UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 000-12477
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.)
One Amgen Center Drive, Thousand Oaks, California 91320-1799
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (805) 447-1000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
As of June 30, 2001, the registrant had 1,047,140,536 shares of Common Stock,
$0.0001 par value, outstanding.
AMGEN INC.
INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements............................... 3
Condensed Consolidated Statements of
Operations - three and six months
ended June 30, 2001 and 2000.............................. 4
Condensed Consolidated Balance Sheets -
June 30, 2001 and December 31, 2000....................... 5
Condensed Consolidated Statements of
Cash Flows - six months
ended June 30, 2001 and 2000.............................. 6
Notes to Condensed Consolidated Financial
Statements................................................ 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations......................................... 12
PART II OTHER INFORMATION
Item 1. Legal Proceedings.................................. 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information.................................. 19
Item 6. Exhibits and Reports on Form 8-K................... 19
Signatures.................................................. 20
Index to Exhibits........................................... 21
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The information in this report for the three and six months ended June 30,
2001 and 2000 is unaudited but includes all adjustments (consisting only of
normal recurring accruals, unless otherwise indicated) which Amgen Inc. ("Amgen"
or the "Company") considers necessary for a fair presentation of the results of
operations for those periods.
The condensed consolidated financial statements should be read in
conjunction with the Company's financial statements and the notes thereto
contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 2000.
Interim results are not necessarily indicative of results for the full
fiscal year.
3
AMGEN INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
-------- -------- -------- ---------
Revenues:
Product sales $ 858.9 $ 806.8 $1,657.3 $1,504.4
Corporate partner revenues 70.3 61.1 121.4 135.3
Royalty income 57.5 46.5 109.6 88.8
-------- -------- -------- ---------
Total revenues 986.7 914.4 1,888.3 1,728.5
-------- -------- -------- ---------
Operating expenses:
Cost of sales 98.4 101.7 187.8 187.4
Research and development 208.8 202.8 415.5 392.6
Selling, general and administrative 226.5 205.1 422.7 374.8
Loss (earnings) of affiliates, net 3.6 4.9 (3.6) 21.3
-------- -------- -------- ---------
Total operating expenses 537.3 514.5 1,022.4 976.1
-------- -------- -------- ---------
Operating income 449.4 399.9 865.9 752.4
Other income (expense):
Interest and other income 39.7 43.2 88.8 79.6
Interest expense, net (3.6) (3.4) (7.9) (7.6)
-------- -------- -------- ---------
Total other income 36.1 39.8 80.9 72.0
-------- -------- -------- ---------
Income before income taxes 485.5 439.7 946.8 824.4
Provision for income taxes 163.6 137.1 320.0 255.6
-------- -------- -------- ---------
Net income $ 321.9 $ 302.6 $ 626.8 $ 568.8
======== ======== ======== ========
Earnings per share:
Basic $ 0.31 $ 0.29 $ 0.60 $ 0.55
Diluted $ 0.30 $ 0.28 $ 0.58 $ 0.52
Shares used in calculation of earnings per share:
Basic 1,044.8 1,027.5 1,043.0 1,025.4
Diluted 1,085.1 1,083.3 1,085.7 1,084.6
See accompanying notes.
4
AMGEN INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except per share data)
(Unaudited)
June 30, December 31,
2001 2000
-------- ------------
ASSETS
------
Current assets:
Cash and cash equivalents $ 282.5 $ 226.5
Marketable securities 2,187.3 1,801.6
Trade receivables, net 377.5 389.2
Inventories 390.1 305.2
Other current assets 194.5 214.6
-------- --------
Total current assets 3,431.9 2,937.1
Property, plant and equipment at cost, net 1,861.9 1,781.5
Other assets 682.7 681.0
-------- --------
$5,976.5 $5,399.6
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 97.5 $ 143.2
Commercial paper 99.9 99.7
Accrued liabilities 538.5 619.2
-------- --------
Total current liabilities 735.9 862.1
Long-term debt 223.0 223.0
Stockholders' equity:
Preferred stock; $0.0001 par value; 5.0 shares
authorized; none issued or outstanding - -
Common stock and additional paid-in capital;
$0.0001 par value; 2,750.0 shares authorized;
outstanding - 1,047.1 shares in 2001 and
1,037.4 shares in 2000 3,195.4 2,947.3
Retained earnings 1,763.5 1,304.6
Accumulated other comprehensive income 58.7 62.6
-------- --------
Total stockholders' equity 5,017.6 4,314.5
-------- --------
$5,976.5 $5,399.6
======== ========
See accompanying notes.
5
AMGEN INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
Six Months Ended
June 30,
2001 2000
------- -------
Cash flows from operating activities:
Net income $ 626.8 $ 568.8
Depreciation and amortization 128.2 103.8
Tax benefits related to employee stock options 120.7 161.2
Gain on equity investments (12.4) (30.2)
Loss (earnings) of affiliates, net (3.6) 21.3
Cash provided by (used in):
Trade receivables, net 11.7 99.9
Inventories (84.9) (88.3)
Other current assets 7.6 (23.6)
Accounts payable (45.7) 36.7
Accrued liabilities (80.7) (32.1)
------- -------
Net cash provided by operating activities 667.7 817.5
------- -------
Cash flows from investing activities:
Purchases of property, plant and equipment (201.2) (188.7)
Proceeds from sales of marketable securities 208.6 337.7
Purchases of marketable securities (576.9) (619.4)
Other 6.9 (11.6)
------- -------
Net cash used in investing activities (562.6) (482.0)
------- -------
Cash flows from financing activities:
Net proceeds from issuance of common stock upon the
exercise of employee stock options and in
connection with an employee stock purchase plan 125.4 175.5
Repurchases of common stock (167.9) (485.1)
Other (6.6) (20.6)
------- -------
Net cash used in financing activities (49.1) (330.2)
------- -------
Increase in cash and cash equivalents 56.0 5.3
Cash and cash equivalents at beginning of period 226.5 130.9
------- -------
Cash and cash equivalents at end of period $ 282.5 $ 136.2
======= =======
See accompanying notes.
6
AMGEN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
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 in 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 (earnings) of affiliates, net" includes Amgen's equity in the
operating results of affiliated companies and the minority interest others hold
in the operating results of Amgen's majority controlled affiliates.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
in a manner which approximates the first-in, first-out (FIFO) method.
Inventories consist of currently marketed products and product candidates which
the Company expects to commercialize. The inventory balance of such product
candidates totaled $164.9 million and $112.7 million as of June 30, 2001 and
December 31, 2000, respectively. Inventories are shown net of applicable
reserves and allowances. Inventories consisted of the following (in millions):
June 30, December 31,
2001 2000
-------- -----------
Raw materials $ 32.6 $ 29.4
Work in process 296.4 238.7
Finished goods 61.1 37.1
-------- --------
$ 390.1 $ 305.2
======== ========
7
The Company has entered into a collaboration agreement with PRAECIS
PHARMACEUTICALS INCORPORATED ("Praecis") relating to the commercialization of
abarelix depot (now referred to as "Plenaxis(TM)"). In June 2001, Praecis
received a letter from the U.S. Food and Drug Administration ("FDA") with
respect to Praecis' new drug application ("NDA") for Plenaxis(TM) for the
treatment of hormonally responsive prostate cancer. The FDA's letter indicated
that the information presented in the NDA is inadequate for approval. Amgen and
Praecis expect to meet with the FDA in an effort to clarify the various
deficiencies cited in the FDA's letter, and discuss what further steps need to
be taken before the NDA may be approved. At June 30, 2001, the Company had
approximately $56 million of capitalized costs, principally inventories,
associated with the commercialization of this product candidate. In addition,
the Company is engaged in various ongoing activities, including clinical trials,
with respect to this product candidate. While the Company cannot accurately
predict the results of the efforts to commercialize Plenaxis(TM), the Company
believes that the ultimate resolution of this matter will not have a material
adverse effect on its annual financial statements.
Product sales
Product sales primarily consist of sales of EPOGEN(R) (Epoetin alfa) and
NEUPOGEN(R) (Filgrastim).
The Company has the exclusive right to sell Epoetin alfa for dialysis,
certain diagnostics and all non-human, non-research uses in the United States.
The Company sells Epoetin alfa under the brand name EPOGEN(R). Amgen has
granted to Ortho Pharmaceutical Corporation (which has assigned its rights under
the product license agreement to Ortho Biotech Products, L.P.), 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, the Company and Johnson & Johnson are required to
compensate each other for Epoetin alfa sales that either party makes into the
other party's exclusive market, sometimes referred to as "spillover" sales.
Accordingly, 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. Sales in Amgen's exclusive market are
derived from the Company's sales to its customers, as adjusted for any spillover
sales. The Company is employing an audit methodology to measure each party's
spillover sales based in part on estimates of and subsequent adjustments thereto
of third-party data on shipments to end users and their usage. Sales of the
Company's other products are recognized when shipped and title has passed.
Derivative instruments
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 133, "Accounting for Derivative Instruments and Hedging Activities", as
amended, on January 1, 2001 and its adoption has not had a material effect on
the Company's financial statements. SFAS No. 133 requires companies to
recognize all of its derivative instruments
8
as either assets or liabilities in the balance sheet at fair value. The
accounting for changes in the fair value (i.e., unrealized gains or losses) of a
derivative instrument depends on whether it has been designated and qualifies as
part of a hedging relationship and further, on the type of hedging relationship.
Derivatives that are not hedges must be adjusted to fair value through current
earnings.
To protect against possible changes in values of certain anticipated
foreign currency cash flows, primarily resulting from sales outside the U.S.,
the Company enters into foreign currency forward contracts which qualify and are
designated as cash flow hedges. No portions of these foreign currency forward
contracts are excluded from the assessment of hedge effectiveness, and there are
no ineffective portions of these hedging instruments. The gains and losses on
these forward contracts are reported as a component of other comprehensive
income and reclassified into earnings in the same periods during which the
hedged transactions affect earnings. At June 30, 2001, amounts in accumulated
other comprehensive income related to cash flow hedges were not material.
To protect against possible reductions in value of certain of its
available-for-sale marketable equity securities, the Company has entered into
equity forward contracts which qualify and are designated as fair value hedges.
The gains and losses on these forward contracts as well as the offsetting losses
and gains on the hedged equity securities are recognized in current earnings.
During the three and six months ended June 30, 2001, gains and losses on the
portions of these forwards excluded from the assessment of hedge effectiveness
and the ineffective portions of these hedging instruments were not material.
The Company has additional foreign currency forward contracts to reduce
exposures to foreign currency fluctuations of certain assets and liabilities
denominated in foreign currencies. However, these contracts have not been
designated as hedges under SFAS No. 133.
Prior to the adoption of SFAS No. 133, all of the Company's foreign
exchange forward contracts were adjusted to fair value through current earnings.
Foreign exchange option contracts that hedged anticipated foreign currency
transactions were deferred and recognized in the same period as the hedged
transaction. In addition, derivatives that hedged against possible reductions
in the fair values of available-for-sale equity securities were included in the
basis of the hedged securities and adjusted to fair value through other
comprehensive income.
Employee stock option and stock purchase plans
The Company's employee stock option and stock purchase plans are accounted
for under Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees".
9
Earnings per share
Basic earnings per share is based upon the weighted-average number of
common shares outstanding. Diluted earnings per share is based upon the
weighted-average number of common shares and dilutive potential common shares
outstanding. Potential common shares are outstanding options under the
Company's employee stock option plans, restricted stock and potential issuances
of stock under the employee stock purchase plan (collectively "Dilutive
Securities") which are included under the treasury stock method.
The following table sets forth the computation for basic and diluted
earnings per share (in millions, except per share information):
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
-------- -------- -------- --------
Numerator for basic and diluted
earnings per share- net income $ 321.9 $ 302.6 $ 626.8 $ 568.8
======== ======== ======== =========
Denominator:
Denominator for basic earnings
per share - weighted-average shares 1,044.8 1,027.5 1,043.0 1,025.4
Effect of Dilutive Securities 40.3 55.8 42.7 59.2
-------- -------- -------- --------
Denominator for diluted earnings
per share - adjusted weighted-
average shares 1,085.1 1,083.3 1,085.7 1,084.6
======== ======== ======== ========
Basic earnings per share $ 0.31 $ 0.29 $ 0.60 $ 0.55
Diluted earnings per share $ 0.30 $ 0.28 $ 0.58 $ 0.52
Recent accounting pronouncements
In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets"
effective for fiscal years beginning after December 15, 2001. Under the new
rules, goodwill will no longer be amortized but will be subject to annual
impairment tests in accordance with the statements. Other intangible assets
will continue to be amortized over their useful lives. The Company will apply
the new rules on accounting for goodwill and other intangible assets beginning
in the first quarter of 2002. Application of the non-amortization provisions of
the statement is not expected to have a material effect on the Company's
financial statements. The Company will perform the first of the required
impairment tests of goodwill as of January 1, 2002 and has not yet determined
what the effect of these tests will be on the earnings and financial position of
the Company.
10
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimates.
Basis of presentation
The financial information for the three and six months ended June 30, 2001
and 2000 is unaudited but includes all adjustments (consisting only of normal
recurring accruals, unless otherwise indicated) which the Company considers
necessary for a fair presentation of the results of operations for these
periods. Interim results are not necessarily indicative of results for the full
fiscal year.
Reclassification
Certain prior year amounts have been reclassified to conform to the current
year presentation.
2. Stockholders' equity
The Company has a stock repurchase program primarily to reduce the dilutive
effect of its employee stock option and stock purchase plans. Stock repurchased
under the program is intended to be retired. During the six months ended June
30, 2001, the Company repurchased 2.9 million shares of its common stock at a
total cost of $167.9 million under its common stock repurchase program. In
December 2000, the Board of Directors authorized the Company to repurchase up to
$2.0 billion of common stock between January 1, 2001 and December 31, 2002. The
amount the Company spends on and the number of shares repurchased each quarter
varies based on a variety of factors, including the stock price and blackout
periods in which the Company is restricted from repurchasing shares. As of June
30, 2001, $1,832.1 million was available for stock repurchases through December
31, 2002.
3. Other comprehensive income/(loss)
SFAS No. 130, "Reporting Comprehensive Income", requires unrealized gains
and losses on the Company's available-for-sale securities, foreign currency
translation adjustments, and unrealized gains and losses on cash flow hedge
instruments to be included in other comprehensive income/(loss). During the
three and six months ended June 30, 2001, total comprehensive income was $358.3
million and $622.9 million, respectively. During the three and six months ended
June 30, 2000, total comprehensive income was $291.0 million and $609.2 million,
respectively.
11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
The Company had cash, cash equivalents and marketable securities of
$2,469.8 million at June 30, 2001, compared with $2,028.1 million at December
31, 2000. Cash provided by operating activities has been and is expected to
continue to be the Company's primary source of funds. During the six months
ended June 30, 2001, operations provided $667.7 million of cash compared with
$817.5 million during the same period last year.
Capital expenditures totaled $201.2 million for the six months ended June
30, 2001, compared with $188.7 million for the same period a year ago. The
Company anticipates spending approximately $450 million to $550 million in 2001
on capital projects and equipment to expand its global operations.
The Company receives cash from the exercise of employee stock options and
proceeds from the sale of stock by Amgen pursuant to the employee stock purchase
plan. During the six months ended June 30, 2001, employee stock option
exercises and proceeds from the sale of stock by Amgen pursuant to the employee
stock purchase plan provided $125.4 million of cash compared with $175.5 million
for the same period last year. Proceeds from the exercise of employee stock
options will vary from period to period based upon, among other factors,
fluctuations in the market value of the Company's stock relative to the exercise
price of such options.
The Company has a stock repurchase program primarily to reduce the dilutive
effect of its employee stock option and stock purchase plans. During the six
months ended June 30, 2001, the Company purchased 2.9 million shares of its
common stock at a total cost of $167.9 million compared with 7.6 million shares
purchased at a cost of $485.1 million during the same period last year. In
December 2000, the Board of Directors authorized the Company to repurchase up to
$2.0 billion of common stock between January 1, 2001 and December 31, 2002. The
amount the Company spends on and the number of shares repurchased each quarter
varies based on a variety of factors, including the stock price and blackout
periods in which the Company is restricted from repurchasing shares. As of June
30, 2001, $1,832.1 million was available for stock repurchases through December
31, 2002.
To provide for financial flexibility and increased liquidity, the Company
has established several sources of debt financing. As of June 30, 2001, the
Company had $223.0 million of unsecured long-term debt securities outstanding.
These unsecured long-term debt securities consisted of: 1) $100 million of debt
securities that bear interest at a fixed rate of 6.5% and mature in 2007 under a
$500 million debt shelf registration (the "Shelf"), 2) $100 million of debt
securities that bear interest at a fixed rate of 8.1% and mature in 2097 and 3)
$23 million of debt securities that bear interest at a fixed rate of 6.2% and
mature in 2003. Under the Shelf, all of the remaining $400 million of debt
securities available for issuance
12
may be offered under the Company's medium-term note program with terms to be
determined by market conditions.
The Company's sources of debt financing also include a commercial paper
program which provides for unsecured short-term borrowings up to an aggregate
face amount of $200 million. As of June 30, 2001, commercial paper with a face
amount of $100.0 million was outstanding. These borrowings had maturities of
less than one month and had effective interest rates averaging 4.0%. In
addition, the Company has an unsecured $150 million credit facility that expires
on May 28, 2003. This credit facility supports the Company's commercial paper
program. As of June 30, 2001, no amounts were outstanding under this line of
credit.
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 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.
Results of Operations
Product sales
Product sales were $858.9 million and $1,657.3 million during the three and
six months ended June 30, 2001, respectively. These amounts represent increases
of $52.1 million and $152.9 million, or 6% and 10%, respectively, over the same
periods last year. Quarterly product sales are influenced by a number of
factors, including demand, wholesaler inventory management practices and foreign
exchange effects.
EPOGEN(R) (Epoetin alfa)/ARANESP(TM) (darbepoetin alfa)
Combined EPOGEN(R) and ARANESP(TM) sales were $518.4 million and $1,021.5
million for the three and six months ended June 30, 2001, respectively. These
amounts represent increases of $25.4 million and $88.1 million, or 5% and 9%,
respectively, over EPOGEN(R) sales in the same periods last year. In June 2001,
the Company received approval and launched ARANESP(TM) in several countries in
the European Union ("EU"); sales of ARANESP(TM) were not material to either
current year period. These increases were primarily due to increased EPOGEN(R)
demand, which was principally driven by growth in the U.S. dialysis patient
population and the effect of higher prices. The Company believes that EPOGEN(R)
sales growth during the three and six months ended June 30, 2001, was negatively
impacted somewhat by wholesaler inventory drawdowns.
13
NEUPOGEN(R) (Filgrastim)
Worldwide NEUPOGEN(R) sales were $339.6 million and $633.6 million for the
three and six months ended June 30, 2001, respectively. These amounts represent
increases of $29.9 million and $73.9 million, or 10% and 13%, respectively, over
the same periods last year.
The increase in the three months ended June 30, 2001, was primarily due to
increased worldwide demand, which includes the effect of higher prices in the
U.S. The Company believes that demand growth during the three months ended June
30, 2001 approximated reported sales growth. The increase in the six months
ended June 30, 2001 benefited primarily from worldwide demand growth, which
includes the effect of higher prices in the U.S., and reduced wholesaler
inventory drawdowns compared with the prior year period.
Corporate partner revenues
During the three months ended June 30, 2001, corporate partner revenues
increased $9.2 million, or 15%, over the same period last year. This increase is
due to overall increased funding for late-stage product candidates. During the
six months ended June 30, 2001, corporate partner revenues decreased $13.9
million, or 10%, from the same period last year. This decrease was primarily due
to higher revenues in the first quarter of 2000 from Kirin-Amgen, Inc. related
to the ARANESP(TM) (darbepoetin alfa) development program.
Cost of sales
Cost of sales as a percentage of product sales was 11.5% and 11.3% for the
three and six months ended June 30, 2001, respectively, compared with 12.6% and
12.5% for the same periods last year. These decreases were primarily due to
reduced royalty obligations.
Research and development
During the three and six months ended June 30, 2001, research and
development expenses increased $6.0 million and $22.9 million, or 3% and 6%,
respectively, compared with the same periods last year. These increases were
primarily due to higher staff-related costs necessary to support ongoing product
development activities, partially offset by lower clinical manufacturing and
product licensing-related costs.
Selling, general and administrative
During the three and six months ended June 30, 2001, selling, general and
administrative ("SG&A") expenses increased $21.4 million and $47.9 million, or
10% and 13%, respectively, compared with the same periods last year. These
increases were primarily due to higher staff-related costs and outside marketing
expenses as the Company continues to support its existing products and prepares
for anticipated new product launches.
14
Loss (earnings) of affiliates, net
During the three and six months ended June 30, 2001, loss (earnings) of
affiliates, net decreased $1.3 million and $24.9 million, or 27% and 117%,
respectively, compared with the same periods last year. The decrease for the
six months ended June 30, 2001 was primarily due to higher earnings from Kirin-
Amgen, Inc.
Interest and other income
During the three months ended June 30, 2001, interest and other income
decreased $3.5 million, or 8%, from the same period last year. This decrease
was due to gains on the sale of equity investments that occurred in the prior
year period, partially offset by higher interest income generated from the
Company's investment portfolio as a result of higher average cash balances.
During the six months ended June 30, 2001, interest and other income increased
$9.2 million, or 12%, compared with the same period last year. This increase
was primarily due to higher interest income generated from the Company's
investment portfolio as a result of higher average cash balances, partially
offset by lower gains realized on the sale of equity investments.
Income taxes
The Company's effective tax rate for the three and six months ended June
30, 2001 was 33.7% and 33.8%, respectively, compared with 31.2% and 31.0% for
the same periods last year. The Company's tax rate has increased primarily as a
result of increased taxable income combined with a provision in the federal tax
law that caps tax benefits associated with the Company's Puerto Rico operations
at the 1995 income level.
Financial Outlook
In December 1999 and early 2000, the Company filed regulatory submissions
for the use of ARANESP(TM) in patients with chronic renal insufficiency and
chronic renal failure in the U.S., the EU, Canada, Australia and New Zealand.
The Company has received approval to market ARANESP(TM) in the EU, Australia and
New Zealand. ARANESP(TM) was launched in several EU countries, and launches in
additional countries will occur as reimbursement is obtained.
Because the Company is unable to predict the timing and the extent to which
health care providers in the U.S. may transition from administering EPOGEN(R) to
ARANESP(TM) once approved, sales guidance for EPOGEN(R) and ARANESP(TM) will be
provided on a combined basis. Reflecting longer than anticipated FDA review of
ARANESP(TM), the Company lowered its guidance for 2001 combined EPOGEN(R) and
ARANESP(TM) sales growth over 2000 EPOGEN(R) sales to a low-double digit rate,
down from its previous guidance of a low-teens growth rate. This combined
EPOGEN(R) and ARANESP(TM) 2001 guidance is not dependent upon ARANESP(TM) launch
timing in the U.S. In the future, the
15
Company expects the growth of its anemia business to be driven primarily by
ARANESP(TM) sales in new markets. The Company expects growth in its U.S.
dialysis business to come primarily from patient population growth and
inflation-related price increases. 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 a change in the basis for reimbursement by the
federal government. In addition, ARANESP(TM) sales will be affected by
government and private payor reimbursement policies.
In 2001, the Company continues to expect NEUPOGEN(R) sales growth to be in
the high-single digits. Future NEUPOGEN(R) demand is dependent primarily upon
penetration of existing markets and the effects of competitive products. In
addition, chemotherapy treatments that are less myelosuppressive may require
less NEUPOGEN(R). NEUPOGEN(R) usage is expected to continue to be affected by
cost containment pressures from governments and private insurers on health care
providers worldwide. In addition, reported NEUPOGEN(R) sales will continue to
be affected by changes in foreign currency exchange rates. In both domestic and
foreign markets, sales of NEUPOGEN(R) are dependent, in part, on the
availability of reimbursement from third party payors such as governments (for
example, Medicare and Medicaid programs in the U.S.) and private insurance
plans. Therefore, NEUPOGEN(R) sales may also be affected by future changes in
reimbursement rates or changes in the bases for reimbursement.
Regardless of ARANESP(TM) launch timing in the U.S., the Company continues
to expect total product sales and earnings per share for 2001 to grow at low-
double digit rates. The Company now expects corporate partner revenues to be
less than in 2000. Also, cost of sales is now expected to be in the range of
11.0% to 12.0% of total product sales. For 2001, research and development
expenses and SG&A expenses are each estimated to be in the range of 25% to 27%
of total product sales, and the effective tax rate is expected to be
approximately 34%.
For information regarding the commercialization of Plenaxis(TM) (previously
referred to as abarelix depot), see Note 1 to the Condensed Consolidated
Financial Statements, "Summary of significant accounting policies -
Inventories".
Estimates of future product sales, operating expenses and earnings per
share are necessarily speculative in nature and are difficult to predict with
accuracy. The Company is providing this information as of the filing date of
this Form 10-Q, and does not plan to update this information until its next Form
10-Q filing with the Securities and Exchange Commission and expressly disclaims
any duty to update the information contained in this filing.
Except for the historical information contained herein, the matters
discussed herein are by their nature forward-looking. Investors are cautioned
that forward-looking statements or projections made by the Company, including
those made in this document, are subject to risks and uncertainties that may
cause actual results to differ materially from those
16
projected. Reference is made in particular to forward-looking statements
regarding product sales, earnings per share and expenses. Amgen operates in a
rapidly changing environment that involves a number of risks, some of which are
beyond the Company's control. Future operating results and the Company's stock
price may be affected by a number of factors, including, without limitation: (i)
the results of preclinical and clinical trials; (ii) regulatory approvals of
product candidates, new indications and manufacturing facilities; (iii) health
care guidelines and policies relating to Amgen's products; (iv) reimbursement
for Amgen's products by governments and private payors; (v) intellectual
property matters (patents) and the results of litigation; (vi) competition;
(vii) fluctuations in operating results and (viii) rapid growth of the Company.
These factors and others are discussed herein and in Exhibit 99 filed with this
report titled "Factors That May Affect Amgen" and incorporated herein by
reference.
17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Certain of the Company's legal proceedings are reported in the Company's
Annual Report on Form 10-K for the year ended December 31, 2000, with material
developments since that report described in the Company's Form 10-Q for the
quarter ended March 31, 2001, and below. While it is not possible to predict
accurately or to determine the eventual outcome of these matters, the Company
believes that the outcome of these proceedings will not have a material adverse
effect on the annual financial statements of the Company.
Johnson & Johnson arbitrations
The Company has filed a demand in an arbitration with Johnson & Johnson to
terminate Johnson & Johnson's rights under a license agreement (the "License
Agreement") relating to certain patented technology and know-how of the Company
to sell Epoetin alfa throughout the U.S. for all human uses except dialysis and
diagnostics and to recover damages for breach of the License Agreement based on
the Company's claim that Johnson & Johnson has intentionally sold PROCRIT(R)
(the brand name under which Johnson & Johnson sells Epoetin alfa) into the
Company's exclusive dialysis market. The trial date is set for September 2001.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company held its Annual Meeting of Stockholders on May 17, 2001.
(b) Omitted pursuant to Instruction 3 to Item 4 of Form 10-Q.
(c) The two matters voted upon at the meeting were: (i) to elect three
directors to a three year term of office expiring at the Annual Meeting
of Stockholders in the year 2004; and (ii) to ratify the selection of
Ernst & Young LLP as independent auditors of the Company for the year
ending December 31, 2001 ("Proposal Two").
(i) With respect to each of the nominees for director, Jerry D.
Choate, received 855,700,465 shares in favor and 36,559,074 shares
were withheld, Steven Lazarus received 855,623,918 shares in favor
and 36,635,621 shares were withheld and Gilbert S. Omenn received
855,880,974 shares in favor and 36,378,565 shares were withheld,
and there were no abstentions or broker non-votes. All nominees
were declared to have been elected as directors to hold office
until the Annual Meeting of Stockholders in the year 2004.
18
(ii) With respect to Proposal Two, 885,639,404 shares were in favor,
3,006,273 shares were against, 3,613,862 shares abstained.
Proposal Two was declared to have been approved.
(d) Not applicable.
Item 5. Other Information
The Company's 2002 Annual Meeting of Stockholders will be held on May 16,
2002.
Item 6. Exhibits and Reports on Form 8-K
(a) Reference is made to the Index to Exhibits included herein.
(b) Reports on Form 8-K - none
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Amgen Inc.
(Registrant)
Date: 7/27/01 By: /s/ Kathryn E. Falberg
- ------------------ -----------------------------------------
Kathryn E. Falberg
Senior Vice President, Finance
and Chief Financial Officer
Date: 7/27/01 By: /s/ Barry D. Schehr
- ------------------ -----------------------------------------
Barry D. Schehr
Vice President, Financial
Operations, and Chief
Accounting Officer
20
AMGEN INC.
INDEX TO EXHIBITS
Exhibit No. Description
3.1 Restated Certificate of Incorporation as amended. (10)
3.2 Amended and Restated Bylaws of Amgen Inc. (as amended October 24,
2000). (20)
3.3 Certificate of Amendment of Restated Certificate of Incorporation.
(19)
3.4 Certificate of Designations of Series A Junior Participating
Preferred Stock. (22)
4.1 Indenture dated January 1, 1992 between the Company and Citibank
N.A., as trustee. (4)
4.2 First Supplement to Indenture, dated February 26, 1997 between the
Company and Citibank N.A., as trustee. (7)
4.3 Officer's Certificate pursuant to Sections 2.1 and 2.3 of the
Indenture, as supplemented, establishing a series of securities "8-
1/8% Debentures due April 1, 2097." (9)
4.4 8-1/8% Debentures due April 1, 2097. (9)
4.5 Form of stock certificate for the common stock, par value $.0001 of
the Company. (10)
4.6 Officer's Certificate pursuant to Sections 2.1 and 2.3 of the
Indenture, dated as of January 1, 1992, as supplemented by the First
supplemental Indenture, dated as of February 26, 1997, each between
the Company and Citibank, N.A., as Trustee, establishing a series of
securities entitled "6.50% Notes Due December 1, 2007". (12)
4.7 6.50% Notes Due December 1, 2007 described in Exhibit 4.6. (12)
4.8 Corporate Commercial Paper - Master Note between and among Amgen
Inc., as Issuer, Cede & Co., as nominee of The Depository Trust
Company and Citibank, N.A. as Paying Agent. (14)
10.1 Company's Amended and Restated 1991 Equity Incentive Plan. (22)
10.2 Company's Amended and Restated 1997 Special Non-Officer Equity
Incentive Plan. (22)
10.3 Shareholder's Agreement of Kirin-Amgen, Inc., dated May 11, 1984,
between the Company and Kirin Brewery Company, Limited. (22)
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. (19)
10.5 Product License Agreement, dated September 30, 1985, and Technology
License Agreement, dated, September 30, 1985 between the Company and
Ortho Pharmaceutical Corporation. (19)
21
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. (19)
10.7 Company's Amended and Restated Employee Stock Purchase Plan. (19)
10.8 Research, Development Technology Disclosure and License Agreement
PPO, dated January 20, 1986, by and between the Company and Kirin
Brewery Co., Ltd. (1)
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. (22)
10.10 Assignment and License Agreement, dated October 16, 1986, between
the Company and Kirin-Amgen, Inc. (22)
10.11 G-CSF European License Agreement, dated December 30, 1986, between
Kirin-Amgen, Inc. and the Company. (22)
10.12 Company's Retirement and Savings Plan (as amended and restated
effective October 23, 2000). (22)
10.13 Company's Amended and Restated 1988 Stock Option Plan. (6)
10.14 First Amendment to the Company's Retirement and Savings Plan (as
amended and restated effective October 23, 2000). (22)
10.15 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. (2)
10.16 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).
(3)
10.17 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. (5)
10.18 Amgen Inc. Supplemental Retirement Plan (As Amended and Restated
Effective November 1, 1999). (18)
10.19 First Amendment to Amgen Inc. Change of Control Severance Plan. (19)
10.20 Amended and Restated Amgen Performance Based Management Incentive
Plan. (17)
10.21 Credit Agreement, dated as of May 28, 1998, among Amgen Inc., the
Borrowing Subsidiaries named therein, the Banks named therein,
Citibank, N.A., as Issuing Bank, and Citicorp USA, Inc., as
Administrative Agent. (15)
10.22 G-CSF United States License Agreement dated June 1, 1987 (effective
July 1, 1986) between Kirin-Amgen, Inc. and the Company. (22)
10.23 Amendment No. 1 dated October 20, 1988 to Kirin-Amgen, Inc./Amgen G-
CSF United States License Agreement dated June 1, 1987 (effective
July 1, 1986). (22)
10.24 Amendment No. 2 dated October 17, 1991 (effective November 13, 1990)
to Kirin-Amgen, Inc./Amgen G-CSF United States License Agreement
dated June 1, 1987 (effective July 1, 1986). (22)
22
10.25 Amendment No. 10 dated March 1, 1996 to the Shareholders' Agreement
of Kirin-Amgen, Inc. dated May 11, 1984. (22)
10.26 Amgen Inc. Change of Control Severance Plan effective as of October
20, 1998. (16)
10.27 Preferred Share Rights Agreement, dated as of December 12, 2000,
between Amgen Inc. and American Stock Transfer and Trust Company, as
Rights Agent. (21)
10.28 First Amendment, effective January 1, 1998, to the Company's Amended
and Restated Employee Stock Purchase Plan. (11)
10.29 Amendment No. 11 dated March 20, 2000 to the Shareholders' Agreement
of Kirin-Amgen, Inc. dated May 11, 1984. (22)
10.30 Agreement between Amgen Inc. and Dr. Fabrizio Bonanni, dated March
3, 1999. (18)
10.31 Amendment No. 1 dated June 1, 1987 to Kirin-Amgen, Inc./Amgen G-CSF
European License Agreement dated December 30, 1986. (22)
10.32 Amendment No. 2 dated March 15, 1988 to Kirin-Amgen, Inc./Amgen G-
CSF European License Agreement dated December 30, 1986. (22)
10.33 Amendment No. 3 dated October 20, 1988 to Kirin-Amgen, Inc./Amgen G-
CSF European License Agreement dated December 30, 1986. (22)
10.34 Amendment No. 4 dated December 29, 1989 to Kirin-Amgen, Inc./Amgen
G-CSF European License Agreement dated December 30, 1986. (22)
10.35 Company's Amended and Restated 1987 Directors' Stock Option Plan.
(8)
10.36 Amended and Restated Agreement on G-CSF in the EU between Amgen Inc.
and F. Hoffmann-La Roche Ltd (with certain confidential information
deleted therefrom). (14)
10.37 Collaboration and License Agreement, dated December 15, 1997,
between the Company, GPI NIL Holdings, Inc. and Guilford
Pharmaceuticals Inc. (with certain confidential information deleted
therefrom). (13)
10.38 Promissory Note of Dr. Fabrizio Bonanni, dated August 7, 1999. (18)
10.39 Promissory Note of Dr. Fabrizio Bonanni, dated October 29, 1999.
(18)
10.40 Company's Amended and Restated 1997 Equity Incentive Plan. (22)
10.41 Agreement between Amgen Inc. and Mr. Gordon M. Binder, dated May 10,
2000. (19)
10.42 Amendment No. 6 dated May 11, 1984 to the Shareholders' Agreement of
Kirin-Amgen, Inc. dated May 11, 1984. (22)
10.43 Amendment No. 7 dated July 17, 1987 (effective April 1, 1987) to the
Shareholders' Agreement of Kirin-Amgen, Inc. dated May 11, 1984.
(22)
10.44 Amendment No. 8 dated May 28, 1993 (effective November 13, 1990) to
the Shareholders' Agreement of Kirin-Amgen, Inc. dated May 11, 1984.
(22)
10.45 Amendment No. 9 dated December 9, 1994 (effective June 14, 1994) to
the Shareholders' Agreement of Kirin-Amgen, Inc. dated May 11, 1984.
(22)
10.46 Agreement between Amgen Inc. and Mr. George J. Morrow, dated March
3, 2001. (23)
10.47 Promissory Note of Mr. George J. Morrow, dated March 11, 2001. (23)
23
10.48 Agreement between Amgen Inc. and Dr. Roger M. Perlmutter, M.D.,
Ph.D., dated March 5, 2001. (23)
10.49* Agreement between Amgen Inc. and Mr. Brian McNamee, dated May 5,
2001.
10.50* Agreement between Amgen Inc. and Mr. Richard Nanula, dated May 15,
2001.
10.51* Promissory Note of Mr. Richard Nanula, dated June 27, 2001.
10.52* Promissory Note of Dr. Roger M. Perlmutter, dated June 29, 2001.
99* "Factors That May Affect Amgen"
- ----------------------------
* Filed herewith.
(1) 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.
(2) 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.
(3) Filed as an exhibit to the Form 8 dated November 8, 1989, amending the
Annual Report on Form 10-K for the year ended March 31, 1989 on June 28,
1989 and incorporated herein by reference.
(4) Filed as an exhibit to Form S-3 Registration Statement dated December 19,
1991 and incorporated herein by reference.
(5) Filed as an exhibit to the Form 8-A dated March 31, 1993 and incorporated
herein by reference.
(6) 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.
(7) Filed as an exhibit to the Form 8-K Current Report dated March 14, 1997 on
March 14, 1997 and incorporated herein by reference.
(8) Filed as an exhibit to the Annual Report on Form 10-K for the year ended
December 31, 1996 on March 24, 1997 and incorporated herein by reference.
(9) Filed as an exhibit to the Form 8-K Current Report dated April 8, 1997 on
April 8, 1997 and incorporated herein by reference.
(10) Filed as an exhibit to the Form 10-Q for the quarter ended March 31, 1997
on May 13, 1997 and incorporated herein by reference.
(11) Filed as an exhibit to the Form 10-Q for the quarter ended June 30, 1997 on
August 12, 1997 and incorporated herein by reference.
(12) Filed as an exhibit to the Form 8-K Current Report dated and filed on
December 5, 1997 and incorporated herein by reference.
(13) Filed as Exhibit 10.40 to the Guilford Pharmaceuticals Inc. Form 10-K for
the year ended December 31, 1997 on March 27, 1998 and incorporated herein
by reference.
(14) Filed as an exhibit to the Form 10-Q for the quarter ended March 31, 1998
on May 13, 1998 and incorporated herein by reference.
(15) Filed as an exhibit to the Form 10-Q for the quarter ended June 30, 1998 on
August 14, 1998 and incorporated herein by reference.
(16) Filed as an exhibit to the Annual Report on Form 10-K for the year ended
December 31, 1998 on March 16, 1999 and incorporated herein by reference.
24
(17) Filed as an exhibit to the Form 10-Q for the quarter ended June 30, 1999 on
August 3, 1999 and incorporated herein by reference.
(18) Filed as an exhibit to the Annual Report on Form 10-K for the year ended
December 31, 1999 on March 7, 2000 and incorporated herein by reference.
(19) Filed as an exhibit to the Form 10-Q for the quarter ended June 30, 2000 on
August 1, 2000 and incorporated herein by reference.
(20) Filed as an exhibit to the Form 10-Q for the quarter ended September 30,
2000 on November 14, 2000 and incorporated herein by reference.
(21) Filed as an exhibit to the Form 8-K Current Report dated December 13, 2000
on December 18, 2000 and incorporated herein by reference.
(22) Filed as an exhibit to the Annual Report on Form 10-K for the year ended
December 31, 2000 on March 7, 2001 and incorporated herein by reference.
(23) Filed as an exhibit to the Form 10-Q for the quarter ended March 31, 2001
on May 14, 2001 and incorporated herein by reference.
25