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, 1998
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 91320-1789
- --------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (805) 447-1000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
As of June 30, 1998, the registrant had 253,927,244 shares of Common Stock,
$.0001 par value, outstanding.
AMGEN INC.
INDEX
Page No.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements............................................... 3
Condensed Consolidated Statements of
Operations - three and six months
ended June 30, 1998 and 1997............................................. 4
Condensed Consolidated Balance Sheets -
June 30, 1998 and December 31, 1997...................................... 5
Condensed Consolidated Statements of
Cash Flows - six months
ended June 30, 1998 and 1997............................................. 6
Notes to Condensed Consolidated Financial
Statements............................................................... 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations.........................................................15
PART II OTHER INFORMATION
Item 1. Legal Proceedings..................................................23
Item 4. Submission of Matters to a Vote of
of Security Holders................................................24
Item 5. Other Information..................................................25
Item 6. Exhibits and Reports on Form 8-K...................................26
Signatures..................................................................27
Index to Exhibits...........................................................28
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The information in this report for the three and six months ended June 30,
1998 and 1997 is unaudited but includes all adjustments (consisting only of
normal recurring accruals) which Amgen Inc. ("Amgen" or the "Company") considers
necessary for a fair presentation of the results of operations for those
periods.
The condensed consolidated financial statements should be read in
conjunction with the Company's financial statements and the notes thereto
contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
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,
1998 1997 1998 1997
------ ------ -------- --------
Revenues:
Product sales....................................... $611.2 $566.7 $1,178.0 $1,102.7
Corporate partner revenues.......................... 29.9 40.0 52.5 67.4
Royalty income...................................... 15.8 13.8 31.8 25.9
------ ------ -------- --------
Total revenues.................................... 656.9 620.5 1,262.3 1,196.0
------ ------ -------- --------
Operating expenses:
Cost of sales....................................... 83.9 76.8 162.9 148.8
Research and development............................ 152.4 145.4 304.9 293.1
Marketing and selling............................... 74.3 81.8 141.1 149.9
General and administrative.......................... 47.7 43.7 94.0 88.1
Loss of affiliates, net............................. 10.2 12.1 16.4 20.6
------ ------ -------- --------
Total operating expenses.......................... 368.5 359.8 719.3 700.5
------ ------ -------- --------
Operating income..................................... 288.4 260.7 543.0 495.5
------ ------ -------- --------
Other income (expense):
Interest and other income........................... 23.9 18.0 39.1 33.9
Interest expense, net............................... (3.3) (0.4) (5.5) (0.7)
------ ------ -------- --------
Total other income
(expense)........................................ 20.6 17.6 33.6 33.2
------ ------ -------- --------
Income before income taxes........................... 309.0 278.3 576.6 528.7
Provision for income taxes........................... 92.7 77.8 173.0 147.9
------ ------ -------- --------
Net income........................................... $216.3 $200.5 $ 403.6 $ 380.8
====== ====== ======== ========
Earnings per share:
Basic............................................... $ 0.85 $ 0.76 $ 1.58 $ 1.44
Diluted............................................. $ 0.82 $ 0.72 $ 1.53 $ 1.37
Shares used in calculation
of earnings per share:
Basic............................................... 253.9 265.3 255.1 265.3
Diluted............................................. 262.5 277.5 263.2 277.8
See accompanying notes.
4
AMGEN INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except per share data)
(Unaudited)
June 30, December 31,
1998 1997
-------- --------
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 158.0 $ 239.1
Marketable securities............................................ 863.3 787.4
Trade receivables, net........................................... 291.2 269.0
Inventories...................................................... 113.3 109.2
Other current assets............................................. 141.7 138.8
-------- --------
Total current assets........................................... 1,567.5 1,543.5
Property, plant and equipment at cost, net......................... 1,349.5 1,186.2
Investments in affiliated companies................................ 117.1 116.9
Other assets....................................................... 252.7 263.6
-------- --------
$3,286.8 $3,110.2
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................. $ 85.0 $ 103.9
Commercial paper................................................. 99.5 -
Accrued liabilities.............................................. 671.8 608.0
Current portion of long-term debt................................ 11.0 30.0
-------- --------
Total current liabilities...................................... 867.3 741.9
Long-term debt..................................................... 223.0 229.0
Contingencies
Stockholders' equity:
Preferred stock; $.0001 par value; 5 shares authorized;
none issued or outstanding..................................... - -
Common stock and additional paid-in capital; $.0001 par
value; 750 shares authorized; outstanding - 253.9
shares in 1998 and 258.3 shares in 1997........................ 1,306.7 1,196.1
Retained earnings................................................ 889.8 943.2
-------- --------
Total stockholders' equity................................... 2,196.5 2,139.3
-------- --------
$3,286.8 $3,110.2
======== ========
See accompanying notes.
5
AMGEN INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
Six Months Ended
June 30,
1998 1997
------- -------
Cash flows from operating activities:
Net income........................................................ $ 403.6 $ 380.8
Depreciation and amortization..................................... 72.7 65.1
Loss of affiliates, net........................................... 16.4 20.6
Cash provided by (used in):
Trade receivables, net........................................... (22.2) (3.4)
Inventories...................................................... (4.1) (8.2)
Other current assets............................................. 3.7 16.6
Accounts payable................................................. (18.9) 7.6
Accrued liabilities.............................................. 63.8 (9.2)
------ ------
Net cash provided by operating activities...................... 515.0 469.9
------ ------
Cash flows from investing activities:
Purchases of property, plant and equipment........................ (236.0) (195.0)
Proceeds from maturities of marketable
securities...................................................... - 184.3
Proceeds from sales of marketable securities 272.1 312.4
Purchases of marketable securities................................ (348.5) (483.0)
Other............................................................. (6.2) 0.5
------ ------
Net cash used in investing activities.......................... (318.6) (180.8)
------ ------
See accompanying notes.
(Continued on next page)
6
AMGEN INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In millions)
(Unaudited)
Six Months Ended
June 30,
1998 1997
------ ------
Cash flows from financing activities:
Increase in commercial paper...................................... $ 99.5 $ -
Repayment of long-term debt...................................... (25.0) (78.2)
Proceeds from issuance of long-term debt......................... - 100.0
Net proceeds from issuance of common
stock upon the exercise of stock options....................... 91.8 59.0
Tax benefits related to stock options............................ 30.0 28.6
Repurchases of common stock...................................... (457.0) (210.9)
Other............................................................ (16.8) (25.9)
------ ------
Net cash used in financing activities......................... (277.5) (127.4)
------ ------
(Decrease) increase in cash and cash
equivalents..................................................... (81.1) 161.7
Cash and cash equivalents at beginning of
period.......................................................... 239.1 169.3
------ ------
Cash and cash equivalents at end of period........................ $158.0 $331.0
====== ======
See accompanying notes.
7
AMGEN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
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.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
in a manner which approximates the first-in, first-out (FIFO) method.
Inventories are shown net of applicable reserves and allowances. Inventories
consist of the following (in millions):
June 30, December 31,
1998 1997
------ -------
Raw materials............. $ 17.6 $ 18.7
Work in process........... 49.6 53.6
Finished goods............ 46.1 36.9
------ ------
$113.3 $109.2
====== ======
Product sales
Product sales consist of three products, EPOGEN(R) (Epoetin alfa),
NEUPOGEN(R) (Filgrastim) and INFERGEN(R) (Interferon alfacon-1).
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).
8
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. Sales in Amgen's exclusive
market and adjustments thereto are derived from Company shipments and from
third-party data on shipments to end users and their usage (see Note 4,
"Contingencies - Johnson & Johnson arbitrations").
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 generally over the next 12 months, primarily resulting from its sales
in Europe. At June 30, 1998, the Company had option and forward contracts to
exchange foreign currencies for U.S. dollars of $39.9 million and $25.3 million,
respectively, all having maturities of seven months or less. The option
contracts, which have only nominal intrinsic value at the time of purchase, 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 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. Net gains on option
contracts (including option contracts for hedged transactions whose occurrence
are no longer probable) and changes in market values of forward contracts are
reflected in "Interest and other income". The deferred premiums on option
contracts and fair values of forward contracts are included in "Other current
assets".
The Company has additional foreign currency forward contracts to hedge
exposures to foreign currency fluctuations of certain receivables and payables
denominated in foreign currencies. At June 30, 1998, the Company had forward
contracts to exchange foreign currencies for U.S. dollars of $27.5 million, all
having maturities of two 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. The fair values of the
forward contracts are included in the corresponding captions of the hedged
assets and liabilities. Gains and losses on forward contracts, to the extent
they differ in amount from the hedged receivables and payables, are included in
"Interest and other income".
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is required to be adopted in fiscal
years beginning after June 15, 1999. Because of the Company's minimal use of
derivatives, management does not anticipate that the adoption of this new
9
statement will have a significant effect on earnings or the financial position
of the Company.
Income taxes
Income taxes are accounted for in accordance SFAS No. 109 (see Note 3,
"Income taxes").
Stock option and purchase plans
The Company's stock option and purchase plans are accounted for under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees".
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 stock option plans 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 Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
------ ------ ------ ------
Numerator for basic and diluted
earnings per share - net income.................... $216.3 $200.5 $403.6 $380.8
====== ====== ====== ======
Denominator:
Denominator for basic earnings
per share - weighted-average
shares.............................................. 253.9 265.3 255.1 265.3
Effect of dilutive securities -
employee stock options.............................. 8.6 12.2 8.1 12.5
------ ------ ------ ------
Denominator for diluted earnings
per share - adjusted weighted-
average shares...................................... 262.5 277.5 263.2 277.8
====== ====== ====== ======
Basic earnings per share............................. $ 0.85 $ 0.76 $ 1.58 $ 1.44
====== ====== ====== ======
Diluted earnings per share........................... $ 0.82 $ 0.72 $ 1.53 $ 1.37
====== ====== ====== ======
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
10
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, 1998
and 1997 is unaudited but includes all adjustments (consisting only of normal
recurring accruals) which the Company considers necessary for a fair
presentation of the results of operations for these periods. Interim results
are not necessarily indicative of results for the full fiscal year.
Reclassification
Certain prior year amounts have been reclassified to conform to the current
year presentation.
2. Debt
As of June 30, 1998, the Company had $234 million of unsecured debt
securities outstanding, of which $11 million matures within one year. The
Company has established a $500 million debt shelf registration statement under
which the Company has issued $100 million of debt securities (the "Notes") and
established a $400 million medium term note program. The Company may offer and
issue medium term notes from time to time with terms to be determined by market
conditions. The Notes bear interest at a fixed rate of 6.5% and mature in 10
years. The Company's other outstanding debt includes $100 million of debt
securities that bear interest at a fixed rate of 8.1% and mature in 2097 and $34
million of notes that bear interest at fixed rates averaging 6% and have
remaining maturities of less than six years.
The Company had a commercial paper program which provided for unsecured
short-term borrowings up to an aggregate of $200 million. In April 1998, the
Company replaced this program with a new commercial paper program which provides
for the same amount of aggregate short-term borrowings. As of June 30, 1998,
commercial paper with a face amount of $100 million was outstanding. These
borrowings had maturities of less than four months and had effective interest
rates averaging 5.6%.
In May 1998, the Company replaced its credit facility with a new unsecured
$150 million credit facility that has substantially the same terms as the
Company's prior credit facility and expires on May 28, 2003. As of June 30,
1998, $150 million was available under the Company's line of credit for
borrowing.
11
3. Income taxes
The provision for income taxes consists of the following (in millions):
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
------ ------ ------ ------
Federal(including U.S.
possessions)......................... $86.6 $72.3 $161.5 $137.4
State................................. 6.1 5.5 11.5 10.5
----- ----- ------ ------
$92.7 $77.8 $173.0 $147.9
===== ===== ====== ======
The increase in the effective tax rate in the current year is the result of
a provision in the federal tax law which caps tax benefits associated with the
Company's Puerto Rico operations at the 1995 income level.
4. Contingencies
Johnson & Johnson arbitrations
Epoetin alfa
In September 1985, the Company granted Johnson & Johnson's affiliate, Ortho
Pharmaceutical Corporation, 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").
A dispute between Amgen and Johnson & Johnson that is the subject of a
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, sometimes referred
to as "spillover". Spillover occurs when, for example, a hospital or other
purchaser buys one brand for use in both dialysis and non-dialysis indications.
The Company has established and is employing an audit methodology to assign the
proceeds of sales of EPOGEN(R) and PROCRIT in the Company's and Johnson &
Johnson's respective exclusive markets. On September 12, 1997, the arbitrator
in this matter (the "Arbitrator") issued an opinion adopting the Company's audit
methodology. For the free standing dialysis center segment of the Epoetin alfa
market, which accounts for about two-thirds of the Company's EPOGEN sales, the
Arbitrator ruled that the Company's audit accurately determined
12
period. As a result of that hearing, the Company will pay an additional amount
to Johnson & Johnson for the 1991-94 period which is covered by amounts
previously provided for by the Company. On April 14, 1998, the Arbitrator issued
his final order which confirmed that the Company was the successful party in the
arbitration and, as a result, Johnson & Johnson has been ordered to pay to the
Company all costs and expenses, including reasonable attorney's fees, that the
Company incurred in the arbitration as well as one-half of the audit costs. The
Company currently estimates that it will submit a bill for such costs incurred
over an eight year period of approximately $100 million; however, the actual
amount of the Company's recovery will be determined by the Arbitrator. The final
order also confirmed that for the period 1995 forward, the estimates of usage of
Epoetin alfa in the Hospital segment of the Company's audit methodology shall be
applied without adjustment, subject to the right of either party to challenge
the Hospital survey results for 1995 and certain subsequent years.
Both parties filed and presented arguments on motions seeking
reconsideration of certain aspects of the Arbitrator's final order. On July 29,
1998, the Arbitrator issued his opinion on both parties' motions for
reconsideration. The Arbitrator granted the Company's motion to reconsider one
aspect of the adjustment to the results of the audit for the Hospital and Home
Health Care Segment. The Arbitrator's ruling changes the calculation for that
segment and reduces the Company's liability to Johnson & Johnson for the 1991-94
period. The Arbitrator denied all other motions, including Johnson & Johnson's
motion seeking a reconsideration of the award to the Company of all costs and
expenses, including reasonable attorneys' fees and costs, that the Company
incurred in the arbitration. Due to remaining uncertainties the Company has not
recognized any benefit from the reduced liability for 1991-94 or for the
recovery of attorneys' fees and costs or audit costs. On August 12, 1998,
Johnson & Johnson gave notice of challenge to the results of the audit of the
Hospital segment for the 1995-97 period. If, as a result of this challenge,
adjustments to the results of the Company's audit are made, the Company may be
required to pay additional compensation to Johnson & Johnson for sales during
1995, 1996 and 1997. The Company does not expect that any such additional
compensation for the 1995-97 period would have a material adverse effect on the
annual financial statements of Amgen due to amounts previously provided for by
the Company.
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. Johnson & Johnson disputes the Arbitrator's
jurisdiction to decide the Company's
audit yield results that are different from the results of the audit currently
employed by the Company, the Company may be required to pay additional
compensation to Johnson & Johnson for sales during 1995, 1996 and 1997, or
Johnson & Johnson may be required to pay compensation to the Company for such
prior period sales.
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. Johnson & Johnson disputes the Arbitrator's
jurisdiction to decide the Company's demand. The Company has requested a
hearing before the Arbitrator on the Company's termination demand. No trial
date on this matter has been set.
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. On October 27, 1995, the Company filed a
complaint in the Circuit Court of Cook County, Illinois seeking an order
compelling Johnson & Johnson to arbitrate the Company's claim for termination
before the Arbitrator as well as all related counterclaims asserted in Johnson &
Johnson's October 2, 1995 AAA arbitration demand. The Company is unable to
predict at this time the outcome of the demand for termination or when it will
be resolved. The Company has filed a motion to stay the AAA arbitration pending
the outcome of the existing arbitration proceedings before the Arbitrator
discussed above. The Company has also filed an answer and counterclaim denying
that AAA has jurisdiction to hear or decide the claims stated in the demand,
denying the allegations in the demand and counter claiming for certain unpaid
invoices.
NESP
On June 5, 1997, Johnson & Johnson filed a demand for arbitration against
Kirin-Amgen, Inc. ("Kirin-Amgen"), an affiliate of the Company, before the AAA.
The demand alleges that Amgen's novel erythropoiesis stimulating protein
("NESP") is covered by a license granted by Kirin-Amgen to Johnson & Johnson in
1985 for the development, manufacture and sale of Epoetin alfa in certain
territories outside the United States, Japan and China (the "K-A License"). In
1996 Kirin-Amgen acquired exclusive worldwide rights in NESP from Amgen. Kirin-
Amgen, in turn, transferred certain rights in NESP to Kirin and certain rights
to Amgen. Johnson & Johnson alleges that the K-A License effectively grants
Johnson & Johnson the same right to develop, manufacture and sell NESP as
granted under the K-A License with respect to Epoetin alfa. Kirin-Amgen filed
its answer to Johnson & Johnson's complaint on January 12, 1998, denying that
Johnson & Johnson has rights to NESP. Kirin-Amgen also asserted a counterclaim
for the recovery of certain royalty payments which Kirin-Amgen asserts were
improperly withheld. These same disputes
14
exist between the Company and Johnson & Johnson under the License Agreement and
the parties have agreed that the resolution of these issues in this arbitration
will be binding upon them with respect to the License Agreement. The trial in
this matter has commenced.
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, the Company believes that the
outcome of these proceedings will not have a material adverse effect on its
annual financial statements.
5. Stockholders' equity
During the six months ended June 30, 1998, the Company repurchased 8.2
million shares of its common stock at a total cost of $457 million under its
common stock repurchase program. In October 1997, the Board of Directors
authorized the Company to repurchase up to an additional $1 billion of common
stock through December 31, 1998. At June 30, 1998, $255 million of this
authorization remained. Stock repurchased under the program is retired.
6. Comprehensive income
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income". SFAS
No. 130 establishes new rules for the reporting and display of comprehensive
income and its components. SFAS No. 130 requires unrealized gains and losses on
the Company's available-for-sale securities and foreign currency translation
adjustments to be included in other comprehensive income. During the three and
six months ended June 30, 1998, total comprehensive income was $208.1 million
and $392.4 million, respectively. During the three and six months ended June
30, 1997, total comprehensive income was $197.6 million and $376 million,
respectively.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
Cash provided by operating activities has been and is expected to continue
to be the Company's primary source of funds. During the six months ended June
30, 1998, operations provided $515 million of cash compared with $469.9 million
during the same period last year. The Company had cash, cash equivalents and
marketable securities of $1,021.3 million at June 30, 1998, compared with
$1,026.5 million at December 31, 1997.
Capital expenditures totaled $236 million for the six months ended June 30,
1998, compared with $195 million for the same period a year ago. The Company
anticipates spending approximately $400 million to $500 million in 1998 on
capital projects and equipment to expand the Company's global operations.
Thereafter, over the next
15
few years, the Company anticipates that capital expenditures will average in
excess of $400 million per year.
The Company receives cash from the exercise of employee stock options.
During the six months ended June 30, 1998, stock options and their related tax
benefits provided $121.8 million of cash compared with $87.6 million for the
same period last year. Proceeds from the exercise of stock options and their
related tax benefits will vary from period to period based upon, 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 offset the dilutive
effect of its employee stock option and stock purchase plans. During the six
months ended June 30, 1998, the Company repurchased 8.2 million shares of its
common stock at a total cost of $457 million compared with 3.5 million shares
purchased at a cost of $210.9 million during the same period last year. In
October 1997, the Board of Directors authorized the Company to repurchase up to
an additional $1 billion of common stock through December 31, 1998. At June 30,
1998, $255 million of this authorization remained.
To provide for financial flexibility and increased liquidity, the Company
has established several sources of debt financing. The Company established a
$500 million debt shelf registration statement and in December 1997, pursuant to
such registration statement, the Company issued $100 million of debt securities
that bear interest at a fixed rate of 6.5% and mature in 10 years (the "Notes").
As of June 30, 1998, the Company had $234 million of unsecured debt securities
outstanding. This amount includes the Notes, $34 million of debt securities
that bear interest at fixed rates averaging 6% and have remaining maturities of
less than six years and $100 million of debt securities that bear interest at a
fixed rate of 8.1% and mature in 2097. The Company repaid $25 million of
maturing debt securities during the six month ended June 30, 1998.
The Company's sources of debt financing also include a commercial paper
program which provides for short-term borrowings up to an aggregate face amount
of $200 million. In April 1998, the Company replaced this program with a new
commercial paper program which provides for the same amount of aggregate short-
term borrowings. As of June 30, 1998, commercial paper with a face amount of
$100 million was outstanding. These borrowings had maturities of less than four
months and had effective interest rates averaging 5.6%. In May 1998, the
Company replaced its credit facility with a new $150 million unsecured credit
facility that has substantially the same terms as the Company's prior credit
facility and expires on May 28, 2003. The new credit facility supports the
Company's commercial paper program. As of June 30, 1998, no amounts were
outstanding under the 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
16
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.
Results of Operations
Product sales
Product sales were $611.2 million and $1,178 million for the three and six
months ended June 30, 1998, respectively. These amounts represent increases of
$44.5 million and $75.3 million, or 8% and 7%, respectively, over the same
periods last year.
EPOGEN(R) (Epoetin alfa)
EPOGEN(R) sales were $336.5 million and $640.9 million for the three and
six months ended June 30, 1998, respectively. These amounts represent increases
of $41.6 million and $54.4 million or 14% and 9%, respectively, over the same
periods last year. These increases were primarily due to growth in the U.S.
dialysis patient population and the administration of higher doses. The
administration of higher doses of EPOGEN(R) was principally due to certain
dialysis providers using better anemia management practices, including using
hemoglobin measurements instead of hematocrit measurements, as well as changes
in reimbursement announced in March and June 1998 by the Health Care Financing
Administration ("HCFA"), discussed below.
In September 1997, HCFA implemented changes (the "HCFA Policy Changes") to
its reimbursement policy. Prior to the HCFA Policy Changes, fiscal
intermediaries under contract with HCFA were authorized to pay reimbursement
claims for patients whose hematocrits exceeded 36 percent, the top of the
suggested target hematocrit range in the Company's labeling, if deemed medically
justified. Under the HCFA Policy Changes, medical justification was not
accepted for payment of claims of hematocrits that exceeded 36 percent and, if
the current month's hematocrit were greater than 36 percent and the patient's
hematocrit exceeded 36.5 percent on an historical 90-day "rolling average"
basis, reimbursement for the current month would be denied in full. Beginning
in the second quarter of 1997, the Company experienced a decline in the growth
rate of EPOGEN(R) sales as dialysis providers attempted to lower hematocrits by
lowering or withholding EPOGEN(R) doses in order to avoid or minimize claim
denials under the HCFA Policy Changes. However, in March 1998, HCFA announced
the easing of restrictions on reimbursement that had been instituted under the
HCFA Policy Changes. In June 1998, HCFA announced further revisions.
17
In March 1998, HCFA issued two revisions (the "March HCFA Revisions") to
the HCFA Policy Changes in a program memorandum. The first revision provided
that, for a month in which the three month "rolling average" hematocrit exceeds
36.5 percent, HCFA would pay the lower of 100 percent of the actual dosage
billed for that month, or 80 percent of the prior month's allowable EPOGEN(R)
dosage. The second revision re-established authorization to make payment for
EPOGEN(R) when a patient's hematocrit exceeded 36 percent when accompanied by
documentation establishing medical necessity. In June 1998, HCFA issued another
program memorandum establishing additional revisions (the "June HCFA Revisions")
to the reimbursement policy. The policy now states that pre-payment review of
claims has been eliminated and fiscal intermediaries should conduct post-payment
reviews of those dialysis providers with an atypical number of patients with
hematocrit levels above a 90-day "rolling average" of 37.5 percent.
Additionally, HCFA stated that it is encouraging dialysis providers to maintain
a hematocrit level within the range of 33 to 36 percent as recommended by the
Dialysis Outcomes Quality Initiative. HCFA also stated that it plans to develop
a national policy for medical justification for physicians who target their
patients' hematocrits greater than 36 percent. In the interim, individual
patient treatment will continue to be subject to the physician's discretion and
documentation must satisfy the judgment of the fiscal intermediary. The June
HCFA Revisions supersede the HCFA Policy Changes and the March HCFA Revisions.
The Company believes that dialysis providers are currently in the process of
understanding the June HCFA Revisions, revising their protocols and discerning
how fiscal intermediaries will implement these revisions. The Company believes
that fiscal intermediaries are likely to implement the June HCFA Revisions at
variable rates which may have an impact on dialysis providers' practice pattern
changes and the rate of change. Accordingly, it is difficult to predict what
effect the June HCFA Revisions will have on EPOGEN(R) sales.
NEUPOGEN(R) (Filgrastim)
Worldwide NEUPOGEN(R) sales were $270.6 million and $531.8 million for the
three and six months ended June 30, 1998. These amounts represent a decrease of
$1.2 million or 0.4% and an increase of $15.6 million or 3%, respectively, over
the same periods last year. Results for the second quarter of 1998 include low
single digit underlying growth in demand due to sustained growth in the U.S.
cancer chemotherapy market, which was more than offset by a decline in off-label
sales for use in the AIDS setting, a slight decline in use in the cancer
chemotherapy setting in the European Union ("EU"), unfavorable foreign currency
effects, and a draw-down of wholesaler inventories. The increase during the six
months ended June 30, 1998 is primarily due to an increase in demand in the U.S.
market, which includes a price increase and an increase in wholesaler
inventories. This increase was largely offset by the unfavorable foreign
currency effects on reported EU sales. In addition, the Company believes that
the use of protease inhibitors as a treatment for AIDS continues to reduce sales
of NEUPOGEN(R) for off-label use as a supportive therapy in this setting.
NEUPOGEN(R) is not approved or promoted for such use, except in Australia and
Canada.
18
Cost containment pressures in the U.S. health care marketplace have
contributed to the slowing of growth in domestic NEUPOGEN(R) usage over the past
several quarters. These pressures are expected to continue to influence growth
for the foreseeable future. In addition, quarterly NEUPOGEN(R) sales volume is
influenced by a number of factors including underlying demand and wholesaler
inventory management practices.
The growth of the colony stimulating factor ("CSF") market in the EU in
which NEUPOGEN(R) competes has slowed, principally due to EU government
pressures on physician prescribing practices in response to ongoing government
initiatives to reduce health care expenditures. Experimental cancer trials in
Italy that do not include the use of NEUPOGEN(R) have also adversely affected EU
sales. Additionally, the Company faces competition from another granulocyte CSF
product. Amgen's CSF market share in the EU has remained relatively constant
over the last several quarters, however, the Company does not expect the
competitive intensity to subside in the near future.
Other product sales
INFERGEN(R) (Interferon alfacon-1) sales were $4.1 million and $5.3 million
for the three and six months ended June 30, 1998. INFERGEN(R) was launched in
October 1997 for the treatment of chronic hepatitis C virus infection. There
are treatments for this infection against which INFERGEN(R) competes, and the
Company cannot predict the extent to which it will penetrate this market.
Corporate partner revenues
During the three and six months ended June 30, 1998, corporate partner
revenues decreased by $10.1 million and $14.9 million, or 25% and 22%,
respectively, compared with the same periods last year. These decreases
primarily resulted from a $20 million milestone payment from Yamanouchi
Pharmaceutical Co., Ltd. during the second quarter of 1997.
Cost of sales
Cost of sales as a percentage of product sales was 13.7% and 13.8% for the
three and six months ended June 30, 1998, respectively, compared with 13.6% and
13.5% for the same periods last year.
Research and development
During the three and six months ended June 30, 1998, research and
development expenses increased $7 million and $11.8 million, or 5% and 4%,
respectively, compared with the same periods last year. The increase during the
second quarter of 1998 is primarily due to higher clinical and preclinical
expenses and occupancy related costs, partially offset by lower product
licensing costs. The increase during the six months ended June 30, 1998 is
primarily due to higher clinical and preclinical expenses and staff and
occupancy related costs, partially offset by lower product licensing costs.
19
Marketing and selling/General and administrative
Marketing and selling expenses decreased $7.5 million and $8.8 million, or
9% and 6%, respectively, during the three and six months ended June 30, 1998
compared with the same periods last year. These decreases were primarily due to
lower expenses related to the Johnson & Johnson arbitration and to lower
domestic and European marketing expenses.
General and administrative expenses increased $4 million and $5.9 million,
or 9% and 7%, respectively, during the three and six months ended June 30, 1998
compared with the same periods last year. These increases were primarily due to
higher staff-related expenses and legal fees.
Interest and other income
During the three and six months ended June 30, 1998, interest and other
income increased $5.9 million and $5.2 million, or 33% and 15%, respectively,
compared with the same periods last year. These increases are primarily due to
a gain realized on the sale of an equity position in Techne Corporation, an
unaffiliated company.
Income taxes
The Company's effective tax rate for the three and six months ended June
30, 1998 was 30.0% compared with 28.0% for the same periods last year. The
increase in the effective tax rate in the current year is due to a provision in
the federal tax law which caps tax benefits associated with the Company's Puerto
Rico operations at the 1995 income level.
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 three 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 June 30, 1998, outstanding foreign currency option and forward contracts
totaled $39.9 million and $52.8 million, respectively.
Year 2000
The Year 2000 issue results from computer programs that do not
differentiate between the year 1900 and the year 2000 because they were written
using two digits rather than four to define the applicable year; accordingly,
computer systems that have time-sensitive calculations may not properly
recognize the year 2000. The Company has conducted an initial review of its
computer systems, devices, applications and manufacturing equipment
(collectively, "Computer Systems") to identify those areas that could be
affected by Year 2000 noncompliance. Additionally, the Company has appointed
20
a program manager for Year 2000 compliance and is presently assessing in detail
the affected Computer Systems and is developing plans to address the required
modifications. The Company is using internal and external resources to
identify, correct or reprogram and test its Computer Systems for Year 2000
compliance. The total cost associated with Year 2000 compliance is not known at
this time. The Company has not communicated with many of its suppliers, service
providers, distributors, wholesalers and other entities with which it has a
business relationship (collectively, "Third Party Businesses") regarding
compliance with Year 2000 requirements, although the Company does intend to
communicate with key Third Party Businesses. The Company is in the process of
identifying key Third Party Businesses. In addition, the Company has not
determined the impact, if any, on its operations if key Third Party Businesses
fail to comply with Year 2000 requirements. While the Company plans to complete
modifications of its business critical Computer Systems prior to the year 2000,
if modifications of such business critical Computer Systems, or Computer Systems
of key Third Party Businesses are not completed in a timely manner, the Year
2000 issue could have a material adverse effect on the operations and financial
position of the Company. The Company may also be affected by the failure of
state, federal and private payors or reimbursers to be Year 2000 compliant if
such entities are unable to make timely, proper or complete payments to sellers
of the Company's products. The Company cannot predict the extent of any such
impact.
Financial Outlook
The Company expects a low single digit sales growth rate for NEUPOGEN(R) in
1998. Future NEUPOGEN(R) (Filgrastim) sales growth is 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 Amgen's domestic or
foreign markets, except for Australia and Canada, the Company believes that
currently approximately 5% of its worldwide NEUPOGEN(R) sales are from off-label
use as a supportive therapy to various AIDS treatments. Changes in AIDS
therapies, including protease inhibitors that may be less myelosuppressive, are
believed to have adversely affected and are expected to continue to adversely
affect such sales. NEUPOGEN(R) usage is expected to continue to be affected by
cost containment pressures on health care providers worldwide. As a result of
the factors discussed in "Results of Operations - Product sales - NEUPOGEN(R)"
the Company believes that growth in the CSF market in the EU is likely to be
flat year over year. In addition, reported NEUPOGEN(R) sales will continue to
be affected by changes in foreign currency exchange rates and government
budgets.
The Company expects a low double digit sales growth rate for EPOGEN(R) in
1998. Although the Company believes that dialysis providers have increased
doses primarily in response to the March HCFA Revisions and due to certain
dialysis providers using hemoglobin measurements instead of hematocrit
measurements (see, "Results of Operations - Product sales - EPOGEN(R) (Epoetin
alfa)"),
21
the timing and magnitude of EPOGEN(R) sales growth due to increases in dose is
difficult to predict principally due to the timing and variety of dialysis
providers' and fiscal intermediaries' reaction to the March HCFA Revisions and
the June HCFA Revisions. The Company believes that increases in the U.S.
dialysis patient population and dose will continue to grow EPOGEN(R) sales in
the near term. 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. The previously disclosed report of the Office of the Inspector
General has been issued, recommending a 10% reduction in the Medicare
reimbursement rate for EPOGEN(R). The Company believes the recommendation would
primarily affect dialysis providers and that it is difficult to predict the
impact on Amgen.
INFERGEN(R) (Interferon alfacon-1) was launched in October 1997 for the
treatment of chronic hepatitis C virus infection. There are treatments for this
infection against which INFERGEN(R) competes, and the Company cannot predict the
extent to which it will penetrate this market. The Company is presently engaged
in certain litigation related to INFERGEN(R), as described in "Part I, Item 3.
Legal Proceedings - INFERGEN(R) litigation" in the Company's Annual Report on
Form 10-K for the year ended December 31, 1997.
The Company anticipates total product sales growth in 1998 that is at, or
close to, a double digit growth rate. Cost of sales as a percentage of product
sales for 1998 is expected to be slightly higher than 1997. Research and
development expenses in the second half of 1998 are expected to increase due in
part to heavier spending on clinical trials and potential new licensing
activities; for 1998, research and development expenses are expected to be
approximately $650 million. In 1998, marketing and selling expenses combined
with general and administrative expenses are expected to have little growth.
Without giving effect to the 1997 legal assessment, earnings per share in 1998
is expected to grow at a low double digit rate. Estimates of future product
sales, operating expenses, and earnings per share are necessarily speculative in
nature and are difficult to predict with accuracy.
Except for the historical information contained herein, the matters
discussed herein are by their nature forward-looking. 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 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) reimbursement
for Amgen's products by governments and private
22
payors; (iv) health care guidelines relating to Amgen's products; (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 the sections
appearing in "Item 1. Business - Factors That May Affect the Company" in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997, which
sections are incorporated herein by reference and filed as exhibit 99 hereto.
Legal Matters
The Company is engaged in arbitration proceedings with one of its licensees
and various other legal proceedings. For a discussion of these matters, see
Note 4 to the Consolidated Financial Statements.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is engaged in arbitration proceedings with one of its
licensees. For a complete discussion of these matters see Note 4 to the
Condensed Consolidated Financial Statements, "Contingencies". Other legal
proceedings are also reported in the Company's Form 10-K for the year ended
December 31, 1997, with material developments since that report described in
the Company's Form 10-Q for the quarter ended March 31, 1998, 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, except with respect to the Securities Litigation, which the Company has
not evaluated.
Securities Litigation
On August 7, 1998, August 10, 1998 and August 13, 1998, press releases were
issued announcing that securities class action lawsuits had been filed against
Amgen and certain of its officers. According to the press releases, the
complaints allege that Amgen and several of its senior executives issued false
and misleading statements between January 23, 1997 and August 11, 1997 (the
"Class Period") regarding: (i) the demand for and sales growth of Amgen's two
products, EPOGEN(R) and NEUPOGEN(R); (ii) an arbitration proceeding between
Amgen and Johnson & Johnson regarding entitlement to millions of dollars in
"spillover" sales of EPOGEN(R); and (iii) Amgen's 1996 fourth quarter and 1997
first and second quarter results. The press releases further state that
plaintiffs seek to recover damages on behalf of all purchasers of Amgen common
stock during the Class Period.
On August 13, 1998, the Company was served in this matter and has not
reviewed the complaints.
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 (the "'642 Patent") and U.S. Patent No. 5,401,658 (the "'658 Patent"),
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. On October 22,
1997, Amgen moved for summary judgment of invalidity of the certain claims of
the '702 and '658 Patents based on prior public uses of the claimed subject
matter. Amgen concurrently moved for a partial interpretation of the claims at
issue. In addition, on October 24, 1997, Amgen filed a motion for summary
judgment of invalidity of particular claims of the patents-in-suit based on
abandonment of the invention. Amgen also concurrently filed a motion to dismiss
the lawsuit in its entirety based on Biogen's lack of standing to bring the
lawsuit in view of Biogen's lack of ownership of the patents-in-suit. Both
parties have submitted claim construction briefs with the court. On January 15,
1998, Amgen filed a second motion to dismiss for lack of subject matter
jurisdiction and standing in view of Biogen's lack of necessary ownership rights
in the patents-in-suit. In an August 6, 1998 ruling on a previously-held claim
construction hearing, the court issued an order that essentially limits the
Biogen patent claims to a single particular type of vector. The judge ruled
that, to be covered by claim 1 of the '702 patent (the claim that forms the crux
of the asserted claims), a plasmid vector must contain the entire DNA sequence
as represented in a specific Figure (Figure 6) of the '702 patent, as well as at
least one endonuclease recognition site inserted at the converted HaeIII site at
73.1% of bacteriophage lambda or at another site downstream of HaeIII, said
endonuclease recognition site being within 300 base pairs of the HincII site
at -33, and prior to any sequences of lambda DNA downstream of the HaeIII site.
Discovery in the case is substantially completed. A trial date has not been set.
In a separate matter, on July 30, 1997, Biogen filed a complaint in the
United States District Court for the District of Massachusetts in Boston
alleging that Amgen infringes claims 9 and 17 of the '702 Patent, and the '642
Patent and '658 Patent by making and using the claimed subject matter in the
United States in the manufacture of INFERGEN(R), the Company's consensus
interferon product. On September 17, 1997, Amgen responded to the Complaint by
filing a motion to dismiss the case in its entirety due to Biogen's lack of
ownership of the patents-in-suit. Amgen also filed a motion for summary judgment
of patent invalidity of particular claims of the patents-in-suit due to
abandonment of the invention. The Court has ordered the Company to file an
answer to Biogen's complaint but has stayed all discovery in this matter until
certain discovery in the NEUPOGEN(R) matter described above is completed. The
Company has filed a motion to dismiss the complaint on the grounds that the
Court lacks jurisdiction over the matter as Biogen lacks the necessary ownership
rights to afford it standing. A trial date has not been set.
FoxMeyer Health Corporation
On January 10, 1997, FoxMeyer Health Corporation, now known as Avatex
Corporation ("Avatex"), filed suit (the "FoxMeyer Lawsuit") in the District
Court of Dallas County, Dallas, Texas, alleging that defendant McKesson
Corporation ("McKesson") defrauded Avatex, misused confidential information
received from Avatex about subsidiaries of Avatex (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 Avatex to refrain from seeking other suitable purchasers for the
FoxMeyer Subsidiaries and (ii) causing Avatex to believe that McKesson was
serious about purchasing Avatex's assets at fair value, when, in fact, McKesson
was not. The Manufacturer Defendants and McKesson are also alleged to have
intentionally and tortiously interfered with a
23
number of business expectancies and opportunities. The complaint seeks from the
Manufacturer Defendants and McKesson compensatory damages of at least $400
million and punitive damages in an unspecified amount, as well as Avatex's costs
and attorney's fees. The Company has filed an answer denying Avatex's
allegations. The matter has been transferred to the Federal Bankruptcy Court in
Dallas, Texas (the "Texas Bankruptcy Court"). McKesson and the Manufacturer
Defendants have intervened in an action brought by the Chapter 7 trustee in the
Federal Bankruptcy Court in Delaware (the "Delaware Bankruptcy Court") that
seeks to enjoin the FoxMeyer Lawsuit and have moved for partial summary judgment
in that proceeding, asserting that Avatex is not the owner of the alleged causes
of action. On November 3, 1997, McKesson and the Manufacturer Defendants moved
for summary judgment in the Delaware Bankruptcy Court to preclude Avatex and the
Chapter 7 trustee from litigating in Delaware the claims brought in the Texas
Bankruptcy Court. On June 23, 1998, the interim judge in the Delaware Bankruptcy
Court heard oral argument on the motion of McKesson, the Manufacturer
Defendants, and the Chapter 7 trustee for an order finding that Avatex is not
the holder of any of the claims asserted in its complaint. At that oral
argument, Avatex voluntarily dismissed without prejudice all of the anti-trust
claims contained in the original complaint. The matter is currently under
advisement. To date, no discovery has occurred in either the Texas Bankruptcy
Court adversary proceedings or the Delaware Bankruptcy Court adversary
proceedings.
Johnson & Johnson arbitrations
The Company is engaged in arbitration proceedings with one of its
licensees. See Note 4 to the Consolidated Financial Statements, "Contingencies
- - Johnson & Johnson arbitrations".
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company held its Annual Meeting of Stockholders on May 7, 1998.
(b) Omitted pursuant to Instruction 3 to Item 4 of Form 10-Q.
(c) The two matters voted upon at the meeting were to elect two directors
to hold office until the Annual Meeting of Stockholders in the year
2001 and to ratify the selection of Ernst & Young LLP as the
independent auditors of the Company for the year ending December 31,
1998.
(i) The following votes were cast for or were withheld with respect
to each of the nominees for director: Mr. Steven Lazarus:
210,416,924 votes for and 2,363,696 votes withheld; and Dr.
Gilbert S. Omenn: 210,481,718 votes for and 2,298,902 votes
withheld. All nominees were declared to have been elected as
directors to hold office until the Annual Meeting of Stockholders
in the year 2001. No abstentions or broker non-votes were cast
for the election of directors.
24
(ii) With respect to the proposal to ratify the selection of Ernst &
Young LLP as the Company's independent auditors, 211,523,704
votes were cast for the proposal, 639,674 votes were cast against
the proposal and 617,242 votes abstained. No broker non-votes
were cast in connection with the proposal. The selection of
Ernst & Young LLP as the Company's independent auditors for the
year ending December 31, 1998 was declared to have been ratified.
(d) Not applicable.
Item 5. Other Information
The Company's 1999 Annual Meeting of Stockholders (the "Annual Meeting")
will be held on May 6, 1999.
In June 1998 the Securities and Exchange Commission adopted revisions to
the proxy rules promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), in particular, Rules 14a-4, 14a-5 and 14a-8,
relating to stockholder proposals. Stockholders interested in presenting a
proposal for consideration at the Company's Annual Meeting may do so by
following the procedures prescribed in Rule 14a-8 of the Exchange Act and the
Company's Amended and Restated Bylaws (the "Bylaws"). The Company's Bylaws
provide that stockholders desiring to nominate persons for election to the Board
of Directors or to bring any other business before the stockholders at the
Annual Meeting must notify the Secretary of the Company thereof in writing and
such notice must be delivered to or received by the Secretary no later than 90
days prior to the Annual Meeting, or, no later than February 5, 1999. The
Bylaws also contain other requirements as to the contents of such notice which
are discussed in the Company's 1998 proxy statement and in the Bylaws, a copy of
which are filed as an exhibit to this Form 10-Q. Additionally, to be eligible
for inclusion in the Company's 1999 proxy statement, stockholder proposals must
be received by the Company's Secretary no later than December 4, 1998. While
the Board of Directors will consider stockholder proposals, the Company however
reserves the right to omit from the 1999 proxy statement stockholder proposals
that it is not required to include under the Exchange Act, including Rule 14a-8
thereunder.
25
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
26
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: 8/12/98 By:/s/Kathryn E. Falberg
- ---------------- --------------------------------------
Kathryn E. Falberg
Vice President, Finance,
Chief Financial Officer and
Chief Accounting Officer
27
AMGEN INC.
INDEX TO EXHIBITS
Exhibit No. Description
3.1 Restated Certificate of Incorporation as amended. (17)
3.2* Amended and Restated Bylaws.
4.1 Indenture dated January 1, 1992 between the Company and Citibank
N.A., as trustee. (8)
4.2 First Supplement to Indenture, dated February 26, 1997 between the
Company and Citibank N.A., as trustee. (14)
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." (16)
4.4 8-1/8% Debentures due April 1, 2097. (16)
4.5 Form of stock certificate for the common stock, par value $.0001 of
the Company. (17)
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". (20)
4.7 6.50% Notes Due December 1, 2007 described in Exhibit 4.7. (20)
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. (23)
10.1 Company's Amended and Restated 1991 Equity Incentive Plan. (21)
10.2 Company's Amended and Restated 1984 Stock Option Plan. (12)
10.3 Shareholder's Agreement of Kirin-Amgen, Inc., dated May 11, 1984,
between the Company and Kirin Brewery Company, Limited (with certain
confidential information deleted therefrom). (1)
10.4 Amendment Nos. 1, 2, and 3, dated March 19, 1985, July 29, 1985 and
December 19, 1985, respectively, to the Shareholder's Agreement of
Kirin-Amgen, Inc., dated May 11, 1984 (with certain confidential
information deleted therefrom). (3)
10.5 Product License Agreement, dated September 30, 1985, and Technology
License Agreement, dated, September 30, 1985 between the Company and
Ortho Pharmaceutical Corporation (with certain confidential
information deleted therefrom). (2)
10.6 Product License Agreement, dated September 30, 1985, and Technology
License Agreement, dated September 30, 1985 between Kirin-Amgen,
Inc. and Ortho Pharmaceutical
28
Corporation (with certain confidential information deleted
therefrom). (3)
10.7 Company's Amended and Restated Employee Stock Purchase Plan. (12)
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 1988 Stock Option Plan. (12)
10.14 Company's Amended and Restated Retirement and Savings Plan. (12)
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. (6)
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).
(7)
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. (9)
10.18 Amgen Inc. Supplemental Retirement Plan (As Amended and Restated
Effective January 1, 1998). (23)
10.19 Promissory Note of Mr. Kevin W. Sharer, dated June 4, 1993. (10)
10.20 Amgen Performance Based Management Incentive Plan. (15)
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.
10.22 Promissory Note of Mr. George A. Vandeman, dated December 15, 1995.
(11)
10.23 Promissory Note of Mr. George A. Vandeman, dated December 15, 1995.
(11)
10.24 Promissory Note of Mr. Stan Benson, dated March 19, 1996. (11)
10.25 Amendment No. 1 to the Company's Amended and Restated Retirement and
Savings Plan. (12)
29
10.26 Amendment Number 5 to the Company's Amended and Restated Retirement
and Savings Plan dated January 1, 1993. (15)
10.27 Amendment Number 2 to the Company's Amended and Restated Retirement
and Savings Plan dated April 1, 1996. (15)
10.28 Fourth Amendment to Rights Agreement, dated February 18, 1997
between Amgen Inc. and American Stock Transfer and Trust Company,
Rights Agent. (13)
10.29 Preferred Share Rights Agreement, dated February 18, 1997, between
Amgen Inc. and American Stock Transfer and Trust Company, Rights
Agent. (13)
10.30 Consulting Agreement, dated November 15, 1996, between the Company
and Daniel Vapnek. (15)
10.31 Agreement, dated May 30, 1995, between the Company and George A.
Vandeman. (15)
10.32 First Amendment, effective January 1, 1998, to the Company's Amended
and Restated Employee Stock Purchase Plan. (18)
10.33 Third Amendment, effective January 1, 1997, to the Company's Amended
and Restated Retirement and Savings Plan dated April 1, 1996. (18)
10.34 Heads of Agreement dated April 10, 1997, between the Company and
Kirin Amgen, Inc., on the one hand, and F. Hoffmann-La Roche Ltd, on
the other hand (with certain confidential information deleted
therefrom). (18)
10.35 Binding Term Sheet, dated August 20, 1997, between Guilford
Pharmaceuticals Inc. ("Guilford") and GPI NIL Holdings, Inc., and
Amgen Inc. (with certain confidential information deleted
therefrom). (19)
10.36 Promissory Note of Ms. Kathryn E. Falberg, dated April 7, 1995. (21)
10.37 Promissory Note of Mr. Edward F. Garnett, dated July 18, 1997. (21)
10.38 Fourth Amendment to the Company's Amended and Restated Retirement
and Savings Plan as amended and restated effective April 1, 1996.
(21)
10.39 Fifth Amendment to the Company's Amended and Restated Retirement and
Savings Plan as amended and restated effective April 1, 1996. (21)
10.40 Company's Amended and Restated 1987 Directors' Stock Option Plan.
(15)
10.41 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). (23)
10.42 Collaboration and License Agreement, dated December 15, 1997,
between the Company, GPI NIL Holdings, Inc. and Guilford
Pharmaceuticals Inc. ("Guilford") (with certain confidential
information deleted therefrom). (22)
27* Financial Data Schedule.
99* Sections appearing under the heading "Business - Factors That May
the Affect Company" in the Company's Annual Report on Form 10-K for
the year ended December 31, 1997.
- ----------------
* Filed herewith.
30
(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 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.
(8) Filed as an exhibit to Form S-3 Registration Statement dated December 19,
1991 and incorporated herein by reference.
(9) Filed as an exhibit to the Form 8-A dated March 31, 1993 and incorporated
herein by reference.
(10) 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.
(11) 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.
(12) 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.
(13) Filed as an exhibit to the Form 8-K Current Report dated February 18, 1997
on February 28, 1997 and incorporated herein by reference.
(14) Filed as an exhibit to the Form 8-K Current Report dated March 14, 1997 on
March 14, 1997 and incorporated herein by reference.
(15) 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.
(16) Filed as an exhibit to the Form 8-K Current Report dated April 8, 1997 on
April 8, 1997 and incorporated herein by reference.
(17) 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.
(18) 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.
(19) Filed as exhibit 10.47 to the Guilford Form 8-K Current Report dated August
20, 1997 on September 4, 1997 and incorporated herein by reference.
(20) Filed as an exhibit to the Form 8-K Current Report dated and filed on
December 5, 1997 and incorporated herein by reference.
31
(21) Filed as an exhibit to the Annual Report on Form 10-K for the year ended
December 31, 1997 on March 24, 1998 and incorporated herein by reference.
(22) Filed as Exhibit 10.40 to the Guilford Form 10-K for the year ended
December 31, 1997 and incorporated herein by reference.
(23) 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.
32