We consent to the incorporation by reference in the following Registration Statements:
Registration Statement (Form S-8 No. 333-159377) pertaining to the Amgen Inc. 2009 Equity Incentive Plan;Plan,
Registration Statement (Form S-8 No. 33-39183) pertaining to the Amended and Restated Employee Stock Purchase Plan;Plan,
Registration Statements (Form S-8 Nos. 33-47605, 333-144580 and 333-216715) pertaining to the Retirement and Savings Plan for Amgen Manufacturing, Limited (formerly known as the Retirement and Savings Plan for Amgen Manufacturing, Inc.);,
Registration Statements (Form S-8 Nos. 333-81284, 333-177868 and 333-216723) pertaining to the Amgen Nonqualified Deferred Compensation Plan;Plan, and
Registration Statement (Form S-8 No. 333-176240) pertaining to the Amgen Profit Sharing Plan for Employees in Ireland;
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints David W. Meline,Peter H. Griffith, his or her attorney-in-fact, with the power of substitution, for him or her in any and all capacities, to sign any amendments to this Report, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming that said attorney-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
|
| | | | |
Signature | | Title | | Date |
| | | | |
/S/ ROBERT A. BRADWAY | | Chairman of the Board, Chief Executive Officer
and President, and Director
(Principal Executive Officer) | | 2/13/201812/2020 |
Robert A. Bradway | | | |
| | | | |
/S/ DAVID W. MELINEPETER H. GRIFFITH | | Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) | | 2/13/201812/2020 |
David W. MelinePeter H. Griffith | | | |
| | | | |
/S/ WANDA M. AUSTIN | | Director | | 2/13/201812/2020 |
Wanda M. Austin | | | | |
| | | | |
/S/ DAVID BALTIMOREBRIAN J. DRUKER | | Director | | 2/13/201812/2020 |
David Baltimore | | | | |
| | | | |
/S/ FRANÇOIS DE CARBONNEL | | Director | | 2/13/2018 |
François de CarbonnelBrian J. Druker | | | | |
| | | | |
/S/ ROBERT A. ECKERT | | Director | | 2/13/201812/2020 |
Robert A. Eckert | | | | |
| | | | |
/S/ GREG C. GARLAND | | Director | | 2/13/201812/2020 |
Greg C. Garland | | | | |
| | | | |
/S/ FRED HASSAN | | Director | | 2/13/201812/2020 |
Fred Hassan | | | | |
| | | | |
/S/ REBECCA M. HENDERSON | | Director | | 2/13/201812/2020 |
Rebecca M. Henderson | | | | |
| | | | |
/S/ FRANK C. HERRINGER | | Director | | 2/13/2018 |
Frank C. Herringer | | | | |
| | | | |
/S/ CHARLES M. HOLLEY, JR. | | Director | | 2/13/201812/2020 |
Charles M. Holley, Jr. | | | | |
| | | | |
/S/ TYLER JACKS | | Director | | 2/13/201812/2020 |
Tyler Jacks | | | | |
| | | | |
/S/ ELLEN J. KULLMAN | | Director | | 2/13/201812/2020 |
Ellen J. Kullman | | | | |
| | | | |
/S/ RONALD D. SUGAR | | Director | | 2/13/201812/2020 |
Ronald D. Sugar | | | | |
| | | | |
/S/ R. SANDERS WILLIAMS | | Director | | 2/13/201812/2020 |
R. Sanders Williams | | | | |
Report of Independent Registered Public Accounting Firm
TheTo the Board of Directors and Stockholders of Amgen Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Amgen Inc. (the Company) as of December 31, 20172019 and 2016,2018, the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2017,2019, and the related notes and the financial statement schedule listed in the Index at Item 15(a)2 (collectively referred to as the “financial“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company at December 31, 20172019 and 2016,2018, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2019, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company'sCompany’s internal control over financial reporting as of December 31, 2017,2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 13, 201812, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLPCritical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
|
| |
| Sales deductions |
| |
Description of the Matter | As of December 31, 2019, the Company recorded accrued sales deductions of $3.9 billion. As described in Note 1 to the financial statements under the caption “Product sales and sales deductions,” revenues from product sales are recognized net of accruals for estimated rebates, wholesaler chargebacks, discounts and other deductions, (collectively sales deductions), which are established at the time of sale.
Auditing the estimation of sales deductions, which are netted against product sales, is complex, requires significant judgment, and the amounts involved are material to the financial statements taken as a whole. Revenue from product sales is recognized upon transfer of control of a product to a customer, generally upon delivery, and is based on an amount that reflects the consideration to which the Company expects to be entitled, which represents an amount that is net of accruals for estimated sales deductions. The estimated sales deductions are based on current contractual and statutory requirements, market events and trends, internal and external historical data, and forecasted customer buying patterns.
|
How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the sales deduction processes. This included testing controls over management’s review of significant assumptions and inputs used in the estimate of sales deductions, including actual sales, contractual terms, historical experience, wholesaler inventory levels, demand data and estimated patient population. We also tested management’s controls over the accuracy of forecasting demand activity as well as the completeness and accuracy of all other components included in the final sales deduction estimates.
To test management’s estimated sales deductions, we obtained management’s calculations for the respective estimates and performed the following procedures, among others. We tested management’s estimation process over the determination of sales discount accruals by developing an independent expectation of the estimated accrual rate, including a comparison of rates used in management’s forecast to rates in the underlying contracts, performing a lookback analysis using actual historical data to evaluate the forecasted amounts, assessing subsequent events to determine whether there was any new information that would require adjustment to the initial accruals, evaluating trends in actual sales and discount accrual balances, comparing cash receipts to product sales, confirming terms and conditions for a sample of contracts with the Company’s customers, testing a sample of credits issued and payments made throughout the year, and agreeing rates to underlying contract terms. |
|
| |
| Unrecognized Tax Benefits |
| |
Description of the Matter | As discussed in Notes 1 and 6 to the consolidated financial statements, the Company operates in various jurisdictions in which differing interpretations of complex tax laws and regulations create uncertainty and necessitate the use of significant judgment in the determination of the Company’s unrecognized tax benefits related to allocation of profits among various jurisdictions (“transfer pricing”), particularly in the U.S. federal tax jurisdiction where the Company has significant assets and operations. In this regard, the Company uses significant judgment in (1) determining whether a tax position’s technical merits are more-likely-than-not to be sustained and (2) measuring the amount of tax benefit that qualifies for recognition. As of December 31, 2019, the Company accrued $3.3 billion of gross unrecognized tax benefits including transfer pricing. Auditing the assessment of the technical merits and measurement of the Company’s unrecognized tax benefits is challenging because they can be complex, highly judgmental, and based on interpretations of tax laws and regulations.
|
How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the Company’s process to assess the technical merits of its tax positions, as well as management’s process to measure the unrecognized tax benefits of those tax positions, particularly in regard to transfer pricing. This included testing controls over management’s review of the inputs, calculations, assumptions and methods selected to measure the amount of tax benefits that qualify for recognition.
We involved tax and transfer pricing professionals to assist in assessing the technical merits and measurement of certain of the Company’s unrecognized tax benefits. Depending on the nature of the specific tax position and, as applicable, developments with the relevant tax authorities, our procedures included obtaining and reviewing the Company’s correspondence with such tax authorities and evaluating certain third-party advice to support the Company’s evaluations and recorded positions. We used our knowledge of and experience with how the income tax laws and regulations related to transfer pricing are applied by the relevant tax authorities to evaluate the Company’s accounting for its unrecognized tax benefits. We evaluated developments in the applicable regulatory environments to assess potential effects on the Company’s recorded positions. We analyzed the assumptions and data used by the Company when it determined the amount of tax benefits to recognize, including applicable interest and penalties, and we tested the accuracy of those underlying calculations. We have also evaluated the Company’s income tax disclosures included in Note 6 in relation to these matters. |
We have served as the Company’s auditor since 1980.
Los Angeles, California
February 13, 201812, 2020
AMGEN INC.
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 2017, 20162019, 2018 and 20152017
(In millions, except per shareper-share data)
| | | 2017 | | 2016 | | 2015 | 2019 | | 2018 | | 2017 |
Revenues: | | | | | | | | | | |
Product sales | $ | 21,795 |
| | $ | 21,892 |
| | $ | 20,944 |
| $ | 22,204 |
| | $ | 22,533 |
| | $ | 21,795 |
|
Other revenues | 1,054 |
| | 1,099 |
| | 718 |
| 1,158 |
| | 1,214 |
| | 1,054 |
|
Total revenues | 22,849 |
| | 22,991 |
| | 21,662 |
| 23,362 |
| | 23,747 |
| | 22,849 |
|
| | | | | | | | | | |
Operating expenses: | | | | | | | | | | |
Cost of sales | 4,069 |
| | 4,162 |
| | 4,227 |
| 4,356 |
| | 4,101 |
| | 4,069 |
|
Research and development | 3,562 |
| | 3,840 |
| | 4,070 |
| 4,116 |
| | 3,737 |
| | 3,562 |
|
Selling, general and administrative | 4,870 |
| | 5,062 |
| | 4,846 |
| 5,150 |
| | 5,332 |
| | 4,870 |
|
Other | 375 |
| | 133 |
| | 49 |
| 66 |
| | 314 |
| | 375 |
|
Total operating expenses | 12,876 |
| | 13,197 |
| | 13,192 |
| 13,688 |
| | 13,484 |
| | 12,876 |
|
| | | | | | | | | | |
Operating income | 9,973 |
| | 9,794 |
| | 8,470 |
| 9,674 |
| | 10,263 |
| | 9,973 |
|
| | | | | | | | | | |
Interest expense, net | 1,304 |
| | 1,260 |
| | 1,095 |
| 1,289 |
| | 1,392 |
| | 1,304 |
|
Interest and other income, net | 928 |
| | 629 |
| | 603 |
| 753 |
| | 674 |
| | 928 |
|
| | | | | | | | | | |
Income before income taxes | 9,597 |
| | 9,163 |
| | 7,978 |
| 9,138 |
| | 9,545 |
| | 9,597 |
|
| | | | | | | | | | |
Provision for income taxes | 7,618 |
| | 1,441 |
| | 1,039 |
| 1,296 |
| | 1,151 |
| | 7,618 |
|
| | | | | | | | | | |
Net income | $ | 1,979 |
| | $ | 7,722 |
| | $ | 6,939 |
| $ | 7,842 |
| | $ | 8,394 |
| | $ | 1,979 |
|
| | | | | | | | | | |
Earnings per share: | | | | | | | | | | |
Basic | $ | 2.71 |
| | $ | 10.32 |
| | $ | 9.15 |
| $ | 12.96 |
| | $ | 12.70 |
| | $ | 2.71 |
|
Diluted | $ | 2.69 |
| | $ | 10.24 |
| | $ | 9.06 |
| $ | 12.88 |
| | $ | 12.62 |
| | $ | 2.69 |
|
| | | | | | | | | | |
Shares used in the calculation of earnings per share: | | | | | | | | | | |
Basic | 731 |
| | 748 |
| | 758 |
| 605 |
| | 661 |
| | 731 |
|
Diluted | 735 |
| | 754 |
| | 766 |
| 609 |
| | 665 |
| | 735 |
|
See accompanying notes.
AMGEN INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years ended December 31, 2017, 20162019, 2018 and 20152017
(In millions)
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
Net income | $ | 1,979 |
| | $ | 7,722 |
| | $ | 6,939 |
|
Other comprehensive (loss) income, net of reclassification adjustments and taxes: |
|
| |
|
| |
|
|
Foreign currency translation gains (losses) | 81 |
| | (99 | ) | | (247 | ) |
Effective portion of cash flow hedges | (288 | ) | | (15 | ) | | 7 |
|
Net unrealized (losses) gains on available-for-sale securities | (6 | ) | | 122 |
| | (241 | ) |
Other | 5 |
| | 1 |
| | 9 |
|
Other comprehensive (loss) income, net of tax | (208 | ) | | 9 |
| | (472 | ) |
Comprehensive income | $ | 1,771 |
| | $ | 7,731 |
| | $ | 6,467 |
|
|
| | | | | | | | | | | |
| 2019 | | 2018 | | 2017 |
Net income | $ | 7,842 |
| | $ | 8,394 |
| | $ | 1,979 |
|
Other comprehensive income (loss), net of reclassification adjustments and taxes: |
|
| |
|
| |
|
|
(Losses) gains on foreign currency translation | (48 | ) | | (141 | ) | | 81 |
|
(Losses) gains on cash flow hedges | (66 | ) | | 247 |
| | (288 | ) |
Gains (losses) on available-for-sale securities | 360 |
| | (185 | ) | | (6 | ) |
Other (losses) gains | (5 | ) | | (2 | ) | | 5 |
|
Other comprehensive income (loss), net of taxes | 241 |
| | (81 | ) | | (208 | ) |
Comprehensive income | $ | 8,083 |
| | $ | 8,313 |
| | $ | 1,771 |
|
See accompanying notes.
AMGEN INC.
CONSOLIDATED BALANCE SHEETS
December 31, 20172019 and 20162018
(In millions, except per shareper-share data)
| | | 2017 | | 2016 | 2019 | | 2018 |
ASSETS | Current assets: | | | | | | |
Cash and cash equivalents | $ | 3,800 |
| | $ | 3,241 |
| $ | 6,037 |
| | $ | 6,945 |
|
Marketable securities | 37,878 |
| | 34,844 |
| 2,874 |
| | 22,359 |
|
Trade receivables, net | 3,237 |
| | 3,165 |
| 4,057 |
| | 3,580 |
|
Inventories | 2,834 |
| | 2,745 |
| 3,584 |
| | 2,940 |
|
Other current assets | 1,727 |
| | 2,015 |
| 1,888 |
| | 1,794 |
|
Total current assets | 49,476 |
| | 46,010 |
| 18,440 |
| | 37,618 |
|
| | | | | | |
Property, plant and equipment, net | 4,989 |
| | 4,961 |
| 4,928 |
| | 4,958 |
|
Intangible assets, net | 8,609 |
| | 10,279 |
| 19,413 |
| | 7,443 |
|
Goodwill | 14,761 |
| | 14,751 |
| 14,703 |
| | 14,699 |
|
Other assets | 2,119 |
| | 1,625 |
| 2,223 |
| | 1,698 |
|
Total assets | $ | 79,954 |
| | $ | 77,626 |
| $ | 59,707 |
| | $ | 66,416 |
|
| | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | Current liabilities: | | | | | | |
Accounts payable | $ | 1,352 |
| | $ | 917 |
| $ | 1,371 |
| | $ | 1,207 |
|
Accrued liabilities | 6,516 |
| | 5,884 |
| 8,511 |
| | 7,862 |
|
Short-term borrowings and current portion of long-term debt | 1,152 |
| | 4,403 |
| |
Current portion of long-term debt | | 2,953 |
| | 4,419 |
|
Total current liabilities | 9,020 |
| | 11,204 |
| 12,835 |
| | 13,488 |
|
| | | | | | |
Long-term debt | 34,190 |
| | 30,193 |
| 26,950 |
| | 29,510 |
|
Long-term deferred tax liabilities | 1,166 |
| | 2,436 |
| 606 |
| | 864 |
|
Long-term tax liabilities | 9,099 |
| | 2,419 |
| 8,037 |
| | 8,770 |
|
Other noncurrent liabilities | 1,238 |
| | 1,499 |
| 1,606 |
| | 1,284 |
|
| | | | | | |
Contingencies and commitments |
|
| |
|
|
|
| |
|
|
| | | | | | |
Stockholders’ equity: | | | | | | |
Common stock and additional paid-in capital; $0.0001 par value per share; 2,750.0 shares authorized; outstanding—722.2 shares in 2017 and 738.2 shares in 2016 | 30,992 |
| | 30,784 |
| |
Common stock and additional paid-in capital; $0.0001 par value per share; 2,750.0 shares authorized; outstanding—591.4 shares in 2019 and 629.6 shares in 2018 | | 31,531 |
| | 31,246 |
|
Accumulated deficit | (5,072 | ) | | (438 | ) | (21,330 | ) | | (17,977 | ) |
Accumulated other comprehensive loss | (679 | ) | | (471 | ) | (528 | ) | | (769 | ) |
Total stockholders’ equity | 25,241 |
| | 29,875 |
| 9,673 |
| | 12,500 |
|
Total liabilities and stockholders’ equity | $ | 79,954 |
| | $ | 77,626 |
| $ | 59,707 |
| | $ | 66,416 |
|
See accompanying notes.
AMGEN INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Years ended December 31, 2017, 20162019, 2018 and 20152017
(In millions)millions, except per-share data)
| | | Number of shares of common stock | | Common stock and additional paid-in capital | | Accumulated deficit | | Accumulated other comprehensive loss | | Total | Number of shares of common stock | | Common stock and additional paid-in capital | | Accumulated deficit | | Accumulated other comprehensive loss | | Total |
Balance at December 31, 2014 | 760.4 |
| | $ | 30,410 |
| | $ | (4,624 | ) | | $ | (8 | ) | | $ | 25,778 |
| |
Balance as of December 31, 2016 | | 738.2 |
| | $ | 30,784 |
| | $ | (438 | ) | | $ | (471 | ) | | $ | 29,875 |
|
Net income | — |
| | — |
| | 6,939 |
| | — |
| | 6,939 |
| — |
| | — |
| | 1,979 |
| | — |
| | 1,979 |
|
Other comprehensive loss, net of tax | — |
| | — |
| | — |
| | (472 | ) | | (472 | ) | |
Dividends | — |
| | — |
| | (2,548 | ) | | — |
| | (2,548 | ) | |
Other comprehensive loss, net of taxes | | — |
| | — |
| | — |
| | (208 | ) | | (208 | ) |
Dividends declared on common stock ($4.77 per share) | | — |
| | — |
| | (3,487 | ) | | — |
| | (3,487 | ) |
Issuance of common stock in connection with the Company’s equity award programs | 5.6 |
| | 82 |
| | — |
| | — |
| | 82 |
| 2.5 |
| | 52 |
| | — |
| | — |
| | 52 |
|
Stock-based compensation expense | — |
| | 319 |
| | — |
| | — |
| | 319 |
| — |
| | 347 |
| | — |
| | — |
| | 347 |
|
Tax impact related to employee stock-based compensation expense | — |
| | (162 | ) | | — |
| | — |
| | (162 | ) | — |
| | (191 | ) | | — |
| | — |
| | (191 | ) |
Repurchases of common stock | (12.0 | ) | | — |
| | (1,853 | ) | | — |
| | (1,853 | ) | (18.5 | ) | | — |
| | (3,126 | ) | | — |
| | (3,126 | ) |
Balance at December 31, 2015 | 754.0 |
| | 30,649 |
| | (2,086 | ) | | (480 | ) | | 28,083 |
| |
Balance as of December 31, 2017 | | 722.2 |
| | 30,992 |
| | (5,072 | ) | | (679 | ) | | 25,241 |
|
Cumulative effect of changes in accounting principles, net of taxes | | — |
| | — |
| | 38 |
| | (9 | ) | | 29 |
|
Net income | — |
| | — |
| | 7,722 |
| | — |
| | 7,722 |
| — |
| | — |
| | 8,394 |
| | — |
| | 8,394 |
|
Other comprehensive income, net of tax | — |
| | — |
| | — |
| | 9 |
| | 9 |
| |
Dividends | — |
| | — |
| | (3,120 | ) | | — |
| | (3,120 | ) | |
Other comprehensive loss, net of taxes | | — |
| | — |
| | — |
| | (81 | ) | | (81 | ) |
Dividends declared on common stock ($5.41 per share) | | — |
| | — |
| | (3,482 | ) | | — |
| | (3,482 | ) |
Issuance of common stock in connection with the Company’s equity award programs | 3.9 |
| | 55 |
| | — |
| | — |
| | 55 |
| 1.9 |
| | 56 |
| | — |
| | — |
| | 56 |
|
Stock-based compensation expense | — |
| | 342 |
| | — |
| | — |
| | 342 |
| — |
| | 327 |
| | — |
| | — |
| | 327 |
|
Tax impact related to employee stock-based compensation expense | — |
| | (262 | ) | | 73 |
| | — |
| | (189 | ) | — |
| | (129 | ) | | — |
| | — |
| | (129 | ) |
Repurchases of common stock | (19.7 | ) | | — |
| | (3,027 | ) | | — |
| | (3,027 | ) | (94.5 | ) | | — |
| | (17,855 | ) | | — |
| | (17,855 | ) |
Balance at December 31, 2016 | 738.2 |
| | 30,784 |
| | (438 | ) | | (471 | ) | | 29,875 |
| |
Balance as of December 31, 2018 | | 629.6 |
| | 31,246 |
| | (17,977 | ) | | (769 | ) | | 12,500 |
|
Net income | — |
| | — |
| | 1,979 |
| | — |
| | 1,979 |
| — |
| | — |
| | 7,842 |
| | — |
| | 7,842 |
|
Other comprehensive loss, net of tax | — |
| | — |
| | — |
| | (208 | ) | | (208 | ) | |
Dividends | — |
| | — |
| | (3,487 | ) | | — |
| | (3,487 | ) | |
Other comprehensive income, net of taxes | | — |
| | — |
| | — |
| | 241 |
| | 241 |
|
Dividends declared on common stock ($5.95 per share) | | — |
| | — |
| | (3,555 | ) | | — |
| | (3,555 | ) |
Issuance of common stock in connection with the Company’s equity award programs | 2.5 |
| | 52 |
| | — |
| | — |
| | 52 |
| 2.0 |
| | 97 |
| | — |
| | — |
| | 97 |
|
Stock-based compensation expense | — |
| | 347 |
| | — |
| | — |
| | 347 |
| — |
| | 323 |
| | — |
| | — |
| | 323 |
|
Tax impact related to employee stock-based compensation expense | — |
| | (191 | ) | | — |
| | — |
| | (191 | ) | — |
| | (135 | ) | | — |
| | — |
| | (135 | ) |
Repurchases of common stock | (18.5 | ) | | — |
| | (3,126 | ) | | — |
| | (3,126 | ) | (40.2 | ) | | — |
| | (7,640 | ) | | — |
| | (7,640 | ) |
Balance at December 31, 2017 | 722.2 |
| | $ | 30,992 |
| | $ | (5,072 | ) | | $ | (679 | ) | | $ | 25,241 |
| |
Balance as of December 31, 2019 | | 591.4 |
| | $ | 31,531 |
| | $ | (21,330 | ) | | $ | (528 | ) | | $ | 9,673 |
|
See accompanying notes.
AMGEN INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2017, 20162019, 2018 and 20152017
(In millions)
| | | 2017 | | 2016 | | 2015 | 2019 | | 2018 | | 2017 |
Cash flows from operating activities: | | | | | | | | | | |
Net income | $ | 1,979 |
| | $ | 7,722 |
| | $ | 6,939 |
| $ | 7,842 |
| | $ | 8,394 |
| | $ | 1,979 |
|
Depreciation and amortization | 1,955 |
| | 2,105 |
| | 2,108 |
| |
Depreciation, amortization and other | | 2,206 |
| | 1,946 |
| | 1,955 |
|
Stock-based compensation expense | 329 |
| | 311 |
| | 322 |
| 308 |
| | 311 |
| | 329 |
|
Deferred income taxes | (1,330 | ) | | 183 |
| | (607 | ) | (289 | ) | | (363 | ) | | (1,330 | ) |
Other items, net | 334 |
| | 32 |
| | (146 | ) | (186 | ) | | 386 |
| | 334 |
|
Changes in operating assets and liabilities, net of acquisitions: |
| |
| |
| | | | | |
Trade receivables, net | (58 | ) | | (214 | ) | | (420 | ) | (504 | ) | | (378 | ) | | (58 | ) |
Inventories | 133 |
| | (80 | ) | | 481 |
| (66 | ) | | (3 | ) | | 133 |
|
Other assets | (24 | ) | | (128 | ) | | 155 |
| 10 |
| | 35 |
| | (24 | ) |
Accounts payable | 424 |
| | (44 | ) | | (12 | ) | 164 |
| | (143 | ) | | 424 |
|
Accrued income taxes, net | 523 |
| | (301 | ) | | 509 |
| (585 | ) | | (361 | ) | | 523 |
|
Long-term tax liability | 6,681 |
| | 445 |
| | 409 |
| |
Long-term tax liabilities | | (146 | ) | | 258 |
| | 6,681 |
|
Other liabilities | 231 |
| | 323 |
| | (7 | ) | 396 |
| | 1,214 |
| | 231 |
|
Net cash provided by operating activities | 11,177 |
| | 10,354 |
| | 9,731 |
| 9,150 |
| | 11,296 |
| | 11,177 |
|
Cash flows from investing activities: | | | | | | | | | | |
Purchases of property, plant and equipment | (664 | ) | | (738 | ) | | (594 | ) | |
Cash paid for acquisitions, net of cash acquired | (19 | ) | | — |
| | (359 | ) | |
Purchases of marketable securities | (33,607 | ) | | (28,094 | ) | | (25,977 | ) | (9,394 | ) | | (18,741 | ) | | (33,607 | ) |
Proceeds from sales of marketable securities | 24,240 |
| | 17,958 |
| | 18,029 |
| 8,842 |
| | 28,356 |
| | 24,240 |
|
Proceeds from maturities of marketable securities | 6,174 |
| | 2,459 |
| | 3,527 |
| 20,548 |
| | 5,412 |
| | 6,174 |
|
Proceeds from sales of property, plant and equipment | 11 |
| | 78 |
| | 274 |
| |
Purchases of property, plant and equipment | | (618 | ) | | (738 | ) | | (664 | ) |
Cash paid for acquisitions, net of cash acquired | | (13,617 | ) | | 195 |
| | (19 | ) |
Other | (159 | ) | | (321 | ) | | (447 | ) | (52 | ) | | (145 | ) | | (148 | ) |
Net cash used in investing activities | (4,024 | ) | | (8,658 | ) | | (5,547 | ) | |
Net cash provided by (used in) investing activities | | 5,709 |
| | 14,339 |
| | (4,024 | ) |
Cash flows from financing activities: | | | | | | | | | | |
Net proceeds from issuance of debt | 4,476 |
| | 7,318 |
| | 3,465 |
| — |
| | — |
| | 4,476 |
|
Repayment of debt | (4,405 | ) | | (3,725 | ) | | (2,400 | ) | (4,514 | ) | | (1,121 | ) | | (4,405 | ) |
Repurchases of common stock | (3,160 | ) | | (2,965 | ) | | (1,867 | ) | (7,702 | ) | | (17,794 | ) | | (3,160 | ) |
Dividends paid | (3,365 | ) | | (2,998 | ) | | (2,396 | ) | (3,509 | ) | | (3,507 | ) | | (3,365 | ) |
Settlement of contingent consideration obligations | — |
| | — |
| | (253 | ) | |
Withholding taxes arising from shares withheld for share-based payments | (191 | ) | | (260 | ) | | (401 | ) | (137 | ) | | (126 | ) | | (191 | ) |
Other | 51 |
| | 31 |
| | 81 |
| 95 |
| | 58 |
| | 51 |
|
Net cash used in financing activities | (6,594 | ) | | (2,599 | ) | | (3,771 | ) | (15,767 | ) | | (22,490 | ) | | (6,594 | ) |
Increase (decrease) in cash and cash equivalents | 559 |
| | (903 | ) | | 413 |
| |
(Decrease) increase in cash and cash equivalents | | (908 | ) | | 3,145 |
| | 559 |
|
Cash and cash equivalents at beginning of year | 3,241 |
| | 4,144 |
| | 3,731 |
| 6,945 |
| | 3,800 |
| | 3,241 |
|
Cash and cash equivalents at end of year | $ | 3,800 |
| | $ | 3,241 |
| | $ | 4,144 |
| $ | 6,037 |
| | $ | 6,945 |
| | $ | 3,800 |
|
See accompanying notes.
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 20172019
1. Summary of significant accounting policies
Business
Amgen Inc. (including its subsidiaries, referred to as “Amgen,” “the Company,” “we,” “our” or “us”) is a global biotechnology pioneer that discovers, develops, manufactures and delivers innovative human therapeutics. We operate in one1 business segment: human therapeutics.
Principles of consolidation
The consolidated financial statements include the accounts of Amgen as well as its majority-owned subsidiaries. We do not have any significant interests in any variable interest entities. All material intercompany transactions and balances have been eliminated in consolidation.
Use of estimates
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results may differ from those estimates.
Product salesRevenues
Sales of our products are recognized when shipped and title and risk of loss have passed. Product sales are recordedand sales deductions
Revenue from product sales is recognized upon transfer of control of a product to a customer, generally upon delivery, based on an amount that reflects the consideration to which we expect to be entitled, net of accruals for estimated rebates, wholesaler chargebacks, discounts and other deductions (collectively, sales deductions) and returns. Taxesreturns established at the time of sale.
We analyze the adequacy of our accruals for sales deductions quarterly. Amounts accrued for sales deductions are adjusted when trends or significant events indicate that an adjustment is appropriate. Accruals are also adjusted to reflect actual results. Accruals for sales deductions are based primarily on estimates of the amounts earned or to be claimed on the related sales. These estimates take into consideration current contractual and statutory requirements, specific known market events and trends, internal and external historical data and forecasted customer buying patterns. Sales deductions are substantially product specific and therefore, for any given period, can be affected by the mix of products sold. Included in sales deductions are immaterial net adjustments related to prior-period sales due to changes in estimates. Historically, such amounts have represented less than 1% of the aggregate sales deductions charged against product sales.
Returns are estimated through comparison of historical return data to their related sales on a production lot basis. Historical rates of return are determined for each product and are adjusted for known or expected changes in the marketplace specific to each product, when appropriate. Historically, sales return provisions have amounted to less than 1% of gross product sales. Changes in estimates for prior-period sales return provisions have historically been immaterial.
Our payment terms vary by types and locations of customers and the products or services offered. Payment terms differ by jurisdiction and customer, but payment is generally required in a term ranging from 30 to 120 days from date of shipment or satisfaction of the performance obligation. For certain products or services and certain customer types, we may require payment before products are delivered or services are rendered to customers.
Indirect taxes collected from customers and remitted to government authorities and that are related to the sales of the Company’s products, primarily in Europe, are excluded from revenues.
As a practical expedient, sales commissions are expensed when incurred because the amortization period would have been one year or less. These costs are recorded in Selling, general and administrative expense in the Consolidated Statements of Income.
Other revenues
Other revenues consist primarily of royalty income and corporate partner revenues. Royalties from licensees are based on third-party sales of licensed products and are recorded in accordance with contract terms when the related third-party results are reliably measurable and collectibility is reasonably assured.product sale occurs. Royalty estimates are made in advance of amounts collected usingbased on historical and forecasted sales trends. Corporate partner revenues are composed mainly of license fees and milestones earned and our share of commercial profits generated from collaborations and amounts earned for certain research and development (R&D) services performed for others, including Kirin-Amgen, Inc. (K-A), which are recognized as the R&D services are performed.collaborations. See Multiple-deliverable revenue arrangements,Arrangements with multiple-performance obligations, discussed below, Note 7, Collaborations, and Note 8, Related party transactions.below.
Multiple-deliverable revenue arrangementsArrangements with multiple-performance obligations
From time to time, we enter into arrangements for the R&D,research and development (R&D), manufacture and/or commercialization of products and product candidates. TheseSuch arrangements may require us to deliver various rights, services and/or goods, across the entire life cycle of a product or product candidate, including (i) intellectual property rights/licenses; (ii)licenses, R&D services; (iii)services, manufacturing services;services and/or (iv) commercialization services. The underlying terms of these arrangements generally provide for consideration to Amgen in the form of non-refundablenonrefundable, upfront license payments, R&Dfees; development and commercial performance milestone payments, cost sharingpayments; royalty payments; and/or royalty payments.profit sharing.
In arrangements involving the delivery of more than one element,performance obligation, each required deliverableperformance obligation is evaluated to determine whether it qualifies as a separate unit of accounting. For Amgen, this determination is generallydistinct performance obligation based on whether (i) the deliverable has “stand-alone value” tocustomer can benefit from the customer.good or service either on its own or together with other resources that are readily available and (ii) the good or service is separately identifiable from other promises in the contract. The arrangement’s consideration that is fixed and determinableunder the arrangement is then allocated to each separate unit of accountingdistinct performance obligation based on theits respective relative stand-alone selling price of each deliverable.price. The estimated selling price of each deliverable is determined using the following hierarchy of values: (i) vendor-specific objective evidence of fair value; (ii) third-party evidence of selling price; and (iii) best estimate of selling price (BESP). The BESP reflects our best estimate of what the selling price would be if the deliverable was regularly sold by us on a stand-alone basis. In general, thebasis or by using an adjusted market assessment approach if selling price on a stand-alone basis is not available.
The consideration allocated to each unit of accountingdistinct performance obligation is recognized as revenue when control of the related goods or services are delivered, limited to the consideration that is not contingent upon future deliverables.transferred. Consideration associated with at-risk substantive performance milestones is recognized as revenue upon the achievementwhen it is probable that a significant reversal of the related milestone,cumulative revenue recognized will not occur. We utilize the sales- and usage-based royalty exception in arrangements that resulted from the license of intellectual property, recognizing revenues generated from royalties or profit sharing as defined in the respective contracts.
underlying sales occur.
Research and development costs
R&D costs are expensed as incurred and include primarily salaries, benefits and other staff-related costs; facilities and overhead costs; clinical trial and related clinical manufacturing costs; contract services and other outside costs; information systems’ costscosts; and amortization of acquired technology used in R&D with alternative future uses. R&D expenses also include costs and cost recoveries associated with third-party R&D arrangements, including upfront fees and milestones paid to third parties in connection with technologies whichthat had not reached technological feasibility and did not have an alternative future use. Net payment or reimbursement of R&D costs is recognized when the obligations are incurred or as we become entitled to the cost recovery. See Note 7,8, Collaborations and Note 8, Related party transactions.21, Subsequent events.
Selling, general and administrative costs
Selling, general and administrative (SG&A) costs are composed primarily of salaries, benefits and other staff-related costs associated with sales and marketing, finance, legal and other administrative personnel; facilities and overhead costs; outside marketing, advertising and legal expenses; the U.S. healthcare reform federal excise fee on Branded Prescription Pharmaceutical Manufacturers and Importers; and other general and administrative costs. Advertising costs are expensed as incurred and were $620$789 million, $489$674 million and $346$620 million during the years ended December 31, 2017, 20162019, 2018 and 2015,2017, respectively. SG&A expenses also include costs and cost recoveries associated with marketing and promotion efforts under certain collaborative arrangements. Net payment or reimbursement of SG&A costs is recognized when the obligations are incurred or we become entitled to the cost recovery. See Note 7,8, Collaborations.
Leases
Adoption of new lease standard
In February 2016, the Financial Accounting Standards Board (FASB) issued a new accounting standard that amends the guidance for the accounting and disclosure of leases. This new standard requires that lessees recognize the assets and liabilities that arise from leases on the balance sheet, including leases classified as operating leases, and that they disclose qualitative and quantitative information about leasing arrangements. The FASB subsequently issued additional amendments to address issues arising from the implementation of the new lease standard. We adopted this standard as of January 1, 2019, using the modified-retrospective method, which provides a method for recording existing leases at adoption. We used the adoption date as our date of initial application, and thus, comparative-period financial information is not presented for periods prior to the adoption date.
In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which, among other things, allowed us to carry forward the historical lease classification.
Adoption of the new standard resulted in total lease liabilities of $510 million and right-of-use (ROU) assets of $439 million as of January 1, 2019. The difference between the initial lease liabilities and the ROU assets is related primarily to previously existing lease liabilities. The standard did not materially impact our Consolidated Statements of Income and had no impact on our Consolidated Statements of Cash Flows. Our accounting policies under the new standard are described below. See Note 13, Leases.
Lease recognition
At inception of a contract, we determine whether an arrangement is or contains a lease. For all leases, we determine the classification as either operating or financing. Operating leases are included in Other assets, Accrued liabilities and Other noncurrent liabilities in our Consolidated Balance Sheets.
ROU assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments under the lease. Lease recognition occurs at the commencement date, and lease liability amounts are based on the present value of lease payments made during the lease term. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Because most of our leases do not provide information to determine an implicit interest rate, we use our incremental borrowing rate in determining the present value of lease payments. ROU assets also include any lease payments made prior to the commencement date and exclude lease incentives received. Operating lease expense is recognized on a straight-line basis over the lease term.
We have lease agreements with both lease and nonlease components, which are generally accounted for together as a single lease component. In addition, for certain vehicle and equipment leases, we apply a portfolio approach to determine the lease term and discount rate.
Stock-based compensation
We have stock-based compensation plans under which various types of equity-based awards are granted, including restricted stock units (RSUs), performance units and stock options. The fair values of RSUs and stock option awards, which are subject only to service conditions with graded vesting, are recognized as compensation expense, generally on a straight-line basis over the service period, net of estimated forfeitures. The fair values of performance unit awards are recognized as compensation expense, generally on a straight-line basis from the grant date to the end of the performance period. See Note 4, Stock-based compensation.
Income taxes
We provide for income taxes based on pretax income and applicable tax rates available in the various jurisdictions in which we operate. Significant judgment is required in determining our provision for income taxes and income tax assets and liabilities, including evaluating uncertainties in the application of accounting principles and complex tax laws. Deferred income taxes are recorded for the expected tax consequences of temporary differences between the bases of assets and liabilities, as well as for loss and tax credit carryforwards for financial reporting purposes and amounts recognized for income tax purposes. We record a valuation allowance to reduce our deferred tax assets to the amount of future tax benefit that is more likely than not to be realized.
We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxingtax authorities based on the technical merits of the position. The tax benefit recognized in the consolidated financial statements for a particular tax position is based on the largest benefit that is more likely than not to be realized. The amount of unrecognized tax benefits (UTBs) is adjusted as appropriate for changes in facts and circumstances, such as significant amendments to existing tax law, new regulations or interpretations by the taxingtax authorities, new information obtained during a tax examination or resolution of an examination. We recognize both accrued interest and penalties, where appropriate, related to UTBs in income tax expense.
On December 22, 2017, the Securities and Exchange Commission (SEC) staff issued Staff Accounting Bulletin No. 118 (SAB 118) to address the accounting implications of the U.S. federal tax reform enacted on December 22, 2017. SAB 118 allows a company to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. See Note 5,6, Income taxes.
Business combinationsAcquisitions
We first determine whether a set of assets acquired constitute a business and should be accounted for as a business combination. If the assets acquired are not a business, we account for the transaction as an asset acquisition. Business combinations are accounted for by using the acquisition method of accounting. Under the acquisition method, assets acquired, including in-process research and development (IPR&D) projects, and liabilities assumed are recorded at their respective fair values as of the acquisition date in our consolidated financial statements. The excess of the fair value of consideration transferred over the fair value of the net assets acquired is recorded as goodwill. Contingent consideration obligations incurred in connection with a business combination (including the assumption of an acquiree’s liability arising from a business combinationan acquisition it consummated prior to our acquisition) are recorded at their fair values on the acquisition date and remeasured at their fair values each subsequent
reporting period until the related contingencies are resolved. The resulting changes in fair values are recorded in earnings. In contrast, asset acquisitions are accounted for using a cost accumulation and allocation model. Under this model, the cost of the acquisition is allocated to the assets acquired
and liabilities assumed. Contingent consideration obligations incurred in connection with an asset acquisition are recorded when it is probable that they will occur and they can be reasonably estimated. See Note 3, Business combinations,2, Acquisitions, and Note 16,17, Fair value measurement.
Cash equivalents
We consider cash equivalents to be only those investments whichthat are highly liquid, readily convertible to cash and which mature within three months from the date of purchase.
Available-for-sale investmentsInterest-bearing securities
We consider our interest-bearing securities investment portfolio available-for-sale, and accordingly, these investments are recorded at fair value, with unrealized gains and losses generally recorded in Accumulated other comprehensive income (loss) (AOCI). Investments with maturities beyond one year may be classified as short-term marketable securities in the Consolidated Balance Sheets due to their highly liquid nature and because they represent the Company’s investments that are available for current operations. See Note 9, Available-for-sale investments,Investments, and Note 16,17, Fair value measurement.
Inventories
Inventories are stated at the lower of cost or net realizable value. Cost, which includes amounts related to materials, labor and overhead, is determined in a manner that approximates the first-in, first-out method. Net realizable value is the estimated selling price in the ordinary course of business less reasonably predictable costs of completion, disposal and transportation. See Note 10, Inventories.
Derivatives
We recognize all of our derivative instruments as either assets or liabilities at fair value in the Consolidated Balance Sheets. The accounting for changes in the fair value of a derivative instrument depends uponon whether the derivative has been formally designated and qualifies as part of a hedging relationship under the applicable accounting standards and, further, on the type of hedging relationship. For derivatives formally designated as hedges, we assess both at inception and quarterly thereafter whether the hedging derivatives are highly effective in offsetting changes in either the fair value or cash flows of the hedged item. Our derivatives that are not designated and do not qualify as hedges are adjusted to fair value through current earnings. See Note 16,17, Fair value measurement, and Note 17,18, Derivative instruments.
Property, plant and equipment, net
Property, plant and equipment is recorded at historical cost, net of accumulated depreciation, amortization and, if applicable, impairment charges. We review our property, plant and equipment assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Depreciation is provided over the assets’ useful lives on a straight-line basis. Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or lease terms. See Note 11, Property, plant and equipment.
Goodwill and other intangible assets
Finite-lived intangible assets are recorded at cost, net of accumulated amortization, and, if applicable, impairment charges. Amortization of finite-lived intangible assets is provided over their estimated useful lives on a straight-line basis or based on the pattern in which economic benefits are consumed, if reliably determinable. We review our finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. See Note 12, Goodwill and other intangible assets.
The fair values of IPR&D projects acquired in a business combination whichthat are not complete are capitalized and accounted for as indefinite-lived intangible assets until completion or abandonment of the related R&D efforts. Upon successful completion of the project, the capitalized amount is amortized over its estimated useful life. If a project is abandoned, all remaining capitalized amounts are written-offwritten off immediately. There are often major risks and uncertainties associated with IPR&D projects as we are required to obtain regulatory approvals in order to be able to market the resulting products. Such approvals require completing clinical trials that demonstrate a product candidate is safe and effective. Consequently, the eventual realized value of the acquired IPR&D project may vary from its fair value at the date of acquisition, and IPR&D impairment charges may occur in future periods.
Capitalized IPR&D projects are tested for impairment annually and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. We consider various factors for potential impairment, including the current legal and regulatory environment and the competitive landscape. Adverse clinical trial results, significant delays in obtaining marketing
approval, the inability to bring a product to market and the introduction or advancement of competitors’ products could result in partial or full impairment of the related intangible assets.
We perform an impairment test of goodwill annually and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. To date, an impairment of goodwill has not been recorded. See Note 12, Goodwill and other intangible assets.
Contingencies
In the ordinary course of business, we are involved in various legal proceedings, government investigations and other matters such as intellectual property disputes, contractual disputes, governmental investigations and class action suits whichthat are complex in nature and have outcomes that are difficult to predict. Certain of these proceedings are discussed in Note 18,19, Contingencies and commitments. We record accruals for loss contingencies to the extent that we conclude that it is probable that a liability has been incurred and the amount of the related loss can be reasonably estimated. We consider all relevant factors when making assessments regarding these contingencies.evaluate, on a quarterly basis, developments in legal proceedings and other matters that could cause an increase or decrease in the amount of the liability that has been accrued previously.
Foreign currency translation
The net assets of international subsidiaries where thewhose local currencies have been determined to be the functional currencies are translated into U.S. dollars using current exchange rates. The U.S. dollar effects that arise from translating net assets of these subsidiaries at changing rates are recognized in AOCI. The subsidiaries’ earnings of these subsidiaries are translated into U.S. dollars using average exchange rates.
RecentOther recent accounting pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued a new accounting standard that amends the guidance for the recognition of revenue from contracts with customers to transfer goods and services. The FASB has subsequently issued additional, clarifying standards to address issues arising from implementation of the new revenue recognition standard. The new revenue recognition standard and clarifying standards are effective for interim and annual periods beginning on January 1, 2018. The new standards are required to be adopted using either a full-retrospective or a modified-retrospective approach. We will adopt these standards using the modified-retrospective approach beginning in 2018. We have completed our impact assessment and do not anticipate a material impact to Total revenues in our Consolidated Statements of Income, accounting policies, business processes, internal controls or disclosures.
In January 2016, the FASB issued a new accounting standard that amends the accounting and disclosures of financial instruments, including a provision requiring that equity investments (except for investments accounted for under the equity method of accounting) be measured at fair value, with changes in fair value recognized in current earnings. The new standard is effective for interim and annual periods beginning on January 1, 2018. With the exception of equity investments currently being accounted for at cost, adjustments are applied using a modified-retrospective approach by reflecting adjustments through a cumulative-effect impact on retained earnings as of the beginning of the fiscal year of adoption. The new standard will be applied prospectively to investments currently accounted for at cost which had a carrying value of $95 million as of December 31, 2017. Upon adoption, on January 1, 2018, we will record an immaterial adjustment to Retained earnings from AOCI, which represents the net unrealized gain on all equity investments with a readily determinable fair value as of December 31, 2017. The impact that this new standard will have on our Consolidated Statements of Income after adoption will depend on the changes in fair values of equity securities in our portfolio in the future. See Note 9, Available-for-sale investments for the fair value of all equity securities as of December 31, 2017.
In February 2016, the FASB issued a new accounting standard that amends the guidance for the accounting and disclosure of leases. This new standard requires that lessees recognize the assets and liabilities that arise from leases on the balance sheet, including leases classified as operating leases under current GAAP, and disclose qualitative and quantitative information about leasing arrangements. The new standard requires a modified-retrospective approach to adoption and is effective for interim and annual periods beginning on January 1, 2019, but may be adopted earlier. We expect to adopt this standard beginning in 2019. We do not expect that this standard will have a material impact on our Consolidated Statements of Income, but we do expect that upon adoption, this standard will have a material impact on our assets and liabilities on our Consolidated Balance Sheets. The primary effect of adoption will be the requirement to record right-of-use assets and corresponding lease obligations for current operating leases. In addition, the standard will require that we update our systems, processes and controls we use to track, record and account for our lease portfolio. We have selected a lease accounting information system and engaged third-party consultants to provide system implementation services. System readiness, including implementation and functionality of software procured from third-party providers, is essential to enable the preparation of financial information required for this standard.
In June 2016, the FASB issued a new accounting standard that amends the guidance for measuring and recording credit losses on financial assets measured at amortized cost by replacing the “incurred loss”incurred-loss model with an “expected loss”expected-loss model. Accordingly, these financial assets will be presented at the net amount expected to be collected. This new standard also requires that credit losses related to available-for-sale debt securities be recorded as an allowance through net income rather than reducing the carrying amount under the current, other-than-temporary-impairment model. The new standard is effective for interim and annual periods beginning on January 1, 2020, but may be adopted earlier, beginning on January 1, 2019.2020. With certain exceptions, adjustments are to be applied using a modified-retrospective approach by reflecting adjustments through a cumulative-effect impact on retained earnings as of the beginning of the fiscal year of adoption. We are currently evaluating the impact that this new standard will have on our consolidated financial statements.
In October 2016, the FASB issued a new accounting standard that amends the income tax accounting guidance for intra-entity transfers of assets other than inventory. The new standard requires that entities recognize the income tax consequences of an intercompany transfer of an asset, other than inventory, in the period the transfer occurs. The current exception to defer the recognition of any tax impact on intercompany transfers of inventory until the inventory is sold to a third party remains unaffected. The new standard is effective for interim and annual periods beginning on January 1, 2018. The standard will be applied prospectively to any transaction occurring on or after the adoption date. We havesubstantially completed our impact assessment and do not currently anticipate a material impact on our consolidated financial statements.
2. Acquisitions
Otezla® (apremilast)
On November 21, 2019, we acquired worldwide rights to Otezla®, the FASB issued a new accounting standard that changesonly oral, non-biologic treatment for psoriasis and psoriatic arthritis, along with certain related assets and liabilities, from Celgene Corporation (Celgene). Otezla® is used primarily for the definitiontreatment of a business to assist entitiespatients with moderate-to-severe plaque psoriasis for whom phototherapy or systemic therapy is appropriate and is approved in more than 50 markets outside the evaluation of when a set of assets acquired or disposed of should be considered a business.United States, including the European Union and Japan. The new standard requires thatacquisition was accounted for as an entity evaluate whetherasset acquisition under GAAP because substantially all of the fair value of the gross assets acquired iswas concentrated in a single identifiable asset or groupthe global intellectual property rights of similar identifiable assets; if so, the set of assets would not be considered a business. The new standard also requires that a business include at least one substantive process and narrows the definition of outputs. The new standard will be applied prospectively and is effective for interim and annual periods beginning on January 1, 2018. Adoption of this new standard may resultOtezla®. Otezla®’s operations have been included in more transactions being accounted for as asset acquisitions versus business combinations; however, the impact on our consolidated financial statements will dependcommencing on the facts and circumstances of future transactions.
2. Restructuring
In 2014, we initiated a restructuring plan to invest in continuing innovation and the launch of our new pipeline molecules, while improving our cost structure. As part of the plan, we have closed facilities in Washington state and Colorado and are reducing the number of buildings we occupy at our headquarters in Thousand Oaks, California, as well as at other locations.
We estimate that we will incur $825 million to $900 million of pre-tax charges in connection with our restructuring, including: (i) separation and other headcount-related costs of $560 million to $600 million with respect to staff reductions and (ii) asset-related charges of $265 million to $300 million that consist primarily of asset impairments, accelerated depreciation and other related costs resulting from the consolidation of our worldwide facilities. Through December 31, 2017, we have incurred $558 million of separation and other headcount-related costs and $239 million of net asset-related charges. In order to support our ongoing transformation and process improvement efforts, we expect that we will incur most of the remaining costs in 2018.acquisition date.
The charges recorded during the years ended December 31, 2017 and 2016 were not material for all types of activities presented below. The following tables summarize charges recorded related to the restructuring plan by type of activity and the locations recognized within the Consolidated Statements of Income (in millions):
|
| | | | | | | | | | | | | | | | | | | | |
| | Year ended December 31, 2015 |
| | Separation costs | | Asset impairments/ disposals | | Accelerated depreciation | | Other | | Total |
Cost of sales | | $ | — |
| | $ | — |
| | $ | 50 |
| | $ | 2 |
| | $ | 52 |
|
Research and development | | — |
| | — |
| | 36 |
| | 28 |
| | 64 |
|
Selling, general and administrative | | — |
| | — |
| | 14 |
| | 42 |
| | 56 |
|
Other | | 49 |
| | (111 | ) | | — |
| | 4 |
| | (58 | ) |
Total | | $ | 49 |
| | $ | (111 | ) | | $ | 100 |
| | $ | 76 |
| | $ | 114 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | Year ended December 31, 2014 |
| | Separation costs | | Asset impairments | | Accelerated depreciation | | Other | | Total |
Cost of sales | | $ | — |
| | $ | 81 |
| | $ | 23 |
| | $ | — |
| | $ | 104 |
|
Research and development | | — |
| | — |
| | 28 |
| | 21 |
| | 49 |
|
Selling, general and administrative | | — |
| | — |
| | 4 |
| | 5 |
| | 9 |
|
Other | | 377 |
| | 6 |
| | — |
| | 13 |
| | 396 |
|
Total | | $ | 377 |
| | $ | 87 |
| | $ | 55 |
| | $ | 39 |
| | $ | 558 |
|
We recognized asset impairment and accelerated depreciation charges in connection with our decision to exit Boulder and Longmont, Colorado, and Bothell and Seattle, Washington, and in connection with the consolidation of facilities in Thousand Oaks, California. The decision to close these manufacturing and R&D facilities was based principally on optimizing the utilization of our sites in the United States, which includes an expansion of our presence in the key U.S. biotechnology hubs of South San Francisco, California, and Cambridge, Massachusetts. During the year ended December 31, 2015, we recognized gains from the sale of assets related to these site closures.
The following table summarizes the expenses (excluding non-cash charges)consideration transferred and payments relatedthe allocation of the estimated accumulated cost, including tax adjustments, to the restructuring planassets acquired and liabilities assumed (in millions):
|
| | | | |
| | Amounts |
Cash purchase price | | $ | 13,400 |
|
Transaction costs | | 40 |
|
Accumulated cost (consideration transferred) | | $ | 13,440 |
|
| | |
Intangible assets: | |
|
Developed-product-technology rights | | $ | 13,007 |
|
Marketing-related rights | | 195 |
|
Inventory | | 367 |
|
Deferred tax liability, net | | (24 | ) |
Deferred credit | | (96 | ) |
Other liabilities, net | | (9 | ) |
Total assets acquired, net | | $ | 13,440 |
|
|
| | | | | | | | | | | |
| Years ended December 31, |
| Separation costs | | Other | | Total |
Restructuring liabilities as of December 31, 2013 | $ | — |
| | $ | — |
| | $ | — |
|
Expense | 353 |
| | 32 |
| | 385 |
|
Payments | (132 | ) | | (9 | ) | | (141 | ) |
Restructuring liabilities as of December 31, 2014 | 221 |
| | 23 |
| | 244 |
|
Expense | 52 |
| | 80 |
| | 132 |
|
Payments | (178 | ) | | (80 | ) | | (258 | ) |
Restructuring liabilities as of December 31, 2015 | 95 |
| | 23 |
| | 118 |
|
Expense | 6 |
| | 13 |
| | 19 |
|
Payments | (90 | ) | | (27 | ) | | (117 | ) |
Restructuring liabilities as of December 31, 2016 | 11 |
| | 9 |
| | 20 |
|
Expense | 72 |
| | 7 |
| | 79 |
|
Payments | (20 | ) | | $ | (11 | ) | | (31 | ) |
Restructuring liabilities as of December 31, 2017 | $ | 63 |
| | $ | 5 |
| | $ | 68 |
|
Amgen allocated the accumulated cost of the acquisition to the assets acquired based on their relative fair values. The accumulated cost of the acquisition includes direct acquisition-related costs and applicable taxes. Goodwill is not recognized in the accounting for an asset acquisition. Rather, the excess of the accumulated cost over the fair value of the net assets acquired is reallocated to the nonfinancial assets acquired.The developed-product-technology rights acquired relate to Otezla®. The estimated fair value was determined by using a multi-period excess earnings income approach, which is based on the present value of the incremental after-tax cash flows attributable only to the intangible asset. The developed-product-technology rights will be amortized over a weighted-average period of 8.5 years by using the straight-line method.
The estimated fair value of marketing-related rights, which relate to assembled workforce, was determined using a replacement cost approach, which consists of developing an estimate of the current cost of a similar new asset having the nearest equivalent utility to the asset being valued. The assembled workforce will be amortized over a period of 5 years by using the straight-line method.
The estimated fair value of the acquired inventory was determined using the comparative sales method, which uses actual or expected selling prices of inventory as the base amount to which adjustments for selling effort and a profit on the buyer’s effort are applied. Inventory fair value adjustments will be amortized as inventory turns over, which we estimate to approximate 2.5 years.
Nuevolution AB
3. Business combinations
Dezima Pharma B.V.
In 2015,On July 15, 2019, we acquired all of the outstanding stock of Dezima Pharma B.V. (Dezima) whose leadNuevolution AB (Nuevolution), a publicly traded, Denmark-based biotechnology company with a leading small molecule drug discovery platform, for total consideration of $183 million in cash. The transaction, which was accounted for as a business combination, expands our ability to discover novel small molecules against difficult-to-drug targets and with greater speed and efficiency. Nuevolution’s operations, which are not material, have been included in our consolidated financial statements commencing on the acquisition date.
We allocated the consideration to acquire Nuevolution to finite-lived intangible assets of $150 million, comprised primarily of technology rights for a drug discovery platform with an estimated useful life of 10 years; goodwill of $26 million, which is AMG 899 (formerly TA-8995)not tax deductible; deferred tax liabilities of $22 million; and other net assets of $29 million.
The estimated fair values of intangible assets were determined primarily by using a probability-weighted-income approach, which discounts expected future cash flows to present value by using a discount rate that represents the estimated rate that market participants would use to value the intangible assets.
Our accounting for this acquisition is preliminary and will be finalized upon completion of our analysis to determine the acquisition date fair values of certain assets acquired, tax-related items and the residual impact on goodwill.
Kirin-Amgen, Inc.
During the first quarter of 2018, we acquired the remaining 50% ownership of Kirin-Amgen, Inc. (K-A), an oral, once-daily cholesteryl ester transfer protein inhibitor that had completed certain phase 2 trials.from Kirin Holdings Company, Limited (Kirin), making K-A a wholly owned subsidiary of Amgen. Upon its acquisition, K-A’s operations have been included in our consolidated financial statements commencing on the share acquisition date. The acquisition relieved Amgen of future royalty obligations to K-A.
Prior to the share acquisition date, we owned 50% of K-A and accounted for our interest in K-A by using the equity method of accounting.
The transaction was accounted for as a step acquisition of a business in which we were required to remeasure our existing 50% ownership interest at fair value. In addition, we were required to effectively settle our preexisting relationship with K-A, which resulted in a loss. Together the gain on the remeasurement of our existing ownership interest and the loss from the settlement of the preexisting relationship resulted in a net gain of $80 million, which was recorded in Interest and other income, net, in the Consolidated Statements of Income.
The primary means of consideration for this transaction was a payment of $780 million in cash. The aggregate share acquisition date consideration to acquire Dezima was $410 million, including $110 million forthe remaining 50% ownership in K-A and the fair value of Amgen’s preacquisition investment consisted of the following (in millions):
|
| | | | |
| | Amounts |
Total cash paid to Kirin | | $ | 780 |
|
Fair value of contingent consideration obligation | | 45 |
|
Loss on settlement of preexisting relationship | | (168 | ) |
Total consideration transferred to acquire K-A | | 657 |
|
| | |
Fair value of Amgen’s investment in K-A | | 825 |
|
Total acquisition date fair value | | $ | 1,482 |
|
In connection with this acquisition, we are obligated to make single-digit royalty payments to Kirin contingent upon sales of brodalumab. The estimated fair value of this contingent consideration obligations related toobligation was $45 million as of the development of AMG 899. share acquisition date.
The fair values of assets acquired and liabilities assumed primarily included an IPR&D assetconsisted of $400cash of $977 million, licensing rights of $470 million, deferred tax liabilities of $102 million, other assets and liabilities of $131 million and goodwill of $108$6 million. The estimated fair value of acquired licensing rights was determined by using a probability-related-income approach, which is based on the present value of the incremental after-tax cash flows attributable only to the intangible asset. The projected cash flows were based on certain assumptions, including estimates of future revenues and expenses and the time and resources needed to maintain the assets through commercialization. The licensing rights will be amortized over a weighted-average period of four years by using the straight-line method. The excess of the share acquisition date consideration over the fair values assigned to the assets acquired and the liabilities assumed of $6 million (whichwas recorded as goodwill, which is not deductible for tax purposes)purposes. The $131 million in other assets and deferred tax liabilities represents primarily receivables for royalties earned by K-A but not yet received, offset partially by payables representing R&D expenses incurred but not yet reimbursed by K-A.
Pro forma results of $100 million. The goodwilloperations for this acquisition have not been presented because this acquisition was attributablenot material to our consolidated results of operations.
3. Revenues
We operate in 1 business segment: human therapeutics. Therefore, results of our operations are reported on a consolidated basis for purposes of segment reporting, consistent with internal management reporting. Revenues by product and by geographic area, based on customers’ locations, are presented below. Rest-of-world (ROW) revenues relate to products that are sold primarily in Europe.
Revenues were as follows (in millions):
|
| | | | | | | | | | | | |
| | Year ended December 31, 2019 |
| | U.S. | | ROW | | Total |
Enbrel® (etanercept) | | $ | 5,050 |
| | $ | 176 |
| | $ | 5,226 |
|
Neulasta® (pegfilgrastim) | | 2,814 |
| | 407 |
| | 3,221 |
|
Prolia® (denosumab) | | 1,772 |
| | 900 |
| | 2,672 |
|
XGEVA® (denosumab) | | 1,457 |
| | 478 |
| | 1,935 |
|
Aranesp® (darbepoetin alfa) | | 758 |
| | 971 |
| | 1,729 |
|
KYPROLIS® (carfilzomib) | | 654 |
| | 390 |
| | 1,044 |
|
EPOGEN® (epoetin alfa) | | 867 |
| | — |
| | 867 |
|
Sensipar®/Mimpara® (cinacalcet) | | 252 |
| | 299 |
| | 551 |
|
Other products | | 2,907 |
| | 2,052 |
| | 4,959 |
|
Total product sales(1) | | 16,531 |
| | 5,673 |
| | 22,204 |
|
Other revenues | | 693 |
| | 465 |
| | 1,158 |
|
Total revenues | | $ | 17,224 |
| | $ | 6,138 |
| | $ | 23,362 |
|
|
| | | | | | | | | | | | |
| | Year ended December 31, 2018 |
| | U.S. | | ROW | | Total |
ENBREL | | $ | 4,807 |
| | $ | 207 |
| | $ | 5,014 |
|
Neulasta® | | 3,866 |
| | 609 |
| | 4,475 |
|
Prolia® | | 1,500 |
| | 791 |
| | 2,291 |
|
Aranesp® | | 942 |
| | 935 |
| | 1,877 |
|
XGEVA® | | 1,338 |
| | 448 |
| | 1,786 |
|
Sensipar®/Mimpara® | | 1,436 |
| | 338 |
| | 1,774 |
|
EPOGEN® | | 1,010 |
|
| — |
| | 1,010 |
|
KYPROLIS® | | 583 |
| | 385 |
| | 968 |
|
Other products | | 1,947 |
| | 1,391 |
| | 3,338 |
|
Total product sales(1) | | 17,429 |
| | 5,104 |
| | 22,533 |
|
Other revenues | | 929 |
| | 285 |
| | 1,214 |
|
Total revenues | | $ | 18,358 |
| | $ | 5,389 |
| | $ | 23,747 |
|
|
| | | | | | | | | | | | |
| | Year ended December 31, 2017 |
| | U.S. | | ROW | | Total |
ENBREL | | $ | 5,206 |
| | $ | 227 |
| | $ | 5,433 |
|
Neulasta® | | 3,931 |
| | 603 |
| | 4,534 |
|
Aranesp® | | 1,114 |
| | 939 |
| | 2,053 |
|
Prolia® | | 1,272 |
| | 696 |
| | 1,968 |
|
Sensipar®/Mimpara® | | 1,374 |
| | 344 |
| | 1,718 |
|
XGEVA® | | 1,157 |
| | 418 |
| | 1,575 |
|
EPOGEN® | | 1,096 |
| | — |
| | 1,096 |
|
KYPROLIS® | | 562 |
| | 273 |
| | 835 |
|
Other products | | 1,419 |
| | 1,164 |
| | 2,583 |
|
Total product sales(1) | | 17,131 |
| | 4,664 |
| | 21,795 |
|
Other revenues | | 898 |
| | 156 |
| | 1,054 |
|
Total revenues | | $ | 18,029 |
| | $ | 4,820 |
| | $ | 22,849 |
|
____________ | |
(1) | Hedging gains and losses, which are included in product sales, were not material for the years ended December 31, 2019, 2018 and 2017. |
In the United States, we sell primarily to the expected synergies and other benefitspharmaceutical wholesale distributors that we believed would result from expandingutilize as the principal means of distributing our cardiovascular portfolio with AMG 899;products to healthcare providers. Outside the United States, we sell principally to healthcare providers and/or pharmaceutical wholesale distributors depending on the distribution practice in each country. We monitor the financial condition of our larger customers and limit our credit exposure by setting credit limits and, in certain circumstances, by requiring letters of credit or obtaining credit insurance.
We had product sales to 3 customers, each of them accounting for more than 10% of total revenues for each of the deferred tax consequences of acquired IPR&D recorded for financial statement purposes.
Duringyears ended December 31, 2019, 2018 and 2017. For the year ended December 31, 2017, we decided2019, on a combined basis, these customers accounted for 81% of total gross revenues as shown in the following table. Certain information with respect to discontinuethese customers was as follows (dollar amounts in millions):
|
| | | | | | | | | | | |
| Years ended December 31, |
| 2019 | | 2018 | | 2017 |
AmerisourceBergen Corporation: | | | | | |
Gross product sales | $ | 12,301 |
| | $ | 12,091 |
| | $ | 10,742 |
|
% of total gross revenues | 33 | % | | 33 | % | | 31 | % |
McKesson Corporation: | | | | | |
Gross product sales | $ | 11,795 |
| | $ | 11,434 |
| | 10,625 |
|
% of total gross revenues | 31 | % | | 31 | % | | 30 | % |
Cardinal Health, Inc.: | | | | | |
Gross product sales | $ | 6,538 |
| | $ | 7,475 |
| | $ | 7,049 |
|
% of total gross revenues | 17 | % | | 20 | % | | 20 | % |
As of December 31, 2019 and 2018, amounts due from these 3 customers each exceeded 10% of gross trade receivables and accounted for 73% and 76%, respectively, of net trade receivables on a combined basis. As of December 31, 2019 and 2018, 27% and 23%, respectively, of trade receivables, net, were due from customers located outside the internal developmentUnited States, the majority of AMG 899, resulting in an impairment chargewhich were from Europe. Our total allowance for doubtful accounts as of $400 million for the IPR&D assetDecember 31, 2019 and the release of the then fair value of the related contingent consideration liabilities of $116 million. See Note 16, Fair value measurement.2018 was not material.
4. Stock-based compensation
Our Amended and Restated 2009 Equity Incentive Plan (the Amended 2009 Plan) authorizes for issuance to employees of Amgen, employees of Amgen subsidiaries and nonemployee members of our Board of Directors shares of our common stock pursuant to grants of equity-based awards, including RSUs, stock options and performance units to employees of Amgen, its subsidiaries and non-employee members of our Board of Directors.units. The pool of shares available under the Amended 2009 Plan is reduced by one1 share for each stock option granted and by 1.9 shares for other types of awards granted, including RSUs and performance units (full-value awards). In general, if any shares subject to an award granted under the Amended 2009 Plan expire or arebecome forfeited, terminated or canceled without the issuance of shares, the shares subject to such awards are added back into the authorized pool on the same basis that they were removed. In addition, under the Amended 2009 Plan, shares withheld to pay for minimum statutory tax obligations with respect to full valuefull-value awards are added back into the authorized pool on the basis of 1.9 shares. As of December 31, 2017,2019, the Amended 2009 Plan provides for future grants and/or issuances of up to 3628 million shares of our common stock. Stock-based awards under our employee compensation plans are made with newly issued shares reserved for this purpose.
The following table reflects the components of stock-based compensation expense recognized in our Consolidated Statements of Income (in millions):
|
| | | | | | | | | | | |
| Years ended December 31, |
| 2019 | | 2018 | | 2017 |
RSUs | $ | 168 |
| | $ | 165 |
| | $ | 174 |
|
Performance units | 105 |
| | 117 |
| | 133 |
|
Stock options | 35 |
| | 29 |
| | 22 |
|
Total stock-based compensation expense, pretax | 308 |
| | 311 |
| | 329 |
|
Tax benefit from stock-based compensation expense | (67 | ) | | (67 | ) | | (118 | ) |
Total stock-based compensation expense, net of tax | $ | 241 |
| | $ | 244 |
| | $ | 211 |
|
|
| | | | | | | | | | | |
| Years ended December 31, |
| 2017 | | 2016 | | 2015 |
RSUs | $ | 174 |
| | $ | 177 |
| | $ | 190 |
|
Performance units | 133 |
| | 123 |
| | 132 |
|
Stock options | 22 |
| | 11 |
| | — |
|
Total stock-based compensation expense, pretax | 329 |
| | 311 |
| | 322 |
|
Tax benefit from stock-based compensation expense | (118 | ) | | (112 | ) | | (120 | ) |
Total stock-based compensation expense, net of tax | $ | 211 |
| | $ | 199 |
| | $ | 202 |
|
Restricted stock units and stock options
Eligible employees generally receive an annual grant of RSUs and, for certain executive levelexecutive-level employees, stock options, with the size and type of award generally determined by the employee’s salary grade and performance level. In 2016, we reinstated the practice of granting stock options to eligible employees annually, which had been suspended from 2012 through 2015. In addition, certainCertain management and professional-level employees typically receive RSU grants upon commencement of employment. Non-employeeNonemployee members of our Board of Directors also receive an annual grant of RSUs.
Our RSU and stock option grants provide for accelerated or continued vesting in certain circumstances as defined in the plans and related grant agreements, including upon death, disability, termination in connection with a change in control and the retirement of employees who meet certain service and/or age requirements. RSUs and stock options generally vest in equal amounts on the second, third and fourth anniversaries of the grant date. RSUs accrue dividend equivalents, which are typically payable in shares, only when and to the extent the underlying RSUs vest and are issued to the recipient.
Restricted stock units
The grant date fair value of an RSU equals the closing price of our common stock on the grant date, as RSUs accrue dividend equivalents during their vesting period. The weighted-average grant date fair values of RSUs granted during the years ended
December 31, 2019, 2018 and 2017, 2016were $182.12, $179.18 and 2015 were $163.99, $156.76 and $166.74, respectively.
The following table summarizes information regarding our RSUs:
|
| | | | | | |
| Year ended December 31, 2019 |
| Units (in millions) | | Weighted-average grant date fair value |
Balance nonvested as of December 31, 2018 | 3.1 |
| | $ | 168.11 |
|
Granted | 1.2 |
| | $ | 182.12 |
|
Vested | (1.0 | ) | | $ | 163.21 |
|
Forfeited | (0.2 | ) | | $ | 170.52 |
|
Balance nonvested as of December 31, 2019 | 3.1 |
| | $ | 174.97 |
|
|
| | | | | | |
| Year ended December 31, 2017 |
| Units (in millions) | | Weighted-average grant date fair value |
Balance nonvested at December 31, 2016 | 3.9 |
| | $ | 141.07 |
|
Granted | 1.3 |
| | $ | 163.99 |
|
Vested | (1.5 | ) | | $ | 125.32 |
|
Forfeited | (0.3 | ) | | $ | 149.79 |
|
Balance nonvested at December 31, 2017 | 3.4 |
| | $ | 155.11 |
|
The total grant date fair values of RSUs that vested during the years ended December 31, 2019, 2018 and 2017, 2016were $160 million, $167 million and 2015, were $182 million, $193 million and $206 million, respectively.
As of December 31, 2017, there was $304 million of unrecognized compensation cost related to nonvested RSU awards, which is expected to be recognized over a weighted-average period of 1.8 years.
Stock options
The exercise price forof stock options is set as the closing price of our common stock on the grant date, and the related number of shares granted is fixed at that point in time. Awards expire 10 years from the date of grant. We use a Black-Scholesthe Black–Scholes option valuation model to estimate the grant date fair value of stock options.
The weighted-average assumptions used in the option valuation model and the resulting weighted-average grant date fair values of stock options granted were as follows:
|
| | | | | | | | | | | |
| Years ended December 31, |
| 2019 | | 2018 | | 2017 |
Closing price of our common stock on grant date | $ | 177.31 |
| | $ | 177.46 |
| | $ | 162.60 |
|
Expected volatility (average of implied and historical volatility) | 23.5 | % | | 24.6 | % | | 22.7 | % |
Expected life (in years) | 5.8 |
| | 5.8 |
| | 5.8 |
|
Risk-free interest rate | 2.4 | % | | 2.8 | % | | 2.1 | % |
Expected dividend yield | 3.1 | % | | 2.9 | % | | 2.8 | % |
Fair value of stock options granted | $ | 30.47 |
| | $ | 34.60 |
| | $ | 27.54 |
|
|
| | | | | | | |
| Years ended December 31, |
| 2017 | | 2016 |
Closing price of our common stock on grant date | $ | 162.60 |
| | $ | 156.35 |
|
Expected volatility (average of implied and historical volatility) | 22.7 | % | | 24.3 | % |
Expected life (in years) | 5.8 |
| | 5.8 |
|
Risk-free interest rate | 2.1 | % | | 1.5 | % |
Expected dividend yield | 2.8 | % | | 2.6 | % |
Fair value of stock options granted | $ | 27.54 |
| | $ | 27.55 |
|
The following table summarizes information regarding our stock options:
|
| | | | | | | | | | | | |
| Year ended December 31, 2019 |
| Options (in millions) | | Weighted- average exercise price | | Weighted- average remaining contractual life (in years) | | Aggregate intrinsic value (in millions) |
Balance unexercised as of December 31, 2018 | 4.4 |
| | $ | 143.57 |
| | | | |
Granted | 1.4 |
| | $ | 177.31 |
| | | | |
Exercised | (0.7 | ) | | $ | 107.13 |
| | | | |
Expired/forfeited | (0.3 | ) | | $ | 171.01 |
| | | | |
Balance unexercised as of December 31, 2019 | 4.8 |
| | $ | 157.00 |
| | 7.2 | | $ | 406 |
|
Vested or expected to vest as of December 31, 2019 | 4.6 |
| | $ | 156.02 |
| | 7.1 | | $ | 390 |
|
Exercisable as of December 31, 2019 | 1.3 |
| | $ | 117.13 |
| | 4.3 | | $ | 162 |
|
|
| | | | | | | | | | | | |
| Year ended December 31, 2017 |
| Options (in millions) | | Weighted- average exercise price | | Weighted- average remaining contractual life (in years) | | Aggregate intrinsic value (in millions) |
Balance unexercised at December 31, 2016 | 3.1 |
| | $ | 100.21 |
| | | | |
Granted | 1.5 |
| | $ | 162.60 |
| | | | |
Exercised | (0.5 | ) | | $ | 57.24 |
| | | | |
Expired/forfeited | (0.1 | ) | | $ | 159.13 |
| | | | |
Balance unexercised at December 31, 2017 | 4.0 |
| | $ | 127.08 |
| | 6.9 | | $ | 186 |
|
Vested or expected to vest at December 31, 2017 | 3.7 |
| | $ | 124.84 |
| | 6.8 | | $ | 182 |
|
Exercisable at December 31, 2017 | 1.3 |
| | $ | 58.23 |
| | 2.8 | | $ | 147 |
|
The total intrinsic values of options exercised during the years ended December 31, 2019, 2018 and 2017, 2016were $68 million, $53 million and 2015, were $60$60 million,, $102 million and $150 million, respectively. The actual tax benefits realized from tax deductions from option exercises during the years ended December 31, 2019, 2018 and 2017, 2016were $15 million, $12 million and 2015, were $21 million, $37respectively.
As of December 31, 2019, $308 million of unrecognized compensation cost was related to nonvested restricted stock units and $55 million, respectively.unvested stock options, which is expected to be recognized over a weighted-average period of 1.8 years.
Performance units
Certain management-level employees also receive annual grants of performance units, which give the recipient the right to receive common stock that is contingent upon achievement of specified pre-establishedpreestablished goals over the performance period, which is generally three years. The performance goals for the units granted during the years ended December 31, 2017, 20162019, 2018 and 2015,2017, which are accounted for as equity awards, are based uponon (i) Amgen’s stockholder return compared with a comparator group of companies, which are considered market conditions and are therefore reflected in the grant date fair values of the units, and for units granted during the years ended December 31, 2017 and 2016,(ii) Amgen’s standalonestand-alone financial performance measures, which are considered performance conditions. The expense recognized for awards granted during the years ended December 31, 2017 and 2016 areis based on the grant date fair value of a unit multiplied by the number of units expected to be earned with respect to the related performance conditions, net of estimated forfeitures. The expense recognized for the awards granted during the year ended December 31, 2015 was based on the grant date fair value of a unit multiplied by the number of units granted, net of estimated forfeitures. Depending on the outcome of these performance goals, a recipient may ultimately earn a number of units greater or less than the number of units granted. Shares of our common stock are issued on a one-for-one basis for each performance unit earned. In general, performance unit awards vest at the end of the performance period. The performance award program provides for accelerated or continued vesting in certain circumstances as defined in the plan, including upon death, disability, a change in control and retirement of employees who meet certain service and/or age
requirements. Performance units accrue dividend equivalents whichthat are typically payable in shares only when and to the extent the underlying performance units vest and are issued to the recipient, including with respect to market and performance conditions that affect the number of performance units earned.
We use a payout simulation model to estimate the grant date fair value of performance units. The weighted-average assumptions used in thisthe payout simulation model and the resulting weighted-average grant date fair values of performance units granted were as follows:
|
| | | | | | | | | | | |
| Years ended December 31, |
| 2019 | | 2018 | | 2017 |
Closing price of our common stock on grant date | $ | 177.31 |
| | $ | 177.93 |
| | $ | 162.60 |
|
Volatility | 22.1 | % | | 23.8 | % | | 25.9 | % |
Risk-free interest rate | 2.3 | % | | 2.6 | % | | 1.4 | % |
Fair value of units granted | $ | 188.40 |
| | $ | 189.21 |
| | $ | 178.87 |
|
|
| | | | | | | | | | | |
| Years ended December 31, |
| 2017 | | 2016 | | 2015 |
Closing price of our common stock on grant date | $ | 162.60 |
| | $ | 156.35 |
| | $ | 164.26 |
|
Volatility | 25.9 | % | | 25.8 | % | | 24.3 | % |
Risk-free interest rate | 1.4 | % | | 0.9 | % | | 0.8 | % |
Fair value of units granted | $ | 178.87 |
| | $ | 170.56 |
| | $ | 182.55 |
|
The payout simulation model assumes correlations of returns of the stock prices of our common stock and the common stocks of the comparator groups of companies and stock price volatilities of the comparator groups of companies.companies to simulate stockholder returns over the performance periods and their resulting impact on the payout percentages based on the contractual terms of the performance units.
As of December 31, 20172019 and 2016, 2.22018, 2.0 million and 2.82.0 million performance units were outstanding with weighted-average grant date fair values of $177.16$185.64 and $144.43$180.12 per unit, respectively. During the year ended December 31, 2017, 2019, 0.8 million performance units with a weighted-average grant date fair value of $178.87$188.40 were granted, and 0.10.2 million performance units with a weighted-average grant date fair value of $179.58$186.66 were forfeited.
The total fair values of performance units that vestedpaid during the years ended December 31, 2019, 2018 and 2017 and 2016 were $219$176 million, $133 million and $347$219 million, respectively, based uponon the number of performance units earned multiplied by the closing stock price of our common stock on the last day of the performance period. No performance units vested during the year ended December 31, 2015.
As of December 31, 2017, there was $1442019, $113 million of unrecognized compensation cost thatwas related to nonvested performance units, which is expected to be recognized over a weighted-average period of 1one year.
5. Income taxesDefined contribution plan
On December 22, 2017,The Company has defined contribution plans to which certain employees of the United States enacted major tax reform legislation, Public Law No. 115-97, commonly referred to as the Tax CutsCompany and Jobs Act (2017 Tax Act). The 2017 Tax Act imposes a repatriation tax on accumulated earnings of foreignparticipating subsidiaries implements a territorial tax system together with a current tax on certain foreign earnings and lowers the general corporatemay defer compensation for income tax ratepurposes. Participants are eligible to 21%. On December 22, 2017,receive matching contributions based on their contributions, in addition to other Company contributions. Defined contribution plan expenses were $220 million, $173 million and $196 million for the SEC staff issued SAB 118 that allows us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. We currently are analyzing the 2017
Tax Act, and in certain areas, have made reasonable estimates of the effects on our consolidated financial statements and tax disclosures, including the amount of the repatriation tax and changes to our existing deferred tax balances.
The repatriation tax is based primarily on our accumulated foreign earnings and profits that we previously deferred from U.S. income taxes. We recorded an estimated amount for our repatriation tax liability of $7.3 billion as ofyears ended December 31, 2017. See Note 18, Contingencies2019, 2018 and commitments. We no longer reinvest our undistributed earnings of our foreign operations indefinitely outside the United States. In addition, we remeasured certain net deferred and other tax liabilities based on the tax rates at which they are expected to reverse in the future. The estimated amount recorded related to the remeasurement of these balances was a net benefit of $1.2 billion. The net estimated impact of the 2017, Tax Act is $6.1 billion.respectively.
We consider the key estimates on the repatriation tax, net deferred tax remeasurement and the impact on our unrealized tax benefits to be incomplete due to our continuing analysis of final year-end data and tax positions. Our analysis could affect the measurement of these balances and give rise to new deferred and other tax assets and liabilities. Since the 2017 Tax Act was passed late in the fourth quarter of 2017, and further guidance and accounting interpretation is expected over the next 12 months, our review is still pending. We expect to complete our analysis within the measurement period.6. Income taxes
Income before income taxes included the following (in millions):
|
| | | | | | | | | | | |
| Years ended December 31, |
| 2019 | | 2018 | | 2017 |
Domestic | $ | 4,371 |
| | $ | 4,856 |
| | $ | 4,436 |
|
Foreign | 4,767 |
| | 4,689 |
| | 5,161 |
|
Total income before income taxes | $ | 9,138 |
| | $ | 9,545 |
| | $ | 9,597 |
|
|
| | | | | | | | | | | |
| Years ended December 31, |
| 2017 | | 2016 | | 2015 |
Domestic | $ | 4,436 |
| | $ | 4,478 |
| | $ | 3,532 |
|
Foreign | 5,161 |
| | 4,685 |
| | 4,446 |
|
Total income before income taxes | $ | 9,597 |
| | $ | 9,163 |
| | $ | 7,978 |
|
The provision for income taxes included the following (in millions):
|
| | | | | | | | | | | |
| Years ended December 31, |
| 2019 | | 2018 | | 2017 |
Current provision: | | | | | |
Federal | $ | 1,284 |
| | $ | 1,270 |
| | $ | 8,615 |
|
State | 39 |
| | 17 |
| | 5 |
|
Foreign | 277 |
| | 227 |
| | 275 |
|
Total current provision | 1,600 |
| | 1,514 |
| | 8,895 |
|
Deferred (benefit) provision: | | | | | |
Federal | (276 | ) | | (317 | ) | | (1,120 | ) |
State | (22 | ) | | (7 | ) | | — |
|
Foreign | (6 | ) | | (39 | ) | | (157 | ) |
Total deferred (benefit) provision | (304 | ) | | (363 | ) | | (1,277 | ) |
Total provision for income taxes | $ | 1,296 |
| | $ | 1,151 |
| | $ | 7,618 |
|
|
| | | | | | | | | | | |
| Years ended December 31, |
| 2017 | | 2016 | | 2015 |
Current provision: | | | | | |
Federal | $ | 8,615 |
| | $ | 984 |
| | $ | 1,129 |
|
State | 5 |
| | 65 |
| | 40 |
|
Foreign | 275 |
| | 176 |
| | 272 |
|
Total current provision | 8,895 |
| | 1,225 |
| | 1,441 |
|
Deferred (benefit) provision: | | | | | |
Federal | (1,120 | ) | | 372 |
| | (290 | ) |
State | — |
| | (69 | ) | | (78 | ) |
Foreign | (157 | ) | | (87 | ) | | (34 | ) |
Total deferred (benefit) provision | (1,277 | ) | | 216 |
| | (402 | ) |
Total provision for income taxes | $ | 7,618 |
| | $ | 1,441 |
| | $ | 1,039 |
|
Deferred income taxes reflect the tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, tax credit carryforwards and the tax effects of net operating loss (NOL) carryforwards.
Significant components of our deferred tax assets and liabilities were as follows (in millions):
|
| | | | | | | |
| December 31, |
| 2019 | | 2018 |
Deferred income tax assets: | | | |
NOL and credit carryforwards | $ | 800 |
| | $ | 810 |
|
Accrued expenses | 457 |
| | 428 |
|
Expenses capitalized for tax | 170 |
| | 185 |
|
Stock-based compensation | 91 |
| | 95 |
|
Other | 269 |
| | 174 |
|
Total deferred income tax assets | 1,787 |
| | 1,692 |
|
Valuation allowance | (517 | ) | | (509 | ) |
Net deferred income tax assets | 1,270 |
| | 1,183 |
|
| | | |
Deferred income tax liabilities: | | | |
Acquired intangible assets | (1,288 | ) | | (1,509 | ) |
Debt | (210 | ) | | (184 | ) |
Other | (286 | ) | | (267 | ) |
Total deferred income tax liabilities | (1,784 | ) | | (1,960 | ) |
Total deferred income taxes, net | $ | (514 | ) | | $ | (777 | ) |
|
| | | | | | | |
| December 31, |
| 2017 | | 2016 |
Deferred income tax assets: | | | |
NOL and credit carryforwards | $ | 812 |
| | $ | 688 |
|
Accrued expenses | 362 |
| | 562 |
|
Expenses capitalized for tax | 155 |
| | 255 |
|
Stock-based compensation | 99 |
| | 167 |
|
Other | 154 |
| | 117 |
|
Total deferred income tax assets | 1,582 |
| | 1,789 |
|
Valuation allowance | (497 | ) | | (381 | ) |
Net deferred income tax assets | 1,085 |
| | 1,408 |
|
| | | |
Deferred income tax liabilities: | | | |
Acquired intangible assets | (1,748 | ) | | (3,139 | ) |
Debt | (184 | ) | | (345 | ) |
Other | (240 | ) | | (307 | ) |
Total deferred income tax liabilities | (2,172 | ) | | (3,791 | ) |
Total deferred income taxes, net | $ | (1,087 | ) | | $ | (2,383 | ) |
Valuation allowances are provided to reduce the amounts of our deferred tax assets to an amount that is more likely than not to be realized based on an assessment of positive and negative evidence, including estimates of future taxable income necessary to realize future deductible amounts.
The valuation allowance increased in 2017 due primarily to the Company’s expectation that some state R&D credits and foreign NOLs will not be utilized. This increase was offset partially by the release of state R&D credits projected to be utilized in 2018 related to the repatriation tax on foreign earnings. The valuation allowance increased in 20162019 due primarily to the Company’s expectation that some state R&D credits will not be utilized. This increase was offset partially by valuation allowance releases due to sufficient positive evidence to conclude that it is more likely than not that certain foreign NOL carryforwards are realizable.
As of December 31, 2017,2019, we had $20 million of federal tax credit carryforwards available to reduce future federal income taxes and have provided no0 valuation allowance for those federal tax credit carryforwards. The federal tax credit carryforwards expire between 20262023 and 2035. We had $524$605 million of state tax credit carryforwards available to reduce future state income taxes and have provided a valuation allowance for $392$482 million of those state tax credit carryforwards. TheA portion of the state credits for which no0 valuation allowance has been provided will begin to expire in 2022.between 2022 and 2034.
As of December 31, 2017,2019, we had $146144 million of federal NOL carryforwards available to reduce future federal income taxes and have provided a valuation allowance for $6 million of those federal NOL carryforwards. The federal NOL carryforwards, for which no0 valuation allowance has been provided, expire between 2020 and 2035. We had $425$196 million of state NOL carryforwards available to reduce future state income taxes and have provided a valuation allowance for $400$196 million of those state NOL carryforwards. The state NOLs for which no valuation allowance has been provided expire between 2018 and 2032. We had $2.0 billion of foreign NOL carryforwards available to reduce future foreign income taxes and have provided a valuation allowance for $819$516 million of those foreign NOL carryforwards. For the foreign NOLs with no0 valuation allowance provided, $678$822 million has no expiry; and the remainder will expire starting in 2018.
between 2020 and 2024.
The reconciliations of the total gross amounts of UTBs (excluding interest, penalties, foreign tax credits and the federal tax benefit of state taxes related to UTBs) were as follows (in millions):
|
| | | | | | | | | | | |
| Years ended December 31, |
| 2019 | | 2018 | | 2017 |
Beginning balance | $ | 3,061 |
| | $ | 2,953 |
| | $ | 2,543 |
|
Additions based on tax positions related to the current year | 215 |
| | 173 |
| | 447 |
|
Additions based on tax positions related to prior years | 22 |
| | 13 |
| | 1 |
|
Reductions for tax positions of prior years | (11 | ) | | (17 | ) | | (5 | ) |
Reductions for expiration of statute of limitations | — |
| | — |
| | (5 | ) |
Settlements | — |
| | (61 | ) | | (28 | ) |
Ending balance | $ | 3,287 |
| | $ | 3,061 |
| | $ | 2,953 |
|
|
| | | | | | | | | | | |
| Years ended December 31, |
| 2017 | | 2016 | | 2015 |
Beginning balance | $ | 2,543 |
| | $ | 2,114 |
| | $ | 1,772 |
|
Additions based on tax positions related to the current year | 447 |
| | 425 |
| | 413 |
|
Additions based on tax positions related to prior years | 1 |
| | 18 |
| | 9 |
|
Reductions for tax positions of prior years | (5 | ) | | (7 | ) | | (32 | ) |
Reductions for expiration of statute of limitations | (5 | ) | | — |
| | — |
|
Settlements | (28 | ) | | (7 | ) | | (48 | ) |
Ending balance | $ | 2,953 |
| | $ | 2,543 |
| | $ | 2,114 |
|
Substantially all of the UTBs as of December 31, 2017,2019, if recognized, would affect our effective tax rate. During the year ended December 31, 2017, we effectively settled various examinations with federal and state tax authorities for prior tax years. As a result of these developments, we remeasured our UTBs accordingly. As of December 31, 2017, we believe it is reasonably possible that our gross liabilities for UTBs may decrease by approximately $63 million within the succeeding 12 months due to the resolution of state examinations.
Interest and penalties related to UTBs are included in our provision for income taxes. During the years ended December 31, 2017, 20162019, 2018 and 2015,2017, we recognized $56$198 million, $125$137 million and $17$56 million, respectively, of interest and penalties through the income tax provision in the Consolidated Statements of Income. As of December 31, 20172019 and 2016,2018, accrued interest and penalties associated with UTBs were $332667 million and $276469 million, respectively.
The reconciliations between the federal statutory tax rate applied to income before income taxes and our effective tax rate were as follows:
|
| | | | | | | | |
| Years ended December 31, |
| 2019 | | 2018 | | 2017 |
Federal statutory tax rate | 21.0 | % | | 21.0 | % | | 35.0 | % |
2017 Tax Act, net repatriation tax | — | % | | — | % | | 70.7 | % |
Foreign earnings | (4.5 | )% | | (4.3 | )% | | (15.8 | )% |
2017 Tax Act, net deferred tax remeasurement | — | % | | — | % | | (6.9 | )% |
Credits, Puerto Rico Excise Tax | (2.6 | )% | | (2.5 | )% | | (2.2 | )% |
2017 Tax Act, net impact on intercompany sales | — | % | | (1.8 | )% | | — | % |
Interest on uncertain tax positions | 1.6 | % | | 1.2 | % | | 0.6 | % |
Credits, primarily federal R&D | (1.0 | )% | | (0.8 | )% | | (0.6 | )% |
Share-based payments | (0.3 | )% | | (0.2 | )% | | (0.7 | )% |
Other, net | — | % | | (0.5 | )% | | (0.7 | )% |
Effective tax rate | 14.2 | % | | 12.1 | % | | 79.4 | % |
|
| | | | | | | | |
| Years ended December 31, |
| 2017 | | 2016 | | 2015 |
Federal statutory tax rate | 35.0 | % | | 35.0 | % | | 35.0 | % |
2017 Tax Act, net repatriation tax | 71.5 | % | | — | % | | — | % |
Foreign earnings | (15.8 | )% | | (15.5 | )% | | (18.1 | )% |
2017 Tax Act, net deferred tax remeasurement | (7.7 | )% | | — | % | | — | % |
Credits, Puerto Rico Excise Tax | (2.2 | )% | | (2.3 | )% | | (2.5 | )% |
Share-based payments | (0.7 | )% | | (1.3 | )% | | — | % |
Credits, primarily federal R&D | (0.6 | )% | | (0.7 | )% | | (1.4 | )% |
State taxes | 0.3 | % | | 0.1 | % | | 0.1 | % |
Audit settlements (federal, state, foreign) | (0.3 | )% | | — | % | | (0.5 | )% |
Other, net | (0.1 | )% | | 0.4 | % | | 0.4 | % |
Effective tax rate | 79.4 | % | | 15.7 | % | | 13.0 | % |
The effective tax rates for the yearyears ended December 31, 2017,2019 and 2018 differ from the federal statutory ratesrate due primarily to impacts of the 2017 Tax Act, including the repatriation tax on accumulated foreign earnings, offset partially by the remeasurementjurisdictional mix of certain net deferredincome and other tax liabilities.expenses. The effective tax ratesrate for 2016 and 2015 differ2017 differs from the federal statutory ratesrate primarily as a result of indefinitely invested earnings of our foreign operations. In the past, we have not provided for U.S. income taxes on undistributed earnings of our foreign operations that were intended to be invested indefinitely outside the United States. SubstantiallyTax Cuts and Jobs Act (the 2017 Tax Act). Primarily all of the foreign earnings that impactbenefit to our effective tax rate from foreign earnings results from foreign income associated with the Company’s operationoperations conducted in Puerto Rico, a territory of the United States that is treated as a foreign jurisdiction for U.S. tax purposes and isare subject to tax incentive grants through 2035. Additionally, the Company’s operations conducted in Singapore is subject to a tax incentive grant through 2034. These earnings are also subject to U.S. tax at a reduced rate of 10.5%.
The U.S. territory of Puerto Rico imposes an excise tax on the gross intercompany purchase price of goods and services from our manufacturer in Puerto Rico. The rate of 4% is effective through December 31, 2027. We account for the excise tax as a manufacturing cost that is capitalized in inventory and expensed in cost of sales when the related products are sold. For U.S. income
tax purposes, the excise tax results in foreign tax credits that are generally recognized in our provision for income taxes when the excise tax is incurred.
Income taxes paid during the years ended December 31, 2019, 2018 and 2017, 2016were $1.9 billion, $1.9 billion and 2015, were $1.5 billion, $1.1 billion and $919 million, respectively.
One or more of our legal entities file income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions and certain foreign jurisdictions. Our income tax returns are routinely auditedexamined by the tax authorities in those jurisdictions. Significant disputes may arise with tax authorities involving issues ofregarding the timing and amount of deductions, the use of tax credits and allocations of income and expenses among various tax jurisdictions because of differing interpretations of tax laws, regulations and the interpretation of the relevant facts. As previously disclosed, we received a Revenue Agent Report (RAR) from the Internal Revenue Service (IRS) for the years 2010, 2011 and 2012. The RAR proposes to make significant adjustments that relate primarily to the allocation of profits between certain of our entities in the United States and the U.S. territory of Puerto Rico. OnIn November 29, 2017, we received a modified RAR that revised theirthe IRS’s calculation but continued to propose substantial adjustments. We disagree with the proposed adjustments and are pursuing resolution throughwith the IRS administrative appeals process,office, which currently has jurisdiction over the matter. If we believedeem necessary, we will likelyvigorously contest the proposed adjustments through the judicial process. Final resolution of this complex matter is not be concludedlikely within the next 12 months. Final resolution of the IRS auditmonths and could have a material impact on our results of operations and cash flows if not resolved favorably, however, weconsolidated financial statements. We believe our accrual for income tax reserves are appropriately providedliabilities is appropriate based on past experience, interpretations of tax law and judgments about potential actions by tax authorities; however, due to the complexity of the provision for all openincome taxes, the ultimate resolution of any tax years.matters may result in payments substantially greater or less than amounts accrued. We are no longer subject to U.S. federal income tax examinations for years ended on or before December 31, 2009. In addition, we are currently under examination by a number of other state and foreign tax jurisdictions.
6.7. Earnings per share
The computation of basic earnings per share (EPS) is based on the weighted-average number of our common shares outstanding. The computation of diluted EPS is based on the weighted-average number of our common shares outstanding and dilutive potential common shares, which include primarily shares that may be issued under our stock option, restricted stock and performance unit award programs (collectively, dilutive securities), as determined by using the treasury stock method (collectively, dilutive securities).method.
The computationcomputations for basic and diluted EPS waswere as follows (in millions, except per shareper-share data):
|
| | | | | | | | | | | |
| Years ended December 31, |
| 2019 | | 2018 | | 2017 |
Income (Numerator): | | | | | |
Net income for basic and diluted EPS | $ | 7,842 |
| | $ | 8,394 |
| | $ | 1,979 |
|
| | | | | |
Shares (Denominator): | | | | | |
Weighted-average shares for basic EPS | 605 |
| | 661 |
| | 731 |
|
Effect of dilutive securities | 4 |
| | 4 |
| | 4 |
|
Weighted-average shares for diluted EPS | 609 |
| | 665 |
| | 735 |
|
| | | | | |
Basic EPS | $ | 12.96 |
| | $ | 12.70 |
| | $ | 2.71 |
|
Diluted EPS | $ | 12.88 |
| | $ | 12.62 |
| | $ | 2.69 |
|
|
| | | | | | | | | | | |
| Years ended December 31, |
| 2017 | | 2016 | | 2015 |
Income (Numerator): | | | | | |
Net income for basic and diluted EPS | $ | 1,979 |
| | $ | 7,722 |
| | $ | 6,939 |
|
| | | | | |
Shares (Denominator): | | | | | |
Weighted-average shares for basic EPS | 731 |
| | 748 |
| | 758 |
|
Effect of dilutive securities | 4 |
| | 6 |
| | 8 |
|
Weighted-average shares for diluted EPS | 735 |
| | 754 |
| | 766 |
|
| | | | | |
Basic EPS | $ | 2.71 |
| | $ | 10.32 |
| | $ | 9.15 |
|
Diluted EPS | $ | 2.69 |
| | $ | 10.24 |
| | $ | 9.06 |
|
For each of the three years ended December 31, 2017,2019, the number of anti-dilutiveantidilutive employee stock-based awards excluded from the computation of diluted EPS was not significant.
8. Collaborations
A collaborative arrangement is a contractual arrangement that involves a joint operating activity. Such arrangements involve two or more parties that are both:both (i) active participants in the activity and (ii) exposed to significant risks and rewards dependent on the commercial success of the activity.
From time to time, we enter into collaborative arrangements for the R&D, manufacture and/or commercialization of products and/or product candidates. These collaborations generally provide for non-refundablenonrefundable upfront license fees, development and commercial-performance milestone payments, cost sharing, royalty payments and/or profit sharing. Our collaboration arrangements are performed with no guarantee of either technological or commercial success, and each arrangement is unique in nature. See Note 1, Summary of significant accounting policies, for additional discussion of revenues recognized for these types of arrangements. Operating expenses for costs incurred pursuant to these arrangements are reported in their respective expense line items in the Consolidated Statements of Income, net of any payments due to or reimbursements due from our collaboration partners, with such reimbursements being recognized at the time the party becomes obligated to pay. Our significant arrangements are discussed below.
Novartis AG
In April 2017, we expanded our existing migraineWe are in a collaboration with Novartis AG (Novartis) to jointly develop and commercialize Aimovig® (erenumab-aooe). In the United States, Amgen and Novartis will jointly develop and collaborate on the commercialization of Aimovig™®. Amgen, as the principal, will recognizerecognizes product sales of Aimovig™® in the United States, will shareshares U.S. commercialization costs with Novartis and will paypays Novartis a significant royalty on net sales in the United States. Novartis holds global co-development rights and exclusive commercial rights outside the United States and Japan for Aimovig™® and other specified migraine programs. Novartis will paypays Amgen double-digit royalties on net sales of the products in the Novartis exclusive territories. Novartis will fundterritories and funds a portion of global R&D expenses. In addition, Novartis will also make paymentsa payment to Amgen that could collectively amountof up to approximately $400$100 million if certain regulatory events occurcommercial and commercialexpenditure thresholds are achieved with respect to Aimovig™ ®in the United States. Amgen will manufacturemanufactures and supplysupplies Aimovig™® worldwide.
The migraine collaboration will continue for the commercial lifelives of the products unless terminated in accordance with its terms.
We are currently involved in litigation with Novartis over our collaboration agreements for the development and commercialization of Aimovig®. See Note 19, Contingencies and commitments.
During the yearsyear ended December 31, 2017, 2016 and 2015,2019, net costs recovered from Novartis for the migraine products were $124$187 million $33 million and $6 million, respectively. Costs recovered were recorded primarily in ResearchSelling, general and developmentadministrative expense in the Consolidated Statements of Income. During the year ended December 31, 2018, net costs paid to Novartis for migraine products were $44 million and were recorded primarily in Selling, general and administrative expense in the Consolidated Statements of Income. During the year ended December 31, 2017, net costs recovered from Novartis for migraine products were $124 million and were recorded primarily in R&D expense in the Consolidated Statements of Income. During the years ended December 31, 2019 and 2018, royalties due to Novartis for the migraine products were $115 million and $43 million, respectively, and were recorded in Cost of sales in the Consolidated Statements of Income. During the years ended December 31, 2019 and 2018, royalties due from Novartis for the migraine products were not material. As a result of certain regulatory and commercial events, we received a milestone payment of $60 millionpayments from Novartis of $295 million during the year ended December 31, 2018, which was recorded in Other revenues in the Consolidated Statement of Income. During the year ended December 31, 2015, we paid an upfront license fee of $30 million to Novartis, which was recorded in Research and development expense in the Consolidated Statement of Income.
Pfizer Inc.
The co-promotion term of our Enbrel® collaboration agreement with Pfizer Inc. (Pfizer) in the United States and Canada expired on October 31, 2013. Under this agreement, we paid Pfizer a profit share until October 31, 2013, and residual royalties from November 1, 2013 to October 31, 2016, which were significantly less than the profit share payments. In 2015 and 2016, the residual royalty payments ranged from 11% to 10% of annual net ENBREL sales in the United States and Canada. Effective November 1, 2016, there are no further royalty payments.
During the years ended December 31, 2016 and 2015, residual royalties due to Pfizer on ENBREL sales were $470 million and $561 million, respectively. These amounts were recorded in Selling, general and administrative expense in the Consolidated Statements of Income.
UCB
We are in a collaboration with UCB for the development and commercialization of EVENITY™. In 2016, we amended the commercialization rights and responsibilities of the parties. Under the amended agreement, we have the rights to commercialize EVENITY™ for all indications in the United States, Japan and Hong Kong. UCB has the rights for Europe, China and Brazil. The rest of the countries have been allocated to Amgen. Generally, development costs and future worldwide commercialization profits and losses related to the collaboration after accounting for expenses are shared equally. The collaboration agreement will continue in effect unless terminated earlier in accordance with its terms. During the years ended December 31, 2017, 2016 and 2015, the net costs recovered from UCB were $56 million, $48 million and $60 million, respectively, which were recorded primarily in Research and development expense in the Consolidated Statements of Income.
Bayer HealthCare Pharmaceuticals Inc.LLC
We are in a collaboration with Bayer HealthCare Pharmaceuticals Inc.LLC (Bayer) to jointly develop and commercialize Nexavar® (sorafenib)worldwide, except in Japan. The rights to develop and market Nexavar® in Japan are reserved to Bayer. Nexavar® is currently marketed and sold in more than 100 countries around the world for the treatment of unresectable liver cancer and advanced kidney cancer. In the United States, Nexavar® is also approved for the treatment of patients with locally recurrent or metastatic, progressive, differentiated thyroid carcinoma refractory to radioactive iodine treatment.
In 2015, we amended the terms of our collaboration agreement with Bayer, which terminated the co-promotion agreement in the United States and transferred all U.S. operational responsibilities to Bayer, including commercial and medical affairs activities. Prior to the termination of the co-promotion agreement, we co-promoted Nexavar® with Bayer and shared equally in the profits or losses in the United States. In lieu of this profit share, Bayer now pays Amgen a royalty on U.S. sales of Nexavar® at a percentage rate in the high 30s. Amgen no longer contributes sales force personnel or medical liaisons to support Nexavar® in the United States. There are no changes to the global R&D or non-U.S. profit share arrangements in the original agreement, as discussed below.
In all countries outside the United States excludingand Japan, Bayer manages all commercialization activities and incurs all of the sales and marketing expenditures and mutually agreed R&D expenses, for which we continue to reimburse Bayer for half. In these countries, we continue to receive 50% of net profits on sales of Nexavar® after deducting certain Bayer-related costs.
The agreement with Bayer will terminate at the later of the date when patents expire that were issued in connection with product candidates discovered under the agreement or on the last day whenthat we or Bayer market or sell products commercialized under the agreement anywhere in the world. Patents related to Nexavar® begin to expire in 2020.
During the years ended December 31, 2017, 20162019, 2018 and 2015,2017, Amgen recorded Nexavar® net profits of $161$210 million, $167$164 million and $257$161 million, respectively, which were recognized as Other revenues in the Consolidated Statements of Income. During the years ended December 31, 2017, 20162019, 2018 and 2015,2017, Amgen recorded royalty income of $133$79 million, $137$91 million and $72$133 million, respectively, in Other revenues in the Consolidated Statements of Income, pursuant to the 2015 amendment to the collaboration agreement. Net R&D expenses related to the agreement were not material for the years ended December 31, 2017, 2016,2019, 2018 and 2015.2017.
Other
In addition to the collaborations discussed above, we have various othersother collaborations that are not individually significant to our business at this time. Pursuant to the terms of those agreements, we may be required to pay additional amounts or we may receive additional amounts upon the achievement of various development and commercial milestones, which in the aggregate could be significant. We may also incur or have reimbursed to us significant R&D costs if the related product candidate were to advance to late stagelate-stage clinical trials. In addition, if any products related to these collaborations are approved for sale, we may be required to pay significant royalties or we may receive significant royalties on future sales. The payment of these amounts, however, is contingent upon the occurrence of various future events, which have a high degree of uncertainty of occurrence.
8. Related party transactions9. Investments
As of December 31, 2017 and 2016, we owned a 50% interest in K-A, a corporation formed in 1984 with Kirin Holdings Company, Limited (Kirin) for the development and commercialization of certain products based on advanced biotechnology. All of our rights to manufacture and market certain products including pegfilgrastim, granulocyte colony-stimulating factor, darbepoetin alfa, recombinant human erythropoietin and romiplostim are pursuant to exclusive licenses from K-A, which we currently market under the brand names Neulasta®, NEUPOGEN®/GRANULOKINE®, Aranesp®, EPOGEN® and Nplate®, respectively. On October 30, 2017, we announced that we agreed to acquire the remaining 50% ownership of K-A from Kirin. The transaction will be accounted for as a business combination and was completed in the first quarter of 2018, making K-A a wholly owned subsidiary of Amgen. See Note 21, Subsequent event.
Prior to the closing of the share acquisition, we accounted for our interest in K-A using the equity method and included our share of K-A’s profits or losses in Selling, general and administrative expense in the Consolidated Statements of Income. For the years ended December 31, 2017, 2016 and 2015, our share of K-A’s profits was $68 million, $58 million and $65 million, respectively. The carrying value of our equity method investment in K-A was $570 million and $501 million as of December 31, 2017 and 2016, respectively, and is included in Other assets in the Consolidated Balance Sheets.
K-A’s revenues consist of royalty income related to its licensed technology rights. K-A receives royalty income from us, as well as from Kirin and Johnson & Johnson (J&J) under separate product license contracts for certain geographic areas outside the United States. During the years ended December 31, 2017, 2016 and 2015, K-A earned royalties from us of $221 million, $239 million and $264 million, respectively. These amounts are included in Cost of sales in the Consolidated Statements of Income.
K-A’s expenses consist primarily of costs related to R&D activities conducted on its behalf by Amgen and Kirin. K-A pays Amgen and Kirin for such services at negotiated rates. During the years ended December 31, 2017, 2016 and 2015, we earned revenues from K-A of $28 million, $31 million and $65 million, respectively, for certain R&D activities performed on K-A’s behalf. These amounts are recognized as Other revenues in the Consolidated Statements of Income. Cost recoveries from K-A recorded during the year ended December 31, 2017 were insignificant. During the years ended December 31, 2016 and 2015, we recorded cost recoveries from K-A of $7 million and $90 million, respectively, related to certain third-party costs. These amounts are included in Research and development expense in the Consolidated Statements of Income.
As of December 31, 2017 and 2016, we owed K-A $80 million and $69 million, respectively, which is included in Accrued liabilities in the Consolidated Balance Sheets.
Subsequent to the closing of the share acquisition, K-A’s results of operations will be included in our consolidated financial statements, and as a result, transactions between us and K-A will be eliminated in consolidation. License agreements with Kirin and J&J will remain in place.
9. Available-for-sale investments
The amortized cost, gross unrealized gains, gross unrealized losses and fair values of interest-bearing securities, all of which are considered available-for-sale, investments by type of security were as follows (in millions):
|
| | | | | | | | | | | | | | | | |
Types of securities as of December 31, 2019 | | Amortized cost | | Gross unrealized gains | | Gross unrealized losses | | Fair values |
U.S. Treasury notes | | $ | 359 |
| | $ | 1 |
| | $ | — |
| | $ | 360 |
|
U.S. Treasury bills | | — |
| | — |
| | — |
| | — |
|
Other government-related debt securities: | | | | | | | | |
U.S. | | — |
| | — |
| | — |
| | — |
|
Foreign and other | | — |
| | — |
| | — |
| | — |
|
Corporate debt securities: | | | | | | | | |
Financial | | 1,108 |
| | 13 |
| | — |
| | 1,121 |
|
Industrial | | 824 |
| | 10 |
| | — |
| | 834 |
|
Other | | 195 |
| | 3 |
| | — |
| | 198 |
|
Residential-mortgage-backed securities | | 181 |
| | 1 |
| | — |
| | 182 |
|
Other mortgage- and asset-backed securities | | — |
| | — |
| | — |
| | — |
|
Money market mutual funds | | 5,250 |
| | — |
| | — |
| | 5,250 |
|
Other short-term interest-bearing securities | | 289 |
| | — |
| | — |
| | 289 |
|
Total available-for-sale investments | | $ | 8,206 |
| | $ | 28 |
| | $ | — |
| | $ | 8,234 |
|
|
| | | | | | | | | | | | | | | | |
| | Year ended December 31, 2017 |
Type of security | | Amortized cost | | Gross unrealized gains | | Gross unrealized losses | | Fair value |
U.S. Treasury securities | | $ | 8,313 |
| | $ | 1 |
| | $ | (72 | ) | | $ | 8,242 |
|
Other government-related debt securities: | | | | | | | | |
U.S. | | 225 |
| | — |
| | (2 | ) | | 223 |
|
Foreign and other | | 2,415 |
| | 18 |
| | (11 | ) | | 2,422 |
|
Corporate debt securities: | | | | | | | | |
Financial | | 10,089 |
| | 17 |
| | (34 | ) | | 10,072 |
|
Industrial | | 9,688 |
| | 34 |
| | (52 | ) | | 9,670 |
|
Other | | 1,393 |
| | 3 |
| | (6 | ) | | 1,390 |
|
Residential mortgage-backed securities | | 2,198 |
| | — |
| | (30 | ) | | 2,168 |
|
Other mortgage- and asset-backed securities | | 2,312 |
| | — |
| | (15 | ) | | 2,297 |
|
Money market mutual funds | | 3,245 |
| | — |
| | — |
| | 3,245 |
|
Other short-term interest-bearing securities | | 1,440 |
| | — |
| | — |
| | 1,440 |
|
Total interest-bearing securities | | 41,318 |
| | 73 |
| | (222 | ) | | 41,169 |
|
Equity securities | | 135 |
| | 14 |
| | — |
| | 149 |
|
Total available-for-sale investments | | $ | 41,453 |
| | $ | 87 |
| | $ | (222 | ) | | $ | 41,318 |
|
|
| | | | | | | | | | | | | | | | |
| | Year ended December 31, 2016 |
Type of security | | Amortized cost | | Gross unrealized gains | | Gross unrealized losses | | Fair value |
U.S. Treasury securities | | $ | 6,681 |
| | $ | 1 |
| | $ | (68 | ) | | $ | 6,614 |
|
Other government-related debt securities: | | | | | | | | |
U.S. | | 302 |
| | — |
| | (3 | ) | | 299 |
|
Foreign and other | | 1,784 |
| | 9 |
| | (34 | ) | | 1,759 |
|
Corporate debt securities: | | | | | | | | |
Financial | | 8,476 |
| | 21 |
| | (37 | ) | | 8,460 |
|
Industrial | | 8,793 |
| | 59 |
| | (63 | ) | | 8,789 |
|
Other | | 1,079 |
| | 5 |
| | (7 | ) | | 1,077 |
|
Residential mortgage-backed securities | | 1,968 |
| | 1 |
| | (29 | ) | | 1,940 |
|
Other mortgage- and asset-backed securities | | 1,731 |
| | 1 |
| | (13 | ) | | 1,719 |
|
Money market mutual funds | | 2,782 |
| | — |
| | — |
| | 2,782 |
|
Other short-term interest-bearing securities | | 4,188 |
| | — |
| | — |
| | 4,188 |
|
Total interest-bearing securities | | 37,784 |
| | 97 |
| | (254 | ) | | 37,627 |
|
Equity securities | | 127 |
| | 31 |
| | (4 | ) | | 154 |
|
Total available-for-sale investments | | $ | 37,911 |
| | $ | 128 |
| | $ | (258 | ) | | $ | 37,781 |
|
|
| | | | | | | | | | | | | | | | |
Types of securities as of December 31, 2018 | | Amortized cost | | Gross unrealized gains | | Gross unrealized losses | | Fair values |
U.S. Treasury notes | | $ | 2,710 |
| | $ | — |
| | $ | (47 | ) | | $ | 2,663 |
|
U.S. Treasury bills | | 8,191 |
| | — |
| | — |
| | 8,191 |
|
Other government-related debt securities: | | | | | | | | |
U.S. | | 112 |
| | — |
| | (2 | ) | | 110 |
|
Foreign and other | | 972 |
| | 1 |
| | (41 | ) | | 932 |
|
Corporate debt securities: | | | | | | | | |
Financial | | 2,778 |
| | — |
| | (81 | ) | | 2,697 |
|
Industrial | | 2,603 |
| | — |
| | (99 | ) | | 2,504 |
|
Other | | 583 |
| | — |
| | (21 | ) | | 562 |
|
Residential-mortgage-backed securities | | 1,458 |
| | — |
| | (36 | ) | | 1,422 |
|
Other mortgage- and asset-backed securities | | 483 |
| | — |
| | (14 | ) | | 469 |
|
Money market mutual funds | | 5,659 |
| | — |
| | — |
| | 5,659 |
|
Other short-term interest-bearing securities | | 3,515 |
| | — |
| | — |
| | 3,515 |
|
Total available-for-sale investments | | $ | 29,064 |
| | $ | 1 |
| | $ | (341 | ) | | $ | 28,724 |
|
The fair values of available-for-sale investments by location in the Consolidated Balance Sheets were as follows (in millions):
|
| | | | | | | | |
| | December 31, |
Consolidated Balance Sheets locations | | 2019 | | 2018 |
Cash and cash equivalents | | $ | 5,360 |
| | $ | 6,365 |
|
Marketable securities | | 2,874 |
| | 22,359 |
|
Total available-for-sale investments | | $ | 8,234 |
| | $ | 28,724 |
|
|
| | | | | | | | |
| | December 31, |
Consolidated Balance Sheets location | | 2017 | | 2016 |
Cash and cash equivalents | | $ | 3,291 |
| | $ | 2,783 |
|
Marketable securities | | 37,878 |
| | 34,844 |
|
Other assets | | 149 |
| | 154 |
|
Total available-for-sale investments | | $ | 41,318 |
| | $ | 37,781 |
|
Cash and cash equivalents in the above table excludes bank account cash of $509$677 million and $458$580 million as of December 31, 20172019 and 2016,2018, respectively.
The fair values of available-for-sale interest-bearing security investments by contractual maturity, except for mortgage- and asset-backed securities that do not have a single maturity date, were as follows (in millions):
|
| | | | | | | | |
| | December 31, |
Contractual maturities | | 2019 | | 2018 |
Maturing in one year or less | | $ | 5,629 |
| | $ | 17,424 |
|
Maturing after one year through three years | | 2,304 |
| | 3,356 |
|
Maturing after three years through five years | | 119 |
| | 5,168 |
|
Maturing after five years through ten years | | — |
| | 885 |
|
Mortgage- and asset-backed securities | | 182 |
| | 1,891 |
|
Total available-for-sale investments | | $ | 8,234 |
| | $ | 28,724 |
|
|
| | | | | | | | |
| | December 31, |
Contractual maturity | | 2017 | | 2016 |
Maturing in one year or less | | $ | 6,733 |
| | $ | 8,393 |
|
Maturing after one year through three years | | 12,820 |
| | 10,404 |
|
Maturing after three years through five years | | 13,836 |
| | 12,157 |
|
Maturing after five years through ten years | | 3,263 |
| | 2,974 |
|
Maturing after ten years | | 52 |
| | 40 |
|
Mortgage- and asset-backed securities | | 4,465 |
| | 3,659 |
|
Total interest-bearing securities | | $ | 41,169 |
| | $ | 37,627 |
|
For the years ended December 31, 2017, 20162019, 2018 and 2015,2017, realized gains on interest-bearing securities were $172$92 million, $306$29 million and $132$147 million, respectively, and realized losses on interest-bearing securities were $36 million, $394 million and $213 million, $367 millionrespectively. Realized gains and $208 million, respectively.losses on interest-bearing securities are recorded in Interest and other income, net, in the Consolidated Statements of Income. The cost of securities sold is based on the specific identificationspecific-identification method.
Information on
As of December 31, 2019, aggregate gross unrealized losses of available-for-sale investments were not material. As of December 31, 2018, the fair values and gross unrealized losses of available-for-sale investments in an unrealized loss position aggregated by type and length of time that the securities have been in a continuous loss position waswere as follows (in millions):
|
| | | | | | | | | | | | | | | | |
| | Less than 12 months | | 12 months or greater |
Type of security as of December 31, 2017 | | Fair value | | Unrealized losses | | Fair value | | Unrealized losses |
U.S. Treasury securities | | $ | 7,728 |
| | $ | (70 | ) | | $ | 195 |
| | $ | (2 | ) |
Other government-related debt securities: | | | | | | | | |
U.S. | | 188 |
| | (1 | ) | | 34 |
| | (1 | ) |
Foreign and other | | 1,163 |
| | (9 | ) | | 115 |
| | (2 | ) |
Corporate debt securities: | | | | | | | | |
Financial | | 5,928 |
| | (28 | ) | | 462 |
| | (6 | ) |
Industrial | | 5,760 |
| | (43 | ) | | 612 |
| | (9 | ) |
Other | | 868 |
| | (4 | ) | | 117 |
| | (2 | ) |
Residential mortgage-backed securities | | 1,838 |
| | (24 | ) | | 276 |
| | (6 | ) |
Other mortgage- and asset-backed securities | | 1,777 |
| | (12 | ) | | 250 |
| | (3 | ) |
Total | | $ | 25,250 |
| | $ | (191 | ) | | $ | 2,061 |
| | $ | (31 | ) |
|
| | | | | | | | | | | | | | | | |
| | Less than 12 months | | 12 months or more |
Types of securities as of December 31, 2018 | | Fair values | | Unrealized losses | | Fair values | | Unrealized losses |
U.S. Treasury notes | | $ | 1,219 |
| | $ | (21 | ) | | $ | 1,444 |
| | $ | (26 | ) |
Other government-related debt securities: | | | | | | | | |
U.S. | | — |
| | — |
| | 110 |
| | (2 | ) |
Foreign and other | | 631 |
| | (31 | ) | | 240 |
| | (10 | ) |
Corporate debt securities: | | | | | | | | |
Financial | | 1,968 |
| | (59 | ) | | 718 |
| | (22 | ) |
Industrial | | 1,898 |
| | (81 | ) | | 529 |
| | (18 | ) |
Other | | 529 |
| | (20 | ) | | 28 |
| | (1 | ) |
Residential-mortgage-backed securities | | 576 |
| | (14 | ) | | 840 |
| | (22 | ) |
Other mortgage- and asset-backed securities | | 17 |
| | — |
| | 451 |
| | (14 | ) |
Total | | $ | 6,838 |
| | $ | (226 | ) | | $ | 4,360 |
| | $ | (115 | ) |
|
| | | | | | | | | | | | | | | | |
| | Less than 12 months | | 12 months or greater |
Type of security as of December 31, 2016 | | Fair value | | Unrealized losses | | Fair value | | Unrealized losses |
U.S. Treasury securities | | $ | 5,774 |
| | $ | (68 | ) | | $ | — |
| | $ | — |
|
Other government-related debt securities: | | | | | | | | |
U.S. | | 201 |
| | (3 | ) | | — |
| | — |
|
Foreign and other | | 1,192 |
| | (34 | ) | | 17 |
| | — |
|
Corporate debt securities: | | | | | | | | |
Financial | | 3,975 |
| | (37 | ) | | 44 |
| | — |
|
Industrial | | 3,913 |
| | (61 | ) | | 149 |
| | (2 | ) |
Other | | 486 |
| | (7 | ) | | 7 |
| | — |
|
Residential mortgage-backed securities | | 1,631 |
| | (26 | ) | | 158 |
| | (3 | ) |
Other mortgage- and asset-backed securities | | 1,087 |
| | (10 | ) | | 118 |
| | (3 | ) |
Equity securities | | 22 |
| | (4 | ) | | — |
| | — |
|
Total | | $ | 18,281 |
| | $ | (250 | ) | | $ | 493 |
| | $ | (8 | ) |
The primary objective of our investment portfolio is to enhance overall returns in an efficient manner while maintainingmaintain safety of principal, prudent levels of liquidity and acceptable levels of risk. Our investment policy limits interest-bearing security investments to certain types of debt and money market instruments issued by institutions with primarily investment-grade credit ratings, and it places restrictions on maturities and concentration by asset class and issuer.
We review our available-for-sale investments for other-than-temporary declines in fair value below our cost basis each quarter and whenever events or changes in circumstances indicate that the cost basis of an asset may not be recoverable. The evaluation is based on a number of factors, including the length of time and the extent to which the fair value has been below our cost basis andas well as adverse conditions related specifically to the security, includingsuch as any changes to the credit rating of the security and the intent to sell or whether we will more likely than not be required to sell the security before recovery of its amortized cost basis. Our assessment of whether a security is other-than-temporarily impaired could change in the future based on new developments or changes in assumptions related to that particular security. As of December 31, 20172019 and 2016,2018, we believe the cost bases for our available-for-sale investments were recoverable in all material aspects.respects.
Equity securities
We held investments in equity securities with readily determinable fair values of $303 million and $176 million as of December 31, 2019 and 2018, respectively, which are included in Other assets in the Consolidated Balance Sheets. Gains and losses recognized on equity securities with readily determinable fair values, including gains and losses recognized on sales, were not material for the years ended December 31, 2019, 2018 and 2017.
We held investments of $176 million and $222 million in equity securities without readily determinable fair values as of December 31, 2019 and 2018, respectively, which are included in Other assets in the Consolidated Balance Sheets. Adjustments to the carrying values of these securities were not material for the years ended December 31, 2019, 2018 and 2017.
Limited partnership investments
We held limited partnership investments of $320 million and $285 million as of December 31, 2019 and 2018, respectively, which are included in Other assets in the Consolidated Balance Sheets. These investments are measured by using the net asset values of the underlying investments as a practical expedient. These investments are typically redeemable only through distributions upon liquidation of the underlying assets. As of December 31, 2019, unfunded additional commitments to be made for these investments during the next several years were not material. Gains and losses recognized on our limited partnership investments were not material for the years ended December 31, 2019, 2018 and 2017.
10. Inventories
Inventories consisted of the following (in millions):
|
| | | | | | | |
| December 31, |
| 2019 | | 2018 |
Raw materials | $ | 358 |
| | $ | 257 |
|
Work in process | 2,227 |
| | 1,660 |
|
Finished goods | 999 |
| | 1,023 |
|
Total inventories | $ | 3,584 |
| | $ | 2,940 |
|
|
| | | | | | | |
| December 31, |
| 2017 | | 2016 |
Raw materials | $ | 232 |
| | $ | 225 |
|
Work in process | 1,668 |
| | 1,608 |
|
Finished goods | 934 |
| | 912 |
|
Total inventories | $ | 2,834 |
| | $ | 2,745 |
|
11. Property, plant and equipment
Property, plant and equipment consisted of the following (dollar amounts in millions):
|
| | | | | | | | | |
| | | December 31, |
| Useful life (in years) | | 2019 | | 2018 |
Land | — | | $ | 263 |
| | $ | 265 |
|
Buildings and improvements | 10-40 | | 3,757 |
| | 3,616 |
|
Manufacturing equipment | 8-12 | | 2,655 |
| | 2,418 |
|
Laboratory equipment | 8-12 | | 1,236 |
| | 1,174 |
|
Capitalized software | 3-5 | | 1,154 |
| | 1,124 |
|
Other | 3-15 | | 3,313 |
| | 3,204 |
|
Construction in progress | — | | 907 |
| | 953 |
|
Property, plant and equipment, gross | | | 13,285 |
| | 12,754 |
|
Less accumulated depreciation and amortization | | | (8,357 | ) | | (7,796 | ) |
Property, plant and equipment, net | | | $ | 4,928 |
| | $ | 4,958 |
|
|
| | | | | | | | | | |
| | | December 31, |
| Useful life (in years) | | 2017 | | 2016 |
Land | — |
| | $ | 283 |
| | $ | 295 |
|
Buildings and improvements | 10-40 |
| | 3,507 |
| | 3,640 |
|
Manufacturing equipment | 8-12 |
| | 2,372 |
| | 2,275 |
|
Laboratory equipment | 8-12 |
| | 1,179 |
| | 1,092 |
|
Other | 3-15 |
| | 4,404 |
| | 4,380 |
|
Construction in progress | — |
| | 834 |
| | 745 |
|
Property, plant and equipment, gross | | | 12,579 |
| | 12,427 |
|
Less accumulated depreciation and amortization | | | (7,590 | ) | | (7,466 | ) |
Property, plant and equipment, net | | | $ | 4,989 |
| | $ | 4,961 |
|
During the years ended December 31, 2017, 20162019, 2018 and 2015,2017, we recognized depreciation and amortization expense associated with our property, plant and equipment of $604$635 million, $619$630 million and $727$604 million, respectively.
Geographic information
Certain geographic information with respect to property, plant and equipment, net (long-lived assets), was as follows (in millions):
|
| | | | | | | |
| December 31, |
| 2019 | | 2018 |
United States | $ | 2,433 |
| | $ | 2,373 |
|
Puerto Rico | 1,402 |
| | 1,476 |
|
ROW | 1,093 |
| | 1,109 |
|
Total property, plant and equipment, net | $ | 4,928 |
| | $ | 4,958 |
|
12. Goodwill and other intangible assets
Goodwill
ChangesThe changes in the carrying amounts of goodwill were as follows (in millions):
|
| | | | | | | |
| Years ended December 31, |
| 2019 | | 2018 |
Beginning balance | $ | 14,699 |
| | $ | 14,761 |
|
Addition from acquisitions | 26 |
| | 6 |
|
Currency translation adjustments | (22 | ) | | (68 | ) |
Ending balance | $ | 14,703 |
| | $ | 14,699 |
|
|
| | | | | | | |
| Years ended December 31, |
| 2017 | | 2016 |
Beginning balance | $ | 14,751 |
| | $ | 14,787 |
|
Goodwill related to acquisitions of businesses | — |
| | 2 |
|
Currency translation adjustments | 10 |
| | (38 | ) |
Ending balance | $ | 14,761 |
| | $ | 14,751 |
|
Other intangible assets
Other intangible assets consisted of the following (in millions):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, |
| 2019 | | 2018 |
| Gross carrying amounts | | Accumulated amortization | | Other intangible assets, net | | Gross carrying amounts | | Accumulated amortization | | Other intangible assets, net |
Finite-lived intangible assets: | | | | | | | | | | | |
Developed-product-technology rights | $ | 25,575 |
| | $ | (8,322 | ) | | $ | 17,253 |
| | $ | 12,573 |
| | $ | (7,479 | ) | | $ | 5,094 |
|
Licensing rights | 3,761 |
| | (2,398 | ) | | 1,363 |
| | 3,772 |
| | (2,032 | ) | | 1,740 |
|
Marketing-related rights | 1,382 |
| | (965 | ) | | 417 |
| | 1,297 |
| | (1,019 | ) | | 278 |
|
R&D technology rights | 1,273 |
| | (947 | ) | | 326 |
| | 1,148 |
| | (872 | ) | | 276 |
|
Total finite-lived intangible assets | 31,991 |
| | (12,632 | ) | | 19,359 |
| | 18,790 |
| | (11,402 | ) | | 7,388 |
|
Indefinite-lived intangible assets: | | | | | | | | | | | |
IPR&D | 54 |
| | — |
| | 54 |
| | 55 |
| | — |
| | 55 |
|
Total other intangible assets | $ | 32,045 |
| | $ | (12,632 | ) | | $ | 19,413 |
| | $ | 18,845 |
| | $ | (11,402 | ) | | $ | 7,443 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, |
| 2017 | | 2016 |
| Gross carrying amount | | Accumulated amortization | | Other intangible assets, net | | Gross carrying amount | | Accumulated amortization | | Other intangible assets, net |
Finite-lived intangible assets: | | | | | | | | | | | |
Developed product technology rights | $ | 12,589 |
| | $ | (6,796 | ) | | $ | 5,793 |
| | $ | 12,534 |
| | $ | (5,947 | ) | | $ | 6,587 |
|
Licensing rights | 3,275 |
| | (1,601 | ) | | 1,674 |
| | 3,275 |
| | (1,300 | ) | | 1,975 |
|
Marketing-related rights | 1,319 |
| | (920 | ) | | 399 |
| | 1,333 |
| | (793 | ) | | 540 |
|
R&D technology rights | 1,161 |
| | (804 | ) | | 357 |
| | 1,122 |
| | (704 | ) | | 418 |
|
Total finite-lived intangible assets | 18,344 |
| | (10,121 | ) | | 8,223 |
| | 18,264 |
| | (8,744 | ) | | 9,520 |
|
Indefinite-lived intangible assets: | | | | | | | | | | | |
IPR&D | 386 |
| | — |
| | 386 |
| | 759 |
| | — |
| | 759 |
|
Total other intangible assets | $ | 18,730 |
| | $ | (10,121 | ) | | $ | 8,609 |
| | $ | 19,023 |
| | $ | (8,744 | ) | | $ | 10,279 |
|
Developed product technologyDeveloped-product-technology rights consistconsists of rights related to marketed products acquired in business combinations.acquisitions. Licensing rights consistconsists primarily of contractual rights acquired in business combinationsacquisitions to receive future milestones, royaltiesmilestone, royalty and profit sharing payments,profit-sharing payments; capitalized payments to third parties for milestones related to regulatory approvals to commercialize
products products; and up-front payments associated with royalty obligations for marketed products. Marketing-related intangible assets consistrights consists primarily of rights related to the sale and distribution of marketed products. R&D technology rights consist of technologypertains to technologies used in R&D withthat have alternative future uses. Developed-product-technology rights and marketing-related rights include assets acquired with the Otezla® acquisition. R&D technology rights includes assets acquired with the Nuevolution acquisition. See Note 2, Acquisitions.
IPR&D consists of R&D projects acquired in a business combination that are not complete at the time of acquisition due to remaining technological risks and/or lack of receipt of required regulatory approvals. During 2017, we decided to discontinue the internal development of AMG 899 acquired in the acquisition of Dezima in 2015 (see Note 3, Business combinations), resulting in an impairment charge of $400 million, which was recognized in Other operating expenses in the Consolidated Statement of Income and included in Other items, net in the Consolidated Statement of Cash Flows. See Note 16, Fair value measurement, for the impact on the related contingent consideration liabilities. As of December 31, 2017, IPR&D consists primarily of the oprozomib project, acquired in the acquisition of Onyx Pharmaceuticals, Inc. in 2013.
All IPR&D projects have major risks and uncertainties associated with the timely and successful completion of the development and commercialization of product candidates, including our ability to confirm safety and efficacy based on data from clinical trials, our ability to obtain necessary regulatory approvals and our ability to successfully complete these tasks within budgeted costs. We are not permitted to market a human therapeutic without obtaining regulatory approvals, and such approvals require the completion of clinical trials that demonstrate that a product candidate is safe and effective. In addition, the availability and extent of coverage and reimbursement from third-party payers, including government healthcare programs and private insurance plans as well as competitive product launches, impactaffect the revenues a product can generate. Consequently, the eventual realized value,values, if any, of the acquired IPR&D projects may vary from their estimated fair values. We review IPR&D projects for impairment annually, whenever events or changes in circumstances indicate that the carrying amountamounts may not be recoverable and upon the establishment of technological feasibility or regulatory approval.
During the years ended December 31, 2017, 20162019, 2018 and 2015,2017, we recognized amortization expense associated with our finite-lived intangible assets of $1.4 billion, $1.3 billion and $1.3 billion, respectively. Amortization of intangible assets is included primarily in Cost of sales in the Consolidated Statements of Income, of $1.3 billion, $1.5 billion and $1.4 billion, respectively.Income. The total estimated amortization expense for each of the next five years for our finite-lived intangible assets is $1.2for the years ending December 31, 2020, 2021, 2022, 2023 and 2024, are $2.8 billion, $1.1$2.6 billion, $1.1$2.5 billion, $0.9$2.4 billion and $0.9$2.4 billion, in 2018, 2019, 2020, 2021 and 2022, respectively.
13. AccruedLeases
On January 1, 2019, we adopted a new accounting standard that amends the guidance for the accounting and reporting of leases. Certain required disclosures have been made on a prospective basis in accordance with the standard’s guidance. See Note 1, Summary of significant accounting policies.
We lease certain facilities and equipment related primarily to administrative, R&D and sales and marketing activities. Leases with terms of 12 months or less are expensed on a straight-line basis over the term and are not recorded in the Consolidated Balance Sheets.
Most leases include one or more options to renew, with renewal terms that may extend the lease term up to seven years. The exercise of lease renewal options is at our sole discretion. In addition, some of our lease agreements include rental payments adjusted periodically for inflation. Our lease agreements neither contain residual value guarantees nor impose significant restrictions or covenants. We sublease certain real estate to third parties. Our sublease portfolio consists of operating leases from former R&D and administrative space.
The following table summarizes information related to our leases, all of which are classified as operating, included in our Consolidated Balance Sheets (in millions):
|
| | | | |
Consolidated Balance Sheets locations | | December 31, 2019 |
Assets: | | |
Other assets | | $ | 469 |
|
Liabilities: | | |
Accrued liabilities | | $ | 140 |
|
Other noncurrent liabilities | | 388 |
|
Total lease liabilities | | $ | 528 |
|
The components of net lease costs were as follows (in millions):
|
| | | | |
Lease costs | | Year ended December 31, 2019 |
Operating(1) | | $ | 204 |
|
Sublease income | | (33 | ) |
Total net lease costs | | $ | 171 |
|
____________
| |
(1) | Includes short-term leases and variable lease costs, which were not material for the year ended December 31, 2019. |
Maturities of lease liabilities as of December 31, 2019, were as follows (in millions):
|
| | | | |
Maturity dates | | Amounts |
2020 | | $ | 157 |
|
2021 | | 150 |
|
2022 | | 110 |
|
2023 | | 88 |
|
2024 | | 30 |
|
Thereafter | | 32 |
|
Total lease payments(1) | | 567 |
|
Less imputed interest | | (39 | ) |
Present value of lease liabilities | | $ | 528 |
|
____________
| |
(1) | Includes future rental commitments for abandoned leases of $178 million. We expect to receive total future rental income of $141 million related to noncancelable subleases for abandoned facilities. |
The weighted-average remaining lease term and weighted-average discount rate of our leases were 4.1 years and 3.3%, respectively, as of December 31, 2019.
Cash and noncash information related to our leases was as follows (in millions):
|
| | | | |
| | Year ended December 31, 2019 |
Cash paid for amounts included in the measurement of lease liabilities: | | |
Operating cash flows for operating leases | | $ | 148 |
|
ROU assets obtained in exchange for lease obligations: | | |
Operating leases | | $ | 163 |
|
As of December 31, 2019, we have entered into leases that have not yet commenced, with total undiscounted future lease payments of $306 million. Theses leases will commence between 2020 and 2021 with lease terms from 5 years to 15 years.
The following table summarizes minimum future rental commitments related to noncancelable operating leases under the prior lease guidance as of December 31, 2018 (in millions):
|
| | | |
| Amounts |
2019 | $ | 164 |
|
2020 | 126 |
|
2021 | 113 |
|
2022 | 64 |
|
2023 | 56 |
|
Thereafter | 46 |
|
Total minimum operating lease commitments | $ | 569 |
|
Included in the table above are future rental commitments for abandoned leases in the amount of $222 million. As of December 31, 2018, we expect to receive total future rental income of $203 million related to noncancelable subleases for abandoned facilities. Rental expenses on operating leases under the prior lease guidance for the years ended December 31, 2018 and 2017, were $166 million and $159 million, respectively.
14. Other current assets and accrued liabilities
Other current assets consisted of the following (in millions):
|
| | | | | | | |
| December 31, |
| 2019 | | 2018 |
Prepaid expenses | $ | 939 |
| | $ | 907 |
|
Corporate partner receivables | 485 |
| | 444 |
|
Interest receivables | 110 |
| | 177 |
|
Other | 354 |
| | 266 |
|
Total other current assets | $ | 1,888 |
| | $ | 1,794 |
|
Accrued liabilities consisted of the following (in millions):
|
| | | | | | | |
| December 31, |
| 2019 | | 2018 |
Sales deductions | $ | 3,880 |
| | $ | 3,170 |
|
Employee compensation and benefits | 981 |
| | 1,001 |
|
Dividends payable | 946 |
| | 914 |
|
Sales returns reserve | 564 |
| | 535 |
|
Other | 2,140 |
| | 2,242 |
|
Total accrued liabilities | $ | 8,511 |
| | $ | 7,862 |
|
|
| | | | | | | |
| December 31, |
| 2017 | | 2016 |
Sales deductions | $ | 2,247 |
| | $ | 1,874 |
|
Dividends payable | 953 |
| | 849 |
|
Employee compensation and benefits | 816 |
| | 920 |
|
Sales returns reserve | 455 |
| | 437 |
|
Other | 2,045 |
| | 1,804 |
|
Total accrued liabilities | $ | 6,516 |
| | $ | 5,884 |
|
14.15. Financing arrangements
The carrying values andOur borrowings consisted of the fixed contractual coupon rates of our borrowings were as followsfollowing (in millions):
|
| | | | | | | |
| December 31, |
| 2019 | | 2018 |
5.70% notes due 2019 (5.70% 2019 Notes) | $ | — |
| | $ | 1,000 |
|
1.90% notes due 2019 (1.90% 2019 Notes) | — |
| | 700 |
|
Floating Rate Notes due 2019 | — |
| | 550 |
|
2.20% notes due 2019 (2.20% 2019 Notes) | — |
| | 1,400 |
|
2.125% €675 million notes due 2019 (2.125% 2019 euro Notes) | — |
| | 774 |
|
4.50% notes due 2020 (4.50% 2020 Notes) | 300 |
| | 300 |
|
2.125% notes due 2020 (2.125% 2020 Notes) | 750 |
| | 750 |
|
Floating Rate Notes due 2020 | 300 |
| | 300 |
|
2.20% notes due 2020 (2.20% 2020 Notes) | 700 |
| | 700 |
|
3.45% notes due 2020 (3.45% 2020 Notes) | 900 |
| | 900 |
|
4.10% notes due 2021 (4.10% 2021 Notes) | 1,000 |
| | 1,000 |
|
1.85% notes due 2021 (1.85% 2021 Notes) | 750 |
| | 750 |
|
3.875% notes due 2021 (3.875% 2021 Notes) | 1,750 |
| | 1,750 |
|
1.25% €1,250 million notes due 2022 (1.25% 2022 euro Notes) | 1,402 |
| | 1,433 |
|
2.70% notes due 2022 (2.70% 2022 Notes) | 500 |
| | 500 |
|
2.65% notes due 2022 (2.65% 2022 Notes) | 1,500 |
| | 1,500 |
|
3.625% notes due 2022 (3.625% 2022 Notes) | 750 |
| | 750 |
|
0.41% CHF700 million bonds due 2023 (0.41% 2023 Swiss franc Bonds) | 725 |
| | 713 |
|
2.25% notes due 2023 (2.25% 2023 Notes) | 750 |
| | 750 |
|
3.625% notes due 2024 (3.625% 2024 Notes) | 1,400 |
| | 1,400 |
|
3.125% notes due 2025 (3.125% 2025 Notes) | 1,000 |
| | 1,000 |
|
2.00% €750 million notes due 2026 (2.00% 2026 euro Notes) | 841 |
| | 860 |
|
2.60% notes due 2026 (2.60% 2026 Notes) | 1,250 |
| | 1,250 |
|
5.50% £475 million notes due 2026 (5.50% 2026 pound sterling Notes) | 630 |
| | 606 |
|
3.20% notes due 2027 (3.20% 2027 Notes) | 1,000 |
| | 1,000 |
|
4.00% £700 million notes due 2029 (4.00% 2029 pound sterling Notes) | 928 |
| | 893 |
|
6.375% notes due 2037 (6.375% 2037 Notes) | 552 |
| | 552 |
|
6.90% notes due 2038 (6.90% 2038 Notes) | 291 |
| | 291 |
|
6.40% notes due 2039 (6.40% 2039 Notes) | 466 |
| | 466 |
|
5.75% notes due 2040 (5.75% 2040 Notes) | 412 |
| | 412 |
|
4.95% notes due 2041 (4.95% 2041 Notes) | 600 |
| | 600 |
|
5.15% notes due 2041 (5.15% 2041 Notes) | 974 |
| | 974 |
|
5.65% notes due 2042 (5.65% 2042 Notes) | 487 |
| | 487 |
|
5.375% notes due 2043 (5.375% 2043 Notes) | 261 |
| | 261 |
|
4.40% notes due 2045 (4.40% 2045 Notes) | 2,250 |
| | 2,250 |
|
4.563% notes due 2048 (4.563% 2048 Notes) | 1,415 |
| | 1,415 |
|
4.663% notes due 2051 (4.663% 2051 Notes) | 3,541 |
| | 3,541 |
|
Other notes due 2097 | 100 |
| | 100 |
|
Unamortized bond discounts, premiums and issuance costs, net | (868 | ) | | (896 | ) |
Fair value adjustments | 296 |
| | (53 | ) |
Total carrying value of debt | 29,903 |
| | 33,929 |
|
Less current portion | (2,953 | ) | | (4,419 | ) |
Total long-term debt | $ | 26,950 |
| | $ | 29,510 |
|
|
| | | | | | | |
| December 31, |
| 2017 | | 2016 |
Short-term loan | $ | — |
| | $ | 605 |
|
2.125% notes due 2017 (2.125% 2017 Notes) | — |
| | 1,250 |
|
Floating Rate Notes due 2017 | — |
| | 600 |
|
1.25% notes due 2017 (1.25% 2017 Notes) | — |
| | 850 |
|
5.85% notes due 2017 (5.85% 2017 Notes) | — |
| | 1,100 |
|
6.15% notes due 2018 (6.15% 2018 Notes) | 500 |
| | 500 |
|
4.375% €550 million notes due 2018 (4.375% 2018 euro Notes) | 653 |
| | 577 |
|
5.70% notes due 2019 (5.70% 2019 Notes) | 1,000 |
| | 1,000 |
|
1.90% notes due 2019 (1.90% 2019 Notes) | 700 |
| | — |
|
Floating Rate Notes due 2019 | 550 |
| | 250 |
|
2.20% notes due 2019 (2.20% 2019 Notes) | 1,400 |
| | 1,400 |
|
2.125% €675 million notes due 2019 (2.125% 2019 euro Notes) | 810 |
| | 710 |
|
4.50% notes due 2020 (4.50% 2020 Notes) | 300 |
| | 300 |
|
2.125% notes due 2020 (2.125% 2020 Notes) | 750 |
| | 750 |
|
Floating Rate Notes due 2020 | 300 |
| | — |
|
2.20% notes due 2020 (2.20% 2020 Notes) | 700 |
| | — |
|
3.45% notes due 2020 (3.45% 2020 Notes) | 900 |
| | 900 |
|
4.10% notes due 2021 (4.10% 2021 Notes) | 1,000 |
| | 1,000 |
|
1.85% notes due 2021 (1.85% 2021 Notes) | 750 |
| | 750 |
|
3.875% notes due 2021 (3.875% 2021 Notes) | 1,750 |
| | 1,750 |
|
1.25% €1,250 million notes due 2022 (1.25% 2022 euro Notes) | 1,501 |
| | 1,315 |
|
2.70% notes due 2022 (2.70% 2022 Notes) | 500 |
| | 500 |
|
2.65% notes due 2022 (2.65% 2022 Notes) | 1,500 |
| | — |
|
3.625% notes due 2022 (3.625% 2022 Notes) | 750 |
| | 750 |
|
0.41% CHF700 million bonds due 2023 (0.41% 2023 Swiss franc Bonds) | 719 |
| | 687 |
|
2.25% notes due 2023 (2.25% 2023 Notes) | 750 |
| | 750 |
|
3.625% notes due 2024 (3.625% 2024 Notes) | 1,400 |
| | 1,400 |
|
3.125% notes due 2025 (3.125% 2025 Notes) | 1,000 |
| | 1,000 |
|
2.00% €750 million notes due 2026 (2.00% 2026 euro Notes) | 901 |
| | 789 |
|
2.60% notes due 2026 (2.60% 2026 Notes) | 1,250 |
| | 1,250 |
|
5.50% £475 million notes due 2026 (5.50% 2026 pound sterling Notes) | 642 |
| | 586 |
|
3.20% notes due 2027 (3.20% 2027 Notes)
| 1,000 |
| | — |
|
4.00% £700 million notes due 2029 (4.00% 2029 pound sterling Notes) | 946 |
| | 864 |
|
6.375% notes due 2037 (6.375% 2037 Notes) | 552 |
| | 552 |
|
6.90% notes due 2038 (6.90% 2038 Notes) | 291 |
| | 291 |
|
6.40% notes due 2039 (6.40% 2039 Notes) | 466 |
| | 466 |
|
5.75% notes due 2040 (5.75% 2040 Notes) | 412 |
| | 412 |
|
4.95% notes due 2041 (4.95% 2041 Notes) | 600 |
| | 600 |
|
5.15% notes due 2041 (5.15% 2041 Notes) | 974 |
| | 974 |
|
5.65% notes due 2042 (5.65% 2042 Notes) | 487 |
| | 487 |
|
5.375% notes due 2043 (5.375% 2043 Notes) | 261 |
| | 261 |
|
4.40% notes due 2045 (4.40% 2045 Notes) | 2,250 |
| | 2,250 |
|
4.563% notes due 2048 (4.563% 2048 Notes) | 1,415 |
| | 1,415 |
|
4.663% notes due 2051 (4.663% 2051 Notes) | 3,541 |
| | 3,541 |
|
Other notes due 2097 | 100 |
| | 100 |
|
Unamortized bond discounts, premiums and issuance costs, net | (929 | ) | | (936 | ) |
Total carrying value of debt | 35,342 |
| | 34,596 |
|
Less current portion | (1,152 | ) | | (4,403 | ) |
Total noncurrent debt | $ | 34,190 |
| | $ | 30,193 |
|
There are no material differences between the effective interest rates and the coupon rates of any of our borrowings, except for the 4.563% 2048 Notes and the 4.663% 2051 Notes, which have effective interest rates of 6.3% and 5.6%, respectively.
Under the terms of all of our outstanding notes, (including debt exchange issuances discussed below), except our Other notes due 2097, in the event of a change-in-control triggering event we may be required to purchase all or a portion of these debt securities at a priceprices equal to 101% of the principal amountamounts of the notes plus accrued and unpaid interest. In addition, all of our outstanding notes, notes—except for our floating-rate notes, 0.41% 2023 Swiss franc Bonds and Other notes due 2097, 2097—may be redeemed at any time at our option, option—in whole or in part, part—at the principal amountamounts of the notes being redeemed plus accrued and unpaid interest and a make-whole amount,amounts, which isare defined by the terms of the notes. Certain of the redeemable notes do not require the payment of a make-whole amountamounts if redeemed during a specified period of time immediately prior to the maturity of the notes. Such time periods range from one month to six months prior to maturity.
Debt issuances
We issued debt and debt securities in various offerings duringDuring the yearsyear ended December 31, 2017, 2016 and 2015 including:
In 2017, we issued $4.5 billion principal amount of notes, consisting of the Floating-RateFloating Rate Notes due 2019, the 1.90% 2019 Notes, the Floating-RateFloating Rate Notes due 2020, the 2.20% 2020 Notes, the 2.65% 2022 Notes and the 3.20% 2027 Notes.
In 2016, we issued $6.7 billion principal amount of notes, consisting of We did not issue any debt or debt securities during the 1.85% 2021 Notes, 1.25% 2022 euro Notes, 0.41% 2023 Swiss franc Bonds, 2.25% 2023 Notes, 2.00% 2026 euro Notes, 2.60% 2026 Notesyears ended December 31, 2019 and $1.0 billion of the 4.40% 2045 Notes. We received a $79 million premium on the 4.40% 2045 Notes. In addition, we borrowed $605 million under a short-term floating rate loan.
In 2015, we issued $3.5 billion aggregate principal amount of notes, consisting of the 2.125% 2020 Notes, the 2.70% 2022 Notes, the 3.125% 2025 Notes and $1.25 billion of the 4.40% 2045 Notes.2018.
As of December 31, 2017,2019, we have a commercial paper program that allows us to issue up to $2.5 billion of unsecured commercial paper to fund our working capitalworking-capital needs. During the year ended December 31, 2017, we issued and repaid an aggregate of $12.3 billion of commercial paper and had a maximum outstanding balance of $1.5 billion under our commercial paper program. During the years ended December 31, 20162019 and 2015,2018, we did not issue any commercial paper. No commercial paper was outstanding as of
Debt repayments
We made debt repayments during the years ended December 31, 2019, 2018 and 2017 or 2016.as follows:
Debt repaymentsIn 2019, we repaid $4.5 billion of debt, including the $1.4 billion aggregate principal amount of the 2.20% 2019 Notes, the $1.0 billion aggregate principal amount of the 5.70% 2019 Notes, the €675 million aggregate principal amount ($864 million upon settlement of the related cross-currency swap) of the 2.125% 2019 euro Notes, the $700 million aggregate principal amount of the 1.90% 2019 Notes and the $550 million Floating Rate Notes due 2019.
In 2018, we repaid $1.1 billion of debt, including the $500 million aggregate principal amount of the 6.15% 2018 Notes and the €550 million aggregate principal amount of the 4.375% 2018 Notes revalued at $621 million upon maturity.
In 2017, we repaid $4.4 billion of debt, including the $605 million short-term floating ratefloating-rate loan, the $1.25 billion aggregate principal amount of the 2.125% 2017 Notes, the $600 million aggregate principal amount of the Floating-RateFloating Rate Notes due 2017, the $850 million aggregate principal amount of the 1.25% 2017 Notes and the $1.1 billion aggregate principal amount of the 5.85% 2017 Notes. In 2016, we repaid $3.7 billion of debt, including the remaining $1.975 billion of principal on a term loan credit facility, the $750 million aggregate principal amount of the 2.30% 2016 Notes and the $1.0 billion aggregate principal amount of the 2.50% 2016 Notes. In 2015, we repaid $2.4 billion of principal on a term loan credit facility.
Debt exchange
During 2016, we completed a private offering to exchange portions of certain outstanding senior notes due 2037 through 2043 (collectively, the Old Notes), listed below, for new senior notes, consisting of principal amounts of $1.4 billion of 4.563% 2048 Notes and $3.5 billion of 4.663% 2051 Notes (collectively, the New Notes).
The following principal amounts of each series of Old Notes were validly tendered and subsequently canceled (in millions):
|
| | | | | | |
| | | | Principal amount exchanged |
6.375% 2037 Notes | | | | $ | 348 |
|
6.90% 2038 Notes | | | | 209 |
|
6.40% 2039 Notes | | | | 534 |
|
5.75% 2040 Notes | | | | 288 |
|
5.15% 2041 Notes | | | | 1,276 |
|
5.65% 2042 Notes | | | | 763 |
|
5.375% 2043 Notes | | | | 739 |
|
The New Notes bear lower fixed-coupon rates while requiring higher principal repayments on extended maturity dates, compared with the Old Notes that were exchanged. There were no other significant changes to the terms between the Old Notes and the New Notes. The exchange was accounted for as a debt modification, and there were no cash payments to or cash receipts from the note holders as a result of the exchange. Existing deferred financing costs associated with the Old Notes, as well as
discounts associated with the New Notes aggregating $801 million, are being accreted over the term of the New Notes and recorded as Interest expense, net, in the Consolidated Statements of Income. Transaction costs of $24 million incurred for the exchange were expensed immediately in Interest and other income, net, in the Consolidated Statement of Income.
Interest rate swaps
To achieve a desired mix of fixed-rate and floating-rate debt, we entered into interest rate swap contracts that effectively converted fixed-rate interest coupons for certain of our debt issuances to floating London Interbank Offered Rate (LIBOR)-based coupons over the lives of the respective notes. These interest rate swap contracts qualified and are designated as fair value hedges.
The effective interest rates on notes for which we have entered into interest rate swap contracts and the related notional amounts of these contracts were as follows (dollar amounts in millions):
|
| | | | | | | | | | |
| | | | December 31, |
| | | | 2019 | | 2018 |
Notes | | Effective interest rates | | Notional amounts |
2.20% 2019 Notes | | LIBOR + 0.6% | | $ | — |
| | $ | 1,400 |
|
3.45% 2020 Notes | | LIBOR + 1.1% | | 900 |
| | 900 |
|
4.10% 2021 Notes | | LIBOR + 1.7% | | 1,000 |
| | 1,000 |
|
3.875% 2021 Notes | | LIBOR + 2.0% | | 1,750 |
| | 1,750 |
|
3.625% 2022 Notes | | LIBOR + 1.6% | | 750 |
| | 750 |
|
3.625% 2024 Notes | | LIBOR + 1.4% | | 1,400 |
| | 1,400 |
|
3.125% 2025 Notes | | LIBOR + 0.9% | | 1,000 |
| | 1,000 |
|
2.60% 2026 Notes | | LIBOR + 0.3% | | 1,250 |
| | 1,250 |
|
4.663% 2051 Notes | | LIBOR + 0.0% | | 1,500 |
| | 1,500 |
|
Total notional amounts | | |
| $ | 9,550 |
|
| $ | 10,950 |
|
|
| | | | | | | | | | |
| | | | December 31, |
| | | | 2017 | | 2016 |
Notes | | Effective interest rate | | Notional amount |
1.25% 2017 Notes | | LIBOR + 0.4% | | $ | — |
| | $ | 850 |
|
2.20% 2019 Notes | | LIBOR + 0.6% | | 1,400 |
| | 1,400 |
|
3.45% 2020 Notes | | LIBOR + 1.1% | | 900 |
| | 900 |
|
4.10% 2021 Notes | | LIBOR + 1.7% | | 1,000 |
| | 1,000 |
|
3.875% 2021 Notes | | LIBOR + 2.0% | | 1,750 |
| | 1,750 |
|
3.625% 2022 Notes | | LIBOR + 1.6% | | 750 |
| | 750 |
|
3.625% 2024 Notes | | LIBOR + 1.4% | | 1,400 |
| | — |
|
3.125% 2025 Notes | | LIBOR + 0.9% | | 1,000 |
| | — |
|
2.600% 2026 Notes | | LIBOR + 0.3% | | 1,250 |
| | — |
|
Total notional amounts | | |
| $ | 9,450 |
|
| $ | 6,650 |
|
Cross-currency swaps
In order to hedge our exposure to foreign currency exchange rate risk associated with certain of our long-term notes denominated in foreign currencies, we entered into cross-currency swap contracts. The terms of these contracts effectively convert the interest payments and principal repaymentrepayments on our 2.125% 2019 euro Notes, 1.25% 2022 euro Notes, 0.41% 2023 Swiss franc Bonds, 2.00% 2026 euro Notes, 5.50% 2026 pound sterling Notes and 4.00% 2029 pound sterling Notes from euros, pounds sterling and Swiss francs to U.S. dollars. These cross-currency swap contracts have been designated as cash flow hedges. For information regarding the terms of these contracts, see Note 17,18, Derivative instruments.
Shelf registration statements and other facilities
In 2014,2019, we entered into aamended and restated our $2.5 billion syndicated, unsecured, revolving credit agreement, which is available for general corporate purposes or as a liquidity backstop to our commercial paper program. The commitments under the revolving credit agreement may be increased by up to $500$750 million with the agreement of the banks. Each bank whichthat is a party to the agreement has an initial commitment term of five years. WeThis term may be extended this term by one year during 2016 and may extend the term for anup to 2 additional yearone-year periods with the agreement of the banks. Annual commitment fees for this agreement are 0.09% of the unused portion of the facility based on our current credit rating. Generally, we would be charged interest at LIBOR plus 1% for any amounts borrowed under this facility.facility, based on our current credit rating, at (i) LIBOR plus 1% or (ii) the highest of (A) the syndication agent bank base commercial lending rate, (B) the overnight federal funds rate plus 0.50% or (C) one-month LIBOR plus 1%. The agreement contains provisions relating to the determination of successor rates to address the possible phase-out or unavailability of designated reference rates. As of December 31, 20172019 and 2016, no2018, 0 amounts were outstanding under this facility.
In 2017,February 2020, we filed a shelf registration statement with the SEC that allows us to issue unspecified amounts of debt securities; common stock; preferred stock; warrants to purchase debt securities, common stock, preferred stock or depositary shares; rights to purchase common stock or preferred stock; securities purchase contracts; securities purchase units; and depositary shares. Under this shelf registration statement, all of the securities available for issuance may be offered from time to time with terms to be determined at the time of issuance. This shelf registration statement expires in February 2020.2023.
Certain of our financing arrangements contain non-financialnonfinancial covenants. In addition, our revolving credit agreement includes a financial covenant, with respectwhich requires that we maintain a specified minimum interest coverage ratio of (i) the sum of consolidated net income, interest expense, provision for income taxes, depreciation expense, amortization expense, unusual or nonrecurring charges and other noncash items (Consolidated EBITDA) to (ii) Consolidated Interest Expense, each as defined and described in the level of our borrowings in relation to our equity, as defined.credit agreement. We were in compliance with all applicable covenants under these arrangements as of December 31, 2017.2019.
Contractual maturities of debt obligations
The aggregate contractual maturities of all borrowings due subsequent to December 31, 2017,2019, are as follows (in millions):
| | Maturity date | | Amount | |
2018 | | $ | 1,153 |
| |
2019 | | 4,460 |
| |
Maturity dates | | | Amounts |
2020 | | 2,950 |
| | $ | 2,950 |
|
2021 | | 3,500 |
| | 3,500 |
|
2022 | | 4,251 |
| | 4,152 |
|
2023 | | | 1,474 |
|
2024 | | | 1,400 |
|
Thereafter | | 19,957 |
| | 16,999 |
|
Total | | $ | 36,271 |
| | $ | 30,475 |
|
Interest costs
Interest costs are expensed as incurred except to the extent such interest is related to construction in progress, in which case interest is capitalized. Interest expense, net, for the years ended December 31, 2017, 2016 and 2015, was $1.3 billion, $1.3 billion and $1.1 billion, respectively. Interest costs capitalized for the years ended December 31, 2017, 20162019, 2018 and 2015,2017, were not material. Interest paid, including the ongoing impact and settlements of interest rate and cross-currency swap contracts, during the years ended December 31, 2017, 20162019, 2018 and 2015,2017, was $1.3 billion, $1.2$1.5 billion and $1.0$1.3 billion, respectively.
15.16. Stockholders’ equity
Stock repurchase program
Activity under our stock repurchase program, on a trade date basis, was as follows (in millions):
|
| | | | | | | | | | | | | | | | | | | | |
| Years ended December 31, |
| 2019 | | 2018 | | 2017 |
| Shares* | | Dollars | | Shares* | | Dollars | | Shares | | Dollars |
First quarter | 15.9 |
| | $ | 3,031 |
| | 56.4 |
| | $ | 10,787 |
| | 3.4 |
| | $ | 555 |
|
Second quarter | 13.1 |
| | 2,349 |
| | 18.2 |
| | 3,190 |
| | 6.2 |
| | 1,006 |
|
Third quarter | 6.2 |
| | 1,170 |
| | 8.7 |
| | 1,713 |
| | 4.4 |
| | 769 |
|
Fourth quarter | 5.1 |
| | 1,090 |
| | 11.1 |
| | 2,165 |
| | 4.5 |
| | 796 |
|
Total stock repurchases | 40.2 |
| | $ | 7,640 |
| | 94.5 |
| | $ | 17,855 |
| | 18.5 |
| | $ | 3,126 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| Years ended December 31, |
| 2017 | | 2016 | | 2015 |
| Shares | | Dollars | | Shares | | Dollars | | Shares | | Dollars |
First quarter | 3.4 |
| | $ | 555 |
| | 4.7 |
| | $ | 690 |
| | 2.9 |
| | $ | 451 |
|
Second quarter | 6.2 |
| | 1,006 |
| | 3.9 |
| | 591 |
| | 3.3 |
| | 515 |
|
Third quarter | 4.4 |
| | 769 |
| | 4.4 |
| | 747 |
| | 4.6 |
| | 703 |
|
Fourth quarter | 4.5 |
| | 796 |
| | 6.7 |
| | 999 |
| | 1.2 |
| | 184 |
|
Total stock repurchases | 18.5 |
| | $ | 3,126 |
| | 19.7 |
| | $ | 3,027 |
| | 12.0 |
| | $ | 1,853 |
|
* Total shares do not add due to rounding.In May 2019 and December 2019, our Board of Directors increased the amount authorized under our stock repurchase program by an additional $5.0 billion and $4.0 billion, respectively. As of December 31, 2017, $4.42019, $6.5 billion remained available under our stock repurchase program. In January 2018, our Board of Directors authorized an additional $10.0 billion under our stock repurchase program. On February 5, 2018, we announced a tender offer to purchase up to $10.0 billion of our common stock at a price not greater than $200 per share nor less than $175 per share. The tender offer expires at 12:00 Midnight, New York City time, at the end of Monday, March 5, 2018, unless the offer is extended.
Dividends
Our Board of Directors declared quarterly dividends per share of $1.45, $1.32 and $1.15, $1.00 and $0.79 thatwhich were paid in each of the four quarters of 2017, 2016,2019, 2018, and 2015,2017, respectively.
Historically, each year we have declared dividends in December thatof each year, which were paid in the first quarter of the following fiscal year and in March, July and October, thatwhich were paid in the second, third and fourth quarters, respectively, of the same fiscal year.
Additionally, on December 12, 2017,11, 2019, the Board of Directors declared a quarterly cash dividend of $1.32$1.60 per share of common stock, which will be paid on March 8, 2018,6, 2020, to all stockholders of record as of the close of business on February 15, 2018.14, 2020.
Accumulated other comprehensive income (loss)
The components of AOCI were as follows (in millions):
|
| | | | | | | | | | | | | | | | | | | |
| Foreign currency translation | | Cash flow hedges | | Available-for-sale securities | | Other | | AOCI |
Balance as of December 31, 2016 | $ | (610 | ) | | $ | 282 |
| | $ | (138 | ) | | $ | (5 | ) | | $ | (471 | ) |
Foreign currency translation adjustments | 77 |
| | — |
| | — |
| | — |
| | 77 |
|
Unrealized gains (losses) | — |
| | 192 |
| | (46 | ) | | — |
| | 146 |
|
Reclassification adjustments to income | — |
| | (638 | ) | | 41 |
| | — |
| | (597 | ) |
Other gains | — |
| | — |
| | — |
| | 5 |
| | 5 |
|
Income taxes | 4 |
| | 158 |
| | (1 | ) | | — |
| | 161 |
|
Balance as of December 31, 2017 | (529 | ) | | (6 | ) | | (144 | ) | | — |
| | (679 | ) |
Cumulative effect of change in accounting principle, net of tax | — |
| | — |
| | (9 | ) | | — |
| | (9 | ) |
Foreign currency translation adjustments | (141 | ) | | — |
| | — |
| | — |
| | (141 | ) |
Unrealized gains (losses) | — |
| | 61 |
| | (556 | ) | | — |
| | (495 | ) |
Reclassification adjustments to income | — |
| | 262 |
| | 365 |
| | — |
| | 627 |
|
Other losses | — |
| | — |
| | — |
| | (2 | ) | | (2 | ) |
Income taxes | — |
| | (76 | ) | | 6 |
| | — |
| | (70 | ) |
Balance as of December 31, 2018 | (670 | ) | | 241 |
| | (338 | ) | | (2 | ) | | (769 | ) |
Foreign currency translation adjustments | (48 | ) | | — |
| | — |
| | — |
| | (48 | ) |
Unrealized gains | — |
| | 127 |
| | 424 |
| | — |
| | 551 |
|
Reclassification adjustments to income | — |
| | (211 | ) | | (56 | ) | | — |
| | (267 | ) |
Other losses | — |
| | — |
| | — |
| | (5 | ) | | (5 | ) |
Income taxes | — |
| | 18 |
| | (8 | ) | | — |
| | 10 |
|
Balance as of December 31, 2019 | $ | (718 | ) | | $ | 175 |
| | $ | 22 |
| | $ | (7 | ) | | $ | (528 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| Foreign currency translation | | Cash flow hedges | | Available-for-sale securities | | Other | | AOCI |
Balance as of December 31, 2014 | $ | (264 | ) | | $ | 290 |
| | $ | (19 | ) | | $ | (15 | ) | | $ | (8 | ) |
Foreign currency translation adjustments | (257 | ) | | — |
| | — |
| | — |
| | (257 | ) |
Unrealized gains (losses) | — |
| | 150 |
| | (299 | ) | | 8 |
| | (141 | ) |
Reclassification adjustments to income | — |
| | (143 | ) | | 76 |
| | — |
| | (67 | ) |
Other | — |
| | — |
| | — |
| | 1 |
| | 1 |
|
Income taxes | 10 |
| | — |
| | (18 | ) | | — |
| | (8 | ) |
Balance as of December 31, 2015 | (511 | ) | | 297 |
| | (260 | ) | | (6 | ) | | (480 | ) |
Foreign currency translation adjustments | (93 | ) | | — |
| | — |
| | — |
| | (93 | ) |
Unrealized (losses) gains | — |
| | (176 | ) | | 63 |
| | — |
| | (113 | ) |
Reclassification adjustments to income | — |
| | 139 |
| | 61 |
| | — |
| | 200 |
|
Other | — |
| | — |
| | — |
| | 1 |
| | 1 |
|
Income taxes | (6 | ) | | 22 |
| | (2 | ) | | — |
| | 14 |
|
Balance as of December 31, 2016 | (610 | ) | | 282 |
| | (138 | ) | | (5 | ) | | (471 | ) |
Foreign currency translation adjustments | 77 |
| | — |
| | — |
| | — |
| | 77 |
|
Unrealized gains (losses) | — |
| | 192 |
| | (46 | ) | | — |
| | 146 |
|
Reclassification adjustments to income | — |
| | (638 | ) | | 41 |
| | — |
| | (597 | ) |
Other | — |
| | — |
| | — |
| | 5 |
| | 5 |
|
Income taxes | 4 |
| | 158 |
| | (1 | ) | | — |
| | 161 |
|
Balance as of December 31, 2017 | $ | (529 | ) | | $ | (6 | ) | | $ | (144 | ) | | $ | — |
| | $ | (679 | ) |
With respect to the table above, income tax expenses or benefits for unrealized gains and losses and the related reclassification adjustments to income for cash flow hedges were a $28 million expense and a $46 million benefit in 2019, a $21 million expense and a $55 million expense in 2018 and a $68 million expense and a $226 million benefit in 2017, a $68 million benefit and $46 million expense in 2016 and a $53 million expense and $53 million benefit in 2015, respectively. Income tax expenses or benefits for unrealized gains and losses and the related reclassification adjustments to income for available-for-sale securities were a $9$22 million expense and $8a $14 million benefit for 2017,in 2019, a $9 million benefit and $11a $3 million expense in 20162018 and a $0$9 million expense and an $8 million benefit and $18 million expense in 2015,2017, respectively.
The reclassifications
Reclassifications out of AOCI toand into earnings were as follows (in millions):
|
| | | | | | | | | | | | | | |
| | Years ended December 31, | | |
Components of AOCI | | 2019 | | 2018 | | 2017 | | Consolidated Statements of Income locations |
Cash flow hedges: | | | | | | | | |
Foreign currency contract gains (losses) | | $ | 101 |
| | $ | (21 | ) | | $ | 65 |
| | Product sales |
Cross-currency swap contract gains (losses) | | 110 |
| | (241 | ) | | 574 |
| | Interest and other income, net |
Forward interest rate contract losses | | — |
| | — |
| | (1 | ) | | Interest expense, net |
| | 211 |
| | (262 | ) | | 638 |
| | Income before income taxes |
| | (46 | ) | | 55 |
| | (226 | ) | | Provision for income taxes |
| | $ | 165 |
| | $ | (207 | ) | | $ | 412 |
| | Net income |
Available-for-sale securities: | | | | | | | | |
Net realized gains (losses) | | $ | 56 |
| | $ | (365 | ) | | $ | (41 | ) | | Interest and other income, net |
| | (14 | ) | | 3 |
| | (8 | ) | | Provision for income taxes |
| | $ | 42 |
| | $ | (362 | ) | | $ | (49 | ) | | Net income |
|
| | | | | | | | | | | | | | |
| | Years ended December 31, | | |
Components of AOCI | | 2017 | | 2016 | | 2015 | | Consolidated Statements of Income location |
Cash flow hedges: | | | | | | | | |
Foreign currency contract gains | | $ | 65 |
| | $ | 308 |
| | $ | 326 |
| | Product sales |
Cross-currency swap contract gains (losses) | | 574 |
| | (446 | ) | | (182 | ) | | Interest and other income, net |
Forward interest rate contract losses | | (1 | ) | | (1 | ) | | (1 | ) | | Interest expense, net |
| | 638 |
| | (139 | ) | | 143 |
| | Income before income taxes |
| | (226 | ) | | 46 |
| | (53 | ) | | Provision for income taxes |
| | $ | 412 |
| | $ | (93 | ) | | $ | 90 |
| | Net income |
Available-for-sale securities: | | | | | | | | |
Net realized losses | | $ | (41 | ) | | $ | (61 | ) | | $ | (76 | ) | | Interest and other income, net |
| | (8 | ) | | 11 |
| | 18 |
| | Provision for income taxes |
| | $ | (49 | ) | | $ | (50 | ) | | $ | (58 | ) | | Net income |
Other
In addition to common stock, our authorized capital includes 5 million shares of preferred stock, $0.0001 par value. As of December 31, 20172019 and 2016, no2018, 0 shares of preferred stock were issued or outstanding.
16.17. Fair value measurement
To estimate the fair value of our financial assets and liabilities, we use valuation approaches within a hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing an asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing an asset or liability and are developed based on the best information available in the circumstances. The fair value hierarchy is divided into three levels based on the source of inputs as follows:
|
| | |
Level 1 | — | Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access |
Level 2 | — | Valuations for which all significant inputs are observable either directly or indirectly, indirectly—other than levelLevel 1 inputs |
Level 3 | — | Valuations based on inputs that are unobservable and significant to the overall fair value measurement |
The availability of observable inputs can vary among the various types of financial assets and liabilities. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used for measuring fair value may fall into different levels of the fair value hierarchy. In such cases, for financial statement disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is categorized is based on the lowest level of input used that is significant to the overall fair value measurement.
The fair values of each major class of the Company’s financial assets and liabilities measured at fair value on a recurring basis were as follows (in millions):
| | Fair value measurement as of December 31, 2017, using: | | Quoted prices in active markets for identical assets (Level 1) | | Significant other observable inputs (Level 2) | | Significant unobservable inputs (Level 3) | | Total | |
Fair value measurement as of December 31, 2019, using: | | | Quoted prices in active markets for identical assets (Level 1) | | Significant other observable inputs (Level 2) | | Significant unobservable inputs (Level 3) | | Total |
Assets: | | | | | | | | | | | | | | | | |
Available-for-sale investments: | | | | | | | | | |
U.S. Treasury securities | | $ | 8,242 |
| | $ | — |
| | $ | — |
| | $ | 8,242 |
| |
Available-for-sale securities: | | | | | | | | | |
U.S. Treasury notes | | | $ | 360 |
| | $ | — |
| | $ | — |
| | $ | 360 |
|
U.S. Treasury bills | | | — |
| | — |
| | — |
| | — |
|
Other government-related debt securities: | | | | | | | | | | | | | | | | |
U.S. | | — |
| | 223 |
| | — |
| | 223 |
| | — |
| | — |
| | — |
| | — |
|
Foreign and other | | — |
| | 2,422 |
| | — |
| | 2,422 |
| | — |
| | — |
| | — |
| | — |
|
Corporate debt securities: | | | | | | | | | | | | | | | | |
Financial | | — |
| | 10,072 |
| | — |
| | 10,072 |
| | — |
| | 1,121 |
| | — |
| | 1,121 |
|
Industrial | | — |
| | 9,670 |
| | — |
| | 9,670 |
| | — |
| | 834 |
| | — |
| | 834 |
|
Other | | — |
| | 1,390 |
| | — |
| | 1,390 |
| | — |
| | 198 |
| | — |
| | 198 |
|
Residential mortgage-backed securities | | — |
| | 2,168 |
| | — |
| | 2,168 |
| |
Residential-mortgage-backed securities | | | — |
| | 182 |
| | — |
| | 182 |
|
Other mortgage- and asset-backed securities | | — |
| | 2,297 |
| | — |
| | 2,297 |
| | — |
| | — |
| | — |
| | — |
|
Money market mutual funds | | 3,245 |
| | — |
| | — |
| | 3,245 |
| | 5,250 |
| | — |
| | — |
| | 5,250 |
|
Other short-term interest-bearing securities | | — |
| | 1,440 |
| | — |
| | 1,440 |
| | — |
| | 289 |
| | — |
| | 289 |
|
Equity securities | | 149 |
| | — |
| | — |
| | 149 |
| | 303 |
| | — |
| | — |
| | 303 |
|
Derivatives: | |
| |
| |
| |
| | | | | | | | |
Foreign currency contracts | | — |
| | 6 |
| | — |
| | 6 |
| | — |
| | 224 |
| | — |
| | 224 |
|
Cross-currency swap contracts | | — |
| | 270 |
| | — |
| | 270 |
| | — |
| | 66 |
| | — |
| | 66 |
|
Interest rate swap contracts | | — |
| | 10 |
| | — |
| | 10 |
| | — |
| | 259 |
| | — |
| | 259 |
|
Total assets | | $ | 11,636 |
| | $ | 29,968 |
| | $ | — |
| | $ | 41,604 |
| | $ | 5,913 |
| | $ | 3,173 |
| | $ | — |
| | $ | 9,086 |
|
Liabilities: | | | | | | | | | | | | | | | | |
Derivatives: | | | | | | | | | | | | | | | | |
Foreign currency contracts | | $ | — |
| | $ | 204 |
| | $ | — |
| | $ | 204 |
| | $ | — |
| | $ | 31 |
| | $ | — |
| | $ | 31 |
|
Cross-currency swap contracts | | — |
| | 220 |
| | — |
| | 220 |
| | — |
| | 315 |
| | — |
| | 315 |
|
Interest rate swap contracts | | — |
| | 61 |
| | — |
| | 61 |
| | — |
| | — |
| | — |
| | — |
|
Contingent consideration obligations in connection with business combinations | | — |
| | — |
| | 69 |
| | 69 |
| |
Contingent consideration obligations | | | — |
| | — |
| | 61 |
| | 61 |
|
Total liabilities | | $ | — |
| | $ | 485 |
| | $ | 69 |
| | $ | 554 |
| | $ | — |
| | $ | 346 |
| | $ | 61 |
| | $ | 407 |
|
|
| | | | | | | | | | | | | | | | |
Fair value measurement as of December 31, 2018, using: | | Quoted prices in active markets for identical assets (Level 1) | | Significant other observable inputs (Level 2) | | Significant unobservable inputs (Level 3) | | Total |
Assets: | | | | | | | | |
Available-for-sale securities: | | | | | | | | |
U.S. Treasury notes | | $ | 2,663 |
| | $ | — |
| | $ | — |
| | $ | 2,663 |
|
U.S. Treasury bills | | 8,191 |
| | — |
| | — |
| | 8,191 |
|
Other government-related debt securities: | | | | | | | | |
U.S. | | — |
| | 110 |
| | — |
| | 110 |
|
Foreign and other | | — |
| | 932 |
| | — |
| | 932 |
|
Corporate debt securities: | | | | | | | | |
Financial | | — |
| | 2,697 |
| | — |
| | 2,697 |
|
Industrial | | — |
| | 2,504 |
| | — |
| | 2,504 |
|
Other | | — |
| | 562 |
| | — |
| | 562 |
|
Residential-mortgage-backed securities | | — |
| | 1,422 |
| | — |
| | 1,422 |
|
Other mortgage- and asset-backed securities | | — |
| | 469 |
| | — |
| | 469 |
|
Money market mutual funds | | 5,659 |
| | — |
| | — |
| | 5,659 |
|
Other short-term interest-bearing securities | | — |
| | 3,515 |
| | — |
| | 3,515 |
|
Equity securities | | 176 |
| | — |
| | — |
| | 176 |
|
Derivatives: | | | | | | | | |
Foreign currency contracts | | — |
| | 182 |
| | — |
| | 182 |
|
Cross-currency swap contracts | | — |
| | 170 |
| | — |
| | 170 |
|
Interest rate swap contracts | | — |
| | 56 |
| | — |
| | 56 |
|
Total assets | | $ | 16,689 |
| | $ | 12,619 |
| | $ | — |
| | $ | 29,308 |
|
Liabilities: | | | | | | | | |
Derivatives: | | | | | | | | |
Foreign currency contracts | | $ | — |
| | $ | 26 |
| | $ | — |
| | $ | 26 |
|
Cross-currency swap contracts | | — |
| | 401 |
| | — |
| | 401 |
|
Interest rate swap contracts | | — |
| | 149 |
| | — |
| | 149 |
|
Contingent consideration obligations | | — |
| | — |
| | 72 |
| | 72 |
|
Total liabilities | | $ | — |
| | $ | 576 |
| | $ | 72 |
| | $ | 648 |
|
|
| | | | | | | | | | | | | | | | |
Fair value measurement as of December 31, 2016, using: | | Quoted prices in active markets for identical assets (Level 1) | | Significant other observable inputs (Level 2) | | Significant unobservable inputs (Level 3) | | Total |
Assets: | | | | | | | | |
Available-for-sale investments: | | | | | | | | |
U.S. Treasury securities | | $ | 6,614 |
| | $ | — |
| | $ | — |
| | $ | 6,614 |
|
Other government-related debt securities: | | | | | | | | |
U.S. | | — |
| | 299 |
| | — |
| | 299 |
|
Foreign and other | | — |
| | 1,759 |
| | — |
| | 1,759 |
|
Corporate debt securities: | | | | | | | | |
Financial | | — |
| | 8,460 |
| | — |
| | 8,460 |
|
Industrial | | — |
| | 8,789 |
| | — |
| | 8,789 |
|
Other | | — |
| | 1,077 |
| | — |
| | 1,077 |
|
Residential mortgage-backed securities | | — |
| | 1,940 |
| | — |
| | 1,940 |
|
Other mortgage- and asset-backed securities | | — |
| | 1,719 |
| | — |
| | 1,719 |
|
Money market mutual funds | | 2,782 |
| | — |
| | — |
| | 2,782 |
|
Other short-term interest-bearing securities | | — |
| | 4,188 |
| | — |
| | 4,188 |
|
Equity securities | | 154 |
| | — |
| | — |
| | 154 |
|
Derivatives: | |
| |
| |
| |
|
Foreign currency contracts | | — |
| | 203 |
| | — |
| | 203 |
|
Interest rate swap contracts | | — |
| | 41 |
| | — |
| | 41 |
|
Total assets | | $ | 9,550 |
| | $ | 28,475 |
| | $ | — |
| | $ | 38,025 |
|
Liabilities: | | | | | | | | |
Derivatives: | | | | | | | | |
Foreign currency contracts | | $ | — |
| | $ | 4 |
| | $ | — |
| | $ | 4 |
|
Cross-currency swap contracts | | — |
| | 523 |
| | — |
| | 523 |
|
Interest rate swap contracts | | — |
| | 7 |
| | — |
| | 7 |
|
Contingent consideration obligations in connection with business combinations | | — |
| | — |
| | 179 |
| | 179 |
|
Total liabilities | | $ | — |
| | $ | 534 |
| | $ | 179 |
| | $ | 713 |
|
Excluded from the tables above are limited partnership investments of $213 millionInterest-bearing and $158 million as of December 31, 2017 and 2016, respectively, which are included in Other assets in the Consolidated Balance Sheets. These investments are measured using net asset values of the underlying investments as a practical expedient. These investments are typically only redeemable through distributions upon liquidation of the underlying assets. As of December 31, 2017, unfunded additional commitments to be made over the next several years for these investments were approximately $100 million.equity securities
The fair values of our U.S. Treasury securities, money market mutual funds and equity securities are based on quoted market prices in active markets, with no valuation adjustment.
MostAs of December 31, 2019, our other government-related and corporate debt securities are investment grade and have maturity dates offivethree years or less from the balance sheet date. Our other government-relatedcorporate debt securities portfolio is composed of securities withhas weighted-average credit ratings of BBB+A– or equivalent by Standard & Poor’s Financial Services LLC (S&P), and A- or equivalent by Moody’s Investors Service, Inc. (Moody’s) or, and A by Fitch Ratings, Inc. (Fitch); and our corporate debt securities portfolio has a weighted-average credit rating of A- or equivalent by Fitch, and BBB+ or equivalent by S&P or Moody’s.. We estimate the fair values of these securities by taking into consideration valuations obtained from third-party pricing services. The pricing services utilize industry standarduse industry-standard valuation models, including both income- and market-based approaches, for which all significant inputs are observable either directly or indirectly to estimate fair value. The inputs include reported trades of and broker-dealer quotes on the same or similar securities; issuer credit spreads; benchmark securities; and other observable inputs.
Our residential mortgage-, other mortgage- and asset-backed securitiesresidential-mortgage-backed-securities portfolio is composed entirely of senior tranches with credit ratings of AAA by S&P, Moody’s or Fitch. We estimate the fair values of these securities by taking into consideration valuations obtained from third-party pricing services. The pricing services utilize industry standarduse industry-standard valuation models, including both income- and market-based approaches, for which all significant inputs are observable either directly or indirectly to estimate fair value. The inputs include reported trades of and broker/dealerbroker-dealer quotes on the same or similar securities; issuer credit spreads; benchmark securities; prepayment/prepayment or default projections based on historical data; and other observable inputs.
We value our other short-term interest-bearing securities at amortized cost, which approximates fair value given their near-term maturity dates.
Derivatives
All of our foreign currency forward and option derivativesderivative contracts have maturities of three years or less, and all are with counterparties that have minimum credit ratings of A-A– or equivalent by S&P, Moody’s or Fitch. We estimate the fair values of these contracts by taking into consideration valuations obtained from a third-party valuation service that utilizesuses an income-based industry standardindustry-standard valuation model for which all significant inputs are observable either directly or indirectly. These inputs include foreign currency exchange rates, the LIBOR, swap rates and obligor credit default swap rates. In addition, inputs for our foreign currency option contracts include implied volatility measures. These inputs, wherewhen applicable, are at commonly quoted intervals. See Note 17,18, Derivative instruments.
Our cross-currency swap contracts are with counterparties that have minimum credit ratings of A-A– or equivalent by S&P, Moody’s or Fitch. We estimate the fair values of these contracts by taking into consideration valuations obtained from a third-party valuation service that utilizesuses an income-based industry standardindustry-standard valuation model for which all significant inputs are observable either directly or indirectly. These inputs include foreign currency exchange rates, LIBOR, swap rates, obligor credit default swap rates and cross-currency basis swap spreads. See Note 17,18, Derivative instruments.
Our interest rate swap contracts are with counterparties that have minimum credit ratings of A-A– or equivalent by S&P, Moody’s or Fitch. We estimate the fair values of these contracts by using an income-based industry standardindustry-standard valuation model for which all significant inputs wereare observable either directly or indirectly. These inputs include LIBOR, swap rates and obligor credit default swap rates. See Note 18, Derivative instruments.
Contingent consideration obligations
As a result of our business acquisitions, we have incurred contingent consideration obligations, as discussed below.obligations. The contingent consideration obligations are recorded at their fair values by using probability-adjusted discounted cash flows, and we revalue these obligations each reporting period until the related contingencies have been resolved. The fair value measurements of these obligations are based on significant unobservable inputs related to licensing rights and product candidates acquired in business combinations, and they are reviewed quarterly by management in our R&D and commercial sales organizations. These inputs include, as applicable, estimated probabilities and timing of achieving specified regulatory and commercial milestones and estimated annual sales. Significant changes that increase or decrease the probabilities of achieving the related regulatory and commercial events, that shorten or lengthen the time required to achieve such events, or that increase or decrease estimated annual sales would result in corresponding increases or decreases in the fair values of the obligations, as applicable. Changes in the fair values of contingent consideration obligations are recognized in Other operating expenses in the Consolidated Statements of Income.
Changes in the carrying amounts of contingent consideration obligations for the years ended December 31, 2019 and 2018, were as follows (in millions):not material. During the year ended December 31, 2017, we recorded a $110 million reduction to contingent consideration obligations due substantially to amounts associated with the Dezima Pharma B.V. (Dezima) acquisition, discussed below.
|
| | | | | | | | | | | |
| Years ended December 31, |
| 2017 | | 2016 | | 2015 |
Beginning balance | $ | 179 |
| | $ | 188 |
| | $ | 215 |
|
Addition from Dezima acquisition | — |
| | — |
| | 110 |
|
Payment to former BioVex Group, Inc. shareholders | — |
| | — |
| | (125 | ) |
Net changes in valuation | (110 | ) | | (9 | ) | | (12 | ) |
Ending balance | $ | 69 |
| | $ | 179 |
| | $ | 188 |
|
As a result of our acquisition of K-A in 2018, we are obligated to make single-digit royalty payments to Kirin contingent upon sales of brodalumab. See Note 2, Acquisitions.As a result of our acquisition of Dezima in 2015, we are obligated to pay its former shareholders up to $1.25 billion of additional consideration contingent upon achieving certain development and sales-related milestones and low single-digit royalties on net product sales above a certain threshold for AMG 899.899, an IPR&D asset. The fair values of the contingent consideration obligations had an aggregate value of $110 million at acquisition. During 2017, we decided to discontinue the internal development of AMG 899 and accordingly, we reduced from $116 million to zero these$0 the related contingent consideration liabilities.liabilities and recognized an impairment charge of $400 million on the IPR&D asset in Other operating expenses in the Consolidated Statements of Income. The remeasurement of these liabilities wasand the impairment charge are included in
Other items, net, in the Consolidated StatementStatements of Cash Flows during the year ended December 31, 2017. See Note 12, Goodwill and other intangible assets, for the impact on the related IPR&D asset.Flows.
As a result of our acquisition of BioVex Group Inc. in 2011, we are obligated to pay its former shareholders additional consideration contingentup to $325 million upon achieving separate regulatory and sales-related milestones with regard to IMLYGIC®, including a $125 million milestone payment made in 2015 as a result of the first commercial sale of this product in the United States following marketing approval. The remaining milestone payments of up to $325 million will become payable (talimogene laherparepvec) if certain sales thresholds related to IMLYGIC®are achievedmet within specified periods of time.
During the years ended December 31, 20172019 and 2016,2018, there were no transfers of assets or liabilities between fair value measurement levels, and except with respect to an IPR&D asset discussed in Note 12, Goodwill and other intangible assets, there were no material remeasurements to the fair values of assets and liabilities that are not measured at fair value on a recurring basis.basis, except with respect to the 2018 discontinuance of the internal development of a program that resulted in an impairment of an IPR&D asset of $330 million, which was recognized in Other operating expenses in the Consolidated Statements of Income and included in Other items, net, in the Consolidated Statements of Cash Flows.
Summary of the fair values of other financial instruments
Cash equivalents
The fair values of cash equivalents approximate their carrying values due to the short-term nature of such financial instruments.
Borrowings
We estimated the fair valuevalues of our borrowings (Level 2) by taking into consideration indicative prices obtained from a third-party financial institution that utilizes industry standard valuation models, including both income- and market-based approaches, for which all significant inputs are observable either directly or indirectly. These inputs include reported trades of and broker-dealer quotes on the same or similar securities; credit spreads; benchmark yields; foreign currency exchange rates, as applicable; and other observableusing Level 2 inputs. As of December 31, 20172019 and 2016,2018, the aggregate fair values of our borrowings were $38.6$33.7 billion and $36.5$35.0 billion,, respectively, and the carrying values were $35.3$29.9 billion and $34.6$33.9 billion,, respectively.
17.18. Derivative instruments
The Company is exposed to foreign currency exchange rate and interest rate risks related to its business operations. To reduce our risks related to such exposures, we utilizeuse or have utilizedused certain derivative instruments, including foreign currency forward, foreign currency option, cross-currency swap, forward interest rate and interest rate swap contracts. We do not use derivatives for speculative trading purposes.
Cash flow hedges
We are exposed to possible changes in the values of certain anticipated foreign currency cash flows resulting from changes in foreign currency exchange rates associated primarily with our euro-denominated international product sales. Increases and decreases in the cash flows associated with our international product sales due to movements in foreign currency exchange rates are offset partially by corresponding increases and decreases in the cash flows from our international operating expenses resulting from these foreign currency exchange rate movements. To further reduce our exposure to foreign currency exchange rate fluctuations onwith regard to our international product sales, we enter into foreign currency forward and option contracts to hedge a portion of our projected international product sales primarily over a three-year time horizon, with, at any given point in time, a higher percentage of nearer-term projected product sales being hedged than in successive periods.
As of December 31, 2017, 20162019, 2018 and 2015,2017, we had openoutstanding foreign currency forward contracts with aggregate notional amounts of $5.0 billion, $4.5 billion and $4.6 billion, $3.4 billionrespectively. As of December 31, 2018 and $3.3 billion, respectively, and open2017 we had outstanding foreign currency option contracts with aggregate notional amounts of $21 million and $74 million, $608 millionrespectively, and $225 million, respectively.no such outstanding contracts as of December 31, 2019. We have designated these foreign currency forward and foreign currency option contracts, which are primarily euro based, as cash flow hedges; and accordingly,hedges. Accordingly, we report the effective portions of the unrealized gains and losses on these contracts in AOCI in the Consolidated Balance Sheets, and we reclassify them to earningsProduct sales in the Consolidated Statements of Income in the same periods during which the hedged transactions affect earnings.
To manage counterparty risk resulting from favorable movements in U.S. dollar/foreign currency exchange rates, we effectively terminated outstanding foreign currency forward and option contracts with a notional amount of $2.3 billion during the year ended December 31, 2015. We received $340 million from the counterparties, which was included in Net cash provided by operating activities in the Consolidated Statement of Cash Flows. This amount was recorded in AOCI and is being recognized in Product sales in the Consolidated Statements of Income when the related international product sales affect earnings. In addition, during the year ended December 31, 2015, we entered into new foreign currency forward and option contracts that hedge these forecasted international product sales.
To hedge our exposure to foreign currency exchange rate risk associated with certain of our long-term debt denominated in foreign currencies, we enter into cross-currency swap contracts. Under the terms of such contracts, we paid euros, pounds sterling and Swiss francs and received U.S. dollars for the notional amounts at the inception of the contracts; and based on these notional amounts, we exchange interest payments at fixed rates over the lives of the contracts by paying U.S. dollars and receiving euros, pounds sterling and Swiss francs. In addition, we will pay U.S. dollars to and receive euros, pounds sterling and Swiss francs from the counterparties at the maturities of the contracts for these same notional amounts. The terms of these contracts correspond to the related hedged debt, thereby effectively converting the interest payments and principal repayment on the debt from euros, pounds sterling and Swiss francs to U.S. dollars. We have designated these cross-currency swap contracts as cash flow hedges, and accordingly, the effective portions ofhedges. Accordingly, the unrealized gains and losses on these contracts are reported in AOCI in the Consolidated Balance Sheets and reclassified to earningsInterest and other income, net, in the Consolidated Statements of Income in the same periods during which the hedged debt affects earnings.
The notional amounts and interest rates of our cross-currency swaps as of December 31, 2017,2019, were as follows (notional amounts in millions):
|
| | | | | | | | | | | | | | |
| | Foreign currency | | U.S. dollars |
Hedged notes | | Notional amounts | | Interest rates | | Notional amounts | | Interest rates |
1.25% 2022 euro Notes | | € | 1,250 |
| | 1.3 | % | | $ | 1,388 |
| | 3.2 | % |
0.41% 2023 Swiss franc Bonds | | CHF | 700 |
| | 0.4 | % | | $ | 704 |
| | 3.4 | % |
2.00% 2026 euro Notes | | € | 750 |
| | 2.0 | % | | $ | 833 |
| | 3.9 | % |
5.50% 2026 pound sterling Notes | | £ | 475 |
| | 5.5 | % | | $ | 747 |
| | 6.0 | % |
4.00% 2029 pound sterling Notes | | £ | 700 |
| | 4.0 | % | | $ | 1,111 |
| | 4.5 | % |
|
| | | | | | | | | | | | | | |
| | Foreign currency | | U.S. dollars |
Hedged notes | | Notional amount | | Interest rate | | Notional amount | | Interest rate |
2.125% 2019 euro Notes | | € | 675 |
| | 2.125 | % | | $ | 864 |
| | 2.6 | % |
1.25% 2022 euro Notes | | € | 1,250 |
| | 1.25 | % | | $ | 1,388 |
| | 3.2 | % |
0.41 % 2023 Swiss franc Bonds | | CHF | 700 |
| | 0.41 | % | | $ | 704 |
| | 3.4 | % |
2.00% 2026 euro Notes | | € | 750 |
| | 2.00 | % | | $ | 833 |
| | 3.9 | % |
5.50% 2026 pound sterling Notes | | £ | 475 |
| | 5.50 | % | | $ | 747 |
| | 6.0 | % |
4.00% 2029 pound sterling Notes | | £ | 700 |
| | 4.00 | % | | $ | 1,111 |
| | 4.5 | % |
During the year ended December 31, 2019, our 2.125% 2019 euro Notes matured, and the related cross-currency swaps were settled.In connection with the anticipated issuance of long-term fixed-rate debt, we occasionally enter into forward interest rate contracts in order to hedge the variability in cash flows due to changes in the applicable U.S. Treasury rate between the time we enter into these contracts and the time the related debt is issued. Gains and losses on forward interest rate contracts, which are designated as cash flow hedges, are recognized in AOCI in the Consolidated Balance Sheets and are amortized into earningsInterest expense, net, in the Consolidated Statements of Income over the lives of the associated debt issuances. Amounts recognized in connection with forward interest rate swaps during the year ended December 31, 2019, and amounts expected to be recognized during the subsequent 12 months are not material.
The effective portions of unrealized gains and losses recognized in AOCI for our derivative instruments designated as cash flow hedges were as follows (in millions):
|
| | | | | | | | | | | | | | |
| | | | Years ended December 31, |
Derivatives in cash flow hedging relationships | | | | 2019 | | 2018 | | 2017 |
Foreign currency contracts | | | | $ | 148 |
| | $ | 348 |
| | $ | (402 | ) |
Cross-currency swap contracts | | | | (21 | ) | | (287 | ) | | 581 |
|
Forward interest rate contracts | | | | — |
| | — |
| | 13 |
|
Total unrealized gains | | | | $ | 127 |
| | $ | 61 |
| | $ | 192 |
|
|
| | | | | | | | | | | | | | |
| | | | Years ended December 31, |
Derivatives in cash flow hedging relationships | | | | 2017 | | 2016 | | 2015 |
Foreign currency contracts | | | | $ | (402 | ) | | $ | 115 |
| | $ | 425 |
|
Cross-currency swap contracts | | | | 581 |
| | (281 | ) | | (275 | ) |
Forward interest rate contracts | | | | 13 |
| | (10 | ) | | — |
|
Total unrealized gains (losses) | | | | $ | 192 |
| | $ | (176 | ) | | $ | 150 |
|
The locations in the Consolidated Statements of Income and the effective portions of the gains and losses reclassified out of AOCI and into earnings for our derivative instruments designated as cash flow hedges were as follows (in millions):
|
| | | | | | | | | | | | | | |
| | | | Years ended December 31, |
Derivatives in cash flow hedging relationships | | Consolidated Statements of Income location | | 2017 | | 2016 | | 2015 |
Foreign currency contracts | | Product sales | | $ | 65 |
| | $ | 308 |
| | $ | 326 |
|
Cross-currency swap contracts | | Interest and other income, net | | 574 |
| | (446 | ) | | (182 | ) |
Forward interest rate contracts | | Interest expense, net | | (1 | ) | | (1 | ) | | (1 | ) |
Total realized gains (losses) | | | | $ | 638 |
| | $ | (139 | ) | | $ | 143 |
|
No portions of our cash flow hedge contracts are excluded from the assessment of hedge effectiveness, and the gains and losses of the ineffective portions of these hedging instruments were not material for the years ended December 31, 2017, 2016
and 2015. As of December 31, 2017, the amounts expected to be reclassified out of AOCI and into earnings over the next 12 months are $175 million of net losses on our foreign currency and cross-currency swap contracts. The net amount expected to be reclassified out of AOCI and into earnings over the next 12 months on our forward interest rate contracts is not material.
Fair value hedges
To achieve thea desired mix of fixedfixed-rate and floating interest rates on our long-termfloating-rate debt, we entered into interest rate swap contracts that qualified for and arewere designated as fair value hedges. The terms of theseThese interest rate swap contracts correspondeffectively convert fixed-rate coupons to floating-rate LIBOR-based coupons over the terms of the related hedged debt instruments and effectively convert a fixed interest rate coupon to a floating LIBOR-based coupon over the lives of the respective notes.hedge contracts. As of December 31, 20172019 and 2016,2018, we had interest rate swap agreementscontracts with aggregate notional amounts of $9.45$9.6 billion and $6.65$11.0 billion, respectively, that hedge certain portions of our long-term debt issuances. See Note 14, Financing arrangements—Interest rate swaps.
For derivative instrumentsinterest rate swap contracts that qualify for and are designated as fair value hedges, we recognize in earningsInterest expense, net, in the Consolidated Statements of Income the unrealized gain or loss on the derivative resulting from the change in fair value during the period, as well as the offsetting unrealized loss or gain of the hedged item resulting from the change in fair value during the period attributable to the hedged risk. During the years ended December 31, 2017 and 2016, we included unrealized losses onIf a hedging relationship involving an interest rate swap agreementscontract is terminated, the gain or loss realized on contract termination is recorded as an adjustment to the carrying value of $85 millionthe debt and $34 million, respectively, in the same line item,amortized into Interest expense, net, over the remaining life of the previously hedged debt.
The hedged liabilities and related cumulative-basis adjustments for fair value hedges of those liabilities were recorded in the Consolidated StatementsBalance Sheets as follows (in millions):
|
| | | | | | | | | | | | | | | | |
| | Carrying amounts of hedged liabilities(1) | | Cumulative amounts of fair value hedging adjustments related to the carrying amounts of the hedged liabilities(2) |
| | December 31, | | December 31, |
Consolidated Balance Sheets locations | | 2019 | | 2018 | | 2019 | | 2018 |
Current portion of long-term debt | | $ | 903 |
| | $ | 2,396 |
| | $ | 4 |
| | $ | (3 | ) |
Long-term debt | | $ | 8,814 |
| | $ | 9,361 |
| | $ | 292 |
| | $ | (50 | ) |
____________
| |
(1) | Current portion of long-term debt includes $1.0 billion of carrying value with discontinued hedging relationships as of December 31, 2018. Long-term debt includes $136 million and $137 million of carrying value with discontinued hedging relationships as of December 31, 2019 and 2018, respectively. |
| |
(2) | Current portion of long-term debt includes $3 million of hedging adjustments on discontinued hedging relationships as of December 31, 2018. Long-term debt includes $36 million and $37 million of hedging adjustments on discontinued hedging relationships as of December 31, 2019 and 2018, respectively. |
Impact of Income, ashedging transactions
The following tables summarize the offsetting unrealizedamounts recorded in income and expense line items and the effects thereon from fair value and cash flow hedging, including discontinued hedging relationships (in millions):
|
| | | | | | | | | | | | |
| | Year ended December 31, 2019 |
| | Product sales | | Interest and other income, net | | Interest (expense), net |
Total amounts recorded in income and (expense) line items presented in the Consolidated Statements of Income | | $ | 22,204 |
| | $ | 753 |
| | $ | (1,289 | ) |
The effects of cash flow and fair value hedging: | | | | | | |
Gains on cash flow hedging relationships reclassified out of AOCI: | | | | | | |
Foreign currency contracts | | $ | 101 |
| | $ | — |
| | $ | — |
|
Cross-currency swap contracts | | $ | — |
| | $ | 110 |
| | $ | — |
|
(Losses) gains on fair value hedging relationships—interest rate swap agreements: | | | | | | |
Hedged items(1) | | $ | — |
| | $ | — |
| | $ | (349 | ) |
Derivatives designated as hedging instruments | | $ | — |
| | $ | — |
| | $ | 352 |
|
|
| | | | | | | | | | | | |
| | Year ended December 31, 2018 |
| | Product sales | | Interest and other income, net | | Interest (expense), net |
Total amounts recorded in income and (expense) line items presented in the Consolidated Statements of Income | | $ | 22,533 |
| | $ | 674 |
| | $ | (1,392 | ) |
The effects of cash flow and fair value hedging: | | | | | | |
Losses on cash flow hedging relationships reclassified out of AOCI: | | | | | | |
Foreign currency contracts | | $ | (21 | ) | | $ | — |
| | $ | — |
|
Cross-currency swap contracts | | $ | — |
| | $ | (241 | ) | | $ | — |
|
Gains (losses) on fair value hedging relationships—interest rate swap agreements: | | | | | | |
Hedged items(1) | | $ | — |
| | $ | — |
| | $ | 65 |
|
Derivatives designated as hedging instruments | | $ | — |
| | $ | — |
| | $ | (42 | ) |
|
| | | | | | | | | | | | |
| | Year ended December 31, 2017 |
| | Product sales | | Interest and other income, net | | Interest (expense), net |
Total amounts recorded in income and (expense) line items presented in the Consolidated Statements of Income | | $ | 21,795 |
| | $ | 928 |
| | $ | (1,304 | ) |
The effects of cash flow and fair value hedging: | | | | | | |
Gains (losses) on cash flow hedging relationships reclassified out of AOCI: | | | | | | |
Foreign currency contracts | | $ | 65 |
| | $ | — |
| | $ | — |
|
Cross-currency swap contracts | | $ | — |
| | $ | 574 |
| | $ | — |
|
Forward interest rate contracts | | $ | — |
| | $ | — |
| | $ | (1 | ) |
Gains (losses) on fair value hedging relationships—interest rate swap agreements: | | | | | | |
Hedged items(1) | | $ | — |
| | $ | — |
| | $ | 127 |
|
Derivatives designated as hedging instruments | | $ | — |
| | $ | — |
| | $ | (85 | ) |
__________
| |
(1) | (Losses) gains on hedged items do not completely offset gains (losses) on the related designated hedging instruments due to amortization of the cumulative amounts of fair value hedging adjustments included in the carrying amount of the hedged debt for discontinued hedging relationships. |
No portions of $85 million and $34 million, respectively, onour cash flow hedge contracts were excluded from the related hedged debt. During the year endedassessment of hedge effectiveness. As of December 31, 2015,2019, we included unrealizedexpected to reclassify $47 million of net gains on interest rateour foreign currency and cross-currency swap agreementscontracts out of $48 million inAOCI and into earnings during the same line item, Interest expense, net, in the Consolidated Statement of Income, as the offsetting unrealized losses of $48 million on the related hedged debt.next 12 months.
Derivatives not designated as hedges
To reduce our exposure to foreign currency fluctuations ofin certain assets and liabilities denominated in foreign currencies, we enter into foreign currency forward contracts that are not designated as hedging transactions. TheseMost of these exposures are hedged on a month-to-month basis. As of December 31, 2017, 20162019, 2018 and 2015,2017, the total notional amounts of these foreign currency forward contracts were $1.2 billion, $737 million and $757 million, $666 millionrespectively. Gains and $911 million, respectively.
The location in the Consolidated Statements of Income and the amount of gains (losses)losses recognized in earnings for our derivative instruments not designated as hedging instruments were as follows (in millions):
|
| | | | | | | | | | | | | | |
| | | | Years ended December 31, |
Derivatives not designated as hedging instruments | | Consolidated Statements of Income location | | 2017 | | 2016 | | 2015 |
Foreign currency contracts | | Interest and other income, net | | $ | 24 |
| | $ | (56 | ) | | $ | (16 | ) |
not material for the years ended December 31, 2019, 2018 and 2017.
The fair values of derivatives included onin the Consolidated Balance Sheets were as follows (in millions):
| | | | Derivative assets | | Derivative liabilities | | Derivative assets | | Derivative liabilities |
December 31, 2017 | | Consolidated Balance Sheet location | | Fair value | | Consolidated Balance Sheet location | | Fair value | |
December 31, 2019 | | | Consolidated Balance Sheets locations | | Fair values | | Consolidated Balance Sheets locations | | Fair values |
Derivatives designated as hedging instruments: | | | | | | | | |
Foreign currency contracts | | Other current assets/ Other noncurrent assets | | $ | 6 |
| | Accrued liabilities/ Other noncurrent liabilities | | $ | 204 |
| | Other current assets/ Other assets | | $ | 223 |
| | Accrued liabilities/ Other noncurrent liabilities | | $ | 31 |
|
Cross-currency swap contracts | | Other current assets/ Other noncurrent assets | | 270 |
| | Accrued liabilities/ Other noncurrent liabilities | | 220 |
| | Other current assets/ Other assets | | 66 |
| | Accrued liabilities/ Other noncurrent liabilities | | 315 |
|
Interest rate swap contracts | | Other current assets/ Other noncurrent assets | | 10 |
| | Accrued liabilities/ Other noncurrent liabilities | | 61 |
| | Other current assets/ Other assets | | 259 |
| | Accrued liabilities/ Other noncurrent liabilities | | — |
|
Total derivatives designated as hedging instruments | | $ | 286 |
| | $ | 485 |
| | 548 |
| | 346 |
|
Derivatives not designated as hedging instruments: | | | | | |
Foreign currency contracts | | | Other current assets | | 1 |
| | Accrued liabilities | | — |
|
Total derivatives not designated as hedging instruments | | | 1 |
| | — |
|
Total derivatives | | | $ | 549 |
| | $ | 346 |
|
| | | | | | | | |
| | Derivative assets | | Derivative liabilities | | Derivative assets | | Derivative liabilities |
December 31, 2016 | | Consolidated Balance Sheet location | | Fair value | | Consolidated Balance Sheet location | | Fair value | |
December 31, 2018 | | | Consolidated Balance Sheets locations | | Fair values | | Consolidated Balance Sheets locations | | Fair values |
Derivatives designated as hedging instruments: | | | | | | | | |
Foreign currency contracts | | Other current assets/ Other noncurrent assets | | $ | 203 |
| | Accrued liabilities/ Other noncurrent liabilities | | $ | 4 |
| | Other current assets/ Other assets | | $ | 181 |
| | Accrued liabilities/ Other noncurrent liabilities | | $ | 26 |
|
Cross-currency swap contracts | | Other current assets/ Other noncurrent assets | | — |
| | Accrued liabilities/ Other noncurrent liabilities | | 523 |
| | Other current assets/ Other assets | | 170 |
| | Accrued liabilities/ Other noncurrent liabilities | | 401 |
|
Interest rate swap contracts | | Other current assets/ Other noncurrent assets | | 41 |
| | Accrued liabilities/ Other noncurrent liabilities | | 7 |
| | Other current assets/ Other assets | | 56 |
| | Accrued liabilities/ Other noncurrent liabilities | | 149 |
|
Total derivatives designated as hedging instruments | | $ | 244 |
| | $ | 534 |
| | 407 |
| | 576 |
|
Derivatives not designated as hedging instruments: | | | | | |
Foreign currency contracts | | | Other current assets | | 1 |
| | Accrued liabilities | | — |
|
Total derivatives not designated as hedging instruments | | | 1 |
| | — |
|
Total derivatives | | | $ | 408 |
| | $ | 576 |
|
Our derivative contracts that were in liability positions as of December 31, 2017,2019, contain certain credit-risk-related contingent provisions that would be triggered if:if (i) we were to undergo a change in control and (ii) our, or the surviving entity’s, creditworthiness deteriorates, which is generally defined as having either a credit rating that is below investment grade or a materially weaker creditworthiness after the change in control. If these events were to occur, the counterparties would have the right but not the obligation to close the contracts under early-termination provisions. In such circumstances, the counterparties could request immediate settlement of these contracts for amounts that approximate the then current fair values of the contracts. In addition, our derivative contracts are not subject to any type of master netting arrangement, and amounts due either to or from a counterparty under the contracts may only be offset against other amounts due either to or from the same counterparty only if an event of default or termination, as defined, were to occur.
The cash flow effects of our derivative contracts in the Consolidated Statements of Cash Flows are included withinin Net cash provided by operating activities, except for the settlement of notional amounts of cross-currency swaps, which are included in the Consolidated Statements of Cash Flows.Net cash used in financing activities.
18.19. Contingencies and commitments
Contingencies
In the ordinary course of business, we are involved in various legal proceedings, government investigations and other matters that are complex in nature and have outcomes that are difficult to predict. See Part I, Item 1A. Risk Factors—Our business may be affected by litigation and government investigations. investigations. We describe our legal proceedings and other matters that are significant or that we believe could become significant in this footnote.
We record accruals for loss contingencies to the extent that we conclude it is probable that a liability has been incurred and the amount of the related loss can be reasonably estimated. We evaluate, on a quarterly basis, developments in legal proceedings and other matters that could cause an increase or decrease in the amount of the liability that has been accrued previously.
Our legal proceedings involve various aspects of our business and a variety of claims-including but not limited to patent validity and infringement, regulatory standards, marketing, and other corporate and commercial matters-someclaims, some of which present novel factual allegations and/or unique legal theories. In each of the matters described in this filing, plaintiffsin which we could incur a liability, our opponents seek an award of a not-yet-quantified amount of damages or an amount that is not material. In addition, a number of the matters pending against us are at very early stages of the legal process, which in complex proceedings of the sort we face often extend for several years. As a result, none of the matters pending against us described in this filing, in which we could incur a liability, have progressed sufficiently through discovery and/or the development of important factual information and legal issues to enable us to estimate a range of possible loss, if any, or such amounts are not material. While it is not possible to accurately predict or determine the eventual outcomes of these matters, an adverse determination in one or more of these matters currently pending could have a material adverse effect on our consolidated results of operations, financial position or cash flows.
Certain ofrecent developments concerning our legal proceedings and other matters are discussed below:
PCSK9 AntibodyAbbreviated New Drug Application (ANDA) Patent Litigation
U.S.KYPROLIS® (carfilzomib) ANDA Patent Litigation—Sanofi/Regeneron
OnOnyx Therapeutics, Inc. v. Cipla Limited, et al.
Between October 17, 2014, Amgen initiated2016 and April 2018, Onyx Therapeutics, Inc. (Onyx Therapeutics, a serieswholly-owned subsidiary of Amgen), filed separate lawsuits in the U.S. District Court for the District of Delaware (the Delaware District Court) against: (1) Cipla Limited and Cipla USA, Inc. (collectively, Cipla); (2) Sagent Pharmaceuticals, Inc. (Sagent); (3) Breckenridge Pharmaceutical, Inc. (Breckenridge); and (4) Fresenius Kabi, USA LLC, Fresenius Kabi USA, Inc., Fresenius Kabi Pharmaceuticals Holding, Inc. and Fresenius Kabi Oncology Limited; (5) Teva Pharmaceuticals USA, Inc. and Teva Pharmaceutical Industries Ltd.; (6) MSN Laboratories Private Limited and MSN Pharmaceuticals, Inc. (collectively, MSN); (7) Dr. Reddy’s Laboratories, Ltd. and Dr. Reddy’s Laboratories, Inc. (collectively, DRL); (8) Qilu Pharma, Inc. and Qilu Pharmaceutical Co. Ltd. (collectively, Qilu); (9) Apotex Inc. and Apotex Corp. (Apotex); (10) InnoPharma, Inc. (InnoPharma); and (11) Aurobindo Pharma USA, Inc., each for infringement of one or more of our following patents, which are listed in the Approved Drug Products with Therapeutic Equivalence Evaluations (the Orange Book) for KYPROLIS®: U.S. Patent Nos. 7,232,818 (the ’818 Patent), 7,417,042 (the ’042 Patent), 7,491,704 (the ’704 Patent), 7,737,112 (the ’112 Patent), 8,129,346 (the ’346 Patent), 8,207,125 (the ’125 Patent), 8,207,126 (the ’126 Patent), 8,207,127 (the ’127 Patent) and 8,207,297 (the ’297 Patent). Each of these lawsuits were based on each defendant’s submission of an ANDA seeking U.S. Food and Drug Administration (FDA) approval to market a generic version of KYPROLIS®. In each lawsuit, Onyx Therapeutics sought an order of the Delaware District Court making any FDA approval of the respective defendant’s ANDA effective no earlier than the expiration of the applicable patents.
The Delaware District Court consolidated these lawsuits for purposes of discovery into a single case, Onyx Therapeutics, Inc. v. Cipla Limited, et al.
In 2017, by stipulation with Onyx Therapeutics, Fresenius Kabi Pharmaceuticals Holding, Inc. and Fresenius Kabi Oncology Limited were dismissed from the lawsuit, leaving Fresenius Kabi, USA LLC and Fresenius Kabi USA, Inc. (collectively, Fresenius) as the remaining Fresenius defendants. In September 2017 and February 2018, respectively, by joint stipulation with Onyx Therapeutics, Teva Pharmaceutical Industries Ltd. and Teva Pharmaceuticals USA, Inc. were each dismissed from the lawsuit and in February 2018, Qilu was dismissed from the lawsuit by joint stipulation between Onyx Therapeutics and Qilu.
Between April and July of 2018, the Delaware District Court entered orders on stipulations between Onyx Therapeutics and each of Apotex, DRL, Sagent, Fresenius, Breckenridge, Aurobindo Pharma USA, Inc., Cipla and InnoPharma, respectively, that each defendant infringes the ’042, ’112, ’125, ’126 and ’127 Patents. Onyx Therapeutics provided those defendants, either through a stipulated order or other agreement, a covenant that it would not assert patent infringement of the ’818,’704,’346 and ’297 Patents against Sanofi, Aventisubcertain of the respective defendants’ ANDA applications and products. In June 2018, the Delaware District Court entered an order on a stipulation between Onyx Therapeutics and MSN that MSN infringes the ’112 Patent. In December 2018, Apotex, DRL, Fresenius, InnoPharma, Sagent, Breckenridge, Aurobindo Pharma USA, Inc. and Cipla amended their responses to the complaints to add the defense of unclean hands and to seek declarations of unenforceability of the asserted patents based on allegations of inequitable conduct. In January 2019, MSN amended its responses to the complaints to add the defense of unclean hands.
On January 11, 2019, Onyx Therapeutics filed a separate lawsuit in the Delaware District Court against Breckenridge for infringement of the ’042, ’112 and ’125 Patents in connection with its ANDA that seeks approval to market generic versions of KYPROLIS®. On March 4, 2019, the Delaware District Court entered an order on a stipulation between Onyx Therapeutics and Breckenridge, providing that Breckenridge infringes the asserted claims of the ’042, ’112 and ’125 Patents, and consolidated this lawsuit against Breckenridge into the existing consolidated case, Onyx Therapeutics, Inc. v. Cipla Limited, et al., for all purposes.
On May 6, 2019, the Delaware District Court commenced trial in the Onyx Therapeutics, Inc. v. Cipla Limited, et al. consolidated case. During trial, the Delaware District Court signed consent judgments filed by Onyx Therapeutics and each of Aurobindo Pharma USA, Inc., InnoPharma, Sagent, Apotex, Fresenius, DRL and Breckenridge, in which the parties stipulated to entry of: (1) judgment dismissing with prejudice all of the parties’ claims, counterclaims, affirmative defenses and demands; and (2) an injunction prohibiting infringement of the ’042, ’112 and ’125 Patents by the manufacture, use, sale, offer to sell or importation into the United States of the applicable defendant’s carfilzomib product unless specifically authorized pursuant to the applicable confidential settlement agreement. During trial, the Delaware District Court also entered a consent judgment between Onyx Therapeutics and MSN, in which the parties stipulated to entry of: (1) judgment dismissing with prejudice all of the parties’ claims, counterclaims, affirmative defenses and demands; and (2) an injunction prohibiting infringement of the ’112 Patent by the manufacture, use, sale, offer to sell or importation into the United States of MSN’s carfilzomib product unless specifically authorized pursuant to the confidential settlement agreement. On May 16, 2019, trial concluded between Onyx Therapeutics and the lone remaining defendant, Cipla. On January 17, 2020, the Delaware District Court issued an order advising the parties that the court expects to issue its post-trial opinion by, on or about, March 31, 2020.
Otezla® (apremilast) ANDA Patent Litigation
Celgene Corp. v. Sandoz Inc., et al.
Beginning in June 2018, Celgene filed 19 separate lawsuits in the U.S. District Court for the District of New Jersey (the New Jersey District Court) against Alkem Laboratories Ltd. (Alkem); Amneal Pharmaceuticals LLC; Annora Pharma Private Ltd. and Hetero USA Inc. (collectively, Hetero); Aurobindo Pharma Ltd. and Aurobindo Pharma USA Inc. (collectively, Aurobindo); Cipla Limited (Cipla Ltd); DRL; Emcure Pharmaceuticals Ltd. and Heritage Pharmaceuticals Inc. (collectively, Emcure); Glenmark Pharmaceuticals Ltd. (Glenmark); Macleods Pharmaceuticals Ltd. (Macleods); Mankind Pharma Ltd. (Mankind); MSN Laboratories Private Limited; Pharmascience Inc. (Pharmascience); Prinston Pharmaceutical Inc. (Prinston); Sandoz Inc.; Shilpa Medicare Ltd. (Shilpa); Teva Pharmaceuticals USA, Inc. and Actavis LLC formerly doing business(collectively, Actavis); Torrent Pharmaceuticals Ltd. (Torrent); Unichem Laboratories, Ltd. (Unichem); and Zydus Pharmaceuticals (USA) Inc., each for infringement of one or more of the following patents: U.S. Patent Nos. 6,962,940 (the ’940 Patent); 7,208,516 (the ’516 Patent); 7,427,638 (the ’638 Patent); 7,659,302 (the ’302 Patent); 7,893,101 (the ’101 Patent); 8,455,536 (the ’536 Patent); 8,802,717 (the ’717 Patent); 9,018,243 (the ’243 Patent) and 9,872,854 (the ’854 Patent), which are listed in the Orange Book for Otezla®. Each of the defendants is seeking to market a generic version of Otezla® before expiration of the asserted patents. The New Jersey District Court consolidated these 19 lawsuits for discovery and case management purposes into a single case, Celgene Corp. v. Sandoz Inc., et al. Each lawsuit seeks an order of the New Jersey District Court making any FDA approval of the respective defendant’s ANDA effective no earlier than the expiration of the applicable patents.
Between August 8, 2018 and August 30, 2018, Celgene filed amended complaints against Alkem, Amneal Pharmaceuticals LLC, Aurobindo, Cipla Ltd, DRL, Glenmark, Pharmascience, Sandoz Inc., Actavis, Unichem and Zydus Pharmaceuticals (USA) Inc. additionally asserting U.S. Patent No. 9,724,330 (the ’330 Patent), which is listed in the Orange Book for Otezla®. Between October 15 and November 27, 2018, Celgene filed amended complaints against Alkem, Amneal Pharmaceuticals LLC, Hetero, Aurobindo, Cipla Ltd, DRL, Emcure, Glenmark, Macleods, Mankind, MSN Laboratories Private Limited, Pharmascience, Prinston, Sandoz Inc., Actavis, Torrent, Unichem and Zydus Pharmaceuticals (USA) Inc. additionally asserting U.S. Patent No. 10,092,541 (the ’541 Patent), which is listed in the Orange Book for Otezla®. Between March 1, 2019 and April 4, 2019, Celgene filed amended complaints against Hetero, MSN Laboratories Private Limited and Emcure for infringement of one or more of the above-listed patents. On October 1, 2019, Celgene filed an amended complaint against Mankind for infringement of the ’940, ’302, ’536, ’243 and ’330 Patents. On October 8, 2019, Celgene filed a separate lawsuit against Zydus Pharmaceuticals (USA) Inc. in the New
Jersey District Court for infringement of U.S. Patent Nos. 8,093,283 (the ’283 Patent) and 8,629,173 (the ’173 Patent), which are not listed in the Orange Book for Otezla®. On December 19, 2019, the New Jersey District Court consolidated this lawsuit for discovery and case management purposes into the existing consolidated case, Celgene Corp. v. Sandoz Inc., et al.
Each defendant has filed an answer to the above-listed complaints and amended complaints disputing infringement and/or validity of the patents asserted against it. Along with their answers, each of Alkem, Hetero, Cipla Ltd, DRL, Emcure, Glenmark, Macleods, Mankind, Pharmascience, Sandoz Inc., Shilpa, Actavis, Torrent, Unichem and Zydus Pharmaceuticals (USA) Inc. filed declaratory judgment counterclaims asserting that some or all of the patents are not infringed and/or are invalid. In August 2019, based on a joint request by Celgene and Glenmark, the New Jersey District Court entered a consent judgment and injunction prohibiting the making, having made, using, selling, offering to sell, importing, or distributing of Glenmark’s apremilast product during the term of the ’940, ’638, ’302, ’101, ’536, ’243, ’330 and’541 Patents, unless authorized pursuant to a confidential settlement agreement.
On December 20, 2019, following Amgen’s acquisition of the patents-in-suit and the new drug application for Otezla®, Amgen and Celgene jointly moved the New Jersey District Court for an order (1) substituting Amgen for Celgene for all purposes in this litigation; (2) terminating Celgene from this litigation; and (3) changing the consolidated case caption and all related actions to reflect Amgen as Aventisthe sole plaintiff. Defendants have opposed the motion.
Sensipar® (cinacalcet) ANDA Patent Litigation
Amgen Inc. v. Amneal Pharmaceuticals LLC, et al. (formerly, Amgen Inc. v. Aurobindo Pharma Ltd. et al.) Consolidated Case
Beginning in September 2016, Amgen filed 14 separate lawsuits in the Delaware District Court for infringement of our U.S. Patent No. 9,375,405 (the ’405 Patent) against a number of manufacturers of purported generic versions of our Sensipar® product. In February 2017, the Delaware District Court consolidated these 14 lawsuits into a single case, Amgen Inc. v. Aurobindo Pharma Ltd. et al. In June 2017, Amgen filed an additional lawsuit in the Delaware District Court for infringement of the ’405 Patent which was consolidated into Amgen Inc. v. Aurobindo Pharma Ltd. et al. in August 2017. The ’405 Patent is entitled “Rapid Dissolution Formulation of a Calcium Receptor-Active Compound” and expires in 2026. All defendants responding to the complaint denied infringement and sought judgment that the ’405 Patent is invalid and/or not infringed.
Between September and November of 2017, Amgen filed, and the Delaware District Court signed, stipulated dismissals of the lawsuit against Micro Labs Ltd. and Micro Labs USA, Inc., and Regeneronthe lawsuit against Apotex, as well as consent judgments filed by Amgen and each of (1) Sun Pharma Global FZE, Sun Pharmaceutical Industries, Ltd. and Sun Pharmaceutical Industries, Inc. (collectively, Sun); (2) Ajanta Pharma Limited and Ajanta Pharma USA, Inc.; (3) Hetero USA Inc., Hetero Labs Ltd. and Hetero Labs Ltd. Unit V; and (4) Breckenridge. Each consent judgment stipulated to an entry of judgment of infringement and validity of the ’405 Patent and an injunction prohibiting the manufacture, use, sale, offer to sell, importation of or distribution into the United States of the respective defendant’s cinacalcet product during the term of the ’405 Patent unless specifically authorized pursuant to the confidential settlement agreement.
On March 5, 2018, the Delaware District Court commenced trial on the infringement claims and defenses in the Amgen Inc. v. Aurobindo Pharma Ltd. et al. consolidated lawsuit against the defendants that remained in the lawsuit, collectively consisting of (1) Watson Laboratories, Inc. and Actavis Pharma, Inc. (collectively, Watson); (2) Amneal Pharmaceuticals LLC and Amneal Pharmaceuticals of New York, LLC (collectively, Amneal); (3) Zydus Pharmaceuticals (USA) Inc. and Cadila Healthcare Ltd. (collectively, Zydus); and (4) Piramal Healthcare UK Limited (Piramal). Just prior to trial, the Delaware District Court signed consent judgments filed by Amgen and each of Cipla, and Strides Pharma Global Pte Limited and Strides Pharma, Inc. (collectively, Strides), and a consent judgment filed by Amgen and Aurobindo. In each consent judgment, the parties stipulated to an entry of judgment of infringement and validity of the ’405 Patent and an injunction prohibiting the manufacture, use, sale, offer to sell, importation of or distribution into the United States of the applicable defendant’s cinacalcet product during the term of the ’405 Patent unless specifically authorized pursuant to the applicable confidential settlement agreement. Just prior to trial, the Delaware District Court also entered orders dismissing each of DRL and Mylan Pharmaceuticals Inc. (Regeneron)and Mylan Inc. (collectively, Mylan), on stipulations between Amgen and such parties, respectively, subject to the terms of confidential settlement agreements.
On July 27, 2018, the Delaware District Court issued a trial order finding on the infringement claims and defenses in the Amgen Inc. v. Aurobindo Pharma Ltd. et al. consolidated lawsuit that Zydus infringes the ’405 Patent and that Amneal, Piramal and Watson do not infringe the ’405 Patent. On August 24, 2018, the Delaware District Court issued an order dismissing, without prejudice, the invalidity counterclaims of Amneal, Piramal and Watson and entered judgment of noninfringement of the ’405 Patent in favor of Amneal, Piramal and Watson. On September 20, 2018, Amgen filed a notice of appeal to the U.S. Court of Appeals for patent infringement.the Federal Circuit (the Federal Circuit Court). On October 9, 2018, the Delaware District Court dismissed, without prejudice, the invalidity counterclaims of Zydus and entered judgment of infringement of the ’405 Patent by Zydus in favor of Amgen, including an order that the effective date of the FDA approval of Zydus’ generic version of Sensipar® shall be no earlier
than the expiry date of our ’405 Patent. On October 11, 2018, Zydus filed a notice of appeal to the Federal Circuit Court, and on October 24, 2018, the Federal Circuit Court consolidated the appeals of Zydus and Amgen.
In December 2018, the FDA approved Watson’s generic version of Sensipar® and Watson’s parent company, Teva Pharmaceutical Industries Ltd. (Teva), began selling its product at-risk notwithstanding that the appeals were pending at the Federal Circuit Court. On January 2, 2019, Amgen, Watson and Teva entered into a settlement agreement in which Teva agreed to stop selling its generic product until the mid-year 2021, or earlier under certain circumstances and to pay Amgen an undisclosed amount. On January 9, 2019, Watson and Amgen filed a motion asking the Delaware District Court to vacate its final judgment of noninfringement as to Watson and to enter a proposed consent judgment of infringement and validity of the ’405 Patent and an injunction prohibiting the making, having made, using, selling, offering to sell, or distributing Watson’s cinacalcet product in the United States or importing Watson’s cinacalcet product into the United States, consistent with the confidential settlement agreement. On January 11, 2019, the Federal Circuit Court stayed the pending appeal as to Watson in order for the Delaware District Court to rule on the motion of Watson and Amgen. On January 18, 2019 and January 23, 2019, respectively, Cipla and Sun filed oppositions to the motion of Watson and Amgen.
On March 19, 2019, Amgen filed an emergency motion for an injunction pending appeal, seeking an order from the Delaware District Court enjoining defendant Piramal from making, using, selling, offering for sale or importing its generic cinacalcet product. Amgen’s motion follows an announcement that Slate Run Pharmaceuticals LLC (Slate Run), in partnership with Piramal, had begun selling Piramal’s generic cinacalcet product at-risk notwithstanding the appeals pending at the Federal Circuit Court. On April 15, 2019, the Delaware District Court signed an order enjoining Piramal and Slate Run from selling their generic cinacalcet product until certain events occur related to a decision by the Federal Circuit Court on the parties’ appeal. The order has no effect on the product that Piramal and Slate Run had already sold to third parties.
On March 26, 2019, the Delaware District Court denied the joint motion for indicative ruling of Watson and Amgen. On April 10, 2019, Amgen filed an appeal to the Federal Circuit Court. On April 29, 2019, the Federal Circuit Court lifted the stay of Amgen’s appeal of the judgment of noninfringement as to Watson and consolidated it with Amgen’s appeal of the Delaware District Court’s denial of the joint motion for indicative ruling. On July 17, 2019, Amgen filed a motion requesting the Federal Circuit Court to vacate the Delaware District Court’s noninfringement judgment with respect to Watson and direct entry of the parties’ proposed consent judgment. On July 18, 2019, Cipla filed an opposition to Amgen’s motion and also moved to participate in the appeal as either an intervenor or as amicus curiae. On September 13, 2019, the Federal Circuit Court denied Amgen’s motion, lifted the stay of the briefing schedule which had been stayed pending disposition of Amgen’s motion to vacate and granted Cipla permission to file a brief as amicus curiae.
On January 7, 2020, the Federal Circuit Court issued an opinion affirming the judgment of noninfringement with respect to Piramal, affirming the judgment of infringement with respect to Zydus and vacating and remanding to the Delaware District Court for further consideration the judgment of noninfringement with respect to Amneal.
Amgen Inc. v. The ACME Laboratories Ltd.
On September 11, 2019, Amgen filed a lawsuit in the Delaware District Court against The ACME Laboratories Ltd. (ACME) for infringement of Amgen’s ’405 Patent. On November 20, 2019, the Delaware District Court signed a consent judgment filed by Amgen and ACME in which the parties stipulated to an entry of judgment of infringement and validity of the ’405 Patent and an injunction prohibiting the manufacture, use, sale, offer to sell, importation of or distribution into the United States of ACME’s cinacalcet product during the term of the ’405 Patent unless specifically authorized pursuant to the confidential settlement agreement.
ENBREL (etanercept) Patent Litigation
Immunex Corporation, et al. v. Samsung Bioepis Co., Ltd.
On April 30, 2019, 2 affiliates of Amgen Inc., Immunex Corporation and Amgen Manufacturing, Limited (collectively, Amgen), along with Hoffmann-La Roche Inc. (Roche), filed a lawsuit in the New Jersey District Court against Samsung Bioepis Co., Ltd. (Bioepis). This lawsuit stems from Bioepis’ submission of an application for FDA licensure of an etanercept product as biosimilar to Amgen’s ENBREL. Amgen and Roche have asserted infringement of 5 patents: U.S. Patent Nos. 8,063,182 (the ’182 Patent); 8,163,522 (the ’522 Patent); 7,915,225 (the ’225 Patent); 8,119,605 (the ’605 Patent); and 8,722,631 (the ’631 Patent). By their complaint, Amgen and Roche seek an injunction to prohibit Bioepis from commercializing its biosimilar etanercept product in the United States prior to the expiry of such patents. On August 5, 2019, defendant Bioepis responded to the complaint, denying infringement and seeking judgment that the patents-in-suit are invalid, unenforceable and/or not infringed. On January 9, 2020 and subject to the terms of a confidential stipulation and court order of January 6, 2020, the New Jersey District Court entered a consent injunction that prohibits Bioepis from making, using, offering to sell, selling or importing into the United States Bioepis’ etanercept product. Amgen and Bioepis entered into an agreement with respect to an injunction regarding etanercept as
set out in the New Jersey District Court’s order of January 6, 2020. On January 15, 2020, the New Jersey District Court entered an order administratively staying the case pursuant to a joint request of Amgen and Bioepis.
Immunex Corporation, et al. v. Sandoz Inc., et al.
On February 26, 2016, 2 affiliates of Amgen Inc., Immunex Corporation and Amgen Manufacturing, Limited (collectively, Amgen), along with Hoffmann-La Roche Inc. (Roche), filed a lawsuit in the New Jersey District Court against Sandoz Inc., Sandoz International GmbH and Sandoz GmbH (collectively, Sandoz). This lawsuit stems from Sandoz’s submission of an application for FDA licensure of an etanercept product as biosimilar to Amgen’s ENBREL. Amgen and Roche have asserted infringement of 5 patents: the ’182, ’522, ’225, ’605 and ’631 Patents. By their complaint, Amgen and Roche seek an injunction to prohibit Sandoz from commercializing its biosimilar etanercept product in the United States prior to the expiry of such patents. All Sandoz defendants responded by denying infringement and/or asserting that the patents at issue are invalid. On August 11, 2016, and subject to the terms of a confidential stipulation, the New Jersey District Court entered a preliminary injunction prohibiting Sandoz from making, using, importing, selling or offering for sale Sandoz’s etanercept product. On August 30, 2016, the FDA approved Sandoz’s ErelziTM, a biosimilar to ENBREL.
On September 10, 2018, the New Jersey District Court entered an order that the making, using, offering to sell or selling in the United States or the importation into the United States by Sandoz of Sandoz’s biosimilar etanercept product infringes the ’182 and ’522 Patents. The New Jersey District Court held a bench trial from September 11, 2018 to September 25, 2018, focusing on Sandoz’s challenges to the validity of these patents. On August 9, 2019, the New Jersey District Court issued its decision upholding the validity of the ’182 and ’522 Patents. On October 8, 2019, by stipulation of Amgen and Sandoz, the New Jersey District Court entered final judgment and a permanent injunction prohibiting Sandoz from making, using, importing, selling or offering for sale Sandoz’s etanercept product, and, on the same day, Sandoz appealed the final judgment to the Federal Circuit Court. Following a motion by Sandoz, the Federal Circuit Court ordered an expedited briefing schedule for the appeal and briefing on appeal has been completed. Oral argument has been set for March 4, 2020.
Repatha® (evolocumab) Patent Litigation
Amgen Inc., et al. v. Sanofi, et al.
In October 2014, theseAmgen initiated a series of lawsuits that were consolidated by the Delaware District Court in December 2014 into a single case against Sanofi, Sanofi-Aventis U.S. LLC and Aventisub LLC, formerly doing business as Aventis Pharmaceuticals Inc. (collectively, Sanofi) and Regeneron Pharmaceuticals, Inc. (Regeneron), addressing seven7 of our patents: U.S. Patent Nos. 8,563,698; 8,829,165 (the ’165 Patent); 8,859,741 (the ’741 Patent); 8,871,913; 8,871,914; 8,883,983; and 8,889,834. These patents describe and claim monoclonal antibodies to proprotein convertase subtilisin/kexin type 9 (PCSK9). By its complaints, Amgen seeks an injunction to prevent the infringing manufacture, use and sale of Sanofi and Regeneron’s alirocumab, a monoclonal antibody targeting PCSK9. On January 29, 2016, the Delaware District Court granted Amgen’s motion to amend the complaint to add its affiliates, Amgen Manufacturing, Limited (AML) and Amgen USA Inc., as plaintiffs and to add the allegation that defendants’Sanofi and Regeneron’s infringement of Amgen’s patents is willful.
On February 22, 2016, the Delaware District Court entered a stipulated order finding alirocumab and the drug product containing it, PRALUENT®, infringe certain of Amgen’s patents, including claims 2, 7, 9, 15, 19 and 29 of the ’165 Patent and claim 7 of the ’741 Patent. On March 18, 2016, the Delaware District Court entered judgment in favor of Amgen following a five-day jury trial and a unanimous jury verdict that these patent claims from the ’165 Patent and the ’741 Patent are all valid. On January 3, 2017, the Delaware District Court denied Sanofi and Regeneron’s post-trial motions seeking a new trial and for judgment as a matter of law, and on January 5, 2017, granted Amgen’s motion for a permanent injunction prohibiting the infringing manufacture, use, sale, offer for sale or import of alirocumab in the United States.
On January 12, 2017, Sanofi and Regeneron filed an appeal of the judgment and the permanent injunction to the U.S. Court of Appeals for the Federal Circuit (the Federal Circuit Court). FollowingCourt. On February 8, 2017, following a motion by Sanofi and Regeneron, the Federal Circuit Court ordered an expedited briefing schedule for the appeal and, on February 8, 2017, entered a stay of the permanent injunction during the pendency of the appeal. On October 5, 2017, the Federal Circuit Court reversed-in-partreversed in part the judgment of the Delaware District Court and remanded for a new trial two2 of defendants’the patent validity defenses (failure to meet the law’s requirements for patentability(lack of written description and enablement of the claimed inventions), and affirmed the Delaware District Court’s judgment of infringement of claims 2, 7, 9, 15, 19 and 29 of the ’165 Patent and claim 7 of the ’741 Patent and patent validity on the defendants’ third patent validity defense (finding that the claimed inventions were not obvious to a person of ordinary skill in the field of the patents). The Federal Circuit Court also vacated and remanded for further consideration by the Delaware District Court the permanent injunction.
On December 6, 2017, Amgen petitioned the Federal Circuit Court for rehearing en banc, which was denied. The Federal Circuit Court issued a March 2, 2018 mandate returning the case to the Delaware District Court for a new trial on 2 of Sanofi and Regeneron’s challenges to the validity of our patents (lack of written description and enablement of the claimed inventions) and for further consideration of a permanent injunction. On July 23, 2018, Amgen filed a petition for certiorari with the U.S. Supreme Court seeking review of the Federal Circuit Court’s conclusion that the judgment affirming the validity of Amgen’s patents was based, in part, on an erroneous application of the law of written description. On January 7, 2019, the U.S. Supreme
Court denied Amgen’s petition for certiorari. On remand, the Delaware District Court scheduled a new trial on Sanofi and Regeneron’s challenges to the validity of our patents based on lack of written description and enablement of the claimed inventions. The Delaware District Court also entered judgment on the pleadings for Sanofi and Regeneron on Amgen’s claim of willful infringement.
On February 25, 2019, a jury of the Delaware District Court unanimously upheld the validity of claims 19 and 29 of the ’165 Patent and claim 7 of the ’741 Patent. The jury also found that claims 7 and 15 of the ’165 Patent meet the enablement requirement, but are invalid for failure to meet the written description requirement. On March 18, 2019, Sanofi and Regeneron filed post-trial motions seeking to reverse judgment as a matter of law or for a new trial with respect to claims 19 and 29 of the ’165 Patent and claim 7 of the ’741 Patent, and Amgen filed a motion for a permanent injunction. On June 6, 13 and 21, 2019, the Delaware District Court held evidentiary hearings on Amgen’s motion for a permanent injunction against PRALUENT®. On August 28, 2019, the Delaware District Court ruled on the post-trial motions, denying Sanofi and Regeneron’s request for a new trial and their request to reverse the jury verdict that the ’165 Patent and the ’741 Patent provide written description support for the claimed inventions. The Delaware District Court also ruled as a matter of law that claims 19 and 29 of the ’165 Patent and claim 7 of the ’741 Patent are invalid for failing to meet the enablement requirement, overturning the jury verdict. On October 23, 2019, Amgen filed a notice of appeal to the Federal Circuit Court.
Patent Disputes in the EuropeanInternational Region
On February 24, 2016, the European Patent Office (EPO) granted European Patent No. 2,215,124 (EP 2,215,124) to Amgen. This patent describes and claims monoclonal antibodies to PCSK9 and methods of treatment. On February 24, 2016, Sanofi filed an opposition to the patent in the EPO seeking to invalidate it. In November 2016, Sanofi-Aventis Deutschland GmbH, Sanofi-Aventis Groupe S.A. and Sanofi Winthrop Industrie S.A. filed a joint opposition against Amgen’s patent, and each of Eli Lilly and Company, Regeneron and Strawman Ltd. also filed oppositions to Amgen’s patent. Amgen filed its response on May 2, 2017. TheOn November 30, 2018, the EPO confirmed the validity of Amgen’s EP 2,215,124, which has been appealed to the Technical Board of Appeal. A two-day hearing is scheduled oral proceedings to begin on November 28, 2018.
March 24, 2020.
We are also involved in and expect future involvement in additional disputes regarding our PCSK9 patents in other jurisdictions and regions, including matters filed against us and that we have filed in the United Kingdom, Germany, France, The Netherlands, Italy, Spain and France.Japan.
SensiparNEUPOGEN® (cinacalcet) Litigation
Sensipar (filgrastim)/Neulasta® Abbreviated New Drug Application (ANDA)(pegfilgrastim) Patent Litigation
Beginning in September 2016, Amgen filed 14 separate lawsuits in the Delaware District Court for infringement of our U.S. Patent No. 9,375,405 (the ’405 Patent) against: (1) Aurobindo Pharma Ltd. and Aurobindo Pharma USA, Inc., (2) Micro Labs Ltd. and Micro Labs USA, Inc. (collectively, Micro Labs), (3) Watson Laboratories,et al. v. Accord BioPharma (formerly, Amgen Inc., Actavis,et al. v. Apotex Inc., et al.)
On August 7, 2018, Amgen Inc. and Actavis Pharma, Inc., (4) Ciplaits wholly-owned subsidiary, Amgen Manufacturing, Limited and Cipla USA, Inc. (collectively, Cipla)Amgen), (5) Strides Pharma Global PTE Limited and Strides Pharma, Inc., (6) Sun Pharma Global FZE and Sun Pharmaceutical Industries, Inc. (collectively, Sun), (7) Dr. Reddy’s Laboratories, Ltd. and Dr. Reddy’s Laboratories, Inc. (collectively, Dr. Reddy’s), (8) Ajanta Pharma Limited and Ajanta Pharma USA, Inc. (collectively, Ajanta), (9) Amneal Pharmaceuticals LLC, Amneal Pharmaceuticals of New York, LLC, and Amneal Pharmaceuticals Co. India Private Limited, (10) Apotex Inc. and Apotex Corp. (collectively, Apotex), (11) Hetero USA Inc., Hetero Labs Ltd. and Hetero Labs Ltd. Unit V (collectively, Hetero), (12) Breckenridge Pharmaceutical, Inc. (Breckenridge), (13) Mylan Pharmaceuticals Inc. and Mylan Inc., and (14) Zydus Pharmaceuticals (USA) Inc. and Cadila Healthcare Ltd. (collectively, Zydus). In November 2016, Actavis, Inc. was dismissed from the applicable lawsuit by joint stipulation of the parties. The Delaware District Court consolidated these 14 lawsuits into a single case, Amgen Inc. v. Aurobindo Pharma Ltd. et al., which is scheduled for trial on March 5, 2018. The ’405 Patent is entitled “Rapid Dissolution Formulation of a Calcium Receptor-Active Compound” and expires in 2026. Amgen seeks an order of the Delaware District Court making any U.S. Food and Drug Administration (FDA) approval of the defendants’ generic versions of Sensipar® effective no earlier than the expiration of the ’405 Patent. All defendants have responded to the complaint denying infringement and seeking judgment that the ’405 Patent is invalid and/or not infringed. Amgen filed, and the Delaware District Court signed, stipulated dismissals of the lawsuit against defendants Apotex on September 11, 2017, and Micro Labs on September 20, 2017. The Delaware District Court signed consent judgments filed by Amgen and Breckenridge on September 21, 2017, by Amgen and Sun on November 2, 2017, by Amgen and Hetero on November 2, 2017, and by Amgen and Ajanta on November 9, 2017, each stipulating to entry of judgment of infringement and validity of the ’405 Patent and an injunction prohibiting the manufacture, use, sale, offer to sell, importation of, or distribution into the United States of the respective defendant’s cinacalcet product during the term of the ’405 Patent unless specifically authorized pursuant to the confidential settlement agreement.
In June 2017, Amgen filed four additional lawsuits in the Delaware District Court for infringement of the ’405 Patent against: (1) Piramal Healthcare UK Limited (Piramal), (2) Alkem Laboratories Ltd. (Alkem), (3) Lupin Ltd. and Lupin Pharmaceuticals, Inc. (collectively, Lupin), and (4) Macleods Pharmaceuticals Ltd. and Macleods Pharma USA, Inc. (collectively, Macleods). In each lawsuit, all defendants have responded to the complaint denying infringement and seeking a declaration of non-infringement and invalidity of the ’405 Patent. Macleods’ response also included a counterclaim alleging sham litigation in violation of the Sherman Antitrust Act, which Amgen has denied. On August 15, 2017, the Delaware District Court consolidated the lawsuit filed against Piramal into the existing consolidated case. The Delaware District Court consolidated the lawsuits filed against Alkem, Lupin and Macleods into a separate single case, Amgen Inc. v. Alkem et al., on December 13, 2017, stayed Macleods’ Sherman Antitrust counterclaim pending resolution of the patent claims, and has scheduled trial on the patent claims for April 29, 2019.
In December 2017, Amgen filed four additional lawsuits in the Delaware District Court for infringement of the ’405 Patent against (1) Watson Laboratories, Inc. and Actavis Pharma Inc., (2) Teva Pharmaceuticals, USA, Inc., (3) Barr Laboratories, Inc., and (4) Torrent Pharmaceuticals Ltd.
Sensipar® Pediatric Exclusivity Litigation
On May 25, 2017, Amgen filed a lawsuit in the U.S. District Court for the District of Columbia (the D.C. District Court) seeking effectively to reverse the FDA’s May 22, 2017 rejection of Amgen’s request for pediatric exclusivity for cinacalcet hydrochloride (Sensipar®/Mimpara®). Four companies seeking to market generic versions of Sensipar® were granted leave to intervene, but all but Amneal Pharmaceuticals LLC have subsequently withdrawn from the case. On January 26, 2018, the D.C. District Court granted in part and denied in part the summary judgment motions filed separately by each of the parties and remanded the case to the FDA for the limited purpose of the FDA addressing whether the FDA’s denial of pediatric exclusivity in the case is inconsistent with a prior FDA pediatric exclusivity decision on a different drug. The FDA has responded that its denial of pediatric exclusivity for cinacalcet hydrochloride was appropriate and not inconsistent with its prior decisions. The parties await the court’s ruling on the remaining portions of their summary judgment motions.
KYPROLIS® (carfilzomib) ANDA Patent Litigation
Beginning in October 2016, our subsidiary Onyx Therapeutics, Inc. (Onyx Therapeutics), filed four separate lawsuits in the Delaware District Court against: Cipla; Sagent Pharmaceuticals, Inc.; Breckenridge; and Fresenius Kabi, USA LLC, Fresenius
Kabi USA, Inc., Fresenius Pharmaceuticals Holding, Inc., and Fresenius Kabi Oncology Limited; each for infringing U.S. Patent Nos. 7,232,818 (the ’818 Patent); 7,417,042 (the ’042 Patent); 7,491,704 (the ’704 Patent); 7,737,112 (the ’112 Patent); 8,129,346 (the ’346 Patent); 8,207,125 (the ’125 Patent); 8,207,126 (the ’126 Patent); 8,207,127 (the ’127 Patent); and 8,207,297 (the ’297 Patent). By joint stipulation of the parties, Fresenius Pharmaceuticals Holding, Inc. and Fresenius Kabi Oncology Limited were subsequently dismissed from that lawsuit. In October and November 2016, Onyx Therapeutics also filed four separate lawsuits in the Delaware District Court against: MSN Laboratories Private Limited and MSN Pharmaceuticals, Inc. (collectively, MSN); Dr. Reddy’s; Qilu Pharma, Inc. and Qilu Pharmaceutical Co. Ltd. (collectively, Qilu); and Apotex; each for infringing the ’112 Patent; and a separate lawsuit against InnoPharma, Inc. for infringement of the ’042, ’112 and ’297 Patents. In April 2017, Onyx Therapeutics filed a separate lawsuit in the Delaware District Court against Teva Pharmaceuticals USA, Inc. and Teva Pharmaceutical Industries Ltd. for infringement of the ’818, ’042, ’704, ’112, ’346, ’125, ’126, ’127 and ’297 Patents. The Delaware District Court has consolidated these ten lawsuits for purposes of discovery into a single case, Onyx Therapeutics, Inc. v. CIPLA Ltd., et al. These ten lawsuits are based on ANDAs that seek approval to market generic versions of KYPROLIS® before expiration of the asserted patent or patents. In each lawsuit, Onyx Therapeutics seeks an order of the Delaware District Court making any FDA approval of the defendant’s ANDA effective no earlier than the expiration of the applicable patents. Responses to the complaints have been filed by all defendants alleging invalidity and, in certain instances, non-infringement of the patents. Trial is scheduled to commence on March 11, 2019.
In August 2017, Onyx Therapeutics filed additional lawsuits in the Delaware District Court against InnoPharma, Inc. for infringement of the ’818, ’704, ’346, ’125, ’126 and ’127 Patents; and against Apotex and Qilu for infringement of the ’818, ’042, ’704, ’346, ’125, ’126, ’127 and ’297 Patents. In each lawsuit, Onyx Therapeutics seeks an order of the Delaware District Court making any FDA approval of the defendant’s ANDA effective no earlier than the expiration of the applicable patents. On September 14, 2017, the Delaware District Court consolidated these three additional lawsuits for purposes of discovery into the existing consolidated case. Responses to these new complaints have been filed by InnoPharma, Inc., Apotex and Qilu alleging invalidity and, in certain instances, non-infringement of the patents.
In September 2017, by joint stipulation of the parties, Teva Pharmaceutical Industries Ltd. was dismissed from the patent infringement lawsuit that was filed in the Delaware District Court in April 2017, leaving Teva Pharmaceuticals USA, Inc. as the remaining defendant in that litigation.
In November 2017, Onyx Therapeutics filed a lawsuit in the Delaware District Court against Aurobindo Pharma USA, Inc. for infringement of the ’818, ’042, ’704, ’112, ’346, ’125, ’126, ’127 and ’297 Patents. In December 2017, Onyx Therapeutics filed additional lawsuits in the Delaware District Court against Dr. Reddy’s for infringement of the ’818, ’042, ’704, ’346, ’125, ’126, ’127 and ’297 Patents, and against MSN for infringement of the ’112 Patent. In January, Onyx Therapeutics filed a lawsuit in the Delaware District Court against Apotex for infringement of the ’818, ’042, ’704, ’112, ’346, ’125, ’126, ’127 and ’297 Patents. In each lawsuit, Onyx Therapeutics seeks an order of the Delaware District Court making any FDA approval of the defendant’s ANDA effective no earlier than the expiration of the applicable patents. Responses to these complaints have been filed by Auobindo Pharma USA, Inc., Dr. Reddy’s, and MSN alleging invalidity and, in certain instances, non-infringement of the patents.
In February 2018, Qilu was dismissed from the applicable lawsuit by joint stipulation of the parties.
NEUPOGEN® (filgrastim)/ Neulasta® (pegfilgrastim) Litigation
Sandoz NEUPOGEN® Patent Litigation
On October 24, 2014, Amgen Inc. and AML (collectively, Amgen) filed a lawsuit in the U.S. District Court for the Northern District of California (the California Northern District Court) against Sandoz Inc., Sandoz International GmbH and Sandoz GmbH (collectively, Sandoz) for infringement of our U.S. Patent No. 6,162,427 (the ’427 Patent) and various state law claims. The lawsuit stems from Sandoz filing an application for FDA licensure of a filgrastim product as biosimilar to NEUPOGEN® under the Biologics Price Competition and Innovation Act (BPCIA), while having deliberately failed to comply with the BPCIA’s disclosure requirement to Amgen as the reference product sponsor. By its complaint, Amgen seeks, among other remedies, an injunction to cease Sandoz’s unauthorized reliance on Amgen’s Biologics License Application (BLA) for filgrastim and an injunction to prevent Sandoz from infringing, or inducing any infringing use of, filgrastim.
On March 19, 2015, the California Northern District Court issued an order dismissing with prejudice Amgen’s state law claims, and entered judgment in favor of Sandoz Inc. on its cross-motion for partial judgment on the pleadings. The order also denied Amgen’s motion for a preliminary injunction, as well as Amgen’s motion for partial judgment on the pleadings. On a joint motion of the parties, on March 25, 2015, the California Northern District Court entered final judgment on the claims and counterclaims decided by the court’s March 19 order. The remaining patent infringement claim, counterclaim and defenses were stayed by the court pending appeal. On March 25, 2015, Amgen appealed both the judgment in favor of Sandoz Inc. and the denial
of Amgen’s motion for preliminary injunction to the Federal Circuit Court. On May 5, 2015, the Federal Circuit Court entered an injunction prohibiting Sandoz Inc. from marketing, selling, offering for sale, or importing into the United States Sandoz’s FDA-approved Zarxio® biosimilar product until the Federal Circuit Court resolved the appeal.
On July 21, 2015, the Federal Circuit Court affirmed the California Northern District Court’s dismissal of Amgen’s state law claims concluding that the only remedies available for a biosimilar applicant’s failure to provide its BLA by the statutory deadline is to bring a patent infringement claim and seek those patent remedies provided by the statute. The Federal Circuit Court also concluded that a biosimilar applicant must give 180-day advance notice of first commercial marketing after the FDA has licensed the biosimilar product. Accordingly, the Federal Circuit Court entered an order that its previously entered injunction be extended through September 2, 2015 (180 days from Sandoz Inc.’s notice given after FDA approval).
On February 16, 2016, Sandoz filed a petition for certiorari with the U.S. Supreme Court seeking review of the Federal Circuit Court ruling concluding that a biosimilar applicant must give 180-day advance notice of first marketing and that notice can be given only after the FDA has licensed the biosimilar product. On March 21, 2016, Amgen filed a brief in opposition to Sandoz’s petition and a conditional cross-petition for certiorari requesting that the U.S. Supreme Court also review the Federal Circuit Court’s ruling that the only remedy available when a biosimilar applicant refuses to provide its BLA is to bring a patent infringement claim. On June 12, 2017, the U.S. Supreme Court reversed the Federal Circuit Court ruling that a biosimilar applicant must wait to give the 180-day advance notice of first commercial marketing until after the FDA has licensed the biosimilar product, holding that such notice can be given either before or after the FDA approval. On a second issue, the U.S. Supreme Court vacated the Federal Circuit Court’s decision that the only remedy available when a biosimilar applicant refuses to provide its BLA is to bring a patent infringement claim. The U.S. Supreme Court agreed with the Federal Circuit Court that there is no remedy under federal law for failing to make the disclosure but remanded the case to the Federal Circuit Court to determine whether California law would treat noncompliance with such requirement as unlawful and, if so, to determine whether the BPCIA pre-empts any additional remedy available under state law and whether Sandoz forfeited any pre-emption defense. On December 14, 2017, the Federal Circuit Court affirmed the California Northern District Court’s dismissal of Amgen’s state law claims, holding that the BPCIA pre-empts state law remedies for a biosimilar applicant’s failure to comply with the BPCIA’s disclosure requirement.
Following the California Northern District Court’s September 8, 2015 lift of the stay of the case, the parties continued to litigate the remaining patent infringement claim, counterclaim and defenses. On October 15, 2015, Amgen filed a first supplemental and amended complaint adding to the lawsuit Sandoz’s infringement of U.S. Patent No. 8,940,878 (the ’878 Patent), which covers methods of purifying proteins. On September 13, 2017, by joint stipulation of the parties, the California Northern District Court dismissed from the case the parties’ respective claims and counterclaims related to the ’427 Patent. On October 25, 2017, Sandoz filed motions for summary judgment of noninfringement of the ’878 Patent and for summary judgment regarding damages. On December 19, 2017, the California Northern District Court granted Sandoz’s summary judgment of noninfringement. Sandoz’s motion for summary judgment regarding damages was denied as moot. On January 8, 2018, the California Northern District Court entered judgment of noninfringement of the ’878 and ’427 Patents and dismissed without prejudice Sandoz’s counterclaims of invalidity of the ’878 and ’427 Patents. Amgen filed an appeal of the judgment on February 5, 2018.
Sandoz Neulasta® Patent Litigation
On May 12, 2016, Amgen filed a lawsuit in the California Northern District Court against Sandoz and Lek Pharmaceuticals d.d. for infringement of the ’878 Patent and 5,824,784 (the ’784 Patent) in accordance with the patent provisions of the BPCIA. The lawsuit stems from Sandoz filing an application for FDA licensure of a pegfilgrastim product as biosimilar to Neulasta®. On June 23, 2016, Sandoz responded to the complaint, denying infringement and seeking judgment that the patents-in-suit are invalid and/or not infringed. On December 7, 2016, by joint stipulation of the parties, the California Northern District Court dismissed from the case all claims and counterclaims related to the ’784 Patent. On October 25, 2017, Sandoz filed motions for summary judgment of noninfringement of the ’878 Patent and for summary judgment regarding damages. On December 19, 2017, the California Northern District Court granted Sandoz’s summary judgment of noninfringement of the ’878 Patent. Sandoz’s motion for summary judgment regarding damages was denied as moot. On January 8, 2018, the California Northern District Court entered judgment of noninfringement of the ’878 Patent and dismissed without prejudice Sandoz’s counterclaims of invalidity of the ’878 Patent. Amgen filed an appeal of the judgment on February 5, 2018.
Apotex NEUPOGEN®/Neulasta® Patent Litigation
On August 6 and October 2, 2015, Amgen filed two separate lawsuits in the U.S. District Court for the Southern District of Florida (the Florida Southern District Court) against Apotex for infringement of our U.S. Patent Nos. 8,952,138No. 9,856,287 (the ’138’287 Patent), the ’784 Patent and the ’427 Patent, in accordance with the patent provisions of the BPCIABiologics Price Competition and for a declaration that Apotex’s pre-licensure notice of commercial marketing is legally ineffective. These lawsuits stemInnovation Act (BPCIA). This lawsuit stemmed from Apotex’s submissions of applications for FDA licensure of a pegfilgrastim product as biosimilar to Amgen’s Neulasta®, and a filgrastim product as biosimilar to Amgen’s NEUPOGEN®, respectively.. By its complaints,complaint, Amgen seeks,sought, among other remedies, an injunction prohibiting Apotex from
infringing the ’138, ’784 and ’427 Patents and enjoining Apotex from commencing commercial marketing of any biosimilar pegfilgrastim product or biosimilar filgrastim product, respectively, until a date that is at least 180 days after Apotex provides legally effective notice to Amgen.’287 Patent. On April 18, 2019, Apotex answered the complaint including counterclaims seeking declaratory judgments of noninfringement and invalidity. On August 6 complaint on October 5, 2015, denying patent infringement, alleging that the patents are invalid, alleging sham litigation in violation of the Sherman Antitrust Act, seeking a declaration that the ’138 Patent is unenforceable for patent misuse and seeking a declaration on the interpretation of the BPCIA commercial notice provision. On November 3, 2015,27, 2019, the Florida Southern District Court consolidated the two lawsuits into a single case.
On December 9, 2015, the Florida Southern District Court granted Amgen’san unopposed motion for preliminary injunction prohibiting Apotex from commercializing its biosimilar pegfilgrastim product untilto substitute Accord BioPharma in place of Apotex. On November 14, 2019, the parties entered into a date that is at least 180 days after Apotex provides legally effective commercial notice to Amgen.settlement agreement resolving all issues between the parties. On July 5, 2016,November 15, 2019, the Federal Circuit Court affirmed the Florida Southern District Court injunction, holding that the 180-day notice of commercial marketing is mandatory under the BPCIA and can be given only post-FDA licensure of the biosimilar product. On September 9, 2016, Apotex petitioned the U.S. Supreme Court for certiorari, seeking review of the Federal Circuit Court holding. On December 12, 2016, the U.S. Supreme Court denied Apotex’s petition for certiorari.
On June 15, 2016, the Florida Southern District Court dismissed without prejudice all claims and counterclaims related to the ’427 and ’784 Patents on the parties’ joint stipulation of dismissal. In a separate order that same day, the Florida Southern District Court also dismissed without prejudice all counterclaims related to unlawful monopolization in violation of the Sherman Antitrust Act on the parties’ joint stipulation of dismissal. On June 24,2016, the Florida Southern District Court issued a further claim construction decision grantingan order dismissing the motion for summary judgment of no literal infringement of the ’138 Patent filed by case without prejudice.
Apotex and denying the motion with respect to no infringement under the doctrine of equivalents. On July 11, 2016, trial began on infringement of the ’138 Patent and Apotex’s counterclaims and defenses. On September 16, 2016, the Florida Southern District Court entered final judgment that Apotex’s process of manufacturing its filgrastim and pegfilgrastim products do not infringe the ’138 Patent, dismissing without prejudice Apotex’s remaining invalidity counterclaim for patent invalidity, and making permanent the injunction compelling Apotex to provide 180-day advance notice of first commercial marketing of its filgrastim and pegfilgrastim products if and when the FDA approves these products. Amgen appealed and on November 13, 2017, the Federal Circuit Court affirmed the Florida Southern District Court’s judgment.PTAB Challenge
On February 17, 2017, the Patent Trial and Appeal Board (PTAB) of the U.S. Patent and Trademark Office (USPTO) granted Apotex’s petition to institute an inter partes review (IPR) proceeding of the of U.S. Patent No. 8,952,138 (the ’138 Patent,Patent), challenging claims of the ’138 Patent as unpatentable. On May 22, 2017, Amgen filed its responseresponse. The PTAB issued a final decision holding all but 1 claim of the ’138 Patent as unpatentable, and oral argument was held beforeon March 16, 2018, Apotex filed a request for rehearing. On May 20, 2019, the PTAB issued a decision denying Apotex’s request for rehearing on December 13, 2017.the PTAB’s finding and sua sponte amending the final decision with a finding that the 1 remaining claim in Amgen’s ’138 Patent is unpatentable. On July 22, 2019, Amgen filed a notice of appeal to the Federal Circuit Court with respect to all claims held to be unpatentable. On August 5, 2019, Apotex provided notice that it would not participate in the appeal. On September 16, 2019, the USPTO filed a notice of intervention on the appeal.
Coherus Neulasta
Amgen Inc., et al. v. Kashiv Biosciences, LLC, et al.
On March 8, 2018, Amgen Inc. and its wholly-owned subsidiary, Amgen Manufacturing, Limited (collectively, Amgen), filed a lawsuit in the New Jersey District Court against Kashiv Biosciences, LLC, formerly known as Adello Biologics, LLC (Kashiv). This lawsuit stemmed from Kashiv’s submission of an application for FDA licensure of a filgrastim product as biosimilar to Amgen’s NEUPOGEN®. Amgen initially asserted infringement of 17 of our patents. Amgen sought an injunction to prohibit Kashiv from commercializing its biosimilar filgrastim product in the United States prior to the expiry of these patents. Following discovery in October 2018, Amgen filed a first amended complaint in the New Jersey District Court adding as defendants Amneal Pharmaceuticals LLC and Amneal Pharmaceuticals, Inc. and reducing the number of patents-in-suit from 17 to 4: U.S. Patent LitigationNos. 8,940,878 (the ’878 Patent); the ’138 Patent; 9,643,997 (the ’997 Patent); and the ’287 Patent. Kashiv responded to the first amended complaint, seeking judgment that our patents-in-suit are not infringed by Kashiv’s biosimilar filgrastim product and that our patents are invalid.
On May 10, 2017,November 20, 2019, Amgen and Kashiv entered into a settlement agreement resolving all issues between the parties in the New Jersey District Court and PTAB proceedings (discussed below). On November 25, 2019, the New Jersey District Court entered the dismissal of all claims and counterclaims without prejudice.
Apotex/Kashiv PTAB Challenge
On April 19, 2019, the PTAB instituted post grant proceedings against the ’287 Patent in response to a petition filed by Apotex and Kashiv alleging the claimed invention is unpatentable. On October 4, 2019, the PTAB granted judgement adverse to Apotex and the review proceedings continued with Kashiv as the sole petitioner until December 6, 2019, when the PTAB dismissed the post grant review pursuant to the joint motion to terminate the proceeding due to settlement.
Kashiv PTAB Challenge
In a separate challenge, on September 11, 2019, the PTAB instituted IPR proceedings in response to a petition filed by Kashiv challenging the patentability of each claim of the ’878 Patent and the ’997 Patent. On December 6, 2019, pursuant to a joint motion to terminate the proceedings due to settlement, the PTAB dismissed the IPR proceedings.
Amgen Inc., et al. v. Pfizer Inc. et al.
On July 18, 2018, Amgen Inc. and its wholly owned subsidiary, Amgen Manufacturing, Limited (collectively, Amgen), filed a lawsuit in the Delaware District Court against Coherus BioSciences,Pfizer Inc. (Coherus) for infringement of our U.S. Patent No. 8,273,707 (the ’707 Patent)and Hospira Inc. (collectively, Pfizer). This lawsuit stems from Coherus’Pfizer’s submission of an application for FDA licensure of a filgrastim product as biosimilar to Amgen’s NEUPOGEN®. Amgen has asserted infringement of the ’997 Patent and seeks, among other remedies, injunctive relief to prohibit Pfizer from infringing the ’997 Patent. On July 20, 2018, the FDA approved Pfizer’s NIVESTYMTM, a biosimilar to NEUPOGEN®, which was subsequently launched in October 2018.
On August 9, 2018, Pfizer answered the complaint and counterclaimed seeking a declaration that Pfizer does not infringe Amgen’s ’997 Patent and that the patent is invalid. On March 22, 2019, Amgen filed an amended complaint against Pfizer in the Delaware District Court narrowing the patent claims at issue in the infringement dispute and adding a request for damages. On April 11, 2019, Pfizer answered Amgen’s amended complaint including counterclaims seeking declaratory judgments of noninfringement and invalidity. Trial is scheduled to commence on June 15, 2020.
Amgen Inc., et al. v. Hospira Inc. et al.
On February 11, 2020, Amgen Inc. and its wholly owned subsidiary, Amgen Manufacturing, Limited (collectively, Amgen), filed a lawsuit in the Delaware District Court against Hospira, Inc. and Pfizer Inc. (collectively, Pfizer). This lawsuit stems from Pfizer’s submission of an application for FDA licensure of a pegfilgrastim product as biosimilar to Amgen’s Neulasta® under the BPCIA. By its complaint, . Amgen has asserted infringement of U.S. Patent No. 8,273,707 (the ’707 Patent) and seeks, among other remedies, an injunction prohibiting Coherusinjunctive relief to prohibit Pfizer from infringing the ’707 Patent.
Fresenius PTAB Challenge
On June 1, 2017, Coherus8, 2019, Fresenius Kabi USA, LLC and Fresenius Kabi SwissBioSim GmbH filed a motionpetition seeking to dismissinstitute IPR proceeding before the complaint as purportedly failingPTAB to state a claimchallenge the patentability of patent infringement.the ’997 Patent. On December 7, 2018,10, 2019, the PTAB instituted the IPR proceeding.
In a magistrate judge recommended thatseparate action, on December 20, 2019, Fresenius Kabi USA, LLC and Fresenius Kabi SwissBioSim GmbH filed a petition seeking to institute IPR proceeding before the motion be granted with prejudice. Amgen filed objectionsPTAB to challenge the recommendation and awaitspatentability of the ’287 Patent. Amgen’s preliminary response is due in March 2020 after which the PTAB will have three months to render a ruling by the courtdecision on Coherus’ motionwhether to dismiss. A claim construction hearing is scheduled for June 25, 2018, andinstitute trial is scheduled to commence on September 16, 2019.proceedings.
Mylan Neulasta® Patent Litigation
On September 22, 2017,
Amgen Inc., et al. v. Tanvex BioPharma USA, Inc., et al.
On July 23, 2019, Amgen and AML (collectively, Amgen)its wholly owned subsidiary, Amgen Manufacturing, Limited, filed a lawsuit in the U.S. District Court for the WesternSouthern District of PennsylvaniaCalifornia (the California Southern District Court) against MylanTanvex BioPharma USA, Inc., Mylan PharmaceuticalsTanvex BioPharma, Inc., Mylan GmbH, and Mylan N.V.Tanvex Biologics Corporation (collectively, Mylan)Tanvex) for infringement of our ’707the ’287 Patent and U.S. Patent No. 9,643,997 (the ’997 Patent).in accordance with the patent provisions of the BPCIA. This lawsuit stemsstemmed from Mylan’sTanvex’s submission of an application for FDA licensure of a pegfilgrastimfilgrastim product as biosimilar to Amgen’s NeulastaNEUPOGEN® under the BPCIA.. By its complaint, Amgen seeks,sought, among other remedies, an injunction prohibiting MylanTanvex from infringing the ’707 and ’997 Patents.’287 Patent. On November 22, 2017, Mylan answered theSeptember 23, 2019, Tanvex responded to Amgen’s complaint, denying patent infringement and alleging thatseeking judgment of noninfringement and invalidity of Amgen’s ’287 Patent. On December 17, 2019, Amgen and Tanvex entered into a settlement agreement resolving all issues between the patents are invalid.
ENBREL (etanercept) Litigation
Sandoz ENBREL Patent Litigation
parties. On February 26, 2016, two affiliates of Amgen Inc. (Immunex Corporation and AML (collectively, Amgen)), along with Hoffmann-La Roche Inc. (Roche), filed a lawsuit in U.S.December 20, 2019, the California Southern District Court for the District of New Jersey (the New Jersey District Court) against Sandoz. This lawsuit stems from Sandoz’s submission of an application for FDA licensure of an etanercept product as biosimilar to Amgen’s ENBREL. Amgendismissed all claims and Roche have asserted infringement of five patents: U.S. Patent Nos. 8,063,182 (the ’182 Patent); 8,163,522 (the ’552 Patent); 7,915,225; 8,119,605; and 8,722,631 (the ’631 Patent). By their complaint, Amgen and Roche seek an injunction to prohibit Sandoz from commercializing its biosimilar etanercept product in the United States prior tocounterclaims without prejudice.
the expiry of such patents. Responses have been filed by all Sandoz defendants denying infringement and/or asserting that the patents at issue are invalid. On August 11, 2016, and subject to the terms of a confidential stipulation, the New Jersey District Court entered a preliminary injunction prohibiting Sandoz from making, using, importing, selling or offering for sale Sandoz’s etanercept product. Trial is scheduled to start on April 17, 2018. On August 30, 2016, the FDA approved Sandoz’s Erelzi™, a biosimilar to ENBREL.
On September 14, 2017, Amgen filed a motion for summary judgment that Sandoz infringed claim 1 of the ’631 Patent and, on October 23, 2017, Sandoz filed its brief in opposition to the motion.
Coherus ENBREL Patent Challenge
On August 4 and September 7, 2017, Coherus filed separate petitions seeking to institute IPR proceedings before the PTAB of the U.S. Patent and Trademark Office to challenge the patentability of each claim of the ’522 Patent and the ’182 Patent, respectively. Both the ’522 Patent and the ’182 Patent relate to ENBRELand are exclusively licensed to our subsidiary Immunex Corporation by Roche. Patent owner preliminary responses to the Coherus IPR petition were filed on December 13, 2017 regarding the ’522 Patent and on December 15, 2017 regarding the ’182 Patent, explaining that Coherus’ petitions are without merit and requesting that the PTAB not institute IPR proceedings. The deadlines by which the PTAB is expected to render a decision regarding whether to institute IPR trial proceedings on the ’522 Patent and the ’182 Patent are March 15 and March 26, 2018, respectively.
Hospira EPOGEN® (epoetin alfa) Patent Litigation
Amgen Inc., et al. v. Hospira, Inc.
On September 18, 2015, Amgen Inc. and its wholly owned subsidiary, Amgen Manufacturing, Limited (collectively, Amgen), filed a lawsuit in the Delaware District Court against Hospira, Inc. (Hospira), a subsidiary of Pfizer Inc., for infringement of Amgen’s U.S. Patent Nos. 5,856,298 (the ’298 Patent) and 5,756,349 (the ’349 Patent) in accordance with the patent provisions of the BPCIA and for a declaration that Hospira has failed to comply with certain requirements of the BPCIA. This lawsuit stems from the submission by Hospira under the BPCIA of an application for FDA licensure of an epoetin product as biosimilar to Amgen’s EPOGEN®. By its complaint, Amgen seeks, among other remedies, an injunction prohibiting Hospira from using or selling infringing cells and/or product manufactured during the ’298 or the ’349 Patent terms and enjoining Hospira from commencing commercial marketing of any biosimilar epoetin product until a date that is at least 180 days after Hospira provides legally effective notice to Amgen.
On August 19, 2016, Hospira responded to the complaint denying patent infringement and any violation of the BPCIA and seeking judgment that the patents-in-suit are invalid and not infringed by Hospira. On January 23, 2017, the Delaware District Court entered an order construing the claims of the ’349 and ’298 Patents and holding that two2 claims of the ’298 Patent are invalid for failure to properly narrow the claim on which they depend.
On September 22, 2017, after a five-day trial, the jury returned a verdict finding the ’298 Patent valid and infringed by Hospira and the ’349 Patent not infringed. The jury awarded Amgen $70 million in damages for Hospira’s infringement. On October 23, 2017, Hospira moved for judgment as a matter of law of non-infringementnoninfringement and invalidity of the ’298 Patent or, in the alternative, for reduction of the damage award or a new trial on the ’298 Patent.Patent, which was denied on August 27, 2018. On May 15, 2018, the FDA approved Hospira’s RETACRIT®, a biosimilar to EPOGEN®, which was subsequently launched on November 14, 2018. On September 11, 2018, the Delaware District Court entered final judgment.
MVASI™(bevacizumab-awwb) Patent Litigation
On October 6, 2017,3, 2018, Hospira filed a notice of appeal to the Federal Circuit Court and on October 15, 2018, Amgen filed a notice of cross-appeal. On December 16, 2019, the Federal Circuit Court affirmed the final judgment of the Delaware District Court. On January 15, 2020, Hospira petitioned the Federal Circuit Court for rehearing en banc.
Litigation relating to our Biosimilar Products
AMJEVITATM (adalimumab-atto)/AMGEVITATM Patent Litigation
Coherus BioSciences, Inc. v. Amgen Inc.
On January 24, 2019, Coherus BioSciences, Inc. (Coherus) filed a lawsuit in the U.S.Delaware District Court forthat the Centralformulation of AMJEVITATM infringes 3 patents: U.S. Patent Nos. 10,155,039; 10,159,732; and 10,159,733. By its complaint, Coherus sought, among other remedies, injunctive relief prohibiting patent infringement. On April 18, 2019, Amgen responded to the lawsuit denying patent infringement and seeking judgment that the patents-in-suit are invalid, unenforceable and/or not infringed by Amgen. On November 26, 2019, the Delaware District of California (the California Central District Court) againstCourt entered a stipulated order dismissing Coherus’ infringement claims with prejudice and Amgen’s defenses and counterclaims as moot.
KANJINTITM* (trastuzumab-anns) Patent Litigation
Genentech, Inc. v. Amgen Inc.
On June 21, 2018, Genentech Inc. (Genentech) and City of Hope seekingfiled a declaratory judgmentlawsuit in the Delaware District Court alleging Amgen’s infringement of 37 patents by Amgen’s submission of an application for FDA licensure of KANJINTITM, Amgen’s biosimilar version of Genentech’s Herceptin® (trastuzumab). On July 19, 2018, Genentech, City of Hope and Amgen filed a joint stipulation to dismiss certain of the patents from the lawsuit and Genentech and City of Hope filed an amended complaint narrowing its allegations of infringement to 18 of the 37 patents. Among other remedies, Genentech and City of Hope seek injunctive relief prohibiting patent infringement. On August 23, 2018, Genentech and City of Hope moved to dismiss Amgen’s unenforceability counterclaims and affirmative defense. On November 7, 2018, in accordance with the scheduling order issued by the Delaware District Court, Genentech and City of Hope reduced the number of asserted patents from 18 to 10. On January 17, 2019, Genentech and the City of Hope filed a second amended complaint that 27removed 1 of the remaining 10 asserted patents listedand added a different patent.
On July 10, 2019, Genentech filed a motion asking the Delaware District Court for a temporary restraining order and preliminarily injunction prohibiting Amgen from commercially launching, marketing or selling KANJINTITM until the Delaware District Court renders a decision on the merits of Genentech’s asserted U.S. Patent Nos. 6,627,196; 7,371,379; and 10,160,811. Following Amgen’s opposition, on July 18, 2019, the Delaware District Court denied Genentech’s motion. On July 19, 2019, Genentech filed a notice of appeal and a motion requesting the Federal Circuit Court to enter an injunction prohibiting Amgen from continuing with its launch of KANJINTITM until final resolution of Genentech’s appeal. On July 24, 2019, the Delaware District Court entered an order dismissing City of Hope as a party to the lawsuit and dismissing with prejudice Genentech’s claims for infringement of a number of expired patents, leaving 8 patents asserted by Genentech in the BPCIA exchange are invalid, unenforceable and/or not infringed by MVASI™, Amgen’s biosimilarlitigation. On August 7, 2019, the Federal Circuit Court denied Genentech’s motion for an injunction pending appeal. Briefing of Avastin® (bevacizumab).the appeal has been completed and argument has been scheduled for March 3, 2020. On February 2, 2018,September 4, 2019, Genentech filed its third amended complaint adding a demand for a jury trial and an award of damages for infringement. On September 23, 2019, the California CentralDelaware District Court grantedordered a stipulated dismissal with prejudice of all claims for infringement of certain asserted patents, leaving 4 patents asserted by Genentech in the litigation. On September 24, 2019, Amgen filed its answer to Genentech’s third amended complaint denying infringement of any valid patent claim. The jury trial has been rescheduled to begin on April 20, 2020.
MVASITM*(bevacizumab-awwb) Patent Litigation
Genentech, Inc. and City of Hope’s motion to dismiss for lack of subject matter jurisdiction.Hope v. Amgen Inc.
On October 6 and October 18, 2017, Genentech and City of Hope filed separate lawsuits in the Delaware District Court respectively alleging Amgen’s infringement of (i) 24 of the 27 patents listed by Genentech in the BPCIA exchange and (ii) 25 of the same 27 patents, and, in each case by Amgen’s submission for non-complianceFDA licensure of MVASITM as biosimilar to Genentech’s Avastin® (bevacizumab) and for noncompliance with certain provisions of the BPCIA. On December 6, 2017, Genentech and City of Hope amended their complaints to allege that Amgen will also infringe newly issued U.S. Patent No. 9,795,672. On January 22,April 17, 2018, the Delaware District Court granted Amgen’s motionsmotion to transferdismiss certain claims by Genentech and City of Hope that Amgen had not complied with the two Delaware lawsuitsBPCIA.
Amgen responded to the California Central District Court were denied.
State Derivative Litigation
The three state stockholder derivative complaints filed against Amgen, Kevin W. Sharer, George J. Morrow, Dennis M. Fenton, Brian M. McNamee, Roger M. Perlmutter, David Baltimore, Gilbert S. Omenn, Judith C. Pelham, Frederick W. Gluck, Jerry D. Choate, J. Paul Reason, Frank J. Biondi, Jr., Leonard D. Schaeffer, Frank C. Herringer, Richard D. Nanula, Willard H. Dere, Edward V. Fritzky, Franklin P. Johnson, Jr. and Donald B. Rice as defendants (the State Defendants) on May 1 2007 (Larson v. Sharer, et al., & Anderson v. Sharer, et al.), and August 13, 2007 (Weil v. Sharer, et al.) in the Superior CourtJune 5, 2018, respectively, denying patent infringement and any violation of the StateBPCIA and seeking judgment that the patents-in-suit are invalid, unenforceable and/or not infringed by Amgen. On May 22 and June 19, 2018, respectively, Genentech and City of California, Ventura County (the Ventura County Superior Court)Hope moved to dismiss from each case all of Amgen’s counterclaims and certain of Amgen’s defenses.
On August 31, 2018, in accordance with the scheduling order issued by the Delaware District Court, Genentech and City of Hope reduced the number of asserted patents in each lawsuit to 8, asserting the same patents in each case. On October 22, 2018, the 2 cases were consolidated by the Ventura County Superior Court under
one action captioned Larson v. Sharer, et al. The consolidated complaint was filed on July 5, 2007. The complaint alleges that the State Defendants breached their fiduciary duties, wasted corporate assets, were unjustly enrichedDelaware District Court. On August 22, 2019 and violated the California Corporations Code. Plaintiffs allege that the State Defendants failed to disclose and/or misrepresented results of Aranesp® clinical studies, marketed both Aranesp® and EPOGEN® for off-label uses and that these actions or inactions caused stockholders to suffer damages. The complaints also allege insider tradingOctober 29, 2019, by the State Defendants. The plaintiffs seek treble damages based on various causes of action, reformed corporate governance, equitable and/or injunctive relief, restitution, disgorgement of profits, benefits and other compensation, and legal costs.
An amended consolidated complaint was filed on March 13, 2008, adding Anthony Gringeri as a State Defendant and removing the causes of action for insider selling and misappropriation of information, violation of California Corporations Code Section 25402 and violation of California Corporations Code Section 25403. On July 14, 2008, the Ventura County Superior Court dismissed without prejudice the consolidated state derivative class action. On July 24, 2013, the plaintiffs filed an amended complaint asserting additional grounds for the defendants’ alleged breaches of fiduciary duty. By stipulation of the parties, the case was stayed pending resolutionDelaware District Court entered judgment of the In re Amgen Inc. Securities Litigation action. Final settlement by the parties of the In re Amgen Inc. Securities Litigation actionwas approved by the courtnoninfringement, in October 2016, and on February 10, 2017, the Ventura County Superior Court lifted the stay in Larson v. Sharer, et al. On June 2, 2017, plaintiffs filed a third amended complaint with the Ventura County Superior Court in this case (now captioned Anderson v. Sharer, et. al), adding Robert A. Bradway, François de Carbonnel, Vance D. Coffman, Robert A. Eckert, Rebecca M. Henderson, Tyler Jacks, and Ronald D. Sugar as additional State Defendants and removing Chris Larson as a plaintiff. The third amended complaint adds additional allegations, including that Amgen engaged in improper marketingeach instance, with respect to ENBREL, Vectibixone of the patents asserted in the consolidated lawsuit, leaving a total of 6 remaining patents asserted by Genentech in the litigation. Trial is scheduled to begin on November 30, 2020.
On February 11, 2020, the Delaware District Court granted Genentech’s motion to dismiss Amgen’s counterclaim seeking judgment that U.S. Patent Nos. 6,610,516 and 7,323,553 are invalid, unenforceable and not infringed based on the Court’s finding that Genentech has represented that it does not plan to assert those patents against Amgen’s MVASITM product. On February 12, 2020, the Delaware District Court denied Amgen’s motion for leave to amend its answer, affirmative defenses and counterclaims to add affirmative defenses and counterclaims that U.S. Patent No. 8,574,869 is unenforceable for inequitable conduct and unclean hands. The Delaware District Court also denied Genentech’s motion for leave to amend its complaint to add allegation of infringement of U.S. Patent No. 9,714,293.
* Registered in the United States.
Genentech, Inc. and City of Hope v. Immunex Rhode Island Corp. and Amgen Inc.
On March 29, 2019, Genentech and City of Hope filed a lawsuit against Amgen in the Delaware District Court alleging infringement of 14 patents. All but two of the 14 patents asserted in this lawsuit have already been the subject of litigation pending among these parties in this court relating to Amgen’s submission of the application that led to the FDA licensure of MVASITM as biosimilar to Genentech’s Avastin®, (bevacizumab). Among other remedies, Genentech and City of Hope are seeking injunctive relief. On July 10, 2019, Genentech, alleging that Amgen’s notice of commercial marketing pursuant to the BPCIA is insufficient, filed motions asking the Delaware District Court for a temporary restraining order and enforcement of the BPCIA to prohibit Amgen from commercially marketing MVASITM until Amgen has provided new notice and waited until the expiry of the notice period. Following Amgen’s opposition, on July 18, 2019, the Delaware District Court denied Genentech’s motions. On July 19, 2019, Genentech filed a notice of appeal and a motion requesting the Federal Circuit Court to enter an injunction prohibiting Amgen from marketing MVASITM until final resolution of Genentech’s appeal, which was denied on August 16, 2019. Briefing of the appeal has been completed.
Breach of Contract Action
Cipla Ltd. et al. v. Amgen Inc.
On January 8, 2019, Cipla filed a separate lawsuit in the Delaware District Court against Amgen seeking a declaration that provisions of its settlement agreement with Amgen have been triggered by Teva’s at-risk launch of Watson’s generic version of Sensipar®, giving Cipla a right to market its own generic version under its settlement agreement with Amgen. Cipla’s complaint also alleges antitrust violations by Amgen. The portions of the complaint covering Cipla’s settlement agreement were filed with the court under seal and XGEVA®remain confidential.
On March 11, 2019, following an announcement by Cipla that it had begun selling its generic cinacalcet product in the United States, Amgen filed a counterclaim and related motion for preliminary injunction in the Delaware District Court. Amgen’s motion seeks to prohibit Cipla from making, having made, using, selling, offering to sell or distributing its generic cinacalcet product in breach of the settlement agreement between the parties. On May 2, 2019, the Delaware District Court denied Amgen’s motion for preliminary injunction, and Amgen filed its notice of appeal in the United States Court of Appeals for the Third Circuit (the Third Circuit Court of Appeals). On May 3, 2019, Amgen filed a motion for injunction pending appeal in the Delaware District Court, which was denied on May 9, 2019. On May 13, 2019, Amgen filed a motion for injunction pending appeal and expedited briefing in the Third Circuit Court of Appeals. On May 23, 2019, the Third Circuit Court of Appeals denied the motion for injunction pending appeal and granted the request for expedited briefing. On July 16, 2019, the Third Circuit Court of Appeals affirmed the Delaware District Court’s decision denying Amgen’s motion for a preliminary injunction. On October 15, 2019, Amgen moved to dismiss Cipla’s antitrust and fraud claims brought in the Delaware District Court for lack of standing and failure to state a claim. On December 6, 2019, Cipla filed its response to Amgen’s complaint and, on January 10, 2020, Amgen filed its response.
Novartis Pharma AG v. Amgen Inc.
On April 4, 2019, Amgen filed a lawsuit in the U.S. District Court for the Southern District of New York against Novartis Pharma AG seeking a declaratory judgment that Novartis Pharma AG materially breached 2 collaboration agreements related to the development and commercialization of Aimovig® (erenumab-aooe) due to Novartis Pharma AG’s affiliate Sandoz Gmbh entering into a contract manufacturing agreement with Alder BioPharmaceuticals, Inc. (Alder) related to eptinezumab, an expected direct competitor to Aimovig® and entrant in the calcitonin gene-related peptide (CGRP)-related migraine therapy market. Amgen seeks to terminate its collaboration agreements with Novartis Pharma AG and also seeks damages from Novartis Pharma AG for breach of contract and negligent misrepresentation. Also on April 4, 2019, Novartis Pharma AG initiated a separate lawsuit against Amgen in the same court seeking declaratory judgment that Novartis Pharma AG, alternatively, did not materially breach the collaboration agreements or, even if it did breach the collaboration agreements, such breach was not material and has been cured, and that Amgen may not terminate the collaboration agreements. On April 8, 2019, Amgen answered Novartis Pharma AG’s complaint and filed counterclaims seeking a declaratory judgment that Novartis Pharma AG materially breached the collaboration agreements due to its affiliate Sandoz Gmbh entering into the contract manufacturing agreement with Alder. In its counterclaim, Amgen seeks to terminate its collaboration agreements with Novartis Pharma AG and also seeks damages from Novartis Pharma AG for breach of contract and negligent misrepresentation. On July 16, 2019, Novartis Pharma AG filed an amended complaint adding a claim for breach of contract alleging Novartis Pharma AG is owed amounts associated with 2018 budget overruns and Amgen responded with a counterclaim alleging additional breaches by Novartis Pharma AG of the collaboration agreements. On September 17, 2019 and October 8, 2019, Novartis Pharma AG and Amgen, respectively, each filed its motion for judgment on the pleadings. Amgen was granted leave to file its amended counterclaims on February 3, 2017,2020 and filed its Amended Answer to Novartis’ First Amended Complaint and Second Amended Counterclaims for Affirmative Relief on February 4, 2020 to add a fraudulent inducement claim.
Antitrust Class Action
Sensipar® Antitrust Class Actions
From February 21, 2019, to April 10, 2019, 4 plaintiffs filed putative class action lawsuits against Amgen and various entities affiliated with Teva alleging anticompetitive conduct in connection with settlements between Amgen and manufacturers of generic cinacalcet product. NaN of those actions were brought in the State DefendantsDelaware District Court, captioned UFCW Local 1500 Welfare Fund v. Amgen Inc., et al. (February 21, 2019) (Local 1500) and Cesar Castillo, Inc. v. Amgen Inc., et al. (February 26, 2019) (Castillo). The third action was brought in the New Jersey District Court, captioned Teamsters Local 237 Welfare Fund, et al. v. Amgen Inc., et al. (March 14, 2019) (Local 237) and the fourth action was brought in the U.S. District Court for the Eastern District of Pennsylvania (the Eastern Pennsylvania District Court), captioned KPH Healthcare Services, Inc. a/k/a Kinney Drugs, Inc. v. Amgen Inc., et al (April 10, 2019) (KPH).
Each of the lawsuits is brought on behalf of a putative class of direct or indirect purchasers of Sensipar® and alleges that the plaintiffs have overpaid for Sensipar® as a result of Amgen’s conduct that allegedly improperly delayed market entry by manufacturers of generic cinacalcet products. The lawsuits focus predominantly on the settlement among Amgen, Watson and Teva of the parties’ patent infringement litigation. Each of the lawsuits seeks, among other things, treble damages, equitable relief and attorneys’ fees and costs. On April 10, 2019, the plaintiff in the KPH lawsuit filed demurrersa motion seeking dismissalto have the 4 lawsuits consolidated and designated as a multidistrict litigation (MDL) in the Eastern Pennsylvania District Court, and the plaintiff in the Local 1500 lawsuit filed a motion seeking to have the 4 lawsuits, along with Cipla Ltd. v. Amgen Inc., consolidated and designated as a MDL in the Delaware District Court. On July 31, 2019, the MDL panel entered an order consolidating in the Delaware District Court the 4 class action lawsuits. On September 13, 2019, the plaintiffs filed amended complaints, and on October 15, 2019, Amgen filed its motion to dismiss both the direct purchaser plaintiffs’ consolidated class action complaint and the indirect purchaser end payor plaintiffs’ complaint. On December 6, 2019, the plaintiffs responded to Amgen’s motion to dismiss and, on January 10, 2020, Amgen filed its response.
On February 6, 2020, an additional class action lawsuit was filed by MSP Recovery Claims against Amgen, Teva, Watson and Actavis also alleging anticompetitive conduct in connection with settlements between Amgen and manufacturers of all claims.generic cinacalcet product. This action was brought in the U.S. District Court for the Southern District of Florida, captioned MSP Recovery Claims v. Amgen Inc., et al.
Humira® Biosimilar Antitrust Class Actions
From March 18, 2019, to May 10, 2019, 12 purported class actions against Amgen, along with AbbVie Inc. and AbbVie Biotechnology Ltd. (collectively, AbbVie), were filed in the U.S. District Court for the Northern District of Illinois (the Illinois Northern District Court). The cases are captioned: UFCW Local 1500 Welfare Fund v. AbbVie Inc., et al. (March 18, 2019) (Local 1500); Fraternal Order of Police, Miami Lodge 20, Insurance Trust Fund v. AbbVie Inc., et al. (March 20, 2019); Mayor and City Council of Baltimore v. AbbVie Inc., et al. (March 22, 2019); PipeTrades Services MN Welfare Fund v. AbbVie Inc., et al. (March 29, 2019); St. Paul Electrical Workers’ Health Plan v. AbbVie Inc., et al. (March 29, 2019); Welfare Plan of the International Union of Operating Engineers Locals 137, 137A, 137B, 137C and 137R v. AbbVie Inc., et al. (April 1, 2019); Law Enforcement Health Benefits, Inc. v. AbbVie, Inc., et al. (April 9, 2019) (Law Enforcement); Kentucky Laborers District Council Health and Welfare Fund v. AbbVie, Inc., et al. (April 16, 2019); Sheet Metal Workers’ Local Union No. 28 Welfare Fund v. AbbVie, Inc., et al. (April 19, 2019) (Sheet Metal Workers’); Locals 302 & 612 of The International Union of Operating Engineers-Employers Construction Industry Health And Security Trust Fund v. AbbVie Inc., et al. (April 25, 2019) (Construction Industry); Louisiana Health Service & Indemnity Co., d/b/a Blue Cross and Blue Shield of Louisiana and HMO Louisiana, Inc. v. AbbVie Inc., et al. (April 30, 2019) (Louisiana Health); and Cleveland Bakers and Teamsters Health and Welfare Fund v. AbbVie Inc., et al. (May 10, 2019) (Cleveland Bakers) collectively, Humira® Antitrust Class Actions).
In each of the Humira® Antitrust Class Actions, the plaintiffs bring federal antitrust claims along with various state law claims under common law and antitrust, consumer protection and unfair competition statutes. In each case, the plaintiffs specifically allege that AbbVie has unlawfully monopolized the alleged market for Humira® and biosimilars of Humira®, including by creating an allegedly unlawful so-called patent thicket around Humira®. In the Local 1500, Sheet Metal Workers’ and Construction Industry cases, the plaintiffs further allege that AbbVie entered into allegedly unlawful market division agreements with Amgen and other companies that had developed Humira® biosimilars, including Bioepis, Mylan, Sandoz, Inc., Fresenius Kabi USA, LLC, Pfizer Inc. and Momenta Pharmaceuticals, Inc., in connection with the settlement of patent litigation relating to Humira®, whereby Amgen and the other defendants that have developed Humira® biosimilars were permitted to market those products in Europe as early as October 2018, while remaining off the market in the United States until 2023. In each of the Humira® Antitrust Class Actions other than the Local 1500 and Construction Industry cases, the plaintiffs allege that AbbVie and Amgen entered into an allegedly unlawful settlement agreement under which Amgen allegedly agreed to delay its entry into the U.S. market with AMGEVITATM, its Humira® biosimilar, in exchange for an alleged promise of exclusivity as the sole Humira® biosimilar in that market for five months, beginning in January 2023. In each of the Humira® Antitrust Class Actions, plaintiffs seek injunctive relief, treble damages
and attorney’s fees on behalf of a putative class of third-party payers and/or consumers that have indirectly purchased, paid for or provided reimbursement for Humira® in the United States. Defendants’ responses to the first 6 complaints were stayed by the court. On June 4, 2019, the Illinois Northern District Court entered an order consolidating the 12 purported class action cases for pre-trial purposes and on June 13, 2019, entered an order requiring the plaintiffs to file a consolidated complaint by August 12, 2019. On August 9, 2019, the plaintiffs filed their consolidated complaint in the Illinois Northern District Court. The consolidated class action complaint names as defendants Amgen, along with AbbVie, Bioepis, Sandoz, Inc. and Fresenius Kabi USA LLC. On October 11, 2019, the defendants filed a joint motion to dismiss the consolidated complaint (as well as brief individual motions), challenging the legal sufficiency of the plaintiffs’ allegations to state any claim for relief under the law. On November 13, 2017,19, 2019, plaintiffs filed their opposition to the Ventura County Superior Court granted the State Defendants’ demurrers without leavemotion to amend.dismiss. On December 20, 2017, the Ventura County Superior Court entered a judgment2019, defendants filed their reply in favorsupport of the State Defendants and dismissed the matter with prejudice.
U.S. Attorney’s Office for the District of Massachusetts—Patient Assistance Investigation
Amgen, together with other companies in our industry,motion to dismiss. No argument date has received inquiries from the U.S. Attorney’s Office for the District of Massachusetts relating to support of charitable 501(c)(3) organizations that provide financial assistance to Medicare patients. Amgen is cooperating with this ongoing inquiry.been set.
Commitments
Lease commitments
We lease certain facilities and equipment related primarily to administrative, R&D, sales and marketing activities under noncancelable operating leases that expire through 2043. The following table summarizes the minimum future rental commitments under noncancelable operating leases as of December 31, 2017 (in millions):
|
| | | |
| Amount |
2018 | $ | 158 |
|
2019 | 126 |
|
2020 | 116 |
|
2021 | 100 |
|
2022 | 59 |
|
Thereafter | 91 |
|
Total minimum operating lease commitments | $ | 650 |
|
Included in the table above are future rental commitments for abandoned leases in the amount of $264 million. There were no material charges for lease abandonments related to the restructuring plan that commenced in 2014. See Note 2, Restructuring. We expect to receive total future rental income of $205 million relating to noncancelable subleases of abandoned facilities. Rental expense on operating leases for the years ended December 31, 2017, 2016 and 2015, was $159 million, $134 million and $133 million, respectively.
– U.S. repatriation tax commitments
Under the 2017 Tax Act, we will electelected to pay in 8 annual installments the repatriation tax related primarily related to our prior indefinitely invested earnings of our foreign operations in eight annual installments beginning in April 2018.operations. See Note 5,6, Income taxes. As of December 31, 2017, we expect to pay $7.3 billion inThe following table summarizes the remaining scheduled repatriation taxes during the following years (in millions):
|
| | | |
| Amount |
2018 | $ | 585 |
|
2019 | 585 |
|
2020 | 585 |
|
2021 | 585 |
|
2022 | 585 |
|
Thereafter | 4,391 |
|
Total U.S. repatriation tax commitments | $ | 7,316 |
|
19. Segment information
We operate in one business segment: human therapeutics. Therefore, results of our operations are reported on a consolidated basis for purposes of segment reporting, consistent with internal management reporting. Enterprise-wide disclosures about product sales; revenues and long-lived assets by geographic area; and revenues from major customers are presented below.
Revenues
Revenues were as follows (in millions):
|
| | | | | | | | | | | |
| Years ended December 31, |
| 2017 | | 2016 | | 2015 |
Product sales: | | | | | |
ENBREL | $ | 5,433 |
| | $ | 5,965 |
| | $ | 5,364 |
|
Neulasta® | 4,534 |
| | 4,648 |
| | 4,715 |
|
Aranesp® | 2,053 |
| | 2,093 |
| | 1,951 |
|
Prolia® | 1,968 |
| | 1,635 |
| | 1,312 |
|
Sensipar®/Mimpara® | 1,718 |
| | 1,582 |
| | 1,415 |
|
XGEVA® | 1,575 |
| | 1,529 |
| | 1,405 |
|
EPOGEN® | 1,096 |
| | 1,282 |
| | 1,856 |
|
KYPROLIS® | 835 |
| | 692 |
| | 512 |
|
Vectibix® | 642 |
| | 611 |
| | 549 |
|
Nplate® | 642 |
| | 584 |
| | 525 |
|
NEUPOGEN® | 549 |
| | 765 |
| | 1,049 |
|
Repatha® | 319 |
| | 141 |
| | 10 |
|
BLINCYTO® | 175 |
| | 115 |
| | 77 |
|
Other | 256 |
| | 250 |
| | 204 |
|
Total product sales | 21,795 |
| | 21,892 |
| | 20,944 |
|
Other revenues | 1,054 |
| | 1,099 |
| | 718 |
|
Total revenues | $ | 22,849 |
| | $ | 22,991 |
| | $ | 21,662 |
|
Geographic information
Outside the United States, we sell products principally in Europe. The geographic classification of product sales is based on the location of the customer. The geographic classification of all other revenues is based on the domicile of the entity from which the revenues were earned.
Certain geographic information with respect to revenues and long-lived assets (consisting of property, plant and equipment, net) was as follows (in millions):
|
| | | | | | | | | | | |
| Years ended December 31, |
| 2017 | | 2016 | | 2015 |
Revenues: | | | | | |
United States | $ | 18,029 |
| | $ | 18,326 |
| | $ | 17,167 |
|
Rest of the world (ROW) | 4,820 |
| | 4,665 |
| | 4,495 |
|
Total revenues | $ | 22,849 |
| | $ | 22,991 |
| | $ | 21,662 |
|
|
| | | | | | | |
| December 31, |
| 2017 | | 2016 |
Long-lived assets: | | | |
United States | $ | 2,349 |
| | $ | 2,328 |
|
Puerto Rico | 1,527 |
| | 1,591 |
|
ROW | 1,113 |
| | 1,042 |
|
Total long-lived assets | $ | 4,989 |
| | $ | 4,961 |
|
Major customers
In the United States, we sell primarily to pharmaceutical wholesale distributors that we utilize as the principal means of distributing our products to healthcare providers. Outside the United States, we sell principally to healthcare providers and/or pharmaceutical wholesale distributors depending on the distribution practice in each country. We monitor the financial condition of our larger customers and limit our credit exposure by setting credit limits and, in certain circumstances, by requiring letters of credit or obtaining credit insurance.
We had product sales to three customers each accounting for more than 10% of total revenues for each of the years ended December 31, 2017, 2016 and 2015. For the year ended December 31, 2017, on a combined basis, these customers accounted for 81% and 96% of total gross revenues and U.S. gross product sales, respectively, as noted in the following table. Certain information with respect to these customers was as follows (dollar amounts in millions):
|
| | | | | | | | | | | |
| Years ended December 31, |
| 2017 | | 2016 | | 2015 |
AmerisourceBergen Corporation: | | | | | |
Gross product sales | $ | 10,742 |
| | $ | 10,100 |
| | $ | 10,038 |
|
% of total gross revenues | 31 | % | | 31 | % | | 34 | % |
% of U.S. gross product sales | 37 | % | | 38 | % | | 42 | % |
McKesson Corporation: | | | | | |
Gross product sales | $ | 10,625 |
| | $ | 9,710 |
| | $ | 8,766 |
|
% of total gross revenues | 30 | % | | 30 | % | | 30 | % |
% of U.S. gross product sales | 35 | % | | 34 | % | | 34 | % |
Cardinal Health, Inc.: | | | | | |
Gross product sales | $ | 7,049 |
| | $ | 6,520 |
| | $ | 5,045 |
|
% of total gross revenues | 20 | % | | 20 | % | | 17 | % |
% of U.S. gross product sales | 24 | % | | 24 | % | | 21 | % |
As of December 31, 2017 and 2016, amounts due from these three customers each exceeded 10% of gross trade receivables and accounted for 75% and 76%, respectively, of net trade receivables on a combined basis. As of December 31, 2017 and 2016, 14% and 21%, respectively, of trade receivables, net, were due from customers located outside the United States, primarily in Europe. Our total allowance for doubtful accountstax payments as of December 31, 2017 and 2016 was not material.2019 (in millions):
|
| | | |
| Amounts |
2020 | $ | 587 |
|
2021 | 587 |
|
2022 | 587 |
|
2023 | 1,100 |
|
2024 | 1,467 |
|
Thereafter | 1,834 |
|
Total remaining U.S. repatriation tax commitments | $ | 6,162 |
|
20. Quarterly financial data (unaudited)
The following tables summarize the Company’s unaudited financial data on a quarterly basis. The sum of the quarterly earnings (loss) per shareper-share amounts may not equal the amount reported for the full year since per sharebecause per-share amounts are computed independently for each quarter and for the full year based on respective weighted-average shares outstanding and dilutive securities.
Quarterly financial data is summarized as follows (in millions, except per shareper-share data):
|
| | | | | | | | | | | | | | | |
| 2019 Quarters ended |
| December 31 | | September 30 | | June 30 | | March 31 |
Product sales | $ | 5,881 |
| | $ | 5,463 |
| | $ | 5,574 |
| | $ | 5,286 |
|
Gross profit from product sales | $ | 4,628 |
| | $ | 4,427 |
| | $ | 4,562 |
| | $ | 4,231 |
|
Net income | $ | 1,703 |
| | $ | 1,968 |
| | $ | 2,179 |
| | $ | 1,992 |
|
Earnings per share: | | | | | | | |
Basic | $ | 2.87 |
| | $ | 3.29 |
| | $ | 3.59 |
| | $ | 3.20 |
|
Diluted | $ | 2.85 |
| | $ | 3.27 |
| | $ | 3.57 |
| | $ | 3.18 |
|
| 2018 Quarters ended |
| December 31 | | September 30 | | June 30 | | March 31 |
Product sales | $ | 6,001 |
| | $ | 5,510 |
| | $ | 5,679 |
| | $ | 5,343 |
|
Gross profit from product sales | $ | 4,905 |
| | $ | 4,473 |
| | $ | 4,655 |
| | $ | 4,399 |
|
Net income | $ | 1,928 |
| | $ | 1,859 |
| | $ | 2,296 |
| | $ | 2,311 |
|
Earnings per share: | | | | | | | |
Basic | $ | 3.04 |
| | $ | 2.88 |
| | $ | 3.50 |
| | $ | 3.27 |
|
Diluted | $ | 3.01 |
| | $ | 2.86 |
| | $ | 3.48 |
| | $ | 3.25 |
|
|
| | | | | | | | | | | | | | | |
| 2017 Quarters ended |
| December 31 | | September 30 | | June 30 | | March 31 |
Product sales | $ | 5,569 |
| | $ | 5,453 |
| | $ | 5,574 |
| | $ | 5,199 |
|
Gross profit from product sales | $ | 4,510 |
| | $ | 4,463 |
| | $ | 4,550 |
| | $ | 4,203 |
|
Net (loss) income | $ | (4,264 | ) | | $ | 2,021 |
| | $ | 2,151 |
| | $ | 2,071 |
|
(Loss) earnings per share: | | | | | | | |
Basic | $ | (5.89 | ) | | $ | 2.78 |
| | $ | 2.93 |
| | $ | 2.81 |
|
Diluted(1) | $ | (5.89 | ) | | $ | 2.76 |
| | $ | 2.91 |
| | $ | 2.79 |
|
| 2016 Quarters ended |
| December 31 | | September 30 | | June 30 | | March 31 |
Product sales | $ | 5,663 |
| | $ | 5,516 |
| | $ | 5,474 |
| | $ | 5,239 |
|
Gross profit from product sales | $ | 4,596 |
| | $ | 4,489 |
| | $ | 4,424 |
| | $ | 4,221 |
|
Net income | $ | 1,935 |
| | $ | 2,017 |
| | $ | 1,870 |
| | $ | 1,900 |
|
Earnings per share: | | | | | | | |
Basic | $ | 2.61 |
| | $ | 2.70 |
| | $ | 2.49 |
| | $ | 2.52 |
|
Diluted | $ | 2.59 |
| | $ | 2.68 |
| | $ | 2.47 |
| | $ | 2.50 |
|
(1) During periods of net loss, diluted loss per share is equal to basic loss per share as the anti-dilutive effect of potential common shares is disregarded.
21. Subsequent eventevents
On October 30, 2017, we announced that we had agreedJanuary 2, 2020, Amgen acquired a 20.5% stake in BeiGene, Ltd. (BeiGene) for approximately $2.8 billion in cash as part of a collaboration to acquireexpand our oncology presence in China. We will account for this investment by using the remaining 50% ownership of K-A from Kirin, making K-A a wholly owned subsidiary of Amgen.equity method. Under the termscollaboration, BeiGene will commercialize XGEVA®, KYPROLIS® and BLINCYTO® (blinatumomab) in China, and we will share profits and losses equally during the initial product-specific commercialization periods; thereafter, two of the agreement, Kirinthese products will receive $780 million for its shares of K-A.revert to Amgen, and Amgen will make additional paymentspay royalties to Kirin upon the occurrenceBeiGene on sales in China of such products for a specified period.
In addition, Amgen and BeiGene will jointly develop 20 of our oncology product candidates, with BeiGene sharing in global R&D costs of up to $1.25 billion and assuming commercialization rights in China for a specified period. Amgen and BeiGene will share profits in China equally until certain sales (valued by Amgen at approximately $30 million). As sole shareholder of K-A,these product rights revert to Amgen. After reversion, Amgen will own thepay royalties to BeiGene on sales in China for a specified period. For product rights and remaining cash held by K-A. License agreements between K-A and Kirin in certain Asian territories, as well as license agreements with J&J,sales outside of China, Amgen will remain in place. See Note 8, Related party transactions.pay BeiGene royalties.
The transaction will be accounted for as a business combination and was effective in the first quarter of 2018. Given the timing of the closing of this share transaction, we are currently in the process of valuing the assets acquired and liabilities assumed in the business combination. As a result, we are not yet able to provide the amounts to be recognized as of the share acquisition date for the major classes of assets acquired and liabilities assumed and other related disclosures. We will disclose this and other related information in our Form 10-Q for the quarter ended March 31, 2018.
SCHEDULE II
AMGEN INC.
VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 2017, 20162019, 2018 and 20152017
(In millions)
|
| | | | | | | | | | | | | | | | | | | | |
Allowance for doubtful accounts | | Balance at beginning of period | | Additions charged to costs and expenses | | Other additions | | Deductions | | Balance at end of period |
Year ended December 31, 2019 | | $ | 48 |
| | $ | — |
| | $ | — |
| | $ | 22 |
| | $ | 26 |
|
Year ended December 31, 2018 | | $ | 51 |
| | $ | 1 |
| | $ | — |
| | $ | 4 |
| | $ | 48 |
|
Year ended December 31, 2017 | | $ | 51 |
| | $ | 4 |
| | $ | — |
| | $ | 4 |
| | $ | 51 |
|
|
| | | | | | | | | | | | | | | | | | | | |
Allowance for doubtful accounts | | Balance at beginning of period | | Additions charged to costs and expenses | | Other additions | | Deductions | | Balance at end of period |
Year ended December 31, 2017 | | $ | 51 |
| | $ | 4 |
| | $ | — |
| | $ | 4 |
| | $ | 51 |
|
Year ended December 31, 2016 | | $ | 55 |
| | $ | 11 |
| | $ | — |
| | $ | 15 |
| | $ | 51 |
|
Year ended December 31, 2015 | | $ | 50 |
| | $ | 18 |
| | $ | — |
| | $ | 13 |
| | $ | 55 |
|