 285.3 282.2
See accompanying notes.
F-2
AMGEN INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
(In millions, except per share data)
1996 1995
-------- --------
ASSETS
Current assets:
Cash and cash equivalents .......... $ 169.3 $ 66.7
Marketable securities .............. 907.7 983.6
Trade receivables, net of allowance
for doubtful accounts of $11.8 in
1996 and $13.8 in 1995........... 225.4 199.3
Inventories ........................ 97.4 88.8
Other current assets ............... 102.8 115.7
-------- --------
Total current assets............. 1,502.6 1,454.1
Property, plant and equipment at cost,
net ................................ 910.5 743.8
Investments in affiliated companies... 109.6 95.7
Other assets.......................... 242.9 139.2
-------- --------
$2,765.6 $2,432.8
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................... $ 75.0 $ 54.4
Accrued liabilities ................ 449.7 459.7
Current portion of long-term debt .. 118.2 -
Commercial paper ................... - 69.7
-------- --------
Total current liabilities........ 642.9 583.8
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 shares authorized; outstanding
- 264.7 shares in 1996 and 265.7
shares in 1995................... 1,026.9 864.8
Retained earnings .................. 879.4 807.0
-------- --------
Total stockholders' equity....... 1,906.3 1,671.8
-------- --------
$2,765.6 $2,432.8
======== ========
See accompanying notes.
F-3
AMGEN INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1996, 1995 and 1994
(In millions)
Common
stock
and
Number additional
of paid-in Retained
shares capital earnings
------ ---------- --------
Balance at December 31, 1993 ....... 268.4 $ 636.2 $535.8
Issuance of common stock upon the
exercise of stock options and in
connection with an employee stock
purchase plan .................... 5.7 44.8 -
Issuance of common stock upon the
exercise of warrants ............ 3.5 15.3 -
Tax benefits related to stock
options .......................... - 23.0 -
Repurchases of common stock ........ (12.9) - (300.5)
Net income ......................... - - 319.7
----- -------- ------
Balance at December 31, 1994 ....... 264.7 719.3 555.0
Issuance of common stock upon the
exercise of stock options and in
connection with an employee stock
purchase plan .................... 8.3 102.7 -
Tax benefits related to stock
options .......................... - 42.8 -
Repurchases of common stock ........ (7.3) - (285.7)
Net income ......................... - - 537.7
----- -------- ------
Balance at December 31, 1995 ....... 265.7 864.8 807.0
Issuance of common stock upon the
exercise of stock options and in
connection with an employee stock
purchase plan .................... 6.7 113.5 -
Tax benefits related to stock
options .......................... - 48.6 -
Reclassification of put warrant
obligation ....................... - - (157.4)
Repurchases of common stock ........ (7.7) - (450.0)
Net income ......................... - - 679.8
----- -------- ------
Balance at December 31, 1996 ....... 264.7 $1,026.9 $879.4
===== ======== ======
See accompanying notes.
F-4
AMGEN INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1996, 1995 and 1994
(In millions)
1996 1995 1994
-------- ------- ---------
Cash flows from operating activities:
Net income ....................... $ 679.8 $ 537.7 $319.7
Write-off of in-process
technology purchased ........... - - 116.4
Depreciation and amortization .... 100.3 84.3 77.3
Deferred income taxes ............ 25.6 23.9 2.4
Loss of affiliates, net .......... 52.8 53.3 31.2
Cash provided by (used in):
Trade receivables, net ......... (26.1) (4.6) (30.4)
Inventories .................... (8.6) 9.2 (23.3)
Other current assets ........... (11.8) (8.0) 1.8
Accounts payable ............... 20.6 23.9 4.6
Accrued liabilities ............ (10.0) 53.5 32.2
------- ------- -------
Net cash provided by
operating activities ...... 822.6 773.2 531.9
------- ------- -------
Cash flows from investing activities:
Purchases of property, plant and
equipment ...................... (266.9) (162.7) (130.8)
Proceeds from maturities of
marketable securities .......... 168.3 129.6 87.7
Proceeds from sales of marketable
securities ..................... 762.4 1,018.8 1,505.8
Purchases of marketable
securities ..................... (854.8) (1,646.6) (1,395.1)
Cost to acquire company, net of
cash acquired .................. - - (240.8)
Increase in investments in
affiliated companies ........... (14.6) (19.5) (21.8)
(Increase) decrease in other
assets ......................... (104.6) (13.7) 4.0
------- -------- --------
Net cash used in investing
activities ................ $(310.2) $ (694.1) $ (191.0)
------- -------- --------
See accompanying notes.
(Continued on next page)
F-5
AMGEN INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years ended December 31, 1996, 1995 and 1994
(In millions)
1996 1995 1994
-------- -------- --------
Cash flows from financing activities:
Decrease in commercial paper ..... $(69.7) $(30.0) $(10.1)
Repayment of long-term debt ...... - (6.2) (12.0)
Proceeds from issuance of long-
term debt ...................... - - 12.5
Net proceeds from issuance of
common stock upon the exercise
of stock options and in
connection with an employee
stock purchase plan ............ 113.5 102.7 44.8
Tax benefits related to stock
options ........................ 48.6 42.8 23.0
Net proceeds from issuance of
common stock upon the exercise
of warrants .................... - - 15.3
Repurchases of common stock ...... (450.0) (285.7) (300.5)
Other ............................ (52.2) (47.3) (31.1)
-------- -------- --------
Net cash used in financing
activities ................ (409.8) (223.7) (258.1)
-------- -------- --------
Increase (decrease) in cash and cash
equivalents ...................... 102.6 (144.6) 82.8
Cash and cash equivalents at
beginning of period .............. 66.7 211.3 128.5
-------- -------- --------
Cash and cash equivalents at end of
period ........................... $169.3 $ 66.7 $211.3
======== ======== ========
See accompanying notes.
F-6
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
1. Summary of significant accounting policies
Business
Amgen Inc. ("Amgen" or the "Company") is a global biotechnology
company that discovers, develops, manufactures and markets human
therapeutics based on advances in cellular and molecular biology.
Principles of consolidation
The consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries as well as affiliated
companies for which the Company has a controlling financial interest
and exercises control over their operations ("majority controlled
affiliates"). All material intercompany transactions and balances
have been eliminated in consolidation. Investments in affiliated
companies which are 50% or less owned and where the Company exercises
significant influence over operations are accounted for using the
equity method. All other equity investments are accounted for under
the cost method. The caption "Loss of affiliates, net" includes
Amgen's equity in the operating results of affiliated companies and
the minority interest others hold in the operating results of Amgen's
majority controlled affiliates.
Cash equivalents and marketable securities
The Company considers cash equivalents to be only those
investments which are highly liquid, readily convertible to cash and
which mature within three months from date of purchase.
The Company considers its investment portfolio available-for-
sale as defined in Statement of Financial Accounting Standards
("SFAS") No. 115. There were no material unrealized gains or losses
nor any material differences between the estimated fair values and
costs of securities in the investment portfolio at December 31, 1996
and 1995. For the year ended December 31, 1996, realized gains and
losses totaled $4.4 million and $3 million, respectively. For the
year ended December 31, 1995, realized gains and losses totaled $8
million and $3.1 million, respectively. For the year ended December
31, 1994, realized gains and losses totaled $5 million and $21.1
million, respectively. The cost of securities sold is based on the
specific identification method. The cost of the investment portfolio
by type of security, contractual maturity and its classification in
the balance sheet is as follows (in millions):
F-7
December 31,
1996 1995
-------- --------
Type of security:
Corporate debt securities ................. $ 656.2 $ 486.8
U.S. Treasury securities and obligations of
U.S. government agencies ................ 209.7 459.3
Other interest bearing securities ......... 222.3 81.3
-------- --------
$1,088.2 $1,027.4
======== ========
Contractual maturity:
Maturing in one year or less .............. $ 610.8 $ 219.4
Maturing after one year through three years 351.3 569.4
Maturing after three years ................ 126.1 238.6
-------- --------
$1,088.2 $1,027.4
======== ========
Classification in balance sheet:
Cash and cash equivalents ................. $ 169.3 $ 66.7
Marketable securities ..................... 907.7 983.6
Other assets - noncurrent ................. 40.0 -
-------- --------
1,117.0 1,050.3
Less cash ................................. (28.8) (22.9)
-------- --------
$1,088.2 $1,027.4
======== ========
The primary objectives for the Company's investment portfolio
are liquidity and safety of principal. Investments are made to
achieve the highest rate of return to the Company, consistent with
these two objectives. The Company's investment policy limits
investments to certain types of instruments issued by institutions
with investment grade credit ratings, and places restrictions on
maturities and concentration by type and issuer. The Company invests
its excess cash in securities with varying maturities to meet
projected cash needs.
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 consisted of the following (in millions):
F-8
December 31,
1996 1995
----- -----
Raw materials................... $15.9 $11.8
Work in process................. 56.2 45.9
Finished goods.................. 25.3 31.1
----- -----
$97.4 $88.8
===== =====
Depreciation and amortization
Depreciation of buildings and equipment is provided over their
estimated useful lives on a straight-line basis. Leasehold
improvements are amortized on a straight-line basis over the shorter
of their estimated useful lives or lease terms, including periods
covered by options which are expected to be exercised. Useful lives
by asset category are as follows:
Asset Category Years
-------------- -----
Buildings ..................... 10 - 20
Manufacturing equipment ....... 5
Laboratory equipment .......... 5
Furniture and office equipment 3 - 10
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 and
wholesaler inventory management practices. Wholesaler inventory
reductions tend to reduce domestic NEUPOGEN(R) sales in the first
quarter each year. In addition, the discretionary aspects of some
cancer chemotherapy administration has had a slight seasonal effect
on NEUPOGEN(R) sales.
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").
F-9
Research and development costs
Research and development costs are expensed as incurred.
Payments related to the acquisition of technology rights, for which
development work is in-process, are expensed and considered a
component of research and development costs.
In December 1994, the Company acquired the outstanding stock of
Synergen, Inc. ("Synergen"), a publicly held biotechnology company
engaged in the discovery and development of protein-based
pharmaceuticals. Synergen was acquired for $254.5 million, including
related acquisition costs. The value assigned to in-process
technology acquired of $116.4 million was expensed on the acquisition
date. This business combination was accounted for using the purchase
method, and therefore, operating results of Synergen are included in
the accompanying consolidated financial statements beginning in
December 1994.
Foreign currency transactions
The Company has a program to manage foreign currency risk. As
part of this program, it has purchased foreign currency option and
forward contracts to hedge against possible reductions in values of
certain anticipated foreign currency cash flows over the next 12
months, primarily resulting from its sales in Europe. At
December 31, 1996, the Company had net option and forward contracts
to exchange foreign currencies for U.S. dollars of $39.7 million and
$44.6 million, respectively, all having maturities of one year or
less. The option contracts are designated and effective as hedges of
anticipated foreign currency transactions for financial reporting
purposes, and accordingly, the net gains on such contracts are
deferred and will be recognized in the same period as the hedged
transactions. The forward contracts do not qualify as hedges for
financial reporting purposes, and accordingly, are marked-to-market
with changes in market values reflected directly in income.
The Company has additional foreign currency forward contracts to
hedge certain exposures to foreign currency fluctuations of certain
receivables and payables denominated in foreign currencies. At
December 31, 1996, the Company had forward contracts to exchange
foreign currencies, primarily Swiss francs, for U.S. dollars of
$48.4 million, all having maturities of five months or less. These
contracts are designated and effective as hedges, and accordingly,
gains and losses on these forward contracts are recognized in the
same period the offsetting gains and losses of hedged assets and
liabilities are realized and recognized.
Interest
Interest costs are expensed as incurred, except to the extent
such interest is related to construction in progress, in which case
interest is capitalized. Interest costs capitalized for the years
ended December 31, 1996, 1995 and 1994, were $4.2 million,
$4.7 million and $3.7 million, respectively.
F-10
Stock option and purchase plans
The Company's stock option and purchase plans are accounted for
under Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees" (see Note 7).
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 outstanding warrants to purchase
shares of the Company's common stock. Put warrants on the Company's
common stock may also be dilutive under the reverse treasury stock
method.
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.
Reclassification
Certain prior year amounts have been reclassified to conform to
the current year presentation.
2. Related party transactions
The Company owns a 50% interest in Kirin-Amgen, Inc. ("Kirin-
Amgen"), a corporation formed in 1984 for the development and
commercialization of certain products based on advanced
biotechnology. Pursuant to the terms of agreements entered into with
Kirin-Amgen, the Company conducts certain research and development
activities on behalf of Kirin-Amgen and is paid for such services at
negotiated rates. Included in revenues from corporate partners for
the years ended December 31, 1996, 1995 and 1994, are $79.9 million,
$72.6 million and $58.6 million, respectively, related to these
agreements.
In connection with its various agreements with Kirin-Amgen, the
Company has been granted sole and exclusive licenses for the
manufacture and sale of certain products in specified geographic
areas of the world. In return for such licenses, the Company paid
Kirin-Amgen stated amounts upon the receipt of the licenses and/or
pays Kirin-Amgen royalties based on sales. During the years ended
December 31, 1996, 1995 and 1994, Kirin-Amgen earned royalties from
Amgen of $86.2 million, $74.2 million and $67.5 million,
respectively, under such agreements, which are included in cost of
sales in the accompanying consolidated statements of operations.
F-11
At December 31, 1996, Amgen's share of Kirin-Amgen's
undistributed retained earnings was approximately $63.1 million.
3. Debt
The Company has a commercial paper program which provides for
unsecured short-term borrowings up to an aggregate of $200 million.
At December 31, 1996, the Company had no outstanding commercial
paper. At December 31, 1995, $69.7 million of commercial paper was
outstanding at effective interest rates averaging 5.8% and maturities
of less than three months.
Long-term debt consisted of the following (in millions):
December 31,
1996 1995
------- -------
Debt securities .................. $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 a shelf registration under which it has
registered $213 million of debt securities. The shelf registration
was increased in January 1997 from $200 million to $213 million. At
December 31, 1996, $87 million was available under this shelf
registration, and in January 1997, this amount was increased to $100
million. At December 31, 1996, $109 million of debt securities were
outstanding. The debt securities bear interest at fixed rates
averaging 5.8%. The current portion of these debt securities is $50
million, and the remaining debt securities mature in two to seven
years. The Company may offer and issue these securities from time to
time with terms determined by market conditions. Under the terms of
these securities, the Company is required to meet certain debt to
tangible net asset ratios. In addition, these securities place
limitations on liens and sale/leaseback transactions.
The Company's promissory notes, which mature in 1997, were
issued to assist in financing the acquisition and related
construction of a manufacturing facility in Puerto Rico. These notes
bear interest, which is payable quarterly, at a rate reset quarterly,
equal to 81% of a Eurodollar base rate, not to exceed 12%. At
December 31, 1996, the effective interest rate on these notes was
approximately 4.5%.
The Company has an unsecured credit facility (the "credit
facility") that includes a commitment expiring on June 23, 2000 for
up to $150 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 million of letters of
credit. As of December 31, 1996, $150 million was available under
the revolving line commitment for borrowing and to support the
F-12
Company's commercial paper program. Also, as of December 31, 1996,
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.
The aggregate stated maturities of all long-term obligations due
subsequent to December 31, 1996, are as follows: $118.2 million -
1997; $30 million - 1998; $6 million - 1999; none - 2000; none -
2001; and $23 million thereafter.
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 and PROCRIT in Amgen's and Johnson & Johnson's respective
exclusive markets. Based upon this audit methodology, the Company is
seeking payment of approximately $12.6 million (excluding interest)
from Johnson & Johnson for the period 1991 to 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 $423 million (including interest
through December 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
sales than is currently being recognized. As a result of the
arbitration, the Company may be required to pay additional
F-13
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. In December 1996, testimony in the arbitration
ended.
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
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 the 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
Lawsuits have been filed against the Company's wholly-owned
subsidiary, Amgen Boulder Inc. (formerly Synergen, Inc.), alleging
misrepresentations in connection with Synergen's research and
development of ANTRIL (TM) for the treatment of sepsis. One suit,
filed by a limited partner of the partnership with which Amgen
Boulder Inc. is affiliated, has been certified as a class action.
That suit seeks rescission of certain payments made by the limited
partners to the partnership (or unspecified damages not less than $52
million) and treble damages based on a variety of allegations
relating to state and federal law claims. The plaintiffs in that
suit also have filed a second amended complaint alleging violations
of federal securities laws. In August and September 1996, the
parties filed cross-motions for summary judgement. The Court heard
argument on November 1, 1996. Since then, the parties'
F-14
representatives have reached a tentative settlement agreement which
is subject to final approval by the Court and the approval of the
limited partners of the partnership. Under its terms, the
plaintiffs, who include present limited partners of the partnership,
will receive $14.5 million in exchange for the transfer of ownership
of their units; the suit will be dismissed with prejudice and the
parties will exchange mutual releases. In a separate matter, two
broker dealers who acted as market makers in Synergen, Inc. options
have also filed a suit claiming in excess of $3.2 million in trading
losses.
FoxMeyer Health Corporation
On January 10, 1997, FoxMeyer Health Corporation ("FMHC") filed
suit alleging that defendant McKesson Corporation defrauded FMHC,
misused confidential information received from FMHC about
subsidiaries of FMHC (FoxMeyer Corporation and FoxMeyer Drug
Corporation, collectively the "FoxMeyer Subsidiaries"), and attempted
to monopolize the market for pharmaceutical and health care product
distribution by attempting to injure or destroy the FoxMeyer
Subsidiaries. The Company is named as one of twelve "Manufacturer
Defendants" alleged to have conspired with McKesson Corporation in
doing, among other things, the above and (i) inducing FMHC to refrain
from seeking other suitable purchasers for the FoxMeyer Subsidiaries
and (ii) causing FMHC to believe that McKesson Corporation was
serious about purchasing FMHC's assets at fair value, when in fact,
McKesson Corporation was not. The Manufacturer Defendants and
McKesson Corporation are also alleged to have intentionally and
tortiously interfered with a number of business expectancies and
opportunities. The complaint seeks from the Manufacturer Defendants
and McKesson Corporation compensatory damages of at least $400
million and punitive damages in an unspecified amount, as well as
FMHC's costs and attorney's fees. On January 31, 1997, the Company
filed an answer denying FMHC's allegations. On February 4, 1997, a
notice of removal was filed in the Federal District Court for Dallas,
Texas (the "District Court"), which was referred by the District
Court to the Federal Bankruptcy Court in Dallas, Texas.
Subsequently, on February 7, 1997, a motion to transfer venue was
filed in the Federal Bankruptcy Court in Dallas, Texas, requesting
that this matter be transferred to the Federal Bankruptcy Court in
Delaware, where the FoxMeyer Subsidiaries' Chapter XI bankruptcy
action is pending. The Company is a creditor in such bankruptcy
proceeding.
False Claims Act matter
Amgen has been advised that it and certain purchasers of its
products have been named as defendants in a civil lawsuit initiated
by a former employee of Amgen in the United States District Court for
the Eastern District of Pennsylvania. This suit was filed under the
qui tam provisions of the Federal False Claims Act (the "Act") which
permit an individual to bring suit in the name of the United States
and share in any recovery. The suit alleges, among other things,
that Amgen individually and in conspiracy with some of its customers
violated the Act as a result of certain of its sales and reporting
practices relating to its products. Under the law, the government
must investigate the allegations and determine whether it wishes to
intervene and take responsibility for the lawsuit. The lawsuit will
F-15
remain under seal until the government completes its investigation
and determines whether to intervene. However, permission from the
Court has been obtained by Amgen to make the disclosures contained
herein. The Complaint seeks an order requiring Amgen to cease and
desist from such allegedly improper practices, as well as treble
damages in an unspecified amount plus a civil penalty of not less
than $5,000 and not more than $10,000 for each alleged violation of
the Act. If the government does not intervene, the plaintiff has the
right to continue to pursue the claim on the government's behalf.
Amgen is fully cooperating with the government's investigation and is
engaged in ongoing discussions with it regarding the allegations.
Amgen has advised the government that it disputes and will vigorously
contest the allegations in the Complaint. Although it is too early
in this action for Amgen to fully assess this matter or reliably
predict its outcome, an unfavorable result in this matter could have
a material adverse effect on the Company's results of operations in
that period.
While it is not possible to predict accurately or determine the
eventual outcome of the above described legal matters or various
other legal proceedings (including patent disputes) involving Amgen,
except with respect to the False Claims Act matter, the Company
believes that the outcome of these proceedings will not have a
material adverse effect on its financial statements.
5. Income taxes
The provision for income taxes includes the following (in
millions):
Years ended December 31,
1996 1995 1994
-------- -------- --------
Current provision:
Federal (including U.S.
possessions) .............. $240.4 $211.5 $231.3
State ....................... 16.6 21.3 34.9
------ ------ ------
Total current provision ... 257.0 232.8 266.2
------ ------ ------
Deferred provision (benefit):
Federal (including U.S.
possessions) .............. 24.1 25.1 0.5
State ....................... 1.4 (1.2) 1.9
------ ------ ------
Total deferred provision .. 25.5 23.9 2.4
------ ------ ------
$282.5 $256.7 $268.6
====== ====== ======
Deferred income taxes reflect the net tax effects of net
operating loss carryforwards and temporary differences between the
carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax assets and liabilities are
as follows (in millions):
F-16
December 31,
1996 1995
-------- --------
Deferred tax assets:
Net operating loss carryforwards ... $ 83.3 $ 81.1
Expense accruals ................... 55.9 61.0
Research collaboration expenses .... 19.0 17.4
Fixed assets ....................... 12.9 23.2
Royalty obligation buyouts ......... 11.0 11.2
Other .............................. 9.5 12.4
------ ------
Total deferred tax assets ........ 191.6 206.3
Valuation allowance ................... (82.6) (86.2)
------ ------
Net deferred tax assets .......... 109.0 120.1
------ ------
Deferred tax liabilities:
Purchase of technology rights ...... (45.0) (29.7)
Other .............................. (2.7) (3.7)
------ ------
Total deferred tax liabilities ... (47.7) (33.4)
------ ------
$ 61.3 $ 86.7
====== ======
The net change in the valuation allowance for deferred tax
assets during the year ended December 31, 1996 was a $3.6 million
reduction.
At December 31, 1996, the Company had operating loss
carryforwards available to reduce future federal taxable income which
expire as follows (in millions):
1997 - 2002 ....... $ 0.9
2003 - 2006 ....... 19.9
2007 .............. 26.7
2008 .............. 81.2
2009 .............. 81.9
------
$210.6
======
These operating loss carryforwards relate to the acquisition of
Synergen (see Note 1, "Research and development costs"). Utilization
of these operating loss carryforwards is limited to approximately
$16 million per year.
F-17
The provision for income taxes varies from income taxes provided
based on the federal statutory rate as follows:
Years ended December 31,
1996 1995 1994
------ ------ ------
Statutory rate applied to income
before income taxes ............. 35.0% 35.0% 35.0%
State income taxes, net of federal
income tax benefit .............. 1.2% 1.6% 4.1%
Benefit of Puerto Rico operations,
net of Puerto Rico income taxes . (6.8)% (3.5)% -
Write-off of in-process technology
purchased, not deductible ....... - - 6.9%
Other, net ........................ - (0.8)% (0.3)%
----- ----- -----
29.4% 32.3% 45.7%
===== ===== =====
Income taxes paid during the years ended December 31, 1996, 1995
and 1994, totaled $246 million, $100.8 million and $234.2 million,
respectively.
6. Stockholders' equity
Stockholder Rights agreement
On January 24, 1989, the Company's Board of Directors declared a
dividend of one common share purchase right ("Right") for each
outstanding share of common stock. The Rights will become
exercisable 10 days after a person acquires 10% or more of the common
stock, or 10 days after a person announces a tender offer which would
result in such person acquiring 10% or more of the common stock.
Subject to certain conditions, the Rights may be redeemed by the
Board of Directors. The current redemption price is $.0008 per
Right, subject to adjustment. The Rights will expire on
January 24, 1999.
Under certain circumstances, if an acquirer purchases 10% or
more of the Company's outstanding common stock, each Rightholder
(other than the acquirer) is entitled for a specified period to buy
shares of common stock of the Company at 50% of the then current
market price. The number of shares which a holder may purchase upon
exercise will be determined by a formula which includes a current
exercise price of $80 per share, subject to adjustment. If an
acquirer purchases at least 10% of the Company's common stock, but
has not achieved a 50% stake, the Board may exchange the Rights
(other than the acquirer's Rights) for one share of common stock per
Right. In addition, under certain circumstances, if the Company is
involved in a merger or other business combination where it is not
the surviving corporation, a Rightholder may buy shares of common
stock of the acquiring company at 50% of the then current market
value.
F-18
Stock repurchase program
The Company has a stock repurchase program to offset the
dilutive effect of its employee benefit stock option and stock
purchase plans. Stock repurchased under the program is retired. As
of December 31, 1996, the Company was authorized to repurchase up to
$450 million of its stock during 1997.
In connection with the Company's stock repurchase program, put
warrants were sold to an independent third party in 1996. Each put
warrant entitles the holder to sell one share of Amgen Inc. common
stock to the Company at a specified price. On December 31, 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 from April 1997 to
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 December 31, 1996. In the event the put
warrants expire unexercised, the liability associated with these
instruments is extinguished.
Additionally during 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 December 31, 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 from April 1997 to 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.
Other
In addition to common stock, the Company's authorized capital
includes 5 million shares of preferred stock, $.0001 par value. At
December 31, 1996, no shares of preferred stock were issued or
outstanding.
At December 31, 1996, the Company had reserved 379.8 million
shares of its common stock which may be issued through its stock
option and stock purchase plans and in connection with the
stockholder Rights agreement.
In connection with the sale of limited partnership interests in
Amgen Clinical Partners, L.P. (the "Limited Partnership"), Amgen
issued warrants to the limited partners to purchase 36.3 million
shares of its common stock in exchange for options to purchase the
limited partners' interests in the Limited Partnership.
Substantially all warrants were exercised prior to their expiration
on June 30, 1994.
F-19
7. Stock option and purchase plans
The Company's stock option plans provide for option grants
designated as either nonqualified or incentive stock options. The
options generally vest over a three to five year period and generally
expire seven years from the date of grant. Most employees are
eligible to receive a grant of stock options periodically with the
number of shares generally determined by the employee's salary grade,
performance level and the stock price. In addition, certain
management and professional level employees normally receive a stock
option grant upon hire. As of December 31, 1996, the Company had
22.2 million shares of common stock available for future grant under
its stock option plans.
Stock option information with respect to all of the Company's
stock option plans follows (shares in millions):
Exercise Price
----------------------------
Weighted-
Shares Low High Average
------ --- ---- --------
Balance December 31, 1993,
unexercised .............. 33.1 $ 1.76 $38.88 $13.72
Granted ................ 8.5 $17.68 $29.50 $22.07
Exercised .............. (5.6) $ 1.93 $28.00 $ 6.95
Forfeited .............. (1.0) $ 3.69 $37.38 $21.92
----
Balance December 31, 1994,
unexercised .............. 35.0 $ 1.76 $38.88 $16.58
Granted ................ 7.1 $28.94 $58.88 $39.62
Exercised .............. (8.1) $ 1.93 $38.88 $12.87
Forfeited .............. (1.0) $ 2.25 $39.88 $19.86
----
Balance December 31, 1995,
unexercised .............. 33.0 $ 1.76 $58.88 $22.35
Granted ................ 4.6 $51.50 $64.13 $56.00
Exercised .............. (6.6) $ 2.25 $55.75 $14.92
Forfeited .............. (.5) $ 3.69 $61.88 $32.48
----
Balance December 31, 1996,
unexercised .............. 30.5 $ 1.76 $64.13 $29.00
====
At December 31, 1996, 1995 and 1994, stock options to purchase
15.7 million, 15.7 million and 17.7 million shares were exercisable
at weighted-average prices of $20.53, $15.71 and $12.44,
respectively.
The Company has an employee stock purchase plan whereby, in
accordance with Section 423 of the Internal Revenue Code, eligible
employees may authorize payroll deductions of up to 10% of their
salary to purchase shares of the Company's common stock at the lower
of 85% of the fair market value of common stock on the first or last
day of the offering period. During each of the years ended
December 31, 1996, 1995 and 1994, approximately 0.2 million shares
were purchased by employees at prices of approximately $46.22, $24.76
F-20
and $20.88 per share, respectively. At December 31, 1996, the
Company had 4.9 million shares available for future issuance under
this plan.
Fair value disclosures
Stock option grants are set at the closing price of the
Company's common stock on the date of grant and the related number of
shares granted are fixed at that point in time. Therefore under the
principles of APB Opinion No. 25, the Company does not recognize
compensation expense associated with the grant of stock options.
SFAS No. 123, "Accounting for Stock-Based Compensation," requires the
use of option valuation models to provide supplemental information
regarding options granted after 1994. Pro forma information
regarding net income and earnings per share shown below was
determined as if the Company had accounted for its employee stock
options and shares sold under its stock purchase plan under the fair
value method of that statement.
The fair value of the options was estimated at the date of grant
using a Black-Scholes option pricing model with the following
weighted-average assumptions for 1996 and 1995, respectively: risk-
free interest rates of 6.4% and 5.9%; dividend yields of 0% and 0%;
volatility factors of the expected market price of the Company's
common stock of 34% and 33%; and expected life of the options of 3.4
years and 3.4 years. These assumptions resulted in weighted-average
fair values of $18.25 and $12.40 per share for stock options granted
in 1996 and 1995, respectively.
The Black-Scholes option valuation model was developed for use
in estimating the fair value of traded options. The Company's
employee stock options have characteristics significantly different
from those of traded options such as vesting restrictions and
extremely limited transferability. In addition, the assumptions used
in option valuation models (see above) are highly subjective,
particularly the expected stock price volatility of the underlying
stock. Because changes in these subjective input assumptions can
materially affect the fair value estimate, in management's opinion,
the existing models do not provide a reliable single measure of the
fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value
of the options is amortized over the options' vesting periods. The
pro forma effect on net income for 1996 and 1995 is not
representative of the pro forma effect on net income in future years
because it does not take into consideration pro forma compensation
expense related to grants made prior to 1995. Pro forma information
in future years will reflect the amortization of a larger number of
stock options granted in several succeeding years. The Company's pro
forma information is as follows (in millions, except per share
information):
F-21
Years ended December 31,
1996 1995
------ ------
Pro forma net income ........ $631.5 $517.6
Pro forma earnings per share:
Primary ................... $2.26 $1.85
Fully diluted ............. $2.26 $1.82
Information regarding stock options outstanding as of
December 31, 1996 is as follows (options in millions):
Options
Options Outstanding Exercisable
------------------------------ -------------------
Weighted-
Weighted- Average Weighted-
Average Remaining Average
Exercise Contractual Exercise
Price Range Shares Price Life Shares Price
---------------- ------ --------- ----------- -------- ---------
Under $20.00 8.5 $12.00 2.56 years 7.0 $11.17
$20.00 - $40.00 16.9 $29.54 4.30 years 8.5 $27.68
Over $40.00 5.1 $55.26 6.39 years 0.2 $51.76
8. Balance sheet accounts
Property, plant and equipment consisted of the following (in
millions):
December 31,
1996 1995
-------- --------
Land................................ $ 62.6 $ 59.1
Buildings........................... 425.5 404.5
Manufacturing equipment............. 63.0 59.2
Laboratory equipment................ 174.9 148.9
Furniture and office equipment...... 266.2 200.4
Leasehold improvements.............. 56.5 55.7
Construction in progress............ 252.5 105.6
-------- --------
1,301.2 1,033.4
Less accumulated depreciation and
amortization ..................... (390.7) (289.6)
-------- --------
$ 910.5 $ 743.8
======== ========
F-22
Accrued liabilities consisted of the following (in millions):
December 31,
1996 1995
-------- --------
Income taxes........................ $ 86.8 $124.4
Employee compensation and benefits.. 83.4 70.8
Due to affiliated companies and
corporate partners ............... 79.8 76.0
Sales incentives, royalties and
allowances ....................... 79.7 65.5
Deferred revenue.................... 41.4 39.2
Other............................... 78.6 83.8
------ ------
$449.7 $459.7
====== ======
9. Fair values of financial instruments
The following is information concerning the fair values of each
class of financial instruments:
Cash, cash equivalents and marketable securities
The carrying amounts of cash, cash equivalents and marketable
securities approximate their fair values. Fair values of cash
equivalents and marketable securities are based on quoted market
prices.
Debt
The carrying values of commercial paper, debt securities and
promissory notes approximate their fair values. The fair values were
estimated based on quoted market rates for instruments with similar
terms and remaining maturities.
Foreign currency contracts
The fair values of the foreign currency forward contracts and
purchased foreign currency option contracts were not significant
based on quoted market rates.
10. Major customers
Amgen uses wholesale distributors of pharmaceutical products as
the principal means of distributing the Company's products to
clinics, hospitals and pharmacies. The Company monitors the
financial condition of its larger distributors and limits its credit
exposure by setting appropriate credit limits and requiring
collateral from certain of its customers. For the years ended
December 31, 1996, 1995 and 1994, sales to two large wholesale
distributors as a percentage of total revenues were 24% and 14%, 21%
and 15%, and 22% and 16%, respectively.
F-23
11. Geographic information
Information about the Company's operations in the United States
and its possessions, Europe, and other international markets, which
include Canada, Australia and Japan is as follows (in millions):
Years ended December 31,
1996 1995 1994
---------- ---------- ----------
Sales to unaffiliated customers:
United States and possessions . $1,803.5 $1,546.1 $1,333.8
Europe ........................ 257.6 254.7 193.0
Other ......................... 27.1 17.8 22.8
Transfers between geographic
areas:
United States and possessions. 24.5 12.6 15.7
Other revenue .................. 151.6 121.3 98.3
Adjustments and eliminations ... (24.5) (12.6) (15.7)
-------- -------- --------
Total revenues ................. $2,239.8 $1,939.9 $1,647.9
======== ======== ========
Years ended December 31,
1996 1995 1994
---------- -------- --------
Operating profit (loss):
United States and possessions . $ 980.0 $801.7 $624.0
Europe ........................ 71.4 75.7 50.3
Other ......................... (34.8) (33.1) (25.6)
Adjustments and eliminations ... (5.7) (1.7) (2.8)
-------- ------ ------
Total operating profit ......... 1,010.9 842.6 645.9
Interest and other income, net . 57.4 50.8 9.5
Loss of affiliates, net ........ (52.8) (53.3) (31.2)
General corporate expenses ..... (53.2) (45.7) (35.9)
-------- ------ ------
Income before income taxes ..... $ 962.3 $794.4 $588.3
======== ====== ======
Operating profit (loss) represents revenue less operating
expenses directly related to each geographic area. Operating profit
(loss) excludes interest and other income, loss of affiliates, net
and other expenses attributable to general corporate operations.
Included in the operating profit for the United States and its
possessions is a write-off of in-process technology purchased of
$116.4 million for the year ended December 31, 1994. Loss of
affiliates, net includes the minority interest in earnings of
majority controlled European affiliates of $55.3 million,
$50.7 million and $30.9 million for the years ended
December 31, 1996, 1995 and 1994, respectively.
F-24
Information about the Company's identifiable assets in each
geographic area is as follows (in millions):
December 31,
1996 1995
---------- ----------
Identifiable assets:
United States and possessions .... $1,127.0 $ 964.0
Europe ........................... 123.5 70.5
Other ............................ 23.1 16.3
Adjustments and eliminations ....... (6.2) 1.7
-------- --------
Total identifiable assets .......... 1,267.4 1,052.5
Corporate assets including equity
method investments ............... 1,498.2 1,380.3
-------- --------
Total assets ....................... $2,765.6 $2,432.8
======== ========
Identifiable assets are those assets of the Company that are
identified with the operations in each geographic area. Europe's
identifiable assets include accounts receivable of approximately
$44.2 million and $54.7 million as of December 31, 1996 and 1995,
respectively, denominated in foreign currencies. Corporate assets,
which are excluded from identifiable assets, are principally
comprised of cash, cash equivalents and marketable securities. At
December 31, 1996 and 1995, total international assets approximated
$207.3 million and $124.6 million, respectively, and total
international liabilities approximated $68.1 million and $22.2
million, respectively.
12. Quarterly financial data (unaudited, in millions, except per
share data):
1996 Quarter Ended Dec. 31 Sept. 30 June 30 Mar. 31
- ------------------ ------- -------- ------- -------
Product sales....... $559.1 $533.3 $518.9 $476.9
Gross margin from
product sales .... 484.2 460.2 450.6 410.0
Net income.......... 178.0 179.5 178.7 143.6
Earnings per
share:
Primary .......... .64 .64 .64 .51
Fully diluted .... .64 .64 .64 .51
1995 Quarter Ended Dec. 31 Sept. 30 June 30 Mar. 31
- ------------------ ------- -------- ------- -------
Product sales....... $484.2 $460.6 $462.6 $411.2
Gross margin from
product sales .... 418.4 396.5 386.2 344.6
Net income.......... 145.6 145.8 137.7 108.6
Earnings per
share:
Primary .......... .52 .52 .49 .39
Fully diluted .... .51 .51 .49 .39
F-25
13. Subsequent event (unaudited)
On February 18, 1997, the Board of Directors of the Company
redeemed the Rights under the Company's common stock rights plan at a
redemption price of $.0008 per Right (or an aggregate price of
approximately $0.2 million) and declared and distributed a dividend
of one preferred share purchase right (a "New Right") for each then
outstanding share of common stock of the Company and authorized the
distribution of one New Right with respect to each subsequently
issued share of common stock. The New Rights and the redemption
price are payable to stockholders of record on March 21, 1997.
Each New Right will entitle stockholders to buy one one-
thousandth of a share of Series A Junior Participating Preferred
Stock of the Company at an exercise price of $225. The New Rights
will expire on March 21, 2007.
Under certain circumstances, if an acquiring person or group
acquires 10% or more of the Company's outstanding common stock, an
exercisable New Right will entitle its holder (other than the
acquirer) to buy shares of common stock of the Company having a
market value of two times the exercise price of one New Right.
However, in limited circumstances approved by the outside directors
of the Board, a stockholder who enters into an acceptable standstill
agreement may acquire up to 20% of the outstanding shares without
triggering the New Rights. If an acquirer acquires at least 10%, but
less than 50%, of the Company's common stock, the Board may exchange
each New Right (other than those of the acquirer) for one share of
common stock per New Right. In addition, under certain
circumstances, if the Company is involved in a merger or other
business combination where it is not the surviving corporation, an
exercisable New Right will entitle its holder to buy shares of common
stock of the acquiring company having a market value of two times the
exercise price of one New Right. The Company may redeem the New
Rights at $.001 per New Right at any time prior to the public
announcement that a 10% position has been acquired.
F-26
SCHEDULE II
AMGEN INC.
VALUATION ACCOUNTS
Years ended December 31, 1996, 1995 and 1994
(In millions)
Additions
Balance Charged Balance
at to Costs at End
Beginning and of
Of Period Expenses Deductions Period
--------- -------- ---------- -------
Year ended December 31, 1996:
Allowance for doubtful
accounts ................ $13.8 $2.9 $4.9 $11.8
Year ended December 31, 1995:
Allowance for doubtful
accounts ................ $13.3 $5.4 $4.9 $13.8
Year ended December 31, 1994:
Allowance for doubtful
accounts ................ $12.2 $1.5 $0.4 $13.3
F-27