UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
Form 10-K
(Mark One) | ||
x | ||
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE | ||
For the fiscal year ended December 31, | ||
OR | ||
o | ||
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 000-12477
Amgen Inc.
(Exact name of registrant as specified in its charter)
Delaware | 95-3540776 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) | |
One Amgen Center Drive, | 91320-1799 | |
Thousand Oaks, California | (Zip Code) | |
(Address of principal executive offices) |
(805) 447-1000
Securities registered pursuant to Section 12(g) of the Act:
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities act.Yes x No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.Yes o No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes þx No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.ox
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer. filer, or a non-accelerated filed. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large accelerated filed. x | Accelerated Filer o | Non-accelerated filer o |
þIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act)Yes
The approximate aggregate market value of voting and non-voting stock held by non-affiliates of the registrant was $78,645,591,780$74,237,828,127 as of February 10, 2005AJune 30, 2005(A)
(A)Excludes 2,305,8922,740,144 shares of common stock held by directors and officers, and any stockholders whose ownership exceeds five percent of the shares outstanding, at February 10,June 30, 2005. Exclusion of shares held by any person should not be construed to indicate that such person possesses the power, directly or indirectly, to direct or cause the direction of the management or policies of the registrant, or that such person is controlled by or under common control with the registrant.
1,184,633,787
(Number of shares of common stock outstanding as of February 28, 2006)
DOCUMENTS INCORPORATED BY REFERENCE
Specified portions of the registrant’s Proxy Statement with respect to the 2006 Annual Meeting of stockholders to be held May 10, 2006 are incorporated by reference into Part III of this annual report.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 54 | ||||||||
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Exhibits, Financial Statement Schedules and Reports on Form 8-K | 86 | ||||||||
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1
Amgen Inc. (including its subsidiaries, “Amgen”) was incorporated in 1980 and is a global biotechnology company that discovers, develops, manufactures, and markets human therapeutics based on advances in cellular and molecular biology. We operate in one business segment — human therapeutics.
We market human therapeutic products in the areas of inflammation, nephrology, and supportive cancer care, and inflammatory disease.care. Our principal products include EPOGEN®Aranesp® (darbepoetin alfa), EPOGEN® (Epoetin alfa), Aranesp® (darbepoetin alfa), Neulasta®Neulasta® (pegfilgrastim), NEUPOGEN®NEUPOGEN® (Filgrastim), and ENBREL®Enbrel® (etanercept), which is marketed under a co-promotion agreement with Wyeth in the United States and Canada. EPOGEN®Aranesp® and Aranesp®EPOGEN® stimulate the production of red blood cells to treat anemia. Neulasta®Neulasta® and NEUPOGEN®NEUPOGEN® selectively stimulate the production of neutrophils, one type of white blood cell that helps the body fight infections. ENBREL®ENBREL blocks the biologic activity of tumor necrosis factor (“TNF”) by competitively inhibiting TNF, a substance induced in response to inflammatory and immunological responses, such as rheumatoid arthritis and psoriasis.
We maintain sales forces and marketing operationsforces in the United States, Europe, Canada, and Australia. We market our principal products to healthcare providers including clinics, dialysis centers, hospitals, and pharmacies. In addition, we have entered into licensing and/or co-promotion agreements to market certain of our principal products including Aranesp®, Neulasta®, NEUPOGEN®, and ENBREL® in certain geographic areas outside of the United States.areas. In the United States, we sell primarily to wholesale distributors. Outside the United States, we sell principally to hospitals and/or wholesalers depending upon the distribution practice in each country.
We focus our research and development (“R&D”) efforts on novel therapeutics deliveredfor the treatment of grievous illness in the formareas of proteins, monoclonal antibodies,inflammation, oncology and smallhematology, neuroscience and metabolic disorders. Our research takes a “modality-independent” approach to drug discovery, in which we choose the best possible approach to block a specific disease process before considering the type of drug (modality) that may be required to pursue that approach. We are studying molecules in the areas of oncology, inflammation, metabolic disorders, neuroscience,proteins, monoclonal antibodies, peptibodies, and general medicine.small molecules. We have research facilities in the United States as well as a small center in Germany, and have clinical development staff in the United States, Europe, Canada, Australia, and Japan. To enhance our internal R&D efforts, we have acquired companies, acquired and licensed certain product and technology rights and have established R&D collaborations. On August 13, 2004, we acquired Tularik Inc. (“Tularik”) at a purchase priceOur R&D efforts are significant and are expected to continue to grow significantly in support of approximately $1.5 billion in a transaction accounted for as a business combination. Tularik was a company engaged in drug discovery related to cell signaling and the control of gene expression. In connection with the Tularik acquisition, we incurred a charge of $554 million associated with writing off the fair value of
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Our manufacturing operations consist of bulk manufacturing and formulation, fill, and finish activities which produce Epoetin alfa, Aranesp®, Neulasta®, NEUPOGEN®, ENBREL, and other products (and product candidates) for both clinical and commercial purposes. We manufacture our principal productsoperate clinical and we operate commercial manufacturing facilities located in several locations throughout the United States and in Puerto Rico, and a packaging and distribution center in the Netherlands. AdditionalRico. Third-party contract manufacturers produce additional supply of certain of our products is manufactured by third-party contract manufacturers.products. As part of our overall strategy to increase manufacturing capacity, we have announced plans to build a new process development, bulk manufacturing and fill and finish facility in Ireland, a new formulation, fill, and finish facility in Puerto Rico, and further expansion of our bulk manufacturing capacity in Puerto Rico.
We market our principal products in the areas of inflammation, nephrology, and supportive cancer care. Our principal products include Aranesp® (darbepoetin alfa), EPOGEN® (Epoetin alfa), Neulasta® (pegfilgrastim), NEUPOGEN® (Filgrastim), and Enbrel® (etanercept).
Aranesp® (darbepoetin alfa)
Aranesp® is Amgen’s registered trademark for one of its recombinant human erythropoietin product,novel erythropoiesis stimulating proteins, a protein that stimulates red blood cell production. Red blood cells transport oxygen to all cells of the body. Without adequate amounts of erythropoietin, the red blood cell count is reduced, thereby diminishing the ability of thereduced. A deficient red blood to deliver sufficient amounts ofcell count could result in anemia, a condition where insufficient oxygen is delivered to the body, resulting in anemia. Peoplebody’s organs and tissues. Anemia can be associated with chronic renal failure, sufferboth in patients on dialysis and not on dialysis. Anemia can also result from anemia because they do not produce sufficient amounts of erythropoietin, which is normally produced in healthy kidneys. The FDA approved EPOGEN®chemotherapy treatments for the treatment of anemic adult and pediatric patients with chronic renal failure who are on dialysis in 1989nonmyeloid malignancies. Aranesp® relieves anemia symptoms and 1999, respectively. EPOGEN® is indicated to elevate or maintain the red blood cell level (as determined by hematocrit or hemoglobin measurements) and to decreasereduces the need for blood transfusions in these patients.
We were granted an exclusive license to manufacture and market recombinant human erythropoietin in the United States under a licensing agreement withby Kirin-Amgen, Inc. (“KA”), a joint venture between Kirin Brewery Company, Limited (“Kirin”) and Amgen (see “Joint Ventures and Business Relationships — Kirin Brewery Company, Limited”).
We primarily market Aranesp® in the United States and Europe. Darbepoetin alfa is also marketed under the brand name Nespo® in Italy. Aranesp® was initially launched in 2001 in the United States and Europe and is indicated for the treatment of anemia associated with chronic renal failure (both in patients on dialysis and patients not on dialysis) as well as for the treatment of chemotherapy-induced anemia in patients who are on dialysis.with non-myeloid malignancies.
During 2005, we filed U.S. Food and Drug Administration (“FDA”) submissions requesting label changes to include extended dosing frequency in the treatment of chemotherapy-induced anemia and anemia associated with chronic renal failure.
Worldwide Aranesp® sales for the years ended December 31, 2005, 2004, and 2003 were $3,273 million, $2,473 million, and $1,544 million, respectively.
EPOGEN® (Epoetin alfa)
EPOGEN® is Amgen’s registered trademark for its recombinant human erythropoietin product, a protein that stimulates red blood cell production. A reduced red blood cell count can result in anemia (see “— Aranesp® (darbepoetin alfa)”). People with chronic renal failure suffer from anemia because they do not produce sufficient amounts of erythropoietin, which is normally produced in healthy kidneys.
We were granted an exclusive license to manufacture and market recombinant human erythropoietin in the United States under a licensing agreement with KA. We have retained exclusive rights to market EPOGEN®EPOGEN® in the United States for dialysis patients. We granted Ortho Pharmaceutical Corporation (which has assigned its rights under the Product License Agreement to Ortho Biotech Products, L.P., a subsidiary of Johnson & Johnson, hereafter referred to as “Johnson & Johnson”) a license to commercialize recombinant human erythropoietin as a human therapeutic in the United States in all markets other than dialysis (see “Joint Ventures and Business Relationships — Johnson & Johnson”). Johnson & Johnson markets recombinant human erythropoietin under the trademark PROCRIT®PROCRIT® in the United States (see Note 1, “Summary of significant accounting policies — Product sales” to the consolidated financial statements)Consolidated Financial Statements).
We launched EPOGEN® in the United States most countries in Europe, Australia, and New Zealand1989 for the treatment of anemia associated with chronic renal failure includingfor patients on dialysis and patients notwho are on dialysis. In July 2002, we received approval to market Aranesp® in the United StatesEPOGEN® is approved for the treatment of chemotherapy-induced anemia inanemic adult and pediatric patients with non-myeloid malignancies. In August 2002chronic renal failure who are on dialysis. EPOGEN® is indicated to elevate or maintain the red blood cell level (as determined by hematocrit or hemoglobin measurements) and June 2003, respectively,to decrease the European Commission approved Aranesp®need for the treatment of anemia in adult cancer patients with solid tumors receiving chemotherapy and for the treatment of chemotherapy-induced anemia in adult patients with non-myeloid malignancies.
EPOGEN® sales for the years ended December 31, 2005, 2004, and 2003 and 2002 were $2,473$2,455 million, $1,544$2,601 million, and $416$2,435 million, respectively.
3Neulasta® (pegfilgrastim)
We were granted an exclusive license to manufacture and market pegfilgrastim in the United States, Europe, Canada, Australia, and New Zealandunder a licensing agreement with KA.
We primarily market Neulasta® in the United States and Europe. Pegfilgrastim is marketed under the brand name Neupopeg™ in Italy. Neulasta® was initially launched in the United States and Europe in 2002 and is indicated for reducing the incidence of infection associated with chemotherapy-induced neutropenia in cancer patients with non-myeloid malignancies.
In 1991,September 2005, the FDA approved NEUPOGEN®an update to decrease the incidence ofNeulasta® prescribing information to include data from a landmark phase 3 study demonstrating that Neulasta® helps protect patients with breast cancer undergoing moderately myelosuppressive chemotherapy from infection, as manifested by febrile neutropenianeutropenia. Administration of Neulasta® in all cycles of chemotherapy is now approved for patients receiving myelosuppressive chemotherapy associated with non-myeloid malignancies undergoingat least a 17% risk of febrile neutropenia.
Worldwide Neulasta® sales for the years ended December 31, 2005, 2004, and 2003 were $2,288 million, $1,740 million and $1,255 million, respectively.
NEUPOGEN® (Filgrastim)
NEUPOGEN® is Amgen’s registered trademark for its recombinant-methionyl human granulocyte colony-stimulating factor (“G-CSF”), a protein that selectively stimulates production of certain white blood cells known as neutrophils (see “— Neulasta® (pegfilgrastim)”) for additional information on neutrophils). Similar to Neulasta®, NEUPOGEN® is prescribed more frequently in the curative setting, in which myelosuppressive chemotherapy.
We were granted an exclusive license to manufacture and market G-CSF in the United States, most countries in Europe, Canada, Australia, and Australia, NEUPOGEN®New Zealand under a licensing agreement with KA.
We market NEUPOGEN® primarily in the United States and Europe. Filgrastim is approvedmarketed under the brand name GRANULOKINE® in Italy. NEUPOGEN® was initially launched in the United States and Europe in 1991. NEUPOGEN® is indicated for the following indications:following: to decreasereduce the incidence of infection as manifested by febrile neutropenia for patients with non-myeloid malignancies undergoing myelosuppressive chemotherapy; to reduce the duration of neutropenia and neutropenia-related consequences for patients with non-myeloid malignancies undergoing myeloablative chemotherapy followed by bone marrow transplantation; to reduce the incidence and duration of neutropenia-related consequences in symptomatic patients with congenital neutropenia, cyclic neutropenia, or idiopathic neutropenia (collectively, severe chronic neutropenia); for use in mobilization of peripheral blood progenitor cells (“PBPC”) for stem cell transplantation; and to reduce the recovery time of neutrophils and the duration of fever following induction or consolidation chemotherapy treatment in adult patients with acute myelogenous leukemia (“AML”).
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Enbrel® (etanercept)
ENBREL is Amgen’s registered trademark for its TNF receptor fusion protein that inhibits the binding of TNF to TNF receptors, which can result in a significant reduction in inflammatory activity. ENBREL® was launched in November 1998 by Immunex Corporation (“Immunex”) forTNF is one of the treatmentchemical messengers that help regulate the inflammatory process. When the body produces too much TNF, it overwhelms the immune system’s ability to control inflammation of adult patients with rheumatoid arthritis. the joints or of psoriasis-affected skin areas. ENBREL is similar to a protein that the body produces naturally, and like this protein, it binds and deactivates certain TNF molecules before they can trigger inflammation.
We acquired the rights to ENBREL®ENBREL in July 2002 as part of our acquisition of Immunex Corporation (“Immunex”).
We market ENBREL under a co-promotion agreement with Wyeth in the United States and Canada (see “Joint Ventures and Business Relationships — Wyeth”). The rights to market ENBREL outside of the United States and Canada are reserved to Wyeth. ENBREL was initially launched in November 1998 by Immunex.
reducing the signs and symptoms of moderately to severely active polyarticular-course juvenile rheumatoid arthritis in patients who have had an inadequate response to one or more disease-modifying medicines; for reducing the signs and symptoms of active arthritis and inhibiting the progression of structural damage in patients with psoriatic arthritis; and to treat the signs and symptoms in patients with active ankylosing spondylitis.
ENBREL sales for the years ended December 31, 2005, 2004, and 2003 were $2,573 million, $1,900 million, and $1,300 million, respectively.
Other
Other marketed products are principally comprised of Sensipar® (cinacalcet HCl). Sensipar® is Amgen’s registered trademark for its first small molecule medicine used in treating chronic kidney disease (“CKD”) patients on dialysis who produce too much parathyroid hormone, a condition known as secondary hyperparathyroidism. Sensipar® was initially launched in 2004 and is indicated for CKD patients on dialysis with secondary hyperparathyroidism as well as for the period from July 16, 2002 throughtreatment of hypercalcemia in patients with parathyroid carcinoma. Cinacalcet HCl is marketed in Europe as Mimpara®.
Sensipar® sales for the years ended December 31, 20022005 and 2004 were $1,900 million, $1,300$157 million and $362$37 million, respectively.
We maintain a sales and marketing forceforces in the United States, Europe, Canada, and Australia. Our sales force marketsWe market our principal products to healthcare providers including clinics, dialysis centers, hospitals, and pharmacies. We also market certain products directly to consumers through direct-to-consumer print and television advertising. In addition, for certain of our products, we promote programs to increase public awareness of the health risks associated with the diseases these products treat, as well as providing support to various patient education and support programs in thesethe related therapeutic areas.
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In the United States, we sell primarily to wholesale distributors of pharmaceutical products. With the exception of ENBREL, we utilize these wholesale distributors as the principal means of distributing our products to healthcare providers such as clinics, dialysis centers, hospitals, and pharmacies. For ENBREL wholesaler orders, we primarily drop-ship directly to pharmacies. Outside the United States, Aranesp®, Neulasta®, and NEUPOGEN® are principally distributed to hospitals and wholesalers depending upon the distribution practice in each country for which the product has been launched. We monitor the financial condition of our larger distributors and limit our credit exposure by setting appropriate credit limits, requiring collateral and obtaining credit insurance, where appropriate. We had net product sales to three large wholesaler distributors each accounting for more than 10% of total revenues for the years ended December 31, 2005, 2004, and 2003. On a combined basis, these distributors accounted for 74% and 94% of total revenues and U.S. product sales, respectively, for 2005, as noted in the following table (in millions).
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| 2004 |
| 2003 |
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AmerisourceBergen Corporation |
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Net product sales |
| $ | 4,760 |
| $ | 3,406 |
| $ | 2,686 |
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% of total revenues |
| 38 | % | 32 | % | 32 | % |
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% of U.S. product sales |
| 48 | % | 41 | % | 40 | % |
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Cardinal Health, Inc. |
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Net product sales |
| $ | 2,370 |
| $ | 1,683 |
| $ | 1,596 |
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% of total revenues |
| 19 | % | 16 | % | 19 | % |
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% of U.S. product sales |
| 24 | % | 20 | % | 24 | % |
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McKesson Corporation |
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Net product sales |
| $ | 2,140 |
| $ | 1,809 |
| $ | 1,340 |
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% of total revenues |
| 17 | % | 17 | % | 16 | % |
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% of U.S. product sales |
| 22 | % | 22 | % | 20 | % |
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We have granted Johnson & Johnson a license to commercialize recombinant human erythropoietin as a human therapeutic in the United States in all markets other than dialysis (see “Joint Ventures and Business Relationships — Johnson & Johnson”). Johnson & Johnson markets recombinant human erythropoietin under the trademark PROCRIT®PROCRIT® in the United States (see Note 1, “Summary of significant accounting policies — Product sales” to the consolidated financial statements)Consolidated Financial Statements). Under a co-promotion agreement with Wyeth, Amgen and Wyeth market ENBREL®ENBREL in the United States and Canada for all approved indications.indications other than for use in oncology. The rights to detail and promote ENBREL®ENBREL in the United States and Canada for use in oncology are reserved to Amgen (see “Joint Ventures and Business Relationships — Wyeth”). Additionally, we have entered into licensing and/or co-promotion agreements to market certain of our products including Aranesp®Aranesp®, Neulasta®, NEUPOGEN®Neulasta®, and ENBREL®NEUPOGEN® in certain geographic areas outside of the United States.
dependent, in part, on the availability and extent of reimbursement from third-party payers, including governments and private insurance plans. Primary reimbursement for ENBREL® is obtained from private payers. Generally, worldwide use of our products may be affected by cost containment pressures and cost shifting from governments and private insurers on health care providers in response to ongoing initiatives to reduce health care expenditures (see “MD&A — Factors That May Affect Amgen — Our sales depend on payment and reimbursement from third-party payers, and, to the extent that reimbursement for our products is reduced, this could negatively impact the utilization of our products.”).
The Medicare Prescription Drug Improvement and Modernization Act (or the “Medicare Modernization Act” (“MMA”)) was enacted into law in December 2003. We expect that, beginning in 2005, reimbursement changes2003 and became effective January 1, 2005. Changes resulting from the MMA, are likely, to a degree, towhich lowered reimbursement for our products, could negatively affect product sales of some of our marketed products. However in 2005, we believe that our product sales were not significantly impacted by the reimbursement changes resulting from the MMA. We believe this was, in part, due to the effects of CMS’s oncology demonstration project (the “2005 Demonstration Project”) on sales of our products used in supportive cancer care, especially Aranesp®. Furthermore, we believe this was also, in part, due to increased reimbursement rates to physicians from CMS for services associated with drug administration. The main components2005 Demonstration Project, which provided financial incentives to physicians for collecting and reporting oncology patient survey data, expired on December 31, 2005. In November 2005, CMS announced a new demonstration project (the “2006 Demonstration Project”) that uses different criteria for how patients with cancer are evaluated and treated and that is targeted at approximately half of the MMA that affect our currently marketed products are as follows:
6
The main components of the MMA that affect our currently marketed products are as follows:
· Through 2004, the Average Wholesale Price (“AWP”) mechanism was the basis of Medicare Part B payment for covered outpatient drugs and biologics. Effective January 1, 2005, in the physician clinic setting, Aranesp®, Neulasta® and NEUPOGEN® are being reimbursed under a Medicare Part B payment methodology that reimburses each product at 106% of its “average sales price” (“ASP”) (sometimes referred to as “ASP+6%”). ASP is calculated by the manufacturer based on a statutorily defined formula and submitted to CMS. A product’s ASP is calculated on a quarterly basis and therefore may change each quarter. The ASP in effect for a given quarter (the “Current Period”) is based upon certain historical sales and sales incentive data covering a statutorily defined period of time preceding the Current Period. For example, the ASP for Aranesp® that we submit for the second quarter of 2006 will be based on certain historical sales and sales incentive data for Aranesp® from January 1, 2005 through December 31, 2005. CMS publishes the ASPs for products in advance of the quarter in which they go into effect. The 2005 reimbursement rates for Aranesp® and Neulasta® (calculated at 106% of the ASPs) were lower than their respective 2004 reimbursement rates. Although the ASPs for Aranesp® and Neulasta® have trended downward during 2005, they began to stabilize during the fourth quarter of 2005.
· Per the MMA, physicians in the physician clinic setting will have the choice between purchasing and billing for drugs under the ASP+6% system or obtaining drugs from vendors selected by CMS under the “competitive acquisition program” (“CAP”) starting in 2006. Physicians who select to obtain drugs from CAP will no longer purchase or obtain reimbursement directly for such drugs. CMS issued a final rule related to CAP in November 2005. Based on this final rule, the election period for 2006 will occur between April 3 and May 15, 2006 for participation from July 1 through December 31, 2006; the first drug deliveries through the CAP will occur in July 2006. Based on the final rule for CAP, we do not anticipate widespread adoption of this program initially. Nevertheless, because we cannot fully predict how many physicians will select to obtain drugs from CAP, we
cannot predict the full impact of the CAP on our business. However, pursuant to the final rule, discounts to CAP vendors are excluded from the calculation of ASPs and therefore do not have the potential to impact the ASPs for our products that would be available through the CAP.
· Medicare’s hospital outpatient prospective payment system (“OPPS”), which determines payment rates for specified covered outpatient drugs and biologics in the hospital outpatient setting, utilized AWP as the basis for reimbursement in 2005. CMS’ 2005 reimbursement rate, as in 2003 and 2004, continued the application of an “equitable adjustment” such that the 2005 Aranesp® reimbursement rate was based on the AWP of PROCRIT®. For 2005, the reimbursement rate for Aranesp® was 83% of the AWP for PROCRIT®, down from 88% of the AWP for PROCRIT® in 2004, with a dose conversion ratio of 330 U PROCRIT® to 1 mcg Aranesp®, the same ratio as 2004. Effective January 1, 2006, the OPPS system changed from an AWP based reimbursement system to a degree, negative.
· Pursuant to final rules issued by CMS on November 3, 2004, Medicare reimbursement for EPOGEN® used in the dialysis setting for calendar year 2005 changed from the previous rate in 2004 of $10 per 1,000 Units to $9.76 per 1,000 Units, in 2005, a rate based upon an average acquisition cost for 2003 determined by the Office of the Inspector General (“OIG”) and adjusted for price inflation based on the Producer Price Index for pharmaceutical products. Pursuant to the CMS final rules, the difference between the 2004 reimbursement rates for all drugs separately billed outside the dialysis composite rate (including EPOGEN®) and the 2005 reimbursement rates for such drugs was added to the composite rate that dialysis providers receive for dialysis treatment. In November 2005, CMS released the 2006 Medicare Physician Fee Schedule Payment Final Rule. In the final rule, CMS stated that EPOGEN® and separately billed ESRD drugs will be reimbursable at ASP+6% in both freestanding and hospital-based dialysis centers. This final rule establishes the payment mechanism for separately reimbursed dialysis drugs in both freestanding and hospital-based dialysis centers, including EPOGEN® and Aranesp®, at ASP+6% using the same payment amounts used in the physician clinic setting and calculated quarterly in the same manner as described above for our products under the Medicare Part B payment methodology. Based on this final rule, we expect that the reimbursement rate for EPOGEN® will decrease for 2006 compared to 2005. Because we cannot accurately predict the extent to which this reduced reimbursement will impact how, or under what circumstances, healthcare providers will prescribe or administer EPOGEN®, we cannot estimate the full impact of the reduced reimbursement rate on our EPOGEN® product sales. However, we believe that it is not likely to be significant in 2006.
· Beginning January 1, 2006, ENBREL and Sensipar® are eligible for coverage from the U.S. government under Medicare Part D, the MMA-mandated Medicare outpatient prescription drug benefit. With the exception of a Part D demonstration project that CMS conducted in 2004-2005 that provided, among other things, reimbursement for ENBREL and Sensipar® for certain Medicare beneficiary participants, Medicare did not cover prescriptions for ENBREL and Sensipar® in 2005.
In addition, on July 8, 2004,November 9, 2005, CMS released a proposedfinal revision to the Hematocrit Measurement Audit Program Memorandum (“HMA-PM”), a Medicare payment review mechanism used by CMS to
audit EPOGEN®EPOGEN® and Aranesp® (when used in dialysis) utilization and appropriate hematocrit outcomes of dialysis patients. As of the date of this filing, the comment periodThe new policy, Claims Monitoring Policy: Erythropoietin/darbepoetin alfa usage for the proposed revision has expired and nobeneficiaries with end stage renal disease (“Claims Monitoring Policy”), will be effective April 1, 2006. The final program memorandum has been issued. The proposed policy would not permit reimbursement for EPOGEN® in the following circumstances without medical justification: EPOGEN® doses greater than 40,000 Units per month inClaims Monitoring Policy provides that if a patient with apatient’s hemoglobin is greater than 13 grams per deciliter, or doses greater than 20,000 Units per month in a patient with hemoglobin greater than 14 grams per deciliter.providers are instructed to reduce the patient’s EPOGEN® and Aranesp® dose by twenty-five percent. If the proposed revision, which hasprovider does not yet been finalized,reduce the patient’s EPOGEN® and Aranesp® dose and there is adopted asno medical documentation to support the final form, it could result in a reduction in utilization of EPOGEN®. Although the proposed revision was scheduled to go into effect as early as January 1, 2005, it is unclear as to when it mayhigher dosage, reimbursement will be implemented. We and the dialysis community have provided public comment based on data analysis suggesting that revisionreduced to the proposed policy is unwarranted. Givenlevel it would have been had the provider reduced dosage by twenty-five percent. Based on our preliminary evaluation, we do not expect the new Claims Monitoring Policy to have a negative impact on EPOGEN® and Aranesp® sales and given the importance of EPOGEN® utilizationEPOGEN® and Aranesp® for maintaining the quality of care for dialysis patients, we do not expect that the precisenew policy will substantially impact the utilization of EPOGEN® and Aranesp®. However, we are currently in the process of further evaluating the new Claims Monitoring Policy. As a result, we cannot predict the potential full impact of such a change on provider utilization remains unclear.
Our vision is to deliver therapies that can make a meaningful difference in patients’ lives and therefore, we focus our R&D on novel human therapeutics for the treatment of grievous illness. We focus our R&D efforts on human therapeutics delivered in the form of proteins, monoclonal antibodies, and small molecules in the areas of inflammation, oncology inflammation, metabolic disorders,and hematology, neuroscience and
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In addition to product candidates and marketed products generated from our internal R&D efforts, acquisitions of companies, andlicensed technologies, and establishing R&D collaborations have enhanced our strategic position within the biotechnology industry by strengthening and diversifying our product base,R&D capabilities, product pipeline and discoverymarketed product base (see “Item 1A. Risk Factors — Our product development efforts may not result in commercial products”). We plan to expand our R&D capabilities substantially, requiring significant investments over the next several years. In 2006, we are expecting a significant increase in the number, size, duration and complexity of our clinical trials, in particular with respect to denosumab, our late-stage investigational product for osteoporosis, and we expect total research capabilitiesand development expenses to increase by 30-40%. For example, testing denosumab in proteins, small molecules,the osteoporosis setting requires large clinical trials, substantial time and antibodies.resources to recruit patients and significant expense to execute. We expect to start eleven “mega-site” trials (involving 200 or more sites) in 2006 to support denosumab and our other late-stage programs. To execute our clinical trial programs, we need to accelerate the growth of our development organization, implement new management structures and approaches and increase dependence on third-party contract clinical trial providers. Further, to increase the number of patients available for enrollment for our clinical trials, we are planning to open clinical sites and enroll patients in a number of new geographic locations where our experience conducting clinical trials is more limited, including Russia, China, India and some South American countries. We plan to conduct clinical trial activities in these new territories through third-party contract clinical trial providers. (See “Item 1A. Risk Factors — Before we commercialize and sell any of our product candidates, we must conduct clinical trials in humans; if we fail to adequately manage these trials we may not be able to sell future products and our sales could be adversely affected.”)
We have major research facilities in the United States as well as a smaller research center in Germany, and clinical development staff in the United States, Europe, Canada, Australia, and Japan (see “Item 2. Properties”).
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R&D expenses for the years ended December 31, 2005, 2004, and 2003 and 2002 were $2,314 million, $2,028 million, $1,655 million, and $1,117$1,655 million, respectively. In 2004, and 2002, we recorded $554 million and $2,992 million for the write-off of acquired IPR&D resulting from the Tularik and Immunex acquisitions, respectivelyInc. (“Tularik”) acquisition (see Note 7, “Acquisitions” to the consolidated financial statements)Consolidated Financial Statements).
The following table is a selection of certain of our product candidates in our therapeutic areas of focus and shows the status of these molecules as of February 3, 2005.January 26, 2006. Additional product candidate (pipeline) information can be found on our website at (http:(http://www.amgen.com)www.amgen.com). (This website address is not intended to function as a hyperlink, and the information contained on our website is not intended to be a part of this filing.)
Molecule | Disease/Condition | Status | |||||||||
Onocology | |||||||||||
AMG 102 | Cancer | Phase 1 | |||||||||
AMG 386 | Cancer | Phase 1 | |||||||||
AMG 479 | Cancer | Phase 1 | |||||||||
AMG 531 | Immune thrombocytopenic purpura (an autoimmune bleeding disorder) | Phase | |||||||||
AMG 623 | B-cell chronic lymphocytic leukemia | Phase 1 | |||||||||
AMG | Cancer | Phase 1 | |||||||||
AMG 706 | Cancer | Phase 3 | |||||||||
ANG 951 | Cancer | Phase 1 | |||||||||
Aranesp® (darbepoetin alfa) | Anemia of cancer in patients not receiving chemotherapy | Phase 3 | |||||||||
Denosumab* | Bone metastases (cancer spread to bone) in breast cancer | Phase 2 | |||||||||
Denosumab* | Bone loss induced by hormone ablation therapy for breast cancer or prostate cancer | Phase 3 | |||||||||
Denosumab | Prolonging bone metastases-free survival | Phase | |||||||||
Kepivance™ (palifermin) | |||||||||||
Oral mucositis associated with radiation therapy and chemotherapy for solid tumors | Phase 3 | ||||||||||
Panitumumab | Colorectal cancer | Phase 3 | |||||||||
Inflammation | |||||||||||
AMG 108 | Rheumatoid arthritis | Phase 2 | |||||||||
AMG 317 | Asthma | Phase 1 | |||||||||
AMG 623 | Systemic lupus erythematosus | Phase 1 | |||||||||
AMG 714** | Psoriasis | Preclinical | |||||||||
Denosumab* | Rheumatoid arthritis | Phase 2 | |||||||||
Metabolic disorders | |||||||||||
AMG 076 | Obesity | Phase 1 | |||||||||
AMG 221*** | Type 2 diabetes | Phase | |||||||||
Denosumab* | Postmenopausal osteoporosis | Phase 3 | |||||||||
Sensipar® (cinacalcet HCl) | Primary hyperparathyroidism | Phase 2 | |||||||||
Sensipar® | |||||||||||
Secondary hyperparathyroidism in chronic renal insufficiency | Phase 3 | ||||||||||
| |||||||||||
Aranesp® | Anemia in heart failure | Phase | |||||||||
Aranesp® | Cardiovascular disease in patients with chronic kidney disease and type 2 diabetes | Phase 3 |
Neuroscience | |||||
AMG 403 | Pain | Phase 1 | |||
AMG 517 | Pain | Phase |
* Program formerly identified as AMG 162.
8** Amgen anticipates entering phase 1 studies in 2006 with a new formulation in a more commercially productive cell line.
**** Includes hematology.
Phase 1 clinical trials investigate safety and proper dose ranges of a product candidate in a small number of human subjects.
Phase 2 clinical trials investigate side effect profiles and efficacy of a product candidate in a large number of patients who have the disease or condition under study.
Phase 3 clinical trials investigate the safety and efficacy of a product candidate in a large number of patients who have the disease or condition under study.
The following represents additional information about certain of our product candidates that are in phase 2 or later human clinical trials.
Denosumab (Program formerly identified as AMG 162162)
Denosumab is an investigational,a fully human monoclonal antibody that specifically targets the receptor activator of nuclear factor kappa B ligand (RANKL)(“RANKL”), a key mediator of the resorptive phase of bone remodeling. Inhibition of RANKL signaling is a rational therapeutic strategy for treating conditions where excessive bone resorption or bone remodeling prevail. AMG 162Denosumab is being studied across a range of conditions, including osteoporosis, treatment-induced bone loss, rheumatoid arthritis, bone metastases, and multiple myeloma.
Amgen announced interim data from a Phasephase 2 clinical study reporting the clinical effects of AMG 162denosumab on bone mineral density endpoints in postmenopausal, osteoporotic women. Based on this interim data, Phasephase 3 clinical studies with AMG 162denosumab were initiated in 2004.
Denosumab is also being studied in metastatic bone disease for the suppressiontreatment of bone loss in patients with cancer. In one study, AMG 162 reduced bone turnover markers in cancer patients comparedmetastases to standard therapy.prevent skeletal related events (“SREs”). Phase 2 clinical studies of AMG 162denosumab in metastatic bone disease were initiated in 2004.2004 and completed enrollment in 2005.
Panitumumab
Co-developed with Abgenix, Inc. (see “Joint Ventures and Business Relationships — Abgenix, Inc.”), panitumumab (rHuMAb-EGFr) targets the epidermal growth factor receptor (“EGFr”). The EGFr pathway is important in normal and tumor cell growth. Panitumumab is a fully human monoclonal antibody directed against EGFr and is being evaluated for the treatment of various types of cancer (solid tumor). In phase 2 clinical studies to date, panitumumab has demonstrated anti-tumor activity in advanced, refractory colorectal cancer (“CRC”). In a phase 3 pivotal study examining panitumumab as third-line monotherapy in CRC patients, patients who received panitumumab every two weeks showed a 46 percent decrease in tumor progression rate versus those who received best supportive care alone. Amgen initiated submission of the U.S. biologics license application under CMA pilot program I in December 2005.
A non-registrational phase 3b study was initiated in 2005 to evaluate panitumumab plus Avastin in first-line CRC (“PACCE”). Registrational studies in first-line, and second-line CRC, as well as head and neck cancer (“HNC”) are planned for 2006.
Panitumumab is also being developed in combination with AMG 706 in the treatment of various solid tumors in a variety of conditions. Phase 1b combination studies in first-line CRC, first-line non-small cell lung cancer (“NSCLC”), and HNC were initiated in 2005.
AMG 706
AMG 706 is an oral, multi-kinase inhibitor with both anti-angiogenic and direct antitumor activity achieved by targeting vascular endothelial growth factor (“VEGF”) receptors, platelet derived growth factor (“PDGF”) receptor and Kit. By inhibiting multiple receptors, AMG 706 potentially may provide more than one mechanism of action in various cancers. A phase 2 clinical study evaluating AMG 706 monotherapy in imatinib-resistant gastrointestinal stromal tumor (“GIST”) has completed enrollment, and a phase 2 trial in advanced thyroid cancer is ongoing.
AMG 706 is also being developed in combination with multiple chemotherapy regimens, with and without panitumumab, in the treatment of solid tumors. Phase 1b combination studies in CRC, NSCLC, and other solid tumors are ongoing. These studies are also evaluating the tolerability and safety of twice-daily dosing of AMG 706.
AMG 531
AMG 531 is a first-in-class molecule, with a novel mechanism of actionprotein called a peptibody. The active peptide component stimulates the thrombopoietin (“TPO”) receptor resulting in increased platelet production. It is being investigated for the treatment of immune (idiopathic) thrombocytopenic purpura (“ITP”). ITP is an autoimmune bleeding disorder characterized by an abnormal decrease in platelets, a condition known as thrombocytopenia. Platelets are specialized blood cells that help prevent and stop bleeding by participating in clotting. ITP is characterized by thrombocytopenia that results in bruising and bleeding that is sometimes severe. Phase 2 clinical studies were completed in 2004.
Phase 2 studies in chemotherapy-induced thrombocytopenia (“CIT”) and myelodysplastic syndrome (“MDS”) are expected to date, panitumumab has demonstrated anti-tumor activitybegin in advanced, refractory colorectal cancer. Amgen initiated pivotal clinical studies evaluating panitumumab as a third-line monotherapy in colorectal cancer patients in 2004.
AMG 108
AMG 108 is a monoclonal antibody that blocksinhibits the action of interleukin-1 (“IL-1”), a cytokine believedknown to play a role in the joint destruction associated with osteoarthritis. Phaserheumatoid arthritis. A phase 2 clinical studies are ongoing investigating the treatment of AMG 108 in osteoarthritis.
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Aranesp® Aranesp® |
Amgen has completed several phase 2 studystudies evaluating Aranesp® for treatment of anemia in patients with heart failure. A phase 3 program will be initiated in 2006 to evaluate the effect of treatment of anemia with darbepoetin alfa on morbidity and mortality in patients with heart failure.
The Trial to Reduce Cardiovascular Events with Aranesp® Therapy (“TREAT”) is an approximately 4,000-patient, multi-center, double-blind, randomized, controlled trial designed to determine the impact of anemia therapy with darbepoetin alfa on mortality and non-fatal cardiovascular events in patients with CKD and type 2 (insulin-resistant) diabetes.
Kepivance™ (palifermin) Kepivance™ is currently being evaluated in localized radiation and chemotherapy settings to determine its safety and anti-mucositis activity in patients with HNC cancer (phase 3), NSCLC and colon cancer (phase 2). Sensipar® Sensipar® is approved for the treatment of secondary hyperparathyroidism in patients with CKD on dialysis. Currently, a clinical trial is being planned to assess the effects of cinacalcet |
Competition among biotechnology, pharmaceutical, and other companies that research, develop, manufacture, or market biologics and pharmaceuticals is intense and is expected to increase (see “MD&A —
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Our products’ competitive position among other biologic and pharmaceutical products approved for sale may be based on, among other things, patent position, product efficacy, safety, reliability, availability, patient convenience/delivery devices and price,price. We remain committed to vigorously defending our intellectual property and growing our businesses as well as holding or increasing share. For example, the anemia area represents a significant and growing business opportunity. As such, we expect to face increasingly intense competition in this area, including new and existing technologies and competitive pressures associated with follow-on biologics, or biosimilar products as they are known in Europe and Australia (see further discussion below). We are committed to growing our anemia business, which includes impacting outcomes and supporting the development of new standards of care, exploring new technologies in anemia therapy, preparing to compete with biosimilar products in Europe, and defending our intellectual property.
Certain of our products are expected to face competition in certain geographic areas from biosimilar products. Our principal European patent relating to erythropoietin expired on December 12, 2004 and our principal European patent relating to G-CSF expires on August 22, 2006. We believe that after the expiration of each of these patents, other companies could receive approval for and market biosimilar products to compete with our products in the European Union (“EU”), presenting additional competition to our products. While we do not market erythropoietin in Europe as this right belongs to Johnson & Johnson (through KA), we do market Aranesp® in the EU, which competes with Johnson & Johnson’s EPREX® product, Roche’s Neorecormon® product, and others’ erythropoietin products. We cannot predict with certainty when the first biosimilar products could appear on the market in the EU. However, based on an announcement by Shire Pharmaceuticals Group plc (“Shire”), we expect that the first competing Epoetin alfa product, manufactured by Shire, may appear on the market in the EU in the first half of 2007. Also, we expect that biosimilar erythropoietin products may be approved in the EU beginning in late 2006 and could be available in the EU shortly after approval. We also expect that the first biosimilar G-CSF product may be approved as early as mid-2007 and that it would compete with Neulasta® and NEUPOGEN®. We cannot predict whether or to what extent the entry of biosimilar products would impact future Aranesp®, Neulasta® or NEUPOGEN® sales in the EU. Our products may compete against products that have lower prices, superior performance, are easier to administer, or that are otherwise competitive with our products. Our inability to compete effectively could adversely affect product sales materially. The EU is currently in the process of developing regulatory guidelines related to the development and marketingapproval of new competitive biosimilar
products. In July 2005, the European Agency for the Evaluation of Medical Products (“EMEA”) issued clinical trial guidance for certain biosimilar products including erythropoietins and granulocyte-colony stimulating factors, which guidance recommends that applicants seeking approval of such biosimilar products conduct fairly extensive pharmacodynamic, toxicological, clinical safety studies and a pharmacovigilance program. In October 2005, the EMEA confirmed that biosimilar products will be approved under a different legal pathway than the one applicable to generics of small molecule drugs. Based on the process and timing outlined by the EMEA, we believe relevant product specific guidelines are likely to be finalized by the first quarter of 2006. However, we cannot predict what the final EMEA product specific guidelines will be.
Certain of our products face substantial competition from products marketed by large pharmaceutical companies, which may have greater clinical, research, regulatory, manufacturing, marketing, financial experience and human resources than we do. In addition, the introduction of new products or the development of new processes by competitors or new information about existing products may result in product replacements or price reductions, even for products protected by patents. Certain of our products may also face competition from follow-on biologics, also known as biosimilars in Europe, in certain geographic areas. Our European patent relating to erythropoietin expired on December 12, 2004 and our European patent relating to G-CSF expires on August 22, 2006. While we do not market erythropoietin in Europe as this right belongs to Johnson & Johnson (through KA), we do market Aranesp® in the EU, which competes with Johnson & Johnson’s and others’ erythropoietin products. Additionally, we market G-CSF in most countries in Europe as NEUPOGEN®. We believe that after the expiration of each of these patents, other companies could receive approval for and market follow-on biologics to each of these products in Europe. We believe that the EU is currently in the process of developing regulatory requirements related to the development and approval of follow-on biologics. Until such requirements are finalized, we cannot predict when follow-on biologics could appear in the market in the EU. However, based on the process and timing outlined by the European Agency for the Evaluation of Medical Products (“EMEA”), we believe product specific guidelines are not likely to be finalized until 2006.
Some of our competitors are actively engaged in R&D in areas where we are also performing research and developing product candidates. The competitive marketplace for our product candidates is significantly dependent upon the timing of entry into the market. Early entry may have important advantages in gaining product acceptance and market share contributing to the product’s eventual success and profitability. Accordingly, in some cases, the relative speed with which we can develop products, complete the clinical testing, receive regulatory approval, and supply commercial quantities of the product to the market is expected to be important to our competitive position.
In addition, we compete with large pharmaceutical and biotechnology companies when entering into cooperativecollaborative arrangements with smaller companies and research organizationsprimarily in the biotechnology industry, research organizations and other entities for the research, development and commercialization of productstechnologies, product candidates and product candidates. Smallmarketed products. Other public and privately owned companies, research organizations, academic institutions and governmental agencies and other public and private research organizations conduct a significant amount of R&D in the biotechnology industry. These entities may seek to enter into licensing arrangements to collect royalties for use of technology or for the sale of products they have discovered or developed. We may face competition in our collaborative arrangements or licensing orand acquisition activities from other pharmaceutical companies and large biotechnology companies that also seek to license or acquire technologies, or product candidates or marketed products from these entities. Accordingly, we may have difficulty entering into collaborative arrangements and licensing or acquiring technologies, or product candidates and marketed products on acceptable terms.
The following provides additional information on competition related to our principal products and selected product candidates in ourthe therapeutic areas of focus.
Nephrology
Any products or technologies that are directly or indirectly successful in addressing anemia associated with CKD could negatively impact product sales for Aranesp® and EPOGEN®. In the market for EPOGEN®United States, Aranesp® and Aranesp®. Aranesp® directlyEPOGEN® compete with each other, primarily in the U.S. hospital dialysis clinics.
Additionally, Aranesp® competes internationally with other companies’ marketed products to treat anemia associated with CKD. The following table reflects other companies and their currently marketed products which treat anemia, including EPOGEN® and the recombinant human erythropoietin product marketed by Johnson & Johnson (see “Products — EPOGEN® (Epoetin alfa)” and “Products — Aranesp® (darbepoetin alfa)”). In Europe, Aranesp® directly competesthat primarily compete with erythropoietin products marketed by Janssen-Cilag/ Johnson & Johnson and RocheAranesp® internationally in the nephrology setting.
Amgen Marketed Product | Competitor Marketed Product | Competitor | ||||||||
Aranesp® — International | EPREX®/ERYPO® | Janssen-Cilag(1) | ||||||||
Aranesp® — International | Neorecormon® | F. Hoffmann-La Roche Ltd. (“Roche”) |
(1) A division of Johnson & Johnson.
Roche is developing a pegylated erythropoietin product for the treatment of anemia in the United States that is the same as the product presently marketed and sold in the EU (see “Item 3. Legal Proceedings — Amgen Inc. v. F. Hoffmann-La Roche Ltd., et al.”). Transkaryotic Therapies (“TKT”) is also developing a gene-activated erythropoietin for the treatment of anemia (see “Item 3. Legal Proceedings — Transkaryotic Therapies and Aventis litigation”). RocheIn addition, Yamanouchi Pharmaceutical Co., Ltd./FibroGen are co-developing an erythropoietic small molecule and Affymax, Inc. (“Affymax”) is also develop-
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Supportive cancer care
Any products or technologies that are directly or indirectly successful in addressing anemia associated with chemotherapy could negatively impact the marketproduct sales for Aranesp®Aranesp®. In the United States, Aranesp®Aranesp® directly competes with other currently marketed products which treat anemia associated with chemotherapy, including the recombinant human erythropoietin product marketed by Johnson & Johnson (see “Products — EPOGEN® (Epoetin alfa)”). In Europe, Aranesp® directly competes with erythropoietin products marketed by Janssen-Cilag/ Johnson & Johnsonchemotherapy. Neulasta® and Roche in the oncology setting. TKT is also developing its gene-activated erythropoietin for the treatment of anemia (see “Item 3. Legal Proceedings — Transkaryotic Therapies and Aventis litigation”). Roche and Yamanouchi/ FibroGen are also developing their products for the treatment of anemia in the oncology setting.
Neulasta® also competes with Neulasta®NEUPOGEN® in the United States and Europe. U.S. NEUPOGEN®United States NEUPOGEN® sales have been adversely impacted by Neulasta®conversion to Neulasta®. However, we believe that most of the conversion in the United States has occurred. We believe thatIn Europe, we are experiencing conversion of NEUPOGEN®plan to continue to actively convert NEUPOGEN® patients to Neulasta® in Europe, but we believe that this conversion will occurNeulasta®, emphasizing its less frequent dosing requirements as compared to a lesser extent than that experienced in the United States.NEUPOGEN®. However, we cannot accurately predict the rate or timing of future conversion of NEUPOGEN®NEUPOGEN® patients to Neulasta®Neulasta® in Europe.
The following table reflects companies and their currently marketed products that primarily compete with Aranesp®, Neulasta®, and NEUPOGEN® in the United States and internationally in the supportive cancer care setting.
Amgen Marketed Product | Competitor | Competitor | ||||||||
Aranesp® — U.S. | PROCRIT® | Ortho Biotech Products, L.P.(1) | ||||||||
Aranesp® — International | EPREX®/ERYPO® | Janssen-Cilag(1) | ||||||||
Aranesp® — International | Neorecormon® | Roche | ||||||||
Neulasta®/NEUPOGEN® — U.S. | Leukine® | Berlex, Inc.(2) | ||||||||
Neulasta®/NEUPOGEN® — U.S. | Ethyol® | MedImmune Oncology, Inc. | ||||||||
Neulasta®/NEUPOGEN® — International | Granocyte® | Chugai Pharmaceuticals Co., Ltd. and Sanofi-Aventis | ||||||||
Neulasta®/NEUPOGEN® — International | Leucomax® | Novartis AG (“Novartis”) | ||||||||
Neulasta®/NEUPOGEN® — International | Neu-up® | Kyowa Hakko Kogyo Co., Ltd. |
(1) A division of Johnson & Johnson.
(2) A division of Schering AG Germany.
Roche is developing a pegylated erythropoietin product (see “Item 3. Legal Proceedings — Amgen Inc. v. F. Hoffmann-La Roche Ltd., et al.”). TKT is also developing its gene-activated erythropoietin for the treatment of anemia (see “Item 3. Legal Proceedings — Transkaryotic Therapies and Aventis litigation”). Yamanouchi/FibroGen are co-developing an erythropoietic small molecule, and Affymax is developing an erythropoietin mimetic for the treatment of anemia.
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Inflammatory disease
ENBREL could face competition in some circumstances from companies developing or marketing rheumatoid arthritis, ankylosing spondylitis, psoriatic arthritis, and psoriasis treatments. Current treatments for these indications include generic methotrexate and other products.
The following table reflects companies and their currently marketed products marketed by, among others, Biogen IDEC Inc., that primarily compete with our own product in the United States and internationally in the inflammatory disease setting.
Amgen Marketed Product | Competitor | Competitor | ||||||||
ENBREL — U.S. & Canada | REMICADE® | Centocor, Inc.(1)/Schering Plough Corporation | ||||||||
ENBREL — U.S. & Canada | HUMIRA® | Abbott Laboratories | ||||||||
ENBREL — U.S. & Canada | Raptiva® | Genentech, Inc. | ||||||||
ENBREL — U.S. & Canada | Amevive® | Biogen IDEC Inc. | ||||||||
ENBREL — U.S. & Canada | Orencia® | Bristol-Myers Squibb Corporation (“Bristol-Myers Squibb”) | ||||||||
ENBREL — U.S. & Canada | Neoral® | Novartis | ||||||||
ENBREL — U.S. & Canada | Arava® | Sanofi-Aventis | ||||||||
ENBREL — U.S. & Canada | Celebrex® | Pfizer, Inc. (“Pfizer”) |
(1) A division of Johnson & Johnson, Abbott Laboratories (“Abbott”), Genentech, Inc. (“Genentech”), Pfizer, Novartis, and Sanofi-Aventis. Johnson.
In addition, a number of companies have cytokine inhibitors in development including GlaxoSmithKline plc (“GlaxoSmithKline”), Pfizer, Bristol-Myers Squibb, Repligen Corporation, and Taisho Pharmaceutical Co., Ltd.
Product candidates
We are currently developing product candidates, including AMG 162,denosumab, panitumumab, and others, which, if approved, we expect will enter into highly competitive markets, if approved.markets. These product candidates wouldwill face substantial competition from products currently marketed as well as those under development by other biotechnology and pharmaceutical companies. The bone loss setting, in which denosumab would compete, is currently comprised of three therapeutic classes: bisphosphonates, selective estrogen receptor modulators, and biotechnology companies.anabolic agents. The oncology setting, in which panitumumab would compete, is currently comprised of several therapeutic classes, including, but not limited to, cytotoxic agents, and VEGF and EGFr inhibitors. Competitive intensity will increase in the bone loss and oncology settings with the expected approval of new agents.
The following table reflects other companies and their currently marketed products that will primarily compete with denosumab and panitumumab, if approved:
Amgen Product Candidate | Competitor | Potential Competitor | ||||||||
Denosumab | Fosamax® | Merck & Co., Inc. | ||||||||
Denosumab | Boniva® | Roche /GlaxoSmithKline | ||||||||
Panitumumab | Erbitux® | Imclone Systems Incorporated/Bristol Myers Squibb /Merck KGaA |
Manufacturing
Our manufacturing operations consist of bulk manufacturing, and formulation, fill, and finish activities which produce Epoetin alfa, Aranesp®, Neulasta®, NEUPOGEN®, ENBREL, and other products and product candidates for both clinical and commercial purposes. We operate clinical and commercial manufacturing facilities in several locations throughout the United States and in Puerto Rico (see “Item 2. Properties”).
Bulk Commercial Manufacturing
Our bulk commercial manufacturing facilities are located in Longmont, Colorado, which produce Epoetin alfa and Aranesp®; West Greenwich, Rhode Island, where we produce a substantial portion of our annual ENBREL supply; Thousand Oaks, California where we produce Epoetin alfa, Aranesp®, Neulasta® and NEUPOGEN®; and Juncos, Puerto Rico where, starting in September 2005, we began manufacturing Neulasta® and NEUPOGEN®. In September 2005, a second manufacturing facility in Rhode Island received FDA approval for the production of ENBREL.
Commercial quantities of ENBREL produced at Rhode Island are insufficient to fill the current level of demand for this product. We and Wyeth also have a contract manufacturing agreement with Boehringer Ingelheim Pharma KG (“BI Pharma”) for the production of additional supply of ENBREL. We also have a global supply agreement with Wyeth related to the manufacture, supply, inventory, and allocation of supplies of ENBREL. Under this agreement, we and Wyeth share the total worldwide supply of ENBREL produced by Amgen’s Rhode Island manufacturing facilities, BI Pharma’s manufacturing facility in Germany, and Wyeth’s manufacturing facility in Ireland.
Our supply of ENBREL is significantly dependent on product manufactured by BI Pharma, and, accordingly, we have made significant purchase commitments to BI Pharma (see Note 8, “Commitments and contingencies” to the Consolidated Financial Statements). Under the supply agreement, BI Pharma has reserved a specified level of production capacity for ENBREL, and our supply under these purchase commitments for ENBREL is manufactured from that reserved production capacity. We are required to submit a rolling three-year forecast for manufacturing the bulk drug for ENBREL, and a rolling forecast for a shorter period for the number of finished vials of ENBREL. We have manufacturing facilities which producesubmitted firm orders for the maximum production capacity that BI Pharma currently has reserved for ENBREL. We will be responsible for substantial payments to BI Pharma if we fail to use a specified percentage of the production capacity that BI Pharma has reserved for ENBREL each calendar year or if the BI Pharma supply agreement is terminated prematurely under specified conditions.
In addition to producing our own commercial quantities of Epoetin alfa, Aranesp®, Neulasta®, NEUPOGEN®, and ENBREL®. We operate commercial manufacturing facilities locatedwe also supply Epoetin alfa in the United States to Johnson & Johnson under a supply agreement (see “Joint Ventures and Business Relationships — Johnson & Johnson”).
Formulation, Fill, and Finish
Our operations in Puerto Rico, and a packaging and distribution center inperform all of the Netherlands (see “Item 2.
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To keep up with the growing demand for our products, we are operating the Puerto Rico facilitiesformulation, fill, and finish facility at nearly full production capacity. In addition to the above-noted manufacturing
activities, our operations in Puerto Rico perform key manufacturing support functions including quality control, process development, procurement and production scheduling. In 2005,Our global supply of our principal products is significantly dependent on the uninterrupted and efficient operation of these Puerto Rico facilities are anticipated to begin production of NEUPOGEN® and Neulasta® bulk drug product in a new manufacturing plant for which we plan to submit an application for FDA approval in the first quarter of 2005. We are also constructing a second bulk manufacturing plant in Juncos which will be used for the production of Epoetin alfa and Aranesp®. We actively manage our inventory supply produced by our manufacturing facilities and the supply produced by our third-party manufacturers (see “MD&A —“Item 1A. Risk Factors That May Affect Amgen — We have grown rapidly, and if we fail to adequately manage that growth our business could be adversely impacted.” and “MD&A — Factors That May Affect Amgen — We formulate, fill, and finish substantially all our products at our Puerto Rico manufacturing facility; if significant natural disasters or production failures occur at this facility, we may not be able to supply these products.”products”). In addition to producing
Clinical Manufacturing
Bulk manufacturing of our own commercial quantities of Epoetin alfa, weproducts and product candidates for use in clinical trials is performed at our facilities in California, Colorado, Rhode Island, and Washington, by certain collaboration partners, and by third-party manufacturers. We perform formulation, fill, and finish activities for products and product candidates used in clinical applications at our facilities in California and Puerto Rico. We also utilize contract manufacturers for these activities.
Manufacturing Initiatives
We actively manage our inventory supply Epoetin alfa in the United States to Johnson & Johnson under a supply agreement. Commercial quantities of ENBREL® produced by our large-scale biopharmaceutical manufacturing facility in West Greenwich, Rhode Island (the “RI Facility”) arefacilities and the supply produced by itself, insufficient to fill the current level of demand for this product.our third-party contract manufacturers. Our current plan to increase U.S.manufacturing capacity and Canadian supply of ENBREL® includes completion of an additional large-scale cell culture commercial manufacturing facility adjacent to the current RI Facility, which we plan to submit for FDA approval in 2005. We also havethird-party contract manufacturing agreements with BI Pharmahave increased and Genentech forare expected to continue to increase to supply the production of additional supply of ENBREL®. In addition, we utilize third-party contract manufacturers to perform fill and finish services and packaging services for ENBREL®.
To mitigate the risks associated with our rapid growth and the concentration of manufacturing activity in Puerto Rico, we have several ongoing and new planned initiatives in place. With respect to these risks and meeting our objective to supply every patient every time with our medicines, we are in the process of increasing the number of third-party contract manufacturers and building additional manufacturing capacity. The most significant of our efforts to increase capacity and to reduce concentration is our recently announced project to construct a specified percentageprocess development, bulk manufacturing, and formulation, fill, and finish facility in Ireland. Construction of the productionfacility in Ireland is expected to begin in 2006.
Other capacity expansion projects that BI Pharma has reserved for ENBREL® each calendar yearare already in process or ifare expected to begin in 2006 include the BI Pharma supply agreement is terminated prematurely under specified conditions.
Raw Materials
Certain raw materials, medical devices, and components necessary for our commercial manufacturing of our products are proprietary products of other companies, and in some cases, such proprietary products are specifically cited in our drug application with the FDA such that they must be obtained from that specific, sole source. We currently attempt to manage the risk associated with such sole sourcedsole-sourced raw materials by active inventory management, relationship management, and alternate source development, when feasible (see “MD&A —“Item 1A. Risk Factors That May Affect Amgen — Certain of our raw materials, medical devices and components are single-sourced from third
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vices, and components may be subject to contamination and/or recall. A material shortage, contamination, recall and/or restriction could adversely impact or disrupt our commercial manufacturing of our products.
From time to time, we may enter into joint ventures and other business relationships to provide additional development, manufacturing, and marketing capabilities. In addition to our internal R&D efforts, we have acquired certain product and technology rights and have established R&D collaborations to enhance our R&D capabilities and internally developed product pipeline. Our R&D collaborations generally can consist of non-refundable, upfront license fees, R&D and commercial performance milestones, cost sharing, royalties and/or profit sharing. Additionally, these collaborations may include manufacturing and co-promotion arrangements. Our collaboration agreements with third parties are performed on a “best efforts” basis with no guarantee of either technological or commercial success.
Kirin Brewery Company, Limited
We formed KA, a 50-50 joint venture with Kirin in 1984. KA develops and commercializes certain of our and Kirin’s technologies, which have been transferred to this joint venture. KA has given exclusive licenses to us to manufacture and market: 1) recombinant human erythropoietin in the United States, 2) darbepoetin alfa in the United States, all European countries, Canada, Australia, New Zealand, Mexico, all Central and South American countries, and certain countries in Central Asia, North Africa, and the Middle East, 2) recombinant human erythropoietin in the United States, and 3) pegfilgrastim and G-CSF in the United States, Europe, Canada, Australia, and New Zealand. We currently market certain of these products under the brand names EPOGEN® (erythropoietin)EPOGEN® (Epoetin alfa), Aranesp®Aranesp® (darbepoetin alfa), Neulasta®Neulasta®(pegfilgrastim), and NEUPOGEN® (G-CSF)NEUPOGEN® (Filgrastim).
KA has also given exclusive licenses to Kirin to manufacture and market: 1) recombinant human erythropoietin in Japan, 2) darbepoetin alfa in Japan, the People’s Republic of China (“China”), Taiwan, Korea, and certain other countries in Southeast Asia, 2) recombinant human erythropoietin in Japan, and 3) G-CSF and pegfilgrastim in Japan, Taiwan and Korea. Kirin markets recombinant human erythropoietin and G-CSF in China under a separate agreement.agreement with KA. Kirin markets its recombinant human erythropoietin product in Japan under the trademark ESPO®ESPO®. Kirin markets its G-CSF product in its respective territories under the trademark GRAN®GRAN®.
KA has licensed to Johnson & Johnson rights to recombinant human erythropoietin in certain geographic areas of the world (see “— Johnson & Johnson”). Under its agreement with KA, Johnson & Johnson pays a royalty to KA based on sales.
During 2005 certain of our and Kirin’s technologies related to AMG 531 were transferred to KA. In return, KA has given us and Kirin exclusive licenses to manufacture and market AMG 531 in certain territories. KA is currently conducting phase 3 studies related to AMG 531.
In connection with our various license agreements with KA, we pay KA royalties based on product sales and also receive payment for conducting certain R&D activities on behalf of KA (See Note 2, “Related party transactions” to the consolidated financial statements)Consolidated Financial Statements).
Johnson & Johnson
We granted Johnson & Johnson a license to commercialize recombinant human erythropoietin as a human therapeutic in the United States in all markets other than dialysis. In the United States, all recombinant human erythropoietin sold by Johnson & Johnson is manufactured by us and sold by Johnson & Johnson under the trademark PROCRIT®PROCRIT® (Epoetin alfa). PROCRIT®PROCRIT® brand Epoetin alfa is identical to EPOGEN®EPOGEN® brand Epoetin alfa, which is manufactured and sold by us in the United StatesU.S. dialysis market. Pursuant to the license agreement with Johnson & Johnson, we earn a 10% royalty on sales of PROCRIT®PROCRIT® by Johnson & Johnson in the United States.
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Outside the United States, with the exception of China and Japan, Johnson & Johnson was granted rights to manufacture and commercialize recombinant human erythropoietin as a human therapeutic for all uses
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(See “Item 3. Legal Proceedings — Johnson & Johnson Matters — Arbitration/Demand for Separate BLA.”)
Wyeth
Amgen and Wyeth market and sell ENBREL®ENBREL under a co-promotion agreement in the United States and Canada for all approved indications.indications other than for use in oncology. The rights to detail and promote ENBREL®ENBREL in the United States and Canada for oncology indications are reserved to Amgen. The rights to market ENBREL®ENBREL outside of the United States and Canada are reserved to Wyeth. Under the co-promotion agreement, a management committee comprised of equal representation from Wyeth and Amgen is responsible for overseeing the marketing and sales of ENBREL®ENBREL including: strategic planning, the approval of an annual marketing plan, product pricing, and the establishment of a brand team. The brand team, with equal representation from each party, prepares and implements the annual marketing plan, which includes a minimum level of financial and sales personnel commitment from each party, and is responsible for all sales activities. Further, pursuant to the co-promotion agreement, Wyeth and Amgen each pay a defined percentage of all selling and marketing expenses approved by the management committee. In addition, we pay Wyeth a percentage of the annual gross profits of ENBREL®,ENBREL, which reflect the sharing of manufacturing costs in the United States and Canada attributable to all approved indications for ENBREL®ENBREL on a scale that increases as gross profits increase; however, we maintain a majority share of ENBREL®ENBREL profits. Under the co-promotion agreement, Wyeth is required to reimburse Amgen for: 1) certain clinical and regulatory expenses we incur in connection with the filing and approval of any new indications for ENBREL®ENBREL in the United States and Canada, excluding oncology and rheumatoid arthritis indications; 2) certain specified patent expenses related to ENBREL®;ENBREL; and 3) certain costs, expenses, and liabilities associated with the manufacture, use, or sale of ENBREL®ENBREL in the United States and Canada.
We also have a global supply agreement with Wyeth related to the manufacture, supply, inventory, and allocation of supplies of ENBREL®.
Abgenix, Inc.
In October 2003, Amgen and Abgenix, Inc. (“Abgenix”) amended an existing agreement to jointly develop and commercialize panitumumab, a fully human monoclonal antibody created by Abgenix (See “Selected(see “Research and Development and Selected Product Candidates”). Abgenix is a company specializing in the discovery, development and manufacture of human therapeutic antibodies. Under the amended agreement, we have decision-making authority for the joint development and commercialization of panitumumab, but development and commercialization costs, as well as any potential profits from future sales of panitumumab, are shared equally. We have the right to conduct all future clinical trials. In addition, Abgenix will manufacture clinical and early commercial supplies of panitumumab with our support and assistance. If clinical trials for panitumumab are successful and regulatory approval is received, we would have the primary role in implementing marketing and product launch activities for panitumumab, while Abgenix may participate in co-promotion.
In December 2005, we signed a definitive merger agreement under which we will pay shareholders of Abgenix $22.50 in cash per common share for a total value of approximately $2.2 billion and will assume Abgenix’s outstanding debt. The Federal Trade Commission approved the merger on January 19, 2006 and we expect to advanceclose the merger, subject to Abgenix up to $60 million that may be usedshareholder approval, by Abgenix to fund its shareApril 2006. If and when the merger is closed, the terms of development and commercialization costs for panitumumab. Abgenix is not obligated to repay such advances if panitumumab does not reach commercialization. As Abgenix’s obligation to repay such advances is dependent upon the commercialization of an in-process technology, such advances are expensed as incurred.
Regulation by governmental authorities in the United States and other countries is a significant factor in the production and marketing of our products and our ongoing R&D activities (see “MD&A — Factors That May Affect Amgen — Our current products and products in development cannot be sold if we do not obtain and maintain regulatory approval”).
In order to clinically test, manufacture, and market products for therapeutic use, we must satisfy mandatory procedures and safety and effectiveness standards established by various regulatory bodies. In the United States, the Public Health Service Act and the Federal Food, Drug, and Cosmetic Act, as amended, and the regulations promulgated there under, and other federal and state statutes and regulations govern,
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In addition to regulating and auditing human clinical trials, the FDA regulates and inspects equipment, facilities, laboratories, and processes used in the manufacturing and testing of such products prior to providing approval to market a product. If after receiving clearance from the FDA, we make a material change is made in manufacturing equipment, location, or process, additional regulatory review may be required. We also must adhere to current Good Manufacturing Practice (GMP) regulations and product-specific regulations enforced by the FDA through its facilities inspection program. The FDA also conducts regular, periodic visits to re-inspect our equipment, facilities, laboratories, and processes following the initial approval. If, as a result of these inspections, the FDA determines that our equipment, facilities, laboratories, or processes do not comply with applicable FDA regulations and conditions of product approval, the FDA may seek civil, criminal, or administrative sanctions and/or remedies against us, including the suspension of our manufacturing operations.
In the European countries, Canada, and Australia, regulatory requirements and approval processes are similar in principle to those in the United States. Additionally, depending on the type of drug for which
approval is sought, there are currently two potential tracks for marketing approval in the European countries: mutual recognition and the centralized procedure. These review mechanisms may ultimately lead to approval in all EU countries, but each method grants all participating countries some decision-making authority in product approval.
We are also subject to various federal and state laws pertaining to health care “fraud and abuse,” including anti-kickback laws and false claims laws. Anti-kickback laws make it illegal to solicit, offer, receive, or pay any remuneration in exchange for, or to induce, the referral of business, including the purchase or prescription of a particular drug. The federal government has published regulations that identify “safe harbors” or exemptions for certain arrangements that do not violate the anti-kickback statutes. We seek to comply with the safe harbors where possible. Due to the breadth of the statutory provisions and the absence of guidance in the form of regulations or court decisions addressing some of our practices, it is possible that our practices might be challenged under anti-kickback or similar laws. False claims laws prohibit anyone from knowingly and willingly presenting, or causing to be presented for payment to third partythird-party payers (including Medicare and Medicaid), claims for reimbursed drugs or services that are false or fraudulent, claims for items or services not provided as claimed, or claims for medically unnecessary items or services. Our activities relating to the sale and marketing of our products may be subject to scrutiny under these laws. Violations of fraud and abuse laws may be punishable by criminal and/or civil sanctions, including fines and civil monetary penalties, as well as the possibility of exclusion from federal health care programs (including Medicare and Medicaid). If the government were to allege against or convict us of violating these laws, there could be a material adverse effect on us, including our stock price. Our activities could be subject to challenge for the reasons discussed above and due to the broad scope of these laws and the increasing attention being given to them by law enforcement authorities.
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We also make our products available to authorized users of the Federal Supply Schedule (“FSS”) of the General Services Administration. Since 1993, as a result of the Veterans Health Care Act of 1992 (the “VHC Act”), federal law has required that product prices for purchases by the Veterans Administration, the Department of Defense, Coast Guard, and the PHS (including the Indian Health Service) be discounted by a minimum of 24% off the AMP to non-federal customers (the non-federal average manufacturer price, “non-FAMP”). Our computation and report of non-FAMP is used in establishing the price, and the accuracy of the reported non-FAMP may be audited by the government under applicable federal procurement laws. Among the remedies available to the government for infractions of these laws is
recoupment of any overages paid by FSS users during the audited years. In addition, if we were found to have knowingly reported a false non-FAMP, in addition to other penalties available to the government, the VHC Act provides for civil monetary penalties of $100,000 per item that is incorrect.
We are also subject to regulation under the Occupational Safety and Health Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act, and other current and potential future federal, state, or local laws, rules, and/or regulations. Our R&D activities involve the controlled use of hazardous materials, chemicals, biological materials, and various radioactive compounds. We believe that our procedures comply with the standards prescribed by federal, state, or local laws, rules, and/or regulations; however, the risk of injury or accidental contamination cannot be completely eliminated. Our research and manufacturing activities also are conducted in voluntary compliance with the National Institutes of Health Guidelines for Recombinant DNA Research.
Additionally, the U.S. Foreign Corrupt Practices Act, to which we are subject, prohibits corporations and individuals from engaging in certain activities to obtain or retain business or to influence a person working in an official capacity. It is illegal to pay, offer to pay, or authorize the payment of anything of value to any foreign government official, government staff member, political party, or political candidate in an attempt to obtain or retain business or to otherwise influence a person working in an official capacity. Our present and future business has been and will continue to be subject to various other laws, rules, and/or regulations.
17(See “Item 1A. Risk Factors — Our current products and products in development cannot be sold if we do not maintain regulatory approval and comply with manufacturing regulations.”)
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We have filed applications for a number of patents, have been granted patents, or have obtained rights relating to our products and various potential products. Our material patents are set forth in the table below.
Product | |||||||||||
General Subject Matter | Expiration | ||||||||||
Epoetin alfa | U.S. | — Process of making erythropoietin | 8/15/2012 | ||||||||
— Product claims to erythropoietin | 8/20/2013 | ||||||||||
— Pharmaceutical compositions of erythropoietin | 8/20/2013 | ||||||||||
— Cells that make certain levels of erythropoietin | 5/26/2015 | ||||||||||
darbepoetin alfa | Europe(1) | — Glycosylation analogs of erythropoietin proteins | 10/12/2010 | ||||||||
— Glycosylation analogs of erythropoietin proteins | 8/16/2014 | ||||||||||
Filgrastim | U.S. | ||||||||||
— DNA, vectors, cells and processes relating to recombinant G-CSF | 3/7/2006 | ||||||||||
— G-CSF polypeptides | 12/3/2013 | ||||||||||
— Methods of treatment using G-CSF polypeptides | 12/10/2013 | ||||||||||
Europe(1) | — G-CSF DNA Vectors, cells, polypeptides, methods of use and production | 8/22/2006 | |||||||||
pegfilgrastim | U.S. | — Pegylated G-CSF | 10/20/2015 | ||||||||
Europe(1) | — Pegylated G-CSF | 2/8/2015 | |||||||||
| U.S. | — Methods of treating TNF — dependent disease | 9/5/2009 | ||||||||
— TNFR proteins and pharmaceutical compositions | 9/5/2009 | ||||||||||
— TNFR DNA vectors, cells and processes for making proteins | 10/23/2012 |
(1) In some cases these European patents may also be entitled to supplemental protection in one or more countries in Europe and the length of any such extension will vary country by country.
There can be no assurance that our patents or licensed patents will afford legal protection against competitors or provide significant proprietary protection or competitive advantage. In addition, our patents or licensed patents could be held invalid or unenforceable by a court, or infringed or circumvented by others, or others could obtain patents that we would need to license or circumvent. Competitors or potential competitors may have filed patent applications or received patents, and may obtain additional patents and proprietary rights relating to proteins, small molecules, compounds, or processes competitive with ours. Additionally, for certain of our product candidates, competitors, or potential competitors may claim that their existing or pending patents prevent us from commercializing such product candidates in certain territories. Further, when our patents expire, other companies could develop new competitive products to our products. Our near-term European patent expirations could result in new competitive products to our products in Europe. Our principal European patent relating to erythropoietin expired on December 12, 2004 and our principal European patent relating to G-CSF expires on August 22, 2006. We believe that after the expiration of each of these patents, other
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Johnson & Johnson (through KA), we do market Aranesp® in the EU, which competes with Johnson & Johnson’s EPREX® product, Roche’s Neorecormon® product, and others’ erythropoietin products. We believecannot predict with certainty when the first biosimilar products could appear on the market in the EU. However, based on an announcement by Shire, we expect that the first competing Epoetin alfa product, manufactured by Shire, may appear on the market in the EU in the first half of 2007. Also, we expect that biosimilar erythropoietin products may be approved in the EU beginning in late 2006 and could be available in the EU shortly after approval. We also expect that the first biosimilar G-CSF product may be approved as early as mid-2007 and that it would compete with Neulasta® and NEUPOGEN®. We cannot predict whether or to what extent the entry of biosimilar products would impact future Aranesp®, Neulasta® or NEUPOGEN® sales in the EU. The EU is currently in the process of developing regulatory requirementsguidelines related to the development and approval of follow-on biologics. Untilbiosimilar products. In July 2005, the EMEA, issued clinical trial guidance for certain biosimilar products including erythropoietins and granulocyte-colony stimulating factors, which guidance recommends that applicants seeking approval of such requirements are finalized, we cannot predict when follow-on biologics could appear inbiosimilar products conduct fairly extensive pharmacodynamic, toxicological, clinical safety studies and a pharmacovigilance program. In October 2005, the market inEMEA confirmed that biosimilar products will be approved under a different legal pathway than the EU. However, basedone applicable to generics of small molecule drugs. Based on the process and timing outlined by the EMEA, we believe relevant product specific guidelines are not likely to be finalized untilby the first quarter of 2006.
In general, we have obtained licenses from various parties which we deem to be necessary or desirable for the manufacture, use or sale of our products. These licenses generally require us to pay royalties to the parties on product sales. In addition, other companies have filed patent applications or have been granted patents in areas of interest to us. There can be no assurance any licenses required under such patents will be available for license on acceptable terms or at all. We are engaged in various legal proceedings relating to certain of our patents (see “Item 3. Legal Proceedings”).
Trade secret protection for our unpatented confidential and proprietary information is important to us. To protect our trade secrets, we generally require our staff members, material consultants, scientific advisors, and parties to collaboration and licensing agreements to execute confidentiality agreements upon the commencement of employment, the consulting relationship, or the collaboration or licensing arrangement with us. However, others could either develop independently the same or similar information or obtain access to our information.
(See “Item 1A. Risk Factors — If our intellectual property positions are challenged, invalidated, circumvented or expire, or if we fail to prevail in present and future intellectual property litigation, our business could be adversely affected.”)
(See “Item 1A. Risk Factors — Our marketed products face substantial competition and other companies may discover, develop, acquire or commercialize products before or more successfully than we do.”)
As of December 31, 2004,2005, we had approximately 14,40016,500 staff members, which includes approximately 100 part-time staff members. Of the total staff members as of December 31, 2004,2005, approximately 5,6006,500 were engaged in R&D, approximately 2,7003,000 were engaged in selling and marketing, approximately 4,4005,100 were engaged in commercial manufacturing activities, and approximately 1,7001,900 were engaged in other activities. There can be no assurance that we will be able to continue attracting and retaining qualified personnel in sufficient numbers to meet our needs. None of our staff members are covered by a collective bargaining agreement, and we have experienced no work stoppages. We consider ourstaff relations to be good. We expect to hire additional staff members throughout 2006, primarily in R&D to enable us to advance the pipeline.
The executive officers of the Company as of February 28, 20052, 2006 are as follows:
Mr. Kevin W. Sharer, age 56,57, has served as a director of the Company since November 1992. Since May 2000, Mr. Sharer has been Chief Executive Officer and President of the Company and has also been Chairman of the Board since December 2000. From October 1992 to May 2000, Mr. Sharer served as President and Chief Operating Officer of the Company. From April 1989 to October 1992, Mr. Sharer was President of the Business Markets Division of MCI Communications Corporation, a telecommunications company. From February 1984 to March 1989, Mr. Sharer held numerous executive capacities at General Electric Company. Mr. Sharer is a director of Unocal Corporation, 3M Company and Northrop Grumman Corporation.
Dr. Hassan Dayem, age 58, became Senior Vice President and Chief Information Officer in May 2002. From December 1998 to May 2002, Dr. Dayem served as Vice President, Information Services and Chief Information Officer at Merck & Co., Inc. (“Merck”), a pharmaceutical company. From June 1997 to December 1998, Dr. Dayem served as Vice President, Research Information Services at Merck. From February 1977 to May 1997, Dr. Dayem was at Los Alamos National Laboratory, where he held several positions including Division Director, Computing, Information and Communications Division from July 1993 to May 1997.
Dr. Dennis M. Fenton, age 53,54, became Executive Vice President in March 2000 and in May 2003 became Executive Vice President, Operations and Compliance Officer.Operations. From January 1995 to March 2000, Dr. Fenton served as Senior Vice President, Operations; from August 1992 to January 1995 as Senior Vice President, Sales and Marketing; and from July 1991 to August 1992 as Vice President, Process Development, Facilities and Manufacturing Services. From October 1988 to July 1991, Dr. Fenton also served as Vice
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Mr. Brian McNamee, age 48,49, became Senior Vice President, Human Resources in June 2001. From November 1999 to June 2001, Mr. McNamee served as Vice President of Human Resources at Dell Computer Corp. From 1998 to 1999, Mr. McNamee served as Senior Vice President, Human Resources for the National Broadcasting Corporation (“NBC”), a division of General Electric Company. From July 1988 to November 1999, Mr. McNamee held human resource positions at General Electric Company.
Mr. George J. Morrow, age 52,53, became Executive Vice President of Worldwide Sales and Marketing, in January 2001 and became Executive Vice President, Global Commercial Operations in April 2003. From January 1999 to December 2000, Mr. Morrow was President and Chief Executive Officer of Glaxo Wellcome Inc. (“Glaxo”), a subsidiary of GlaxoSmithKline plc. From January 1997 to December 1998, Mr. Morrow was Managing Director of Glaxo Wellcome U.K., also a subsidiary of GlaxoSmithKline plc. From May 1993 to December 1996, Mr. Morrow was Group Vice President for Commercial Operations of Glaxo.
Mr. Richard D. Nanula, age 44,45, became Executive Vice President and Chief Financial Officer in August 2001. From November 1999 to February 2001, Mr. Nanula was Chairman and Chief Executive Officer of Broadband Sports, Inc., an Internet media company. From March 1998 to May 1999, Mr. Nanula was President and Chief Operating Officer of Starwood Hotels & Resorts Worldwide, a worldwide hotel and gaming company. From August 1986 to March 1998, Mr. Nanula was at the Walt Disney Company; where he held several positions including Senior Executive Vice President and Chief Financial Officer and President of Disney Stores Worldwide. Mr. Nanula currently serves on the Board of Directors of The Boeing Company.
Dr. Roger M. Perlmutter, age 52,53, became Executive Vice President of Research and Development in January 2001. From July 1999 to December 2000, Dr. Perlmutter was Executive Vice President, Worldwide Basic Research and Preclinical Development of Merck Research Laboratories. From February 1999 to
July 1999, Dr. Perlmutter served as Executive Vice President of Merck Research Laboratories, and from February 1997 to January 1999, as Senior Vice President of Merck Research Laboratories. From May 1989 to January 1997, Dr. Perlmutter was also Chairman of the Department of Immunology, University of Washington, and from January 1991 to January 1997, Professor in the Departments of Immunology, Biochemistry and Medicine, University of Washington. From October 1991July 1984 to January 1997, Dr. Perlmutter served as Investigator at the Howard Hughes Medical Institute at the University of Washington. Dr. Perlmutter currently serves on the Board of Directors of Stem Cells,StemCells, Inc.
Mr. David J. Scott, age 52,53, became Senior Vice President, General Counsel and Secretary in March 2004. From May 1999 to February 2004, Mr. Scott served as Senior Vice President and General Counsel of Medtronic, Inc., a medical technology company, and also as Secretary from January 2000. From December 1997 to April 1999, Mr. Scott served as General Counsel of London-based United Distillers & Vintners. From April 1996 to November 1997, Mr. Scott served as General Counsel of London-based International Distillers & Vintners.
For financial information concerning the geographic areas in which we operate, see Note 9, “Segment information — Geographic information” to the consolidated financial statements.
Financial and other information about us is available on our website(http://www.amgen.com)www.amgen.com) (This website address is not intended to function as a hyperlink, and the information contained in our website is not intended to be a part of this filing). We make available on our website, free of charge, copies of our annual
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This report and other documents we file with the Securities and Exchange Commission (“SEC”) contain forward looking statements that are based on current expectations, estimates, forecasts and projections about us, our future performance, our business or others on our behalf, our beliefs and our management’s assumptions. These statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict. You should carefully consider the risks and uncertainties facing our business. The risks described below are not the only ones facing us. Our business is also subject to the risks that affect many other companies, such as employment relations, general economic conditions, geopolitical events and international operations. Further, additional risks not currently known to us or that we currently believe are immaterial also may impair our business, operations, liquidity and stock price materially and adversely.
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If our intellectual property positions are challenged, invalidated, circumvented or expire, or if we fail to prevail in present and future intellectual property litigation, our business could be adversely affected.
The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and often involve complex legal, scientific, and factual questions. To date, there has emerged no consistent policy regarding breadth of claims allowed in such companies’ patents. Third parties may challenge, invalidate, or circumvent our patents and patent applications relating to our products, product candidates, and technologies. In addition, our patent positions might not protect us against competitors with similar products or technologies because competing products or technologies may not infringe our patents. For example, F. Hoffmann-La Roche Ltd (“Roche”) is developing a pegylated erythropoietin molecule that, according to Roche’s public statements, they expect to bring to the U.S. market despite their acknowledgement of our U.S. erythropoietin patents. On November 8, 2005, we filed a lawsuit against Roche for patent infringement of six of our U.S. patents. This lawsuit is described in “Item 3. Legal Proceedings - Amgen Inc. v. F. Hoffman-La Roche Ltd., et al.” For certain of our product candidates, there are third parties who have patents or pending patents that they may claim prevent us from commercializing these product candidates in certain territories. Patent disputes are frequent, costly, and can preclude or delay commercialization of products. We are currently, and in the future may be, involved in patent litigation. For example, we are currently involved in an ongoing patent infringement lawsuit against Transkaryotic Therapies, Inc. (“TKT”) and Aventis with respect to our erythropoietin patents. If we lose or settle current or future litigations at certain stages or entirely, we could be: subject to competition and/or significant liabilities; required to enter into third-party licenses for the infringed product or technology; or required to cease using the technology or product in dispute. In addition, we cannot guarantee that such licenses will be available on terms acceptable to us, or at all.
Our success depends in part on our ability to obtain and defend patent rights and other intellectual property rights that are important to the commercialization of our products and product candidates. We have filed applications for a number of patents and have been granted patents or obtained rights relating to erythropoietin, natural and recombinant G-CSF, darbepoetin alfa, pegfilgrastim, etanercept, and our other products and potential products. We market our erythropoietin, recombinant G-CSF, darbepoetin alfa, pegfilgrastim, and etanercept products as EPOGEN® (Epoetin alfa), NEUPOGEN® (Filgrastim), Aranesp® (darbepoetin alfa), Neulasta® (pegfilgrastim), and Enbrel® (etanercept), respectively. With respect to our material patents, we have had a number of G-CSF patent expiries in the United States and one erythropoietin patent expiry in the European Union (“EU”). For additional information on our material patents see “Patents and Trademarks” in “Item 1. Business.”
We also have been granted or obtained rights to patents in Europe relating to: erythropoietin; G-CSF; pegfilgrastim (pegylated G-CSF); etanercept; two relating to darbepoetin alfa; and hyperglycosylated erythropoietic proteins. Our principal European patent relating to erythropoietin expired on December 12, 2004 and our principal European patent relating to G-CSF expires on August 22, 2006. We believe that after the expiration of each of these patents, other companies could receive approval for and market follow-on or biosimilar products to compete with these products in the EU; presenting additional competition to our products. (See “— Our marketed products face substantial competition and other companies may discover, develop, acquire or commercialize products before or more successfully than we do.”) While we do not market erythropoietin in Europe as this right belongs to Johnson & Johnson (through Kirin Amgen, Inc. (“KA”)), we do market Aranesp® in the EU, which competes with Johnson & Johnson’s EPREX® product, Roche’s Neorecormon® product, and others’ erythropoietin products. We cannot predict with certainty when the first biosimilar products could appear on the market in the EU. However, based on an announcement by Shire Pharmaceuticals Group plc (“Shire”), we expect that the first competing Epoetin alfa product, manufactured by Shire, may appear on the market in the EU in the first half of 2007. Also, we expect that biosimilar erythropoietin products may be approved in the EU beginning in late 2006 and could be available in the EU shortly after approval. We also expect that the first biosimilar G-
CSF product may be approved as early as mid-2007 and that it would compete with Neulasta® and NEUPOGEN®. We cannot predict whether or to what extent the entry of biosimilar products would impact future Aranesp®, Neulasta® or NEUPOGEN® sales in the EU. The EU is currently in the process of developing regulatory guidelines related to the development and approval of biosimilar products. In July 2005, the European Agency for the Evaluation of Medical Products (“EMEA”), issued clinical trial guidance for certain biosimilar products including erythropoietins and granulocyte-colony stimulating factors, which guidance recommends that applicants seeking approval of such biosimilar products conduct fairly extensive pharmacodynamic, toxicological, clinical safety studies and a pharmacovigilance program. In October 2005, the EMEA confirmed that biosimilar products will be approved under a different legal pathway than the one applicable to generics of small molecule drugs. Based on the process and timing outlined by the EMEA, we believe relevant product specific guidelines are likely to be finalized by the first quarter of 2006. However, we cannot predict what final EMEA product specific guidelines will be.
Before we commercialize and sell any of our product candidates, we must conduct clinical trials in humans; if we fail to adequately manage these trials we may not be able to sell future products and our sales could be adversely affected.
Before we can sell any products, we must conduct clinical trials which demonstrate that our product candidates are safe and effective for use in humans for the indications sought. The results of these clinical trials are used as the basis to obtain regulatory approval from government authorities such as the U.S. Food and Drug Administration (“FDA”). Clinical trials are experiments conducted using our product candidates in human patients having the diseases or medical conditions we are trying to address. Conducting clinical trials is a complex, time-consuming and expensive process. We are required to conduct clinical trials using an appropriate number of trial sites and patients to support the product label claims we are seeking. The length of time, number of trial sites and patients required for clinical trials vary substantially according to the type, complexity, novelty and intended use of the product candidate, and therefore, we may spend as much as several years completing certain trials. Further, the time within which we can complete our clinical trials depends in large part on the rate of patient enrollment. Patient enrollment is a function of several factors, including the size of the patient population, enrollment criteria, the proximity of the patients to the trial sites, and competition with other clinical trials for eligible patients. As such, there may be limited availability of patients who meet the criteria for certain clinical trials. Delays in planned patient enrollment can result in increased development costs, delays in regulatory approvals and associated delays in product candidates reaching the market. Patients may also suffer adverse medical events or side effects in the course of our clinical trials that may delay or prohibit regulatory approval of our product candidates. Of course, even if we successfully manage our clinical trials, we may not obtain favorable clinical trial results and may not be able to obtain regulatory approval on this basis.
In 2006, we are expecting a significant increase in the number, size, duration and complexity of our clinical trials, in particular with respect to denosumab, our late-stage investigational product for osteoporosis, and we expect total research and development expenses to increase by 30-40%. For example, testing denosumab in the osteoporosis setting requires large clinical trials, substantial time and resources to recruit patients and significant expense to execute. We expect to start eleven “mega-site” trials (involving 200 or more sites) in 2006 to support denosumab and our other late-stage programs. To execute our clinical trial programs, we need to accelerate the growth of our development organization, implement new management structures and approaches and increase dependence on third-party contract clinical trial providers. Further, to increase the number of patients available for enrollment for our clinical trials, we are planning to open clinical sites and enroll patients in a number of new geographic locations where our experience conducting clinical trials is more limited, including Russia, China, India and some South American countries. We plan to conduct clinical trial activities in these new territories through third-party contract clinical trial providers.
If we fail to adequately manage the increasing number, size and complexity of our clinical trials, our clinical trials and corresponding regulatory approvals may be delayed or we may fail to gain approval for our product candidates altogether. If we are unable to market and sell our product candidates or are unable to obtain approvals in the timeframe needed to execute our product strategies, our business and results of operations would be adversely affected materially.
Our product development efforts may not result in commercial products.
We intend to continue an aggressive research and development program. Successful product development in the biotechnology industry is highly uncertain, and very few research and development projects produce a commercial product. Product candidates that appear promising in the early phases of development, such as in early human clinical trials, may fail to reach the market for a number of reasons, such as:
· the product candidate did not demonstrate acceptable clinical trial results even though it demonstrated positive preclinical trial results
· the product candidate was not effective in treating a specified condition or illness
· the product candidate had harmful side effects in humans or animals
· the necessary regulatory bodies, such as the FDA, did not approve our product candidate for an intended use
· the product candidate was not economical for us to manufacture and commercialize
· other companies or people have or may have proprietary rights to our product candidate, such as patent rights, and will not let us sell it on reasonable terms, or at all
· the product candidate is not cost effective in light of existing therapeutics
· we and certain of our licensors or partners may fail to effectively conduct clinical development or clinical manufacturing activities
Several of our product candidates have failed or been discontinued at various stages in the product development process, including, but not limited to, Brain Derived Neurotrophic Factor (“BDNF”), Megakaryocyte Growth and Development Factor (“MGDF”), and Glial Cell Lined-Derived Neurotrophic Factor (“GDNF”). For example, in 1997, we announced the failure of BDNF for the treatment of amyotrophic lateral sclerosis, or Lou Gehrig’s Disease, because the product candidate, when administered by injection, did not produce acceptable clinical results for a specific use after a phase 3 trial, even though BDNF had progressed successfully through preclinical and earlier clinical trials. In addition, in 1998, we discontinued development of MGDF, a novel platelet growth factor, at the phase 3 trial stage after several people in platelet donation trials developed low platelet counts and neutralizing antibodies. Also, in June 2004, we announced that the phase 2 study of GDNF for the treatment of advanced Parkinson’s disease did not meet the primary study endpoint upon completion of nine months of the double-blind treatment phase of the study even though a small phase 1 pilot investigator initiated open label study over a three year period appeared to result in improvements for advanced Parkinson’s disease patients. Subsequently, in the fall of 2004 we discontinued clinical development of GDNF in patients with advanced Parkinson’s disease after several patients in the phase 2 study developed neutralizing antibodies and new preclinical data showed that GDNF caused irreversible damage to the area of the brain critical to movement control and coordination. On February 11, 2005, we confirmed our previous decision to halt clinical trials and, as a part of that decision and based on thorough scientific review, we also concluded that we will not provide GDNF to the 48 patients who participated in clinical trials that were terminated in the fall of 2004. Of course, there may be other factors that prevent us from marketing a product. We cannot guarantee we will be able to produce or manufacture commercially successful products. (See “— Difficulties, disruptions or delays in manufacturing may limit supply of our products and limit our
product sales.”, “— Our current products and products in development cannot be sold if we do not maintain regulatory approval and comply with manufacturing regulations.” and “— Before we commercialize and sell any of our product candidates, we must conduct clinical trials in humans; if we fail to adequately manage these trials we may not be able to sell future products and our sales could be adversely affected.”)
Our sales depend on payment and reimbursement from third-party payers, and, to the extent that reimbursement for our products is reduced, this could negatively impact the utilization of our products.
In the United States, dialysis providers are primarily reimbursed for EPOGEN® by the federal government through the End Stage Renal Disease Program (“ESRD Program”) of Medicare. The ESRD Program reimburses approved providers for 80% of allowed dialysis costs; the remainder is paid by other sources, including patients, state Medicaid programs, private insurance, and to a lesser extent, state kidney patient programs. The ESRD Program reimbursement rate is established by federal law and is monitored and implemented by the Centers for Medicare & Medicaid Services (“CMS”). Most patients receiving Aranesp®, Neulasta®, and NEUPOGEN® for approved indications are covered by both government and private payer health care programs. Beginning in 2006, ENBREL and Sensipar® are eligible for coverage from the U.S. government under Medicare Part D. Therefore, sales of all of our principal products are dependent, in part, on the availability and extent of reimbursement from third-party payers, including governments and private insurance plans. Generally, worldwide use of our products may be affected by cost containment pressures and cost shifting from governments and private insurers on health care providers in response to ongoing initiatives to reduce health care expenditures.
The Medicare Prescription Drug Improvement and Modernization Act (or the “Medicare Modernization Act” (“MMA”)) was enacted into law in December 2003 and became effective January 1, 2005. Changes resulting from the MMA, which lowered reimbursement for our products, could negatively affect product sales of some of our marketed products. However in 2005, we believe that our product sales were not significantly impacted by the reimbursement changes resulting from the MMA. We believe this was, in part, due to the effects of CMS’s oncology demonstration project (the “2005 Demonstration Project”) on sales of our products used in supportive cancer care, especially Aranesp®. Furthermore, we believe this was also, in part, due to increased reimbursement rates to physicians from CMS for services associated with drug administration. The 2005 Demonstration Project, which provided financial incentives to physicians for collecting and reporting oncology patient survey data, expired on December 31, 2005. In November 2005, CMS announced a new demonstration project (the “2006 Demonstration Project”) that uses different criteria for how patients with cancer are evaluated and treated and that is targeted at approximately half of the funding originally targeted for the 2005 Demonstration Project. The final rule for the 2006 Medicare Physician Fee Schedule Payment Final Rule issued in November 2005 reduced payments for physician services in 2006 by approximately 4.4% on average. However, recently passed legislation will eliminate this reduction for 2006. Because we cannot accurately predict the impact of any such changes on how, or under what circumstances, healthcare providers will prescribe or administer our products, we cannot estimate the full impact of the MMA on our business. However, we believe that it is not likely to be significant to our business in 2006.
The main components of the MMA that affect our currently marketed products are as follows:
· Through 2004, the Average Wholesale Price (“AWP”) mechanism was the basis of Medicare Part B payment for covered outpatient drugs and biologics. Effective January 1, 2005, in the physician clinic setting, Aranesp®, Neulasta® and NEUPOGEN® are being reimbursed under a Medicare Part B payment methodology that reimburses each product at 106% of its “average sales price” (“ASP”) (sometimes referred to as “ASP+6%”). ASP is calculated by the manufacturer based on a statutorily defined formula and submitted to CMS. A product’s ASP is calculated on a quarterly basis and therefore may change each quarter. The ASP in effect for a given quarter (the “Current
Period”) is based upon certain historical sales and sales incentive data covering a statutorily defined period of time preceding the Current Period. For example, the ASP for Aranesp® that we submit for the second quarter of 2006 will be based on certain historical sales and sales incentive data for Aranesp® from January 1, 2005 through December 31, 2005. CMS publishes the ASPs for products in advance of the quarter in which they go into effect. The 2005 reimbursement rates for Aranesp® and Neulasta® (calculated at 106% of the ASPs) were lower than their respective 2004 reimbursement rates. Although the ASPs for Aranesp® and Neulasta® have trended downward during 2005, they began to stabilize during the fourth quarter of 2005.
· Per the MMA, physicians in the physician clinic setting will have the choice between purchasing and billing for drugs under the ASP+6% system or obtaining drugs from vendors selected by CMS under the “competitive acquisition program” (“CAP”) starting in 2006. Physicians who select to obtain drugs from CAP will no longer purchase or obtain reimbursement directly for such drugs. CMS issued a final rule related to CAP in November 2005. Based on this final rule, the election period for 2006 will occur between April 3 and May 15, 2006 for participation from July 1 through December 31, 2006; the first drug deliveries through the CAP will occur in July 2006. Based on the final rule for CAP, we do not anticipate widespread adoption of this program initially. Nevertheless, because we cannot fully predict how many physicians will select to obtain drugs from CAP, we cannot predict the full impact of the CAP on our business. However, pursuant to the final rule, discounts to CAP vendors are excluded from the calculation of ASPs and therefore do not have the potential to impact the ASPs for our products that would be available through the CAP.
· Medicare’s hospital outpatient prospective payment system (“OPPS”), which determines payment rates for specified covered outpatient drugs and biologics in the hospital outpatient setting, utilized AWP as the basis for reimbursement in 2005. CMS’ 2005 reimbursement rate, as in 2003 and 2004, continued the application of an “equitable adjustment” such that the 2005 Aranesp® reimbursement rate was based on the AWP of PROCRIT®. For 2005, the reimbursement rate for Aranesp® was 83% of the AWP for PROCRIT®, down from 88% of the AWP for PROCRIT® in 2004, with a dose conversion ratio of 330 U PROCRIT® to 1 mcg Aranesp®, the same ratio as 2004. Effective January 1, 2006, the OPPS system changed from an AWP based reimbursement system to a system based on ASP. This change affects Aranesp®, Neulasta® and NEUPOGEN® when administered in the hospital outpatient setting. In November 2005, CMS released its final OPPS rule for 2006. This final rule bases reimbursement for non-pass through products such as Aranesp®, Neulasta® and NEUPOGEN® on an ASP+6% using the same payment amounts as used in the physician clinic setting and does not apply an “equitable adjustment” to tie the reimbursement rate for Aranesp® to PROCRIT® using a dose conversion ratio. In the final rule, CMS noted that it reserves the right to apply “equitable adjustment” to the Aranesp® reimbursement rate calculation methodology in years after 2006.
· Pursuant to final rules issued by CMS on November 3, 2004, Medicare reimbursement for EPOGEN® used in the dialysis setting for calendar year 2005 changed from the previous rate in 2004 of $10 per 1,000 Units to $9.76 per 1,000 Units, in 2005, a rate based upon an average acquisition cost for 2003 determined by the Office of the Inspector General (“OIG”) and adjusted for price inflation based on the Producer Price Index for pharmaceutical products. Pursuant to the CMS final rules, the difference between the 2004 reimbursement rates for all drugs separately billed outside the dialysis composite rate (including EPOGEN®) and the 2005 reimbursement rates for such drugs was added to the composite rate that dialysis providers receive for dialysis treatment. In November 2005, CMS released the 2006 Medicare Physician Fee Schedule Payment Final Rule. In the final rule, CMS stated that EPOGEN® and separately billed ESRD drugs will be reimbursable at ASP+6% in both freestanding and hospital-based dialysis centers. This final rule establishes the payment mechanism for separately reimbursed dialysis drugs in both freestanding and hospital-
based dialysis centers, including EPOGEN® and Aranesp®, at ASP+6% using the same payment amounts used in the physician clinic setting and calculated quarterly in the same manner as described above for our products under the Medicare Part B payment methodology. Based on this final rule, we expect that the reimbursement rate for EPOGEN® will decrease for 2006 compared to 2005. Because we cannot accurately predict the extent to which this reduced reimbursement will impact how, or under what circumstances, healthcare providers will prescribe or administer EPOGEN®, we cannot estimate the full impact of the reduced reimbursement rate on our EPOGEN® product sales. However, we believe that it is not likely to be significant in 2006.
In addition, on November 9, 2005, CMS released a final revision to the Hematocrit Measurement Audit Program Memorandum (“HMA-PM”), a Medicare payment review mechanism used by CMS to audit EPOGEN® and Aranesp® (when used in dialysis) utilization and appropriate hematocrit outcomes of dialysis patients. The new policy, Claims Monitoring Policy: Erythropoietin/darbepoetin alfa usage for beneficiaries with end stage renal disease (“Claims Monitoring Policy”), will be effective April 1, 2006. The final Claims Monitoring Policy provides that if a patient’s hemoglobin is greater than 13 grams per deciliter, providers are instructed to reduce the patient’s EPOGEN® and Aranesp® dose by twenty-five percent. If the provider does not reduce the patient’s EPOGEN® and Aranesp® dose and there is no medical documentation to support the higher dosage, reimbursement will be reduced to the level it would have been had the provider reduced dosage by twenty-five percent. Based on our preliminary evaluation, we do not expect the new Claims Monitoring Policy to have a negative impact on EPOGEN® and Aranesp® sales and given the importance of EPOGEN® and Aranesp® for maintaining the quality of care for dialysis patients, we do not expect that the new policy will substantially impact the utilization of EPOGEN® and Aranesp®. However, we are currently in the process of further evaluating the new Claims Monitoring Policy. As a result, we cannot predict the potential full impact of this final guidance on our business.
If, and when, reimbursement rates or availability for our marketed products changes adversely or if we fail to obtain adequate reimbursement for our current or future products, health care providers may limit how much or under what circumstances they will prescribe or administer them, which could reduce the use of our products or cause us to reduce the price of our products. This could result in lower product sales, which could have a material adverse effect on us and our results of operations. For example, the use of EPOGEN® in the United States in connection with treatment for end stage renal disease is funded primarily by the U.S. federal government. In early 1997, CMS, formerly known as Healthcare Financing Administration (“HCFA”), instituted a reimbursement change for EPOGEN®, which materially and adversely affected our EPOGEN® sales until the policies were revised. Also, we believe the increasing emphasis on cost-containment initiatives in the United States, Europe, and other countries has and will continue to put pressure on the price and usage of our products, which may adversely impact product sales. Further, when a new therapeutic product is approved, the governmental and/or private coverage and reimbursement for that product is uncertain. We cannot predict the availability or amount of reimbursement for our approved products or product candidates, including those at a late stage of development, and current reimbursement policies for marketed products may change at any time. Sales of all our products are and will be affected by government and private payer reimbursement policies. Reduction in reimbursement for our products could have a material adverse effect on our product sales and results of operations.
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Certain of our raw materials, medical devices and components are single-sourced from third parties; third-party supply failures could adversely affect our ability to supply our products.
Certain raw materials necessary for commercial manufacturing and formulation of our products are provided by single-source unaffiliated third-party suppliers. Also, certain medical devices and components necessary for formulation, fill, and finish of our products are provided by single-source unaffiliated third-party suppliers. Certain of these raw materials, medical devices, and components are the proprietary products of these unaffiliated third-party suppliers and, in some cases, such proprietary products are specifically cited in our drug application with the FDA so that they must be obtained from that specific sole source and could not be obtained from another supplier unless and until the FDA approved that other supplier. We would be unable to obtain these raw materials, medical devices, or components for an indeterminate period of time if these third-party single-source suppliers were to cease or interrupt production or otherwise fail to supply these materials or products to us for any reason, including due to regulatory requirements or action, due to adverse financial developments at or affecting the supplier, and/or due to unexpected demand, labor shortages or disputes. We would also be unable to obtain these materials, devices and components for an indeterminate period of time if such supply was subsequently found to not be in compliance with our quality standards or resulted in quality failures or product contamination and/or recall when used to manufacture, formulate, fill, or finish our products. These events could adversely affect our ability to satisfy demand for our products, which could adversely affect our product sales and operating results materially. For example, we have experienced shortages in certain components necessary for the formulation, fill, and finish of certain of our products in our Puerto Rico facility without impact on our ability to supply these products. However, we may experience the shortages in the future resulting in delayed shipments, supply constraints, stock-outs and/or recalls of our products.
Also, certain of the raw materials required in the commercial manufacturing and the formulation of our products are derived from biological sources, including mammalian tissues, bovine serum and human serum albumin, or HSA. We are investigating alternatives to certain biological sources as such raw materials may be subject to contamination and/or recall. Also, some countries in which we market our products may restrict the use of certain biologically derived substances in the manufacture of drugs. A material shortage, contamination, recall, and/or restriction of the use of certain biologically derived substances in the manufacture of our products could adversely impact or disrupt our commercial manufacturing of our products or could result in a mandated withdrawal of our products from the market. This could adversely affect our ability to satisfy demand for our products, which could adversely affect our product sales and operating results materially.
Our current products and products in development cannot be sold if we do not maintain regulatory approval and comply with manufacturing regulations.
We and certain of our licensors and partners conduct research, preclinical testing, and clinical trials for our product candidates. In addition, we manufacture and contract manufacture and certain of our licensors and partners manufacture our product candidates. We also manufacture and contract manufacture, price, sell, distribute, and market or co-market our products for their approved indications. These activities are subject to extensive regulation by numerous state and federal governmental authorities in the United States, such as the FDA and CMS, as well as in foreign countries, including European countries, Canada, Australia and Japan. Currently, we are required in the United States and in foreign countries to obtain approval from those countries’ regulatory authorities before we can manufacture (or have our third-party manufacturers produce), market and sell our products in those countries. In our experience, obtaining regulatory approval is costly and takes many years, and after it is obtained, remains costly to maintain. (See “— Before we commercialize and sell any of our product candidates, we must conduct clinical trials in humans; if we fail to adequately manage these trials we may not be able to sell future products and our sales could be adversely affected.”)
The FDA and other U.S. and foreign regulatory agencies have substantial authority to terminate clinical trials, require additional testing, delay or withhold registration and marketing approval, require changes in labeling of our products, and mandate product withdrawals. Substantially all of our marketed products are currently approved in the United States and most are approved in Europe and in other foreign countries for specific uses. However, later discovery of unknown problems with our products could result in restrictions on the sale or use of such products, including potential withdrawal of the product from the market. If new medical data suggests an unacceptable safety risk or previously unidentified side-effects, we may voluntarily withdraw, or regulatory authorities may mandate the withdrawal of, such product from the market for some period or permanently. Further, regulatory agencies could change existing, or promulgate new, regulations at any time which may affect our ability to obtain or maintain approval of our existing or future products or require significant additional costs to obtain or maintain such approvals. We currently manufacture and market all our approved principal products, and we plan to manufacture and market many of our potential products. (See “— Difficulties, disruptions or delays in manufacturing may limit supply of our products and limit our product sales.” and “— We may be required to perform additional clinical trials or change the labeling of our products if we or others identify side effects after our products are on the market.”) Even though we have obtained regulatory approval for our marketed products, these products and our manufacturing processes are subject to continued review by the FDA and other regulatory authorities. In addition, ENBREL is manufactured both by us at our Rhode Island manufacturing facilities and by third-party contract manufacturers, including Boehringer Ingelheim Pharma KG (“BI Pharma”). Formulation, fill, and finish of bulk product produced at our Rhode Island manufacturing facilities is performed by us and third-party service providers and formulation, fill, and finish of bulk product manufactured at our other facilities that is currently solely performed by us may also be performed by us and third-party service providers in the future. The third-party contract manufacturers and third-party service providers are also subject to FDA regulatory authority. (See “— Difficulties, disruptions or delays in manufacturing may limit supply of our products and limit our product sales.”) In addition, later discovery of unknown problems with our products or manufacturing processes or those of our contract manufacturers or third-party service providers could result in restrictions on the sale, manufacture, or use of such products, including potential withdrawal of the products from the market. For example, we have conducted a voluntary wholesaler recall of a limited number of lots of ENBREL as a result of a small number of reports of missing, detached or loose rubber caps on the needle-less syringe filled with diluent liquid by a third-party contract manufacturer and packaged with the vials of ENBREL. Although there have been no observable adverse event trends associated with the reports of missing detached or loose rubber caps, we may experience the same or other problems in the future resulting in broader product recalls or adverse event trends. If regulatory authorities determine that we or our contract manufacturers or third-party service providers have violated regulations or if they restrict, suspend, or revoke our prior approvals, they could prohibit us from manufacturing or selling our marketed products until we or our contract manufacturers or third-party service providers comply, or indefinitely. In addition, if regulatory authorities determine that we or our licensor or partner conducting research and development activities on our behalf have not complied with regulations in the research and development of a product candidate, then they may not approve the product candidate and we will not be able to market and sell it. If we were unable to market and sell our products or product candidates, our business and results of operations would be materially and adversely affected.
We formulate, fill, and finish substantially all our products at our Puerto Rico manufacturing facility; if significant natural disasters or production failures occur at this facility, we may not be able to supply these products.
We currently perform all of the formulation, fill, and finish for EPOGEN®, Aranesp®, Neulasta® and NEUPOGEN® and some formulation, fill, and finish operations for ENBREL at our manufacturing facility in Juncos, Puerto Rico. Our global supply of these products is significantly dependent on the uninterrupted and efficient operation of this facility. Additionally, to keep up with the growing demand for
our products, we are operating this facility at nearly full production capacity. Power failures, the breakdown, failure or substandard performance of equipment, the improper installation or operation of equipment, natural or other disasters, including hurricanes, or failures to comply with regulatory requirements, including those of the FDA, contamination or shortages of components used in the formulation, fill, and finish of our products, among others, could adversely affect our formulation, fill, and finish operations. For example, this facility in Puerto Rico has experienced manufacturing component shortages and has had evidence of adverse trends in the microbial bioburden of the production environment that has reduced the production output. Although these experiences in Puerto Rico have not impacted our ability to supply product in the past, the same or other problems may result in our being unable to supply these products, which could adversely affect our product sales and operating results materially. Although we have obtained limited insurance to protect against certain business interruption losses, there can be no assurance that such coverage will be adequate or that such coverage will continue to remain available on acceptable terms, if at all. The extent of the coverage of our insurance could limit our ability to mitigate for lost sales and could result in such losses adversely affecting our product sales and operating results materially.
Difficulties, disruptions or delays in manufacturing may limit supply of our products and limit our product sales.
We currently manufacture and market all our principal products, and we plan to manufacture and market many of our potential products. Manufacturing biologic human therapeutic products is difficult, complex and highly regulated. (See “— Our current products and products in development cannot be sold if we do not maintain regulatory approval and comply with manufacturing regulations.”) Our ability to adequately and timely manufacture and supply our products is impacted by many manufacturing variables, such as availability of raw materials and components used in the manufacturing process, particularly those for which we have no other source or supplier, facility capacity, the timing and actual number of production runs, production success rates, bulk drug yields, and the timing and outcome of product quality testing. If we have problems in one or more of these or other manufacturing variables, we may experience delayed shipments, supply constraints, stock-outs and/or recalls of our products. For example, in the second quarter of 2002, the prior co-marketers with respect to ENBREL experienced a brief period where no ENBREL was available to fill patient prescriptions, primarily due to variation in the expected production yield from BI Pharma, our primary third-party manufacturer of ENBREL. If we are at any time unable to provide an uninterrupted supply of our products to patients, we may lose patients, physicians may elect to prescribe competing therapeutics instead of our products, and sales of our products will be adversely affected, which could materially and adversely affect our product sales and results of operations.
We are dependent on third parties for a significant portion of our bulk supply and the formulation, fill, and finish of ENBREL.
We currently produce a substantial portion of annual ENBREL supply at our Rhode Island manufacturing facilities. However, we also depend on third parties for a significant portion of our ENBREL bulk supply as well as for some of the formulation, fill, and finish of ENBREL that we manufacture. BI Pharma is our third-party manufacturer of ENBREL bulk drug; accordingly, our U.S. and Canadian supply of ENBREL is currently significantly dependent on BI Pharma’s production schedule for ENBREL. We would be unable to produce ENBREL in sufficient quantities to substantially offset shortages in BI Pharma’s scheduled production if BI Pharma or other third-party manufacturers used for the formulation, fill, and finish of ENBREL bulk drug were to cease or interrupt production or services or otherwise fail to supply materials, products, or services to us for any reason, including due to labor shortages or disputes, regulatory requirements or action, or contamination of product lots or product recalls. This in turn could materially reduce our ability to satisfy demand for ENBREL, which could materially and adversely affect our operating results. Among the factors that could affect our actual supply of ENBREL at any time in
clude, without limitation, is BI Pharma’s and the Rhode Island facilities’ bulk drug production scheduling. For example, BI Pharma does not produce ENBREL continuously; rather, it produces the bulk drug substance through a series of periodic campaigns throughout the year. Our Rhode Island manufacturing facilities are currently dedicated to ENBREL production. The amount of commercial inventory available to us at any time depends on a variety of factors, including the timing and actual number of BI Pharma’s production runs, the actual number of runs at our Rhode Island manufacturing facilities, and, for either the Rhode Island or BI Pharma facilities, the level of production yields and success rates, the timing and outcome of product quality testing, and the amount of formulation, fill, and finish capacity.
We are dependent on third parties for some formulation, fill, and finish of ENBREL bulk drug substance manufactured at our Rhode Island facilities. If third-party formulation, fill, and finish manufacturers are unable to provide sufficient capacity or are otherwise unable to provide services to us, then supply of ENBREL could be adversely affected materially.
Under a collaboration and global supply agreement, we and Wyeth share the total worldwide supply of ENBREL produced by Amgen’s Rhode Island manufacturing facilities, BI Pharma’s manufacturing facility in Germany and Wyeth’s manufacturing facility in Ireland. Our ENBREL supply forecasts rely on certain assumptions of how much ENBREL each of these manufacturing facilities is expected to produce. If any of these manufacturing facilities are unable to produce in accordance with our or Wyeth’s expectations, the worldwide supply of ENBREL could be adversely affected materially. In such cases, we may be required to allocate supply for Wyeth’s benefit. To the extent that there is a shortfall in worldwide production expectations, our supply of ENBREL could be adversely affected.
We have grown rapidly, and if we fail to adequately manage that growth our business could be adversely impacted.
We have had an aggressive growth plan that has included substantial and increasing investments in research and development, sales and marketing, and facilities. We plan to continue to grow and our plan has a number of risks, some of which we cannot completely control. For example:
· we need to generate higher revenues to cover a higher level of operating expenses, and our ability to do so may depend on factors that we do not control
· we need to attract and retain highly qualified management, scientific, manufacturing and sales and marketing personnel, including hiring of approximately 1,000 new staff into our research and development organizations in 2006
· we will need to assimilate new staff members and we will need to manage complexities associated with a larger, faster growing and geographically diverse organization
· we will need to significantly expand our clinical development resources to manage and execute increasingly larger and more complex clinical trials
· we will need to significantly expand our sales and marketing resources to launch a number of late-stage product candidates close in time
· we will need to accurately anticipate demand for the products we manufacture and maintain adequate manufacturing capacity for both commercial and clinical supply
· we will need to start up and operate a number of new manufacturing facilities and enter into and manage new third-party contract manufacturing arrangements, which may result in temporary inefficiencies and higher cost of goods
· we are implementing an enterprise resource planning system to support our increasingly complex business and business processes and such implementation carries substantial operations risk, including loss of data or information, unanticipated increases in costs, disruption of operations or business interruption
Of course, there may be other risks and we cannot guarantee that we will be able to successfully manage these or other risks. If we fail to manage our growth in these ways or others, such failure could result in a material adverse affect on our business and results of operations.
Our marketed products face substantial competition and other companies may discover, develop, acquire or commercialize products before or more successfully than we do.
We operate in a highly competitive environment. Our products compete with other products or treatments for diseases for which our products may be indicated. For example, ENBREL competes in certain circumstances with products marketed by Centocor, Inc., Johnson & Johnson, Abbott Laboratories, Biogen IDEC Inc., Genentech, Inc., Pfizer Inc., Novartis Corp., and Sanofi-Aventis, as well as the generic drug methotrexate, and may face competition from other potential therapies being developed. Additionally, Aranesp® competes with products marketed by Johnson & Johnson in the United States and the EU and with products marketed by Roche in the EU. Also, Aranesp® may face competition in the EU from another Epoetin alfa product produced by Shire in the first half of 2007. Aranesp® and EPOGEN® may also face competition from Roche’s pegylated erythropoietin molecule that, according to Roche’s public statements, they expect to bring to the U.S. market despite their acknowledgement of our U.S. erythropoietin patents. (See “— If our intellectual property positions are challenged, invalidated, circumvented or expire, or if we fail to prevail in present and future intellectual property litigation, our business could be adversely affected.”)Further, if our currently marketed products are approved for new uses, or if we sell new products, we may face new, additional competition that we do not face today. Our principal European patent relating to erythropoietin expired on December 12, 2004 and our principal European patent relating to G-CSF expires on August 22, 2006. We believe that after the expiration of each of these patents, other companies could receive approval for and market biosimilar products to compete with our products in the EU, presenting additional competition to our products. While we do not market erythropoietin in Europe as this right belongs to Johnson & Johnson (through KA), we do market Aranesp® in the EU, which competes with Johnson & Johnson’s EPREX® product, Roche’s Neorecormon® product and others’ erythropoietin products. We cannot predict with certainty when the first biosimilar products could appear on the market in the EU. However, we believe that biosimilar erythropoietin products may be approved in the EU beginning in late 2006 and could be available in the EU shortly after approval. We also expect that the first biosimilar G-CSF product may be approved as early as mid-2007 and that it would compete with Neulasta® and NEUPOGEN®. We cannot predict whether or to what extent the entry of biosimilar products would impact future Aranesp®, Neulasta® or NEUPOGEN® sales in the EU. Our products may compete against products that have lower prices, superior performance, are easier to administer, or that are otherwise competitive with our products. Our inability to compete effectively could adversely affect product sales materially. The EU is currently in the process of developing regulatory guidelines related to the development and approval of biosimilar products. In July 2005, the EMEA issued clinical trial guidance for certain biosimilar products including erythropoietins and granulocyte-colony stimulating factors, which guidance recommends that applicants seeking approval of such biosimilar products conduct fairly extensive pharmacodynamic, toxicological, clinical safety studies and a pharmacovigilance program. In October 2005, the EMEA confirmed that biosimilar products will be approved under a different legal pathway than the one applicable to generics of small molecule drugs. Based on the process and timing outlined by the EMEA, we believe relevant product specific guidelines are likely to be finalized by the first quarter of 2006. However, we cannot predict what the final EMEA product specific guidelines will be.
Certain of our competitors, including biotechnology and pharmaceutical companies, market products or are actively engaged in research and development in areas where we have products or where we are developing product candidates or new indications for existing products. In the future, we expect that our products will compete with new drugs currently in development, drugs approved for other indications that may be approved for the same indications as those of our products, and drugs approved for other indications that are used off-label.
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Large pharmaceutical corporations may have greater clinical, research, regulatory, manufacturing, marketing, financial and human resources than we do. In addition, some of our competitors may have technical or competitive advantages over us for the development of technologies and processes. These resources may make it difficult for us to compete with them to successfully discover, develop, and market new products and for our current products to compete with new products or new product indications that these competitors may bring to market. Business combinations among our competitors may also increase competition and the resources available to our competitors.
Concentration of sales at certain of our wholesaler distributors and consolidation of freestanding dialysis clinic businesses may negatively impact our bargaining power and profit margins.
A significant portion of our product sales are made to three pharmaceutical product wholesaler distributors, AmerisourceBergen Corporation, Cardinal Health, Inc., and McKesson Corporation. Sales to these three customers aggregated approximately 94% of total U.S. product sales in 2005. These distributors, in turn, sell our products to their customers, which include clinics, dialysis centers, hospitals and pharmacies. One of these products, EPOGEN®, is primarily sold to independent freestanding dialysis clinics, which have recently experienced significant consolidation. Three of these freestanding dialysis clinics, DaVita Inc., Fresenius Medical Care North America, Inc., and Renal Care Group, Inc., account for approximately 70% of all EPOGEN® sales in the freestanding dialysis clinic setting. This concentration and consolidation has increased these entities’ purchasing leverage and may put pressure on our pricing by their potential ability to extract price discounts on our products or fees for other services, correspondingly negatively impacting our bargaining position and profit margins. The results of these developments may have a material adverse effect on our product sales and results of operations.
Our marketing of ENBREL will be dependent in part upon Wyeth.
Under a co-promotion agreement, we and Wyeth market and sell ENBREL in the United States and Canada. A management committee comprised of an equal number of representatives from us and Wyeth is responsible for overseeing the marketing and sales of ENBREL including strategic planning, the approval of an annual marketing plan, product pricing, and the establishment of a brand team. The brand team, with equal representation from us and Wyeth, prepares and implements the annual marketing plan, which includes a minimum level of financial and sales personnel commitment from each party, and is responsible for all sales activities. If Wyeth fails to market ENBREL effectively or if we and Wyeth fail to coordinate our efforts effectively, our sales of ENBREL may be adversely affected materially.
Our business may be impacted by government investigations or litigation.
We and certain of our subsidiaries are involved in legal proceedings relating to various patent matters, government investigations, our business operations, government requests for information, and other legal proceedings that arise from time to time in the ordinary course of our business. Matters required to be disclosed by us are set forth in “Item 3. Legal Proceedings” and are updated as required in subsequently filed Form 10-Qs. Litigation is inherently unpredictable, and the outcome can result in excessive verdicts and/or injunctive relief that affects how we operate our business. Consequently, it is possible that we could, in the future, incur judgments or enter into settlements of claims for monetary damages or change the way we operate our business, which could have a material adverse effect on our results of operations (in the case of monetary damages, in the period in which such damages are incurred).
The federal government, state governments and private payers are investigating, and many have filed actions against, numerous pharmaceutical and biotechnology companies, including Amgen and Immunex Corporation, now a wholly owned subsidiary of ours, alleging that the reporting of prices for pharmaceutical products has resulted in false and overstated AWP, which in turn is alleged to have improperly inflated the reimbursement paid by Medicare beneficiaries, insurers, state Medicaid programs, medical plans and other payers to health care providers who prescribed and administered those products. A number of these actions have been brought against us and/or Immunex. Additionally, a number of states have pending in
vestigations regarding our Medicaid drug pricing practices and the U.S. Departments of Justice and Health and Human Services have requested that Immunex produce documents relating to pricing issues. Further, certain state government entity plaintiffs in some of these AWP cases are also alleging that companies, including ours, are not reporting their “best price” to the states under the Medicaid program. These cases and investigations are described in “Item 3. Legal Proceedings — Average Wholesale Price Litigation”, and are updated as required in subsequent Form 10-Qs. Other states and agencies could initiate investigations of our pricing practices. A decision adverse to our interests on these actions and/or investigations could result in substantial economic damages and could have a material adverse effect on our results of operations in the period in which such liabilities are incurred.
We may be required to defend lawsuits or pay damages for product liability claims.
Product liability is a major risk in testing and marketing biotechnology and pharmaceutical products. We may face substantial product liability exposure in human clinical trials and for products that we sell after regulatory approval. Product liability claims, regardless of their merits, could be costly and divert management’s attention, and adversely affect our reputation and the demand for our products. Amgen and Immunex have been named as defendants in product liability actions for certain company products.
We may be required to perform additional clinical trials or change the labeling of our products if we or others identify side effects after our products are on the market.
If we or others identify side effects after any of our products are on the market, or if manufacturing problems occur, regulatory approval may be withdrawn and reformulation of our products, additional clinical trials, changes in labeling of our products, and changes to or re-approvals of our manufacturing facilities may be required, any of which could have a material adverse effect on sales of the affected products and on our business and results of operations.
After any of our products are approved for commercial use, we or regulatory bodies could decide, and have in the past decided, that changes to our product labeling are required. Label changes may be necessary for a number of reasons, including: the identification of actual or theoretical safety or efficacy concerns by regulatory agencies; the discovery of significant problems with a similar product that implicates an entire class of products or subsequent concerns about the sufficiency of the data or studies underlying the label. Any significant concerns raised about the safety or efficacy of our products could also result in the need to reformulate those products, to conduct additional clinical trials, to make changes to our manufacturing processes, or to seek re-approval of our manufacturing facilities. Significant concerns about the safety and effectiveness of a product could ultimately lead to the revocation of its marketing approval. The revision of product labeling or the regulatory actions described above could be required even if there is no clearly established connection between the product and the safety or efficacy concerns that have been raised. The revision of product labeling or the regulatory actions described above could have a material adverse effect on sales of the affected products and on our business and results of operations. (See “— Our current products and products in development cannot be sold if we do not maintain regulatory approval and comply with manufacturing regulations.”)
Guidelines and recommendations published by various organizations can reduce the use of our products.
Government agencies promulgate regulations and guidelines directly applicable to us and to our products. However, professional societies, practice management groups, private health/science foundations, and organizations involved in various diseases from time to time may also publish guidelines or recommendations to the health care and patient communities. Recommendations of government agencies or these other groups/organizations may relate to such matters as usage, dosage, route of administration, and use of related therapies. Organizations like these have in the past made recommendations about our products. Recommendations or guidelines that are followed by patients and health care providers could result in decreased use of our products. For example, we understand that the Agency for Healthcare Re
search and Quality (“AHRQ”) is currently preparing a report on erythropoietic stimulating proteins used in cancer treatment. To the extent that the report makes recommendations on the use of Aranesp®, use of this product could be affected. In addition, the perception by the investment community or stockholders that recommendations or guidelines will result in decreased use of our products could adversely affect prevailing market prices for our common stock.
Our stock price is volatile, which could adversely affect your investment.
Our stock price, like that of other biotechnology companies, is volatile. For example, in the fifty-two weeks prior to December 31, 2005, the trading price of our common stock has ranged from a high of $86.17 per share to a low of $57.20 per share. Our stock price may be affected by a number of factors, such as:
· changes in reimbursement policies or medical practices
· adverse developments regarding the safety or efficacy of our products
· actual or anticipated clinical trial results
· actual or anticipated product supply constraints
· product development or other business announcements by us or our competitors
· regulatory matters or actions
· announcements in the scientific and research community
· intellectual property and legal matters
· broader economic, industry and market trends unrelated to our performance
· failure to complete the Abgenix, Inc. (“Abgenix”) acquisition
In addition, if our revenues, earnings or other financial results in any period fail to meet the investment community’s expectations, there could be an immediate adverse impact on our stock price.
Our corporate compliance program cannot guarantee that we are in compliance with all potentially applicable U.S. federal and state regulations and all potentially applicable foreign regulations.
The development, manufacturing, distribution, pricing, sales, marketing, and reimbursement of our products, together with our general operations, is subject to extensive federal and state regulation in the United States and to extensive regulation in foreign countries. (See “— Our current products and products in development cannot be sold if we do not maintain regulatory approval and comply with manufacturing regulations.” and “— Difficulties, disruptions or delays in manufacturing may limit supply of our products and limit our product sales.” and “— We may be required to perform additional clinical trials or change the labeling of our products if we or others identify side effects after our products are on the market.”) While we have developed and instituted a corporate compliance program based on what we believe to be current best practices, we cannot assure you that we or our employees are or will be in compliance with all potentially applicable U.S. federal and state regulations and/or laws or all potentially applicable foreign regulations and/or laws. If we fail to comply with any of these regulations and/or laws a range of actions could result, including, but not limited to, the termination of clinical trials, the failure to approve a product candidate, restrictions on our products or manufacturing processes, including withdrawal of our products from the market, significant fines, exclusion from government healthcare programs, or other sanctions or litigation.
Our revenues may fluctuate, and this fluctuation could cause financial results to be below expectations.
Our operating results may fluctuate from period to period for a number of reasons. In budgeting our operating expenses for the foreseeable future, we assume that revenues will continue to grow; however, some of our operating expenses are fixed in the short term. Because of this, even a relatively small revenue shortfall may cause a period’s results to be below our expectations or projections. A revenue shortfall could arise from any number of factors, some of which we cannot control. For example, we may face:
· changes in the government’s or private payers’ reimbursement policies for our products
· inability to maintain regulatory approval of marketed products or manufacturing facilities
· changes in our product pricing strategies
· lower than expected demand for our products
· inability to provide adequate supply of our products
· changes in wholesaler buying patterns
· increased competition from new or existing products
· fluctuations in foreign currency exchange rates
Of course, there may be other factors that affect our revenues in any given period. Similarly if investors or the investment community are uncertain about our financial performance for a given period, our stock price could also be adversely impacted.
We may not realize all of the anticipated benefits of our merger with Abgenix, Inc.
On December 14, 2005, we announced that we had signed a definitive merger agreement under which we would acquire Abgenix for approximately $2.2 billion in cash plus the assumption of debt. The acquisition will provide us with full ownership of panitumumab and eliminate a tiered royalty on denosumab, two of our most important advanced pipeline products, as well as provide us with Abgenix’s manufacturing plant. The success of the merger will depend, in part, on our ability to realize the anticipated growth opportunities from integrating the businesses. In particular, this will require the successful regulatory approval and commercial launch of panitumumab along with production of panitumumab at Abgenix’s manufacturing plant. The integration of two independent companies is a complex, costly, and time-consuming process.
In addition, even if we are able to successfully integrate Abgenix’s operations, this integration may not result in the realization of the full benefits of the growth opportunities that we expect to result from the merger, or we may not achieve the expected benefits within the anticipated time frame. Further, the benefits from the merger may be offset by costs incurred in integrating the two companies. We cannot assure you that the integration of Abgenix with us will result in the realization of the full post-merger benefits anticipated by us. Our failure to achieve these benefits could have a material and adverse effect on our results of operations.
Continual manufacturing process improvement efforts may result in the carrying value of certain existing manufacturing facilities or other assets becoming impaired.
In connection with our ongoing process improvement activities associated with products we manufacture, we continually invest in our various manufacturing practices and related processes with the objective of increasing production yields and success rates to gain increased cost efficiencies and capacity utilization. Depending on the timing and outcomes of these efforts and our other estimates and assumptions regarding future product sales, the carrying value of certain manufacturing facilities or other assets may not be fully recoverable and could result in the recognition of an impairment in the carrying value at the time that such effects are identified. The potential recognition of impairment in the carrying value, if any, could have a material and adverse affect on our results of operations.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
The following discussion summarizes our significant properties as of December 31, 2005. For additional information regarding planned additions to our facilities, see “Item 1. Business — Manufacturing and Raw Materials.”
Our principal executive offices, and a majority of our administrative offices, and a significant portion of our R&D facilities are located in forty-fourforty-five buildings in Thousand Oaks, California. Thirty-sevenThirty-eight of the buildings located in Thousand Oaks are owned and seven are leased.Adjacent to these buildings are facilities that are under construction and additional land for future expansion. The Thousand Oaks, California, properties include manufacturing facilities licensed by various regulatory bodies to produce commercial quantities of Epoetin alfa, Aranesp®Aranesp® (darbepoetin alfa), Neulasta®Neulasta® (pegfilgrastim), and NEUPOGEN®NEUPOGEN® (Filgrastim).
We own six buildings in Longmont, Colorado, including a manufacturing complex that is licensed to produce commercial quantities of Epoetin alfa and Aranesp®Aranesp® bulk drug substance. We have undeveloped land adjacent to the Longmont site to accommodate future expansion. We also own two buildings and lease fourseven buildings in Boulder, Colorado, housing process development research and manufacturing facilities capablefacilities. We also perform clinical manufacturing of producing commercial quantities of Kineret® bulk drug substance.
We own ten buildings and lease space in ninefive buildings in the Seattle, Washington area, which house research, clinical manufacturing, and administrative facilities. In connection with the Immunex acquisition in 2002, we initiated an integration plan to consolidate certain Immunex leased facilities, and currently only occupy three of the nine leased buildings. In January 2004, we opened the Seattle research center. We also own additional land for future expansion in the Seattle, Washington area.
We own five buildings in West Greenwich, Rhode Island, including atwo manufacturing facilityfacilities which producesproduce commercial and clinical quantities of ENBREL®Enbrel® (etanercept), and lease a warehouse facility in Cranston, Rhode Island. We are also currently completing a new manufacturing plant adjacent to the existing manufacturing facility in Rhode Island to produce commercial quantities of ENBREL®, which we plan to submit for FDA approval in 2005.
As part of the Tularik acquisition, we assumed leases on eight buildings in South San Francisco, California, which house R&D and administrative facilities. In connection with the acquisition, we initiated an integration plan to consolidate certain Tularik leased facilities, and currently only occupy two of the eight buildings. Additionally, we assumed leases on land for future development in the South San Francisco, California area.
Elsewhere in North America, we own a distribution center in Louisville, Kentucky, and a research facility in Cambridge, Massachusetts. We lease facilities for administrative offices in Washington, D.C.; San Diego, Sacramento, and Camarillo, California; and Canada, and lease fivefour facilities forregional sales and marketing offices in the United States.
Outside North America, we own sixtwelve buildings in Juncos, Puerto Rico, including both bulk and formulation, fill, and finish manufacturing facilities and warehouse facilities. Our facilities in Juncos, Puerto Rico, are responsible for formulation, fill, and finish activities related to our production of Epoetin alfa, Aranesp®Aranesp®, Neulasta®Neulasta®, NEUPOGEN®NEUPOGEN® and ENBREL®.ENBREL. In September 2005, we plan to submit an application forreceived FDA approval of a new bulk drug production plant in Puerto Rico which will beis used for the production of NEUPOGEN®Neulasta® and Neulasta®NEUPOGEN®. We are also in process of constructing a secondan additional bulk manufacturing plant in Juncos which will be used for the production of Epoetin alfa and Aranesp®Aranesp®. In addition, we own additional property on the Puerto Rico Site for future expansion. We also own a European packaging and distribution center in Breda, The Netherlands. We lease facilities in seventeennineteen European countries, Australia, New Zealand, and Japan, for administration, sales and marketing, and/or development.
We believe that our existing facilities, plusthird party contract manufacturing agreements, and our anticipated additions are sufficient to meet our expected needs.
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Certain of our legal proceedings are discussed below. While it is impossible to predict accurately or to determine the eventual outcome of these matters, we do not believe any such proceedings currently pending will have a material adverse effect on our annual consolidated financial statements, although an adverse
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Transkaryotic Therapies and Aventis Litigation
On April 15, 1997, Amgen filed suit in the Massachusetts District Court against TKT and Hoechst Marion Roussel, Inc. (“HMR” — now Aventis Pharmaceuticals Inc., together with TKT, the “Defendants”) alleging infringement of three U.S. patents owned by Amgen that claim an erythropoietin product and processes for making erythropoietin. Amgen sought an injunction preventing the Defendants from making, importing, using, or selling erythropoietin in the United States. On October 7, 1999, Amgen filed an amended complaint, which added two additional patents to the litigation. Defendants’ amended answer asserted that all five of the patents-in-suit were not infringed, were invalid, or were unenforceable due to inequitable conduct.
Amgen’s motion for summary judgment of literal infringement was granted by the Massachusetts District Court on April 26, 2000 with respect to claim 1 of U.S. Patent No. 5,955,422 (the “’422“‘422 Patent”). On May 15, 2000, trial began in the Massachusetts District Court. On June 9, 2000, the Massachusetts District Court granted Defendants’ motion for non-infringement of U.S. Patent No. 5,618,698 (the “’698“‘698 Patent”), removing the ’698‘698 Patent from this action. On July 21, 2000, the Massachusetts District Court granted Amgen’s motion for judgment on the Defendants’ defenses of invalidity based upon anticipation and obviousness.
On January 19, 2001, the Massachusetts District Court ruled that claims 2-4 of U.S. Patent No. 5,621,080 (the “’080“‘080 Patent”), claims 1, 3, 4, and 6 of U.S. Patent No. 5,756,349 (the “’349“‘349 Patent”) and claim 1 of the ’422‘422 Patent were valid, enforceable, and infringed by TKT’s erythropoietin product and the cells used to make such product. The Massachusetts District Court also held that claim 7 of the ’349‘349 patent and claims 1, 2, and 9 of U.S. Patent No. 5,547,933 (the “933 Patent”) were not infringed, and that if infringed the claims of the ’933‘933 patent would be invalid.
On January 26, 2001, the Defendants filed a Notice of Appeal and on February 14, 2001, Amgen filed a Notice of Cross-Appeal, to the U.S. Court of Appeals for the Federal Circuit. On March 22, 2001, Amgen filed an Amended Notice of Cross-Appeal to include claim 9 of the ’698‘698 patent. After the parties briefed the issues on appeal, oral arguments were heard on May 7, 2002 by the U.S. Court of Appeals for the Federal Circuit.
On January 6, 2003, the U.S. Court of Appeals for the Federal Circuit upheld the District Court’s decision that the Defendants infringe the ’349‘349 and ’422‘422 patents and held that claims 1 and 2 of the ’933‘933 patent were invalid. The court further upheld the enforceability and validity of all of the asserted claims except for validity over two references which was vacated and remanded to the District Court. The court vacated and remanded to the District Court of Massachusetts for further consideration of (i) the finding of infringement of the ’080‘080 patent, (ii) the holding of non-infringement of the ’698‘698 patent, and (iii) the effect of two references on the validity of the asserted claims of the patents. On January 20, 2003, the Defendants filed a Combined Motion for Panel Rehearing and Rehearing En Banc with the Federal Circuit regarding the court’s affirmance of the validity of the asserted claims under 35 U.S.C. §112. On March 3, 2003, the Federal Circuit denied the Defendant’s Motions for Panel Rehearing and Rehearing En Banc. The Massachusetts District Court held a trial on the remanded issues on October 7-8 and 15-17 and November 3-6, 2003. On October 30, 2003, the Massachusetts District Court ruled that claims 2-4 of the ’080‘080 patent are infringed.
On October 15, 2004, the Massachusetts District Court decided the remaining issues remanded from the U.S. Court of Appeals for the Federal Circuit in Amgen’s favor. In the October 15 decision, the court ruled that claims 4-9 of the ’698‘698 patent are valid and infringed, claims 2-4 of the ’080‘080 claims are valid, claim 1 of the ’422‘422 is valid and claim 7 of the ’349‘349 patent is valid and infringed. On December 10, 2004, TKT filed a Notice of Appeal to the U.S. Court of Appeals for the Federal Circuit.
Israel Bio-Engineering Project Litigation
On September 3, 2002, Israel Bio-Engineering Project (“IBEP”), filed a patent infringement lawsuit against Amgen’s wholly-owned subsidiary, Immunex Corporation (“Immunex”), Wyeth and Wyeth Pharmaceuticals in the U.S. District Court for the Central District of California, relating to a U.S. Patent
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On March 31, 2004, judgment was entered in favor of the defendants including Amgen and Immunex. IBEP filed a Notice of Appeal and filed its appeal brief on June 2, 2004. Amgen and Immunex filed their appeal brief on July 29, 2004. IBEP filed its reply brief on August 27, 2004.Appeal. Oral argument was heard by the Court of Appeals for the Federal Circuit was held on January 11, 2005.
On June 18, 2003, Amgen and Immunex filed suit inMarch 15, 2005, the U.S. District Court for the Central District of California against The Trustees of Columbia University (“Columbia”) seeking a declaratory judgment that Columbia’s claims for royalties under license agreements with Amgen and Immunex lack merit and that no royalties are owed. The complaint further sought a declaratory judgment that Amgen and Immunex do not infringe Columbia’s recently issued U.S. Patent No. 6,455,275 (the “’275 Patent”) and that the ’275 Patent is invalid and unenforceable. On February 12, 2004, Columbia filed breach of contract and declaratory relief counterclaims against Amgen and Immunex along with its answer to the complaint.
On December 15, 2004, Amgen Manufacturing Limited, Amgen USA Inc. and Immunex Rhode Island Corporation, Amgen’s subsidiaries, filed a Complaint in22, 2005, the U.S. District Court for the Central District of Massachusetts seeking a declaratoryCalifornia granted Intervenor Yeda’s motion for summary judgment that the plaintiffs do not infringe Columbia’s ’275 Patentplaintiff, IBEP, lacks standing to sue Amgen, Immunex and that the ’275 Patent is invalid and unenforceable.Wyeth for patent infringement. On January 4, 2005, Columbia26, 2006, IBEP filed a Motion to DismissNotice of Appeal with the complaintU.S. Court of Appeals for lack of subject matter jurisdiction. On January 18, 2005, the plaintiffs opposed Columbia’s motion.
Average Wholesale Price Litigation
Amgen and Immunex are named as defendants, either separately or together, in numerous civil actions broadly alleging that they, together with many other pharmaceutical manufacturers, reported prices for certain products in a manner that allegedly inflated reimbursement under the Medicare and/or Medicaid programs, and commercial insurance plans, including co-payments paid to providers who prescribe and administer the products. The complaints generally assert varying claims under the federal RICO statutes, their state law corollaries, as well as state law claims for deceptive trade practices, common law fraud, and various related
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The AWP litigation was commenced against Amgen and Immunex on December 19, 2001 with the filing of Citizens for Consumer Justice et al. v. Abbott Laboratories, Inc., et al. Additional cases have been filed since that time. Most of these actions, as discussed below, have been consolidated, or are in the process of being consolidated, in a federal Multi-District Litigation proceeding (“the MDL Proceeding”), captioned In Re: Pharmaceutical Industry Average Wholesale Price Litigation MDL No. 1456 and pending in the U.S. District Court for the District of Massachusetts (“the Massachusetts District Court”).
These cases that are, or are in the process of being consolidated into the MDL Proceeding, are being brought by consumer classes and certain state and local governmental entities. The cases consist of the following:
·Citizens for Consumer Justice, et al., v. Abbott Laboratories, Inc., et al.; Teamsters Health & Welfare Fund of Philadelphia, et al., v. Abbott Laboratories, Inc., et al.; Action Alliance of Senior Citizens of Greater Philadelphia v. Immunex Corp.; Constance Thompson, et al. v. Abbott Laboratories, Inc., et al.; Ronald Turner, et al. v. Abbott Laboratories, Inc., et al.; Congress of California Seniors v. Abbott Laboratories, et al.; State of Montana v. Abbott Laboratories, Inc., et al.; State of Nevada v. American Home Products Corp., et al.; County of Suffolk v. Abbott Laboratories, Inc., et al.; IUOE, Local 68 v. AstraZeneca, PLC, et al.; County of Westchester v. Abbott Laboratories, Inc., et al.; County of Rockland v. Abbott Laboratories, Inc., et al.; City of New York v. Abbott Laboratories, Inc., et al.; County of Nassau v. Abbott Laboratories, Inc., et al; County of Onondaga v. Abbott Laboratories, Inc., et al.;.; County of Erie v. Abbott Laboratories, Inc., et al.; County of Chenango v. Abbott Laboratories, Inc., et al.; County of Chautauqua v. Abbott Laboratories, Inc., et al.; County of Tompkins v. Abbott Laboratories, Inc., et al.; County of Wayne v. Abbott Laboratories, Inc., et al.; County of Monroe v. Abbott Laboratories, Inc., et al.; County of Washington v. Abbott Laboratories, Inc., et al.; County of Herkimer v. Abbott Laboratories, Inc., et al.; County of Cayuga v. Abbott Laboratories, Inc., et al.; County of Allegany v. Abbott Laboratories, Inc., et al.; County of Rensselaer v. Abbott Laboratories, Inc., et al.; County of Albany v. Abbott Laboratories, Inc., et al.; County of Cattaraugus v. Abbott Laboratories, Inc., et al.; County of Yates v. Abbott Laboratories, Inc., et al.; County of Broome v. Abbott Laboratories, Inc., et al.; County of Warren v. Abbott Laboratories, Inc., et al.; County of Greene v. Abbott Laboratories, Inc., et al.; County of Saratoga v. Abbott Laboratories, Inc., et al.; County of St. Lawrence v. Abbott Laboratories, Inc., et al.; County of Oneida v. Abbott Laboratories, Inc., et al.; County of Genesee v. Abbott Laboratories, Inc., et al.; Count of Fulton v. Abbott Laboratories, Inc., et al.; County of Steuben v. Abbott Laboratories, Inc., et al.; County of Putnam v. Abbott Laboratories, Inc., et al.; County of Niagara v. Abbott Laboratories, Inc., et al.; County of Jefferson v. Abbott Laboratories, Inc., et al.; County of Madison v. Abbott Laboratories, Inc., et al; County of Lewis v. Abbott Laboratories, Inc., et al.; County of Columbia v. Abbott Laboratories, Inc., et al.; County of Essex v. Abbott Laboratories, Inc., et al.; County of Cortland v. Abbott Laboratories, Inc., et al.; County of Seneca v. Abbott Laboratories, Inc., et al.; County of Orleans v. Abbott Laboratories, Inc., et al.; County of Duchess v. Abbott Laboratories, Inc., et al.; County of Ontario v. Abbott Laboratories, Inc., et al.; County of Schuyler v. Abbott Laboratories, Inc., et al.; County of Wyoming v. Abbott Laboratories, Inc., et al.; State of California ex rel. Ven-A-Care of the Florida Keys, Inc v. Abbott Laboratories, Inc., et al.
In the MDL Proceeding, the U.S.Massachusetts District Court for the District of Massachusetts has set various deadlines relating to motions to dismiss the complaints, discovery, class certification, summary judgment and other pre-trial issues. For the class action cases, the Court has divided the defendant companies into a Phase I group and a Phase II group. The class certification hearing for the Phase I group was held on February 10, 2004. On January 30, 2006, the Massachusetts District Court certified three classes (one nationwide class and two Massachusetts-only classes) with respect to the Phase I group. Both Amgen and Immunex are in the Phase II group, andgroup. On March 2, 2006, plaintiffs have yet to filefiled a fourth amended master consolidated complaint, which did not include their motion for class certification as to the Phase II companies.
Certain AWP cases are not a part of the MDL Proceeding. These cases are:
·Robert J. Swanston v. TAP Pharmaceutical Products, Inc., et al. This Arizona state class action was filed against Amgen and Immunex on December 20, 2002 in the Maricopa County, Arizona Superior Court. The Court has set a hearing on plaintiffs’ motion to certify a statewide class for May 13, 2005; however, the Court stayed the entire case on March 10, 2005. A status conference was held on December 12, 2005 in which the Court extended the stay until May 2006.
·Commonwealth of Pennsylvania v. TAP Pharmaceutical Products, Inc., et al. This case was filed against Amgen in the Commonwealth Court for Pennsylvania in Harrisburg, Pennsylvania on March 10, 2004. On March 10, 2005, the Commonwealth of Pennsylvania filed an amended complaint, adding Immunex, and defendants filed Preliminary Objections. A hearing on the Preliminary Objections was held on June 8, 2005. On July 13, 2005, defendants filed a notice of removal from Commonwealth Court to U.S. District Court for the Eastern District of Pennsylvania. The case was remanded to state court by Order dated September 9, 2005.Amgen and Immunex filed answers to the complaint on January 5, 2006.
·State of Wisconsin v. Amgen, Inc., et al. An amended complaint was filed against Amgen and Immunex on November 1, 2004 in the Circuit Court for Dane County, Wisconsin. Defendants’ filed their motions to dismiss the complaint on January 20, 2005. On July 13, 2005, defendants filed a notice of removal from Circuit Court to U.S. District Court for the Western District of Wisconsin. This case has been remanded to state court by Order dated September 29, 2005.
·Commonwealth of Kentucky v. Alphapharma, Inc., et al. This case was filed against Amgen and Immunex on November 4, 2004 in the Franklin County Circuit Court, Franklin County, Kentucky. Defendants filed their motions to dismiss the complaint on February 1, 2005. On July 13, 2005, defendants filed a notice of removal from County Circuit Court to U.S. District Court for the Eastern District of Kentucky. A hearing on plaintiffs’ opposition to the proposed transfer of this case to the MDL proceeding in Boston was considered by the Joint Panel on Multidistrict Litigation on November 17, 2005.
·State of Alabama v. Abbott Laboratories, Inc., et. al. This case was filed against Amgen and Immunex on January 26, 2005, in the Circuit Court of Montgomery County, Alabama. On July 13, 2005, defendants filed a notice of removal from Circuit Court to U.S. District Court for the Middle District of Alabama. The case was remanded to state court by Order dated August 11, 2005. Defendants’ motions to dismiss were denied on October 13, 2005. Amgen and Immunex filed their answer to plaintiff’s second amended complaint on January 30, 2006.
·People of State of Illinois v. Abbott Laboratories, Inc., et. al This case was filed against Amgen and Immunex on February 7, 2005 in the Circuit Court for Cook County, Illinois. Defendants filed their motions to dismiss the complaint on June 7, 2005. A hearing on plaintiffs’ opposition to the proposed transfer of this case to the MDL proceeding in Boston was considered by the Joint Panel on Multidistrict Litigation on November 17, 2005.
·County of Erie v. Abbott Laboratories, Inc., et al. This case was filed against Amgen and Immunex on March 8, 2005, in the Supreme Court of New York, Erie County. The complaint alleges that all defendants participated in a scheme to market the spread between the true wholesale price (i.e., selling price) and the false and inflated AWP reported, in order to increase market share, thus defrauding the county Medicaid program. On April 15, 2005, defendants filed a notice of removal from the Supreme Court of New York to the U.S. District Court for the Western District of New York. The case was remanded to state court by Order dated January 10, 2006.
·State of Mississippi v. Abbott Laboratories, Inc., et al. On or about October 20, 2005, the State of Mississippi filed a complaint naming Amgen and Immunex, along with several other pharmaceutical manufacturers, as defendants in this litigation. The complaint was filed in the Chancery Court of Hinds County, Mississippi, First Judicial District. The complaint alleges that Amgen and Immunex, together with many other pharmaceutical manufacturers, reported prices for certain products in a manner that allegedly inflated reimbursement under the Mississippi state Medicaid program.
·State of Arizona, etc., et al., vs. Abbott Laboratories, Inc., et al. On December 7, 2005, the State of Arizona filed a complaint naming Amgen and Immunex, along with several other pharmaceutical
manufacturers, as defendants in this litigation. The complaint was filed in Maricopa County. It alleges that Amgen and Immunex, together with many other pharmaceutical manufacturers, reported prices for certain products in a manner that allegedly inflated reimbursement under the Arizona state Medicaid program.
Immunex Governmental Investigations
According to press reports, many pharmaceutical companies are under investigation by the U.S. Department of Justice, the U.S. Department of Health and Human Services, and/or state agencies
24
State Attorney General Investigations
Amgen and/or Immunex have been advised by several Statethe Attorneys General for 14 states of pending investigations regarding drug pricing practices pertaining to the calculation of Average Manufacturer Price (“AMP”) and Best Price calculations under the Medicaid Drug Rebate Act.Act, as those terms are defined in 42 U.S.C. 1396r-8. These states have requested that Amgen and Immunex preserve records relating to AMP and best price calculations. Immunex has also been advised that the Attorney General for the State of Idaho is investigating claims relating to AWP as to numerous companies, including Immunex. The Company does not know what actions, if any, may be taken as a result of these investigations.
Johnson & Johnson Matters
Arbitration/Demand for Separate BLA
On November 11, 2003, Ortho Biotech Products, L.P., Ortho Biotech Inc., and Ortho-McNeil Pharmaceutical (wholly owned subsidiaries of Johnson & Johnson, collectively, “Ortho”) filed a demand for arbitration against the Company before the American Arbitration Association in Chicago, Illinois. In its demand, Ortho seeks declaratory relief that, among other things, (1) Ortho has the right under the parties’ Product License Agreement to apply for its own FDA license to market its brand of recombinant erythropoietin, PROCRIT®PROCRIT®, based on bulk product supplied by the Company, (2) the Company must cooperate with Ortho to achieve Ortho’s separate FDA licensure, (3) pending FDA approval of Ortho’s separate license, the Company must continue to supply Ortho with Ortho’s commercial requirements of finished erythropoeitinerythropoietin products, and (4) pending FDA approval of Ortho’s separate license, the Company must cooperate with Ortho on erythropoeitinerythropoietin development projects, including Ortho’s proposal for a 120,000 unit per ml formulation.
Ortho Biotech Litigation
On October 11, 2005, Ortho Biotech Products, L.P. (“Ortho Biotech”) filed suit in the United States District Court for the District of New Jersey against Amgen alleging violations of Sections 1 and 2 of the Sherman Act, §15 U.S.C. Sections 1 and 2. The complaint seeks a preliminary injunction enjoining Amgen from offering discounts to oncology clinics on its G-CSF products (NEUPOGEN® (Filgrastim) and Neulasta® (pegfilgrastim)) and Aranesp® (darbepoetin alfa), if customers purchase certain amounts of both
types of products. Ortho Biotech also seeks a permanent injunction against such discounts, as well as damages it has allegedly sustained by virtue of Amgen’s contracting program. The court has ordered completion of discovery on Ortho Biotech’s preliminary injunction motion by April 10, 2006, and an additional period for briefing, before deciding whether an evidentiary hearing on that motion will be necessary.
Amgen Inc. v. F. Hoffmann-La Roche Ltd., et al.
On November 8, 2005, Amgen filed a lawsuit in the United States District Court in Boston, Massachusetts against F. Hoffmann-La Roche Ltd., Roche Diagnostics GmbH, and Hoffmann-La Roche, Inc. seeking a declaration by the Court that defendants’ importation, use, sale or offer to sell a pegylated version of recombinant human erythropoietin infringes Amgen’s patents. Amgen alleges infringement of six of its U.S. Patents that claim erythropoietin products (“EPO”), pharmaceutical compositions, and processes for making erythropoietin, specifically U.S. Patent Nos. 5,756,349; 5,621,080; 5,618,698; 5,955,422; 5,547,933; and 5,441,868. Amgen is seeking a permanent injunction preventing the defendants from making, importing, using, offering for sale or selling recombinant human EPO, including pegylated EPO, in the United States. On March 9, 2006, Ortho Biotech Products, L.P. filed a motion to intervene as a plaintiff in the lawsuit.
Other
In February 2006, Amgen received service of a subpoena from the U.S. Attorney’s Office for the District of Massachusetts for the production of documents relating to Amgen’s business relationship with a long-term care pharmacy organization concerning several of our products. We intend to cooperate in responding to the subpoena.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of our security holders during the last quarter of our fiscal year ended December 31, 2004.
2550
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock trades on The NASDAQ Stock Market under the symbol AMGN. As of February 11, 2005,3, 2006, there were approximately 15,00014,000 holders of record of our common stock. No cash dividends have been paid on the common stock to date, and we currently intend to utilize any earnings for development of our business and for repurchases ofto repurchase our common stock.
The following table sets forth, for the fiscal periods indicated, the range of high and low quarterly closing sales prices of the common stock as quoted on The NASDAQ Stock Market for the years 2004 and 2003:Market:
|
| High |
| Low |
| ||
Year ended December 31, 2005 |
|
|
|
|
| ||
4th Quarter |
| $ | 84.42 |
| $ | 73.37 |
|
3rd Quarter |
| 86.17 |
| 60.86 |
| ||
2nd Quarter |
| 63.18 |
| 57.20 |
| ||
1st Quarter |
| 64.87 |
| 57.98 |
| ||
Year ended December 31, 2004 |
|
|
|
|
| ||
4th Quarter |
| $ | 64.76 |
| $ | 52.70 |
|
3rd Quarter |
| 59.98 |
| 53.23 |
| ||
2nd Quarter |
| 60.43 |
| 52.82 |
| ||
1st Quarter |
| 66.23 |
| 57.83 |
|
High | Low | ||||||||
2004 | |||||||||
4th Quarter | $ | 64.76 | $ | 52.70 | |||||
3rd Quarter | 59.98 | 53.23 | |||||||
2nd Quarter | 60.43 | 52.82 | |||||||
1st Quarter | 66.23 | 57.83 | |||||||
2003 | |||||||||
4th Quarter | $ | 67.14 | $ | 57.62 | |||||
3rd Quarter | 71.54 | 64.52 | |||||||
2nd Quarter | 67.50 | 57.60 | |||||||
1st Quarter | 58.87 | 48.88 |
During the three months ended December 31, 2004,2005, we had two outstanding stock repurchase programs. The manner of purchases, the amount we spend and the number of shares repurchased varieswill vary based on a variety of factors including the stock price and blackout periods in which we are restricted from repurchasing shares.shares and may include private block purchases as well as market transactions. Repurchases under our stock repurchase program reflect, in part, our confidence in the long-term value of Amgen common stock. Additionally, we believe that it is an effective way of returning cash to our stockholders. A summary of our repurchase activity for the three months ended December 31, 20042005 is as follows:
Total Number of | Maximum $ Value | |||||||||||||||
Total Number | Average | Shares Purchased as | that May Yet Be | |||||||||||||
of Shares | Price Paid | Part of Publicly | Purchased Under the | |||||||||||||
Purchased | per Share | Announced Programs | Programs(1) | |||||||||||||
October 1 — October 31 | 6,965,448 | $ | 55.53 | 6,964,112 | $ | 1,606,702,718 | ||||||||||
November 1 — November 30 | 10,633,691 | 59.98 | 10,625,000 | 968,880,721 | ||||||||||||
December 1 — December 31 | 35,339 | 13.87 | — | 5,968,880,721 | ||||||||||||
Total | 17,634,478 | (2) | $ | 58.13 | 17,589,112 | |||||||||||
|
|
|
|
|
| Total Number |
|
|
| |||||||||||
|
|
|
|
|
| of Shares |
| Maximum $ Value |
| |||||||||||
|
| Total Number |
| Average |
| Purchased as Part |
| that May Yet Be |
| |||||||||||
|
| of Shares |
| Price Paid |
| of Publicly |
| Purchased Under the |
| |||||||||||
|
| Purchased |
| per Share |
| Announced Programs |
| Programs(1) |
| |||||||||||
October 1 — October 31 |
|
| 21,131 |
|
|
| $ | 76.11 |
|
|
| — |
|
|
| $ | 2,774,930,757 |
|
|
|
November 1 — November 30 |
|
| 9,586,325 |
|
|
| 81.97 |
|
|
| 9,585,700 |
|
|
| 1,989,159,938 |
|
|
| ||
December 1 — December 31 |
|
| 5,179,900 |
|
|
| 87.02 |
|
|
| 5,172,414 |
|
|
| 6,539,004,766 |
|
|
| ||
Total |
|
| 14,787,356 | (2) |
|
| $ | 83.73 |
|
|
| 14,758,114 | (2) |
|
|
|
|
|
|
(1)In | |
26(2) The difference between total number of shares purchased and the total number of shares purchased as part of publicly announced programs is due to repurchases of common stock from certain employees in connection with their exercise of stock options issued prior to June 23, 1998 as well as shares of
Years Ended December 31, | ||||||||||||||||||||||
Consolidated Statement of Operations Data: | 2004 | 2003 | 2002 | 2001 | 2000 | |||||||||||||||||
(In millions, except per share data) | ||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||
Product sales(1) | $ | 9,977 | $ | 7,868 | $ | 4,991 | $ | 3,511 | $ | 3,202 | ||||||||||||
Other revenues | 573 | 488 | 532 | 505 | 427 | |||||||||||||||||
Total revenues | 10,550 | 8,356 | 5,523 | 4,016 | 3,629 | |||||||||||||||||
Operating expenses: | ||||||||||||||||||||||
Cost of sales (excludes amortization of acquired intangible assets presented below) | 1,731 | 1,341 | 736 | 443 | 408 | |||||||||||||||||
Research and development | 2,028 | 1,655 | 1,117 | 865 | 845 | |||||||||||||||||
Write off of acquired in-process research and development(2) | 554 | — | 2,992 | — | 30 | |||||||||||||||||
Selling, general and administrative | 2,556 | 1,957 | 1,449 | 974 | 851 | |||||||||||||||||
Amortization of acquired intangible assets | 333 | 336 | 155 | — | — | |||||||||||||||||
Other items, net(3) | — | (24 | ) | (141 | ) | 203 | (49 | ) | ||||||||||||||
Net income (loss) | 2,363 | 2,259 | (1,392 | ) | 1,120 | 1,139 | ||||||||||||||||
Diluted earnings (loss) per share | 1.81 | 1.69 | (1.21 | ) | 1.03 | 1.05 | ||||||||||||||||
Cash dividends declared per share | — | — | — | — | — |
At December 31, | ||||||||||||||||||||
Consolidated Balance Sheet Data: | 2004 | 2003 | 2002 | 2001 | 2000 | |||||||||||||||
Total assets(4) | $ | 29,221 | $ | 26,113 | $ | 24,456 | $ | 6,443 | $ | 5,400 | ||||||||||
Long-term debt(5) | 3,937 | 3,080 | 3,048 | 223 | 223 | |||||||||||||||
Stockholders’ equity(4) | 19,705 | 19,389 | 18,286 | 5,217 | 4,315 |
Item 6. SELECTED FINANCIAL DATA
|
| Years ended December 31, |
| |||||||||||||||
Consolidated Statement of Operations Data: |
|
|
| 2005 |
| 2004 |
| 2003 |
| 2002 |
| 2001 |
| |||||
|
| (In millions, except per share data) |
| |||||||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
| |||||||
Product sales(1) |
| $ | 12,022 |
| $ | 9,977 |
| $ | 7,868 |
| $ | 4,991 |
| $ | 3,511 |
| ||
Other revenues |
| 408 |
| 573 |
| 488 |
| 532 |
| 505 |
| |||||||
Total revenues . |
| 12,430 |
| 10,550 |
| 8,356 |
| 5,523 |
| 4,016 |
| |||||||
Operating expenses(2): |
|
|
|
|
|
|
|
|
|
|
| |||||||
Cost of sales (excludes amortization of acquired intangible assets presented below) |
| 2,082 |
| 1,731 |
| 1,341 |
| 736 |
| 443 |
| |||||||
Research and development |
| 2,314 |
| 2,028 |
| 1,655 |
| 1,117 |
| 865 |
| |||||||
Write off of acquired in-process research and development(3) |
| — |
| 554 |
| — |
| 2,992 |
| — |
| |||||||
Selling, general and administrative |
| 2,790 |
| 2,556 |
| 1,957 |
| 1,449 |
| 974 |
| |||||||
Amortization of acquired intangible assets . |
| 347 |
| 333 |
| 336 |
| 155 |
| — |
| |||||||
Other items, net |
| 49 |
| — |
| (24 | ) | (141 | ) | 203 |
| |||||||
Net income (loss) . |
| 3,674 |
| 2,363 |
| 2,259 |
| (1,392 | ) | 1,120 |
| |||||||
Diluted earnings (loss) per share |
| 2.93 |
| 1.81 |
| 1.69 |
| (1.21 | ) | 1.03 |
| |||||||
Cash dividends declared per share |
| — |
| — |
| — |
| — |
| — |
| |||||||
|
| At December 31, |
| |||||||||||||||
Consolidated Balance Sheet Data: |
|
|
| 2005 |
| 2004 |
| 2003 |
| 2002 |
| 2001 |
| |||||
|
| (In millions) |
| |||||||||||||||
Total assets(4) |
| $ | 29,297 |
| $ | 29,221 |
| $ | 26,113 |
| $ | 24,456 |
| $ | 6,443 |
| ||
Long-term debt(5)(6) |
| 3,957 |
| 3,937 |
| 3,080 |
| 3,048 |
| 223 |
| |||||||
Stockholders’ equity(4) |
| 20,451 |
| 19,705 |
| 19,389 |
| 18,286 |
| 5,217 |
| |||||||
27In addition to the following notes, see Item 7., “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and accompanying notes for further information regarding our consolidated results of operations and financial position for periods reported therein and for known factors that will impact comparability of future results.
(1) We began recording Enbrel® sales subsequent to our acquisition of Immunex Corporation in July 2002.
(3) As part of the accounting for the Tularik Inc. and Immunex Corporation acquisitions, we recorded a charge to write-off acquired IPR&D of $554 million in 2004 and $2,992 million in 2002, respectively. The IPR&D charge represents an estimate of the fair value of the in-process research and development for projects and technologies that, as of the acquisition date, had not reached technological feasibility and had no alternative future use.
(4) In August 2004, we acquired all of the outstanding common stock of Tularik Inc. for a purchase price of approximately $1.5 billion. In July 2002, we acquired all of the outstanding common stock of Immunex Corporation for a purchase price of approximately $17.8 billion.
(6) In November 2004, we issued $1.0 billion aggregate principal amount of 4.00% senior notes due in 2009 and $1.0 billion aggregate principal amount of 4.85% senior notes due in 2014.
53
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report and other documents we file with the Securities and Exchange Commission (“SEC”) contain forward looking statements that are based on current expectations, estimates, forecasts and projections about us, our future performance, our business or others on our behalf, our beliefs and our management’s assumptions. In addition, we, or others on our behalf, may make forward looking statements in press releases or written statements, or in our communications and discussions with investors and analysts in the normal course of business through meetings, webcasts, phone calls, and conference calls. Words such as “expect,” “anticipate,” “outlook,” “could,” “target,” “project,” “intend,” “plan,” “believe,” “seek,” “estimate,” “should,” “may,” “assume,” “continue,” variations of such words and similar expressions are intended to identify such forward looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict. We describe our respective risks, uncertainties, and assumptions that could affect the outcome or results of operations in “Factors That May Affect Amgen”.“Item 1A. Risk Factors.” We have based our forward looking statements on our management’s beliefs and assumptions based on information available to our management at the time the statements are made. We caution you that actual outcomes and results may differ materially from what is expressed, implied, or forecast by our forward looking statements. Reference is made in particular to forward looking statements regarding product sales, reimbursement, expenses, earnings per share, liquidity and capital resources, and trends. Except as required under the federal securities laws and the rules and regulations of the SEC, we do not have any intention or obligation to update publicly any forward looking statements after the distribution of this report, whether as a result of new information, future events, changes in assumptions, or otherwise.
The following management’s discussion and analysis (“MD&A”) is intended to assist the reader in understanding Amgen. MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and accompanying notes.
We are a global biotechnology company that discovers, develops, manufactures, and markets human therapeutics based on advances in cellular and molecular biology. Our mission is to serve patients. As a science-based, patient-focused organization, we discover and develop innovative therapies to treat seriousgrievous illness. We operate in one business segment — human therapeutics. Therefore, our results of operations are discussed on a consolidated basis.
We primarily earn revenues and income and generate cash from sales of human therapeutic products in the areas of inflammation, nephrology and supportive cancer care, and inflammatory disease.care. For the year ended December 31, 2004,2005, total revenues were $10,550$12,430 million and net income was $2,363$3,674 million, or $1.81$2.93 per share.share on a diluted basis. As of December 31, 2004,2005, cash, cash equivalents and marketable securities were $5,808totaled $5,255 million.
For the years ended December 31, 2004, 2003,2005 and 2002,2004, product sales represented 95%, 94%,97% and 90%95% of total revenues, respectively. Over the last twoseveral years, our product sales growth has been primarily driven by sales of Aranesp®Aranesp® (darbepoetin alfa), ENBREL��Enbrel® (etanercept), and Neulasta®Neulasta® (pegfilgrastim), which have benefited from market share gains and/or market growth. We expect these products to continue to drive year over year sales growth in the near term. However, we expect that continued share gains will be more of a challenge than those achieved in previous years as we operate in a highly competitive environment. (See “Competition” in “Item 1. Business” for further information on the impact of competition on our business.) Going forward, we will continue to focus on share gains, but we will also increase our focus on both growing and penetrating the therapeutic areas in which our products are used. Our principal products have
attained significant sales levels, and for certain of our products, in a relatively short period of time. As a result, although we have experienced significant year over year sales growth as a result of share gains and/or market growth, in the near term, we expect our product sales growth to be lower than that achieved in the past several years.
Most patients receiving our principal products for approved indications excluding ENBREL®, are covered by both government and private payerspayer health care programs. (Through 2005, primary reimbursement for ENBREL was obtained from private payers but, beginning in 2006, ENBREL and Sensipar® will be eligible for coverage from the U.S. government under Medicare Program Part D.) Therefore, our principal product sales and sales growth are and will be affected by government and private payer reimbursement policies. Reduction in reimbursement could adversely affectWhile we believe that our results of operations. For example,2005 product sales were not significantly impacted by the MMA was enacted into law in December 2003. We expect that, beginning in
28
International product sales for the years ended December 31, 2005 and 2004 2003,represented 18% and 2002 represented 17%, 14%, and 10% of total product sales and consisted principally of European sales. International product sales have grown substantially since 2002significantly over the last several years driven by Aranesp® and Neulasta® reflecting continued penetration. However, we anticipate facing greater competition in Europe from the availability of biosimilar products. We expect that biosimilar erythropoietin products may be approved in the European Union (“EU”) beginning in late 2006 and could be available in the EU shortly after approval which would compete with Aranesp®. We also expect that the first biosimilar G-CSF product may be approved as a resultearly as mid-2007 and that it would compete with Neulasta® and NEUPOGEN® (Filgrastim). We cannot predict whether or to what extent the entry of biosimilar products would impact future Aranesp®, Neulasta® or NEUPOGEN® sales in the launchesEU. (See “Competition” in “Item 1. Business” for further information regarding biosimilar products.) In order to maintain commercial success in Europe, we plan to continue to support the development of Aranesp®new standards of care and Neulasta® and continued market penetration. International product sales grew 54% during 2004 and 123% during 2003. continue to actively convert NEUPOGEN® patients to Neulasta®, emphasizing its less frequent dosing requirements as compared to NEUPOGEN®.
Our international product sales are impacted by foreign currency changes (see “Results of Operations” discussion below). International product sales growth during 20042005 and 20032004 benefited by $164$46 million and $166$164 million, respectively, from foreign currency exchange rate changes. During 2005, international product sales for the first three quarters of the year benefited from foreign currency exchange rate changes, but were adversely affected in the fourth quarter. However, both the positive and negative impacts fromthat movements in foreign exchange rates have beenon our international product sales are mitigated, in part, by the natural, opposite impact tothese exchange rate movements have on our international operating expenses and as a result of our foreign currency hedging activities. Our hedging activities seek to offset the impact, both positive and negative, that foreign exchange rate changes may have on our net income. As such, the impact to our net results of operations from changes in foreign currency exchange rates has been largely mitigated.
For 2005 and 2004, operating income increased $1,500 million and $257 million over their respective prior year periods, primarily as a result of our product sales growth. Operating income as a percentage of product sales was 40% for 2005 and 34% for 2004. Operating income for 2004 compared to 39% for 2003. This decrease was primarily attributable toimpacted by the impact of the 2004 IPR&D charge of $554 million relating to the acquisition of Tularik.Tularik during 2004 (see Note 7, “Acquisitions” in the Consolidated Financial Statements). During 2004,2005, we increased our operating expenses to advance our product pipeline and support our product sales growth. During 2005, selling, general and administrative (“SG&A”) expenses as a percentage of product sales decreased from 26% to 23% as we leveraged our prior year SG&A spending. In 2006, we expect our R&D expenses to grow 30-40%, principally as a result
of significant increases in our clinical development activities discussed below. To support this increased investment in our pipeline, SG&A expenses in 2006 are expected to grow at a rate comparable to the 2005 growth and to investrate. As a result of the significant anticipated growth in R&D to advanceexpenses, we expect our product pipeline. In 2005, our2006 operating expenses are expected to further increase in support ofgrow at a higher rate than our anticipated 2006 product sales growth, and as a result of our continued investment in R&D to advance our pipeline.
We focus our R&D efforts on novel human therapeutics delivered in the form of proteins, monoclonal antibodies, and small molecules in the areas of oncology, inflammation, metabolic disorders, neuroscience, and general medicine. We focus on the development of novel therapeutics for the treatment of seriousgrievous illness. We take a modality-independent approach to R&D — that is, we identify targets, then choose the modality best suited to address a specific target. To enhance our internal R&D efforts, we have acquired and licensed certain product and technology rights and have established R&D collaborations. On August 13, 2004, we acquired Tularik at a purchase price of approximately $1.5 billion in a transaction accounted for as a business combination. Tularik was a company engaged in drug discovery related to cell signaling and the control of gene expression. In connection with the Tularik acquisition, we incurred a charge of $554 million associated with writing off the fair value of IPR&D acquired (see Note 7, “Acquisitions” in the consolidated financial statements). The IPR&D write-off represents the estimated fair value of the various acquired R&D projects in Tularik’s pipeline that, as of the acquisition date, had not reached technological feasibility and had no alternative future use. See(See “Research and Development and Selected Product Candidates” in “Item 1. Business” for further information on our R&D vision and product pipeline.) In December 2005, we signed a definitive merger agreement under which we will pay shareholders of Abgenix, Inc. (“Abgenix”) $22.50 in cash per common share for a total value of approximately $2.2 billion and will assume Abgenix’s outstanding debt. Abgenix is a company specializing in the discovery, development and manufacture of human therapeutic antibodies and is our co-development partner for panitumumab. The Federal Trade Commission approved the merger on January 19, 2006 and we expect to close the merger, subject to Abgenix shareholder approval, by April 2006. (See “Joint Ventures and Business Relationships — Abgenix, Inc.” in “Item 1. Business” for further information on the co-development agreement with Abgenix.) We have expanded and will need to continue to significantly expand our clinical development resources, including human capital, to manage and execute increasingly larger and more complex clinical trials. In 2006, we are expecting a significant increase in the number, size, duration and complexity of our clinical trials, in particular with respect to denosumab, our late-stage investigational product for osteoporosis, and we expect total research and development expenses to increase by 30-40%. For example, testing denosumab in the osteoporosis setting requires large clinical trials, substantial time and resources to recruit patients and significant expense to execute. We expect to continuestart eleven “mega-site” trials (involving 200 or more sites) in 2006 to invest significantlysupport denosumab and our other late-stage programs. To execute our clinical trial programs, we need to accelerate the growth of our development organization, implement new management structures and approaches and increase dependence on third-party contract clinical trial providers. Further, to increase the number of patients available for enrollment for our clinical trials, we are planning to open clinical sites and enroll patients in R&D.
There are many economic and industry-wide factors that affect our business, including, among others, those relating to broad reimbursement changes, increased complexity and cost of R&D, increasingly intense competition for our currently marketed products and product candidates, broad reimbursement changes, complex and expanding regulatory requirements, and intellectual property protection. See(See “Item 1. Business” and “Factors That May Affect Amgen”“Item 1A. Risk Factors” for further information on these economic and industry-wide factors and their impact and potential impact on our business.
29In addition to these economic and industry-wide factors, we, as a company, face certain additional challenges and have a number of opportunities as well. We have established leadership positions with all of our principal products, attaining significant sales levels, and for certain of our products, in a relatively short period of time. As a result, we expect our product sales growth rates in the near term will be lower than those achieved in the past several years. We expect increasing competition internationally as the first biosimilar products may be available in Europe shortly after the anticipated approval in late 2006 and in the anemia area worldwide, as the related business opportunities are significant and growing. We believe that future sales growth for certain of our principal products should benefit from increased penetration and market growth through new areas of treatment and/or greater awareness. Further, over the last several years, our pipeline has substantially increased and with that comes the challenge of delivering on the pipeline, including executing on large and complex clinical trials. Our strategy to overcome these challenges and to be successful in taking advantage of our opportunities is straightforward. We plan to:
· Invest heavily in R&D and be productive
· Pursue organic growth supplemented by external investments and partnerships
· Hire and retain the best people
In the near term, our 2006 objectives are straightforward as well. We intend to balance short-term financial performance with significant R&D investment to drive long-term growth. We plan to grow our markets and hold or increase share. We will continue to vigorously defend our intellectual property and plan to take steps to grow our anemia business. We will continue to proactively manage and expand our production capacity ensuring that our commercial and clinical manufacturing is reliable and not subject to a single-point failure. As always, compliance with regulations and laws is of the utmost importance to us and we intend to sustain and enhance our very good compliance record. Lastly, remaining entrepreneurial, aggressive, and patient-focused as we grow larger will enable us to fulfill these objectives and our mission to serve patients.
Product sales
For the years ended December 31, 2005, 2004, 2003, and 2002,2003, total product sales by geographic region were as follows (amounts in millions):
|
| 2005 |
| Change |
| 2004 |
| Change |
| 2003 |
| |||||||
Total U.S. |
| $ | 9,892 |
|
| 19 | % |
| $ | 8,279 |
|
| 22 | % |
| $ | 6,764 |
|
Total International |
| 2,130 |
|
| 25 | % |
| 1,698 |
|
| 54 | % |
| 1,104 |
| |||
Total product sales. |
| $ | 12,022 |
|
| 20 | % |
| $ | 9,977 |
|
| 27 | % |
| $ | 7,868 |
|
2004 | Change | 2003 | Change | 2002 | |||||||||||||||||
Total U.S. | $ | 8,279 | 22 | % | $ | 6,764 | 50 | % | $ | 4,497 | |||||||||||
Total International | 1,698 | 54 | % | 1,104 | 123 | % | 494 | ||||||||||||||
Total product sales | $ | 9,977 | 27 | % | $ | 7,868 | 58 | % | $ | 4,991 | |||||||||||
Product sales are influenced by a number of factors, including demand, third-party reimbursement availability and policies, pricing strategies, wholesaler and end-user inventory management practices, foreign currency exchange effects, new product launches and indications, competitive products, product supply, and acquisitions.
Sales growth in 2005 was principally driven by demand for Aranesp®, ENBREL, and Neulasta®, which have benefited from share gains and/or market growth. International product sales growth benefited by $46 million from foreign currency exchange rate changes. During 2005, the first three quarters of the year benefited from foreign currency exchange rate changes, but were adversely affected in the fourth quarter.
Sales growth in 2004 was principally driven by demand for Aranesp®Aranesp®, ENBREL®,ENBREL, and Neulasta®Neulasta®. U.S. sales for Aranesp®Aranesp® and Neulasta®Neulasta® were impacted by higher incentives earned by customers under performance-based contracts. International product sales growth benefited by $164 million from foreign currency exchange rate changes.
We expect sales growthAranesp®, ENBREL, and Neulasta® to continue to drive year over year sales growth in the near term. However, we expect that continued share gains will be driven primarily by Aranesp®, ENBREL®,more of a challenge than those achieved in previous years as we operate in a highly competitive environment. Going forward, we will continue to focus on share gains, but we will also increase our focus on both growing and Neulasta®. We believe that changespenetrating the therapeutic areas in reimbursement forwhich our products are likelyused.
57
In 2005, we believe that our product sales were not significantly impacted by the reimbursement changes resulting from the MMA. We believe this was, in part, due to adversely affect, to a degree, the prescription and administrationeffects of CMS’s oncology demonstration project (the “2005 Demonstration Project”) on sales of our products by healthcare providers, impacting sequential sales growthused in supportive cancer care, especially Aranesp®. Furthermore, we believe this was also, in part, due to increased reimbursement rates to physicians from CMS for services associated with drug administration. The 2005 Demonstration Project, which provided financial incentives to physicians for collecting and historical sales trends.reporting oncology patient survey data, expired on December 31, 2005. In prior years, certain of our products have reported sales in the first quarterNovember 2005, CMS announced a new demonstration project (the “2006 Demonstration Project”) that were comparable or slightly less than reported sales in the fourth quarteruses different criteria for how patients with cancer are evaluated and treated and that is targeted at approximately half of the previous year.funding originally targeted for the 2005 Demonstration Project. The final rule for the 2006 Medicare Physician Fee Schedule Payment Final Rule issued in November 2005 reduced payments for physician services in 2006 by approximately 4.4% on average. However due to the uncertainties surroundingrecently passed legislation will eliminate this reduction for 2006. Because we cannot accurately predict the impact of any such changes on how, or under what circumstances, healthcare providers will prescribe or administer our products, we cannot estimate the full impact of the MMA on our business. However, we believe that it is not likely to be significant to our business in 2006. For additional information on reimbursement we are unsure that such historical sales trends will continue.
Aranesp®
For the years ended December 31, 2005, 2004, and 2003, and 2002, total EPOGEN® and Aranesp®Aranesp® sales by geographic region were as follows (amounts in millions):
|
| 2005 |
| Change |
| 2004 |
| Change |
| 2003 |
| |||||||
Aranesp® — U.S. |
| $ | 2,104 |
|
| 37 | % |
| $ | 1,533 |
|
| 56 | % |
| $ | 980 |
|
Aranesp® — International |
| 1,169 |
|
| 24 | % |
| 940 |
|
| 67 | % |
| 564 |
| |||
Total Aranesp® |
| $ | 3,273 |
|
| 32 | % |
| $ | 2,473 |
|
| 60 | % |
| $ | 1,544 |
|
2004 | Change | 2003 | Change | 2002 | |||||||||||||||||
EPOGEN® — U.S. | $ | 2,601 | 7 | % | $ | 2,435 | 8 | % | $ | 2,261 | |||||||||||
Aranesp® — U.S. | 1,533 | 56 | % | 980 | 244 | % | 285 | ||||||||||||||
Aranesp® — International | 940 | 67 | % | 564 | 331 | % | 131 | ||||||||||||||
Aranesp® — Total | 2,473 | 60 | % | 1,544 | 271 | % | 416 | ||||||||||||||
Total EPOGEN® and Aranesp® | $ | 5,074 | 28 | % | $ | 3,979 | 49 | % | $ | 2,677 | |||||||||||
The increase for the year ended December 31, 2003 reflects the mid-year 2002 approval of Aranesp® for the treatment of chemotherapy-induced anemia in the United States and Europe.
The increase in U.S. Aranesp® sales for the year ended December 31, 2004 was driven by demand, which benefited from share gains in both oncology and nephrology and market growth. Sales growth was impacted by higher incentives earned by customers attaining higher sales volumes and growth under performance-based contracts. The increase in international Aranesp® sales for the year ended December 31, 2004 was principally driven by demand, and to a lesser extent, favorable changes in foreign currency exchange rates. International Aranesp® sales growth for 2004 also benefited by $92 million from foreign currency exchange rate changes.
For 2006, we believe Aranesp® sales growth will be driven primarily by market growth and greater penetration from extended dosing. However, we believe future worldwide Aranesp® sales growth will be dependent, in part, on such factors as: reimbursement by third-party payers (including governments and private insurance plans) (see “Item 1A. Risk Factors — Our sales depend on payment and reimbursement from third-party payers, and, to the extent that reimbursement for our products is reduced, this could negatively impact the utilization of our products.”); cost containment pressures from governments and private insurers on health care providers; governmental or private organization regulations or guidelines
relating to the use of our products; government programs such as the 2006 Demonstration Project; penetration of new and existing markets; patient population growth; the effects of pricing strategies; competitive products or therapies, including biosimilar products in Europe; the development of new treatments for cancer; and changes in foreign currency exchange rates. Further, sales of Aranesp® have been and may continue to be benefited by its use in U.S. hospital dialysis clinics to treat anemia associated with chronic renal failure instead of EPOGEN®. This conversion is expected to stabilize by mid 2006.
EPOGEN®
|
| 2005 |
| Change |
| 2004 |
| Change |
| 2003 |
| |||||||
|
| (Amounts in millions) |
| |||||||||||||||
EPOGEN® — U.S. |
| $ | 2,455 |
|
| (6 | )% |
| $ | 2,601 |
|
| 7 | % |
| $ | 2,435 |
|
EPOGEN® sales for the year ended December 31, 2005 decreased primarily due to lower demand, unfavorable changes in wholesaler inventory levels, and an unfavorable revised estimate of dialysis demand, primarily spillover, for prior quarters. Demand for 2005 was affected by conversion to Aranesp® in the U.S. hospital dialysis clinics, which has represented approximately 10% of the EPOGEN® business, and reflects higher sales incentives. This conversion to Aranesp® is expected to stabilize by mid 2006. Demand for EPOGEN® in the freestanding dialysis clinics remains consistent with patient population growth at approximately 3% to 4%. Spillover is a result of our contractual relationship with Johnson & Johnson (see “Summary of Critical Accounting Policies — EPOGEN® revenue recognition” and Note 1, “Summary of significant accounting policies — Product sales” to the Consolidated Financial Statements).
For the year ended December 31, 2004, the growth in reported EPOGEN® sales was primarily driven by demand, which reflects dialysis patient population growth and a continued focus in the renal community on patient outcomes, and to a lesser extent, increases in wholesaler inventory levels.
We believe EPOGEN® should experience sales growth in reported EPOGEN® sales was2006 primarily dueas a result of patient population growth and the stabilization of conversion to demand, and to a lesser extent, spillover (See “Summary of Critical Accounting Policies — EPOGEN® revenue recognition” and Note 1, “Summary of significant accounting policies — Product sales” to the consolidated financial statements). Demand was driven by growthAranesp® in the U.S. hospital dialysis patient population and improved patient outcomes.
30
Neulasta®/NEUPOGEN®
For the years ended December 31, 2005, 2004, and pricing strategies (see Aranesp® below), we would expect further competition between EPOGEN®2003, total Neulasta® and Aranesp® for the treatment of anemia associated with chronic renal failure for patients who are on dialysis.NEUPOGEN® (Filgrastim) sales by geographic region were as follows (amounts in millions):
|
| 2005 |
| Change |
| 2004 |
| Change |
| 2003 |
| |||||||
Neulasta® — U.S. |
| $ | 1,900 |
|
| 29 | % |
| $ | 1,476 |
|
| 26 | % |
| $ | 1,175 |
|
NEUPOGEN® — U.S. |
| 805 |
|
| 3 | % |
| 778 |
|
| (12 | )% |
| 881 |
| |||
U.S. Neulasta®/NEUPOGEN® — Total |
| 2,705 |
|
| 20 | % |
| 2,254 |
|
| 10 | % |
| 2,056 |
| |||
Neulasta® — International |
| 388 |
|
| 47 | % |
| 264 |
|
| 230 | % |
| 80 |
| |||
NEUPOGEN® — International |
| 411 |
|
| 4 | % |
| 397 |
|
| 3 | % |
| 386 |
| |||
International Neulasta®/NEUPOGEN® — Total |
| 799 |
|
| 21 | % |
| 661 |
|
| 42 | % |
| 466 |
| |||
Total Worldwide Neulasta®/NEUPOGEN® |
| $ | 3,504 |
|
| 20 | % |
| $ | 2,915 |
|
| 16 | % |
| $ | 2,522 |
|
The increase in U.S. Aranesp®Neulasta®/NEUPOGEN® sales for the year ended December 31, 2005 was driven primarily by demand for Neulasta®, which benefited from recent guidelines recommending earlier use. U.S. Neulasta®/NEUPOGEN® sales, Neulasta® in particular, also benefited from a label extension based on new clinical data demonstrating the value of first cycle use in moderate risk chemotherapy regimens. In addition, U.S. sales growth was slightly impacted by higher incentives earned by customers attaining higher sales volumes and growth under performance-based contracts. Although the ASPs for U.S. Neulasta® have trended downward during 2005, we believe that they began to stabilize during the fourth quarter of 2005. The increase in international Neulasta®/NEUPOGEN® sales for the year ended December 31, 2005, was driven primarily by demand for Neulasta®. International Neulasta®/NEUPOGEN® sales for 2005 also benefited by $18 million from foreign currency exchange rate changes.
The increase in U.S. Neulasta®/NEUPOGEN® sales for the year ended December 31, 2004 was primarily driven by demand for Neulasta®, which benefited from market share gains in both oncology and nephrology and market growth.new clinical data demonstrating the value of first cycle use. Sales growth was impacted by higher incentives earned by customers attaining higher sales volumes and growth under performance-based contracts. The increase in international Aranesp®Neulasta®/NEUPOGEN® sales for the year ended December 31, 2004 was principally driven byprimarily due to demand and to a lesser extent, favorable changes in foreign currency exchange rates. International Aranesp® sales growth for 2004 benefited by $92 million from foreign currency exchange rate changes.
We believe that 2006 sales growth for Neulasta®/NEUPOGEN® will be primarily driven by greater first cycle use due to increased awareness of febrile neutropenia. However, future worldwide Aranesp®Neulasta®/NEUPOGEN® sales growth will be dependent, in part, on such factors as: reimbursement by third partythird-party payers (including governments and private insurance plans) (see “Factors That May Affect Amgen“Item 1A. Risk Factors — Our sales depend on payment and reimbursement from third-party payers, and, to the extent that reimbursement for our products is reduced, this could negatively impact the utilization of our products.”); cost containment pressures from governments and private insurers on health care providers; governmental or private organization regulations or guidelines relating to the use of our products; penetration of new and existing markets; patient population growth;government programs such as the effects of pricing strategies; competitive products or therapies, including follow-on biologic products in Europe; the development of new treatments for cancer; and changes in foreign currency exchange rates.
2004 | Change | 2003 | Change | 2002 | |||||||||||||||||
Neulasta® — U.S. | $ | 1,476 | 26 | % | $ | 1,175 | 153 | % | $ | 464 | |||||||||||
Neulasta® — International | 264 | 230 | % | 80 | N/A | — | |||||||||||||||
Neulasta® — Total | $ | 1,740 | 39 | % | $ | 1,255 | 170 | % | $ | 464 | |||||||||||
NEUPOGEN® — U.S. | 778 | (12 | )% | 881 | (15 | )% | 1,042 | ||||||||||||||
NEUPOGEN® — International | 397 | 3 | % | 386 | 14 | % | 338 | ||||||||||||||
NEUPOGEN® — Total | 1,175 | (7 | )% | 1,267 | (8 | )% | 1,380 | ||||||||||||||
Total Neulasta® and NEUPOGEN® | $ | 2,915 | 16 | % | $ | 2,522 | 37 | % | $ | 1,844 | |||||||||||
31
Neulasta®. However, we believe that most of the conversion in the United States has occurred. We believe thatIn Europe, we are experiencing conversion of NEUPOGEN®plan to continue actively converting NEUPOGEN® patients to Neulasta® in Europe, but we believe that this conversion will occurNeulasta®, emphasizing its less frequent dosing requirements as compared to a lesser extent than that experienced in the United States.NEUPOGEN®. However, we cannot accurately predict the rate or timing of future conversion of NEUPOGEN®NEUPOGEN® patients to Neulasta®Neulasta® in Europe.
ENBREL
For the years ended December 31, 2005, 2004, and 2003, and 2002, total ENBREL®ENBREL sales by geographic region were as follows (amounts in millions):
|
| 2005 |
| Change |
| 2004 |
| Change |
| 2003 |
| |||||||
ENBREL — U.S. |
| $ | 2,470 |
|
| 35 | % |
| $ | 1,827 |
|
| 46 | % |
| $ | 1,254 |
|
ENBREL — International |
| 103 |
|
| 41 | % |
| 73 |
|
| 59 | % |
| 46 |
| |||
Total ENBREL |
| $ | 2,573 |
|
| 35 | % |
| $ | 1,900 |
|
| 46 | % |
| $ | 1,300 |
|
2004 | Change | 2003 | Change | 2002 | |||||||||||||||||
ENBREL® — U.S. | $ | 1,827 | 46 | % | $ | 1,254 | 262 | % | $ | 346 | |||||||||||
ENBREL® — International | 73 | 59 | % | 46 | 188 | % | 16 | ||||||||||||||
Total ENBREL® | $ | 1,900 | 46 | % | $ | 1,300 | 259 | % | $ | 362 | |||||||||||
32
We believe 2006 sales for the year ended December 31, 2003 were primarilygrowth will be driven by the addition of new patientsincreased penetration in both the rheumatology and dermatology. The increasedermatology settings and as a result of ENBREL being eligible for coverage from the prior year reflects that we only recorded ENBREL® salesU.S. government under Medicare Program Part D beginning on July 16, 2002, subsequent to the close of the Immunex acquisition. These sales were adversely impacted by supply constraints.
Selected operating expenses
The following table summarizes selected operating expenses for the years ended December 31, 2005, 2004, 2003, and 20022003 (amounts in millions):
|
| 2005 |
| Change |
| 2004 |
| Change |
| 2003 |
| |||||||
Product sales |
| $ | 12,022 |
|
| 20 | % |
| $ | 9,977 |
|
| 27 | % |
| $ | 7,868 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Cost of sales (excludes amortization of acquired intangible assets) |
| $ | 2,082 |
|
| 20 | % |
| $ | 1,731 |
|
| 29 | % |
| $ | 1,341 |
|
% of product sales |
| 17 | % |
|
|
|
| 17 | % |
|
|
|
| 17 | % | |||
Research and development |
| $ | 2,314 |
|
| 14 | % |
| $ | 2,028 |
|
| 23 | % |
| $ | 1,655 |
|
% of product sales |
| 19 | % |
|
|
|
| 20 | % |
|
|
|
| 21 | % | |||
Write-off of acquired in-process research and development |
| — |
|
|
|
|
| $ | 554 |
|
|
|
|
| — |
| ||
Selling, general and administrative |
| $ | 2,790 |
|
| 9 | % |
| $ | 2,556 |
|
| 31 | % |
| $ | 1,957 |
|
% of product sales |
| 23 | % |
|
|
|
| 26 | % |
|
|
|
| 25 | % |
2004 | 2003 | 2002 | ||||||||||||
Product sales | $ | 9,977 | $ | 7,868 | $ | 4,991 | ||||||||
Operating expenses: | ||||||||||||||
Cost of sales (excludes amortization of acquired intangible assets) | $ | 1,731 | $ | 1,341 | $ | 736 | ||||||||
% of product sales | 17 | % | 17 | % | 15 | % | ||||||||
Research and development | $ | 2,028 | $ | 1,655 | $ | 1,117 | ||||||||
% of product sales | 20 | % | 21 | % | 22 | % | ||||||||
Write-off of acquired in-process research and development | $ | 554 | $ | — | $ | 2,992 | ||||||||
Selling, general and administrative | $ | 2,556 | $ | 1,957 | $ | 1,449 | ||||||||
% of product sales | 26 | % | 25 | % | 29 | % |
Cost of sales
Cost of sales, which excludes the amortization of acquired intangible assets (see “Consolidated Statements of Operations”), increased 29%20% for the year ended December 31, 2005, primarily due to higher sales volumes. Costs of sales for 2005 was also impacted by the $47 million write-off of a semi-completed manufacturing asset that will not be used due to a change in manufacturing strategy. Cost of sales as a percentage of sales for 2006 is expected to be comparable to 2005.
Cost of sales for the year ended December 31, 2004, increased 29% primarily driven by higher sales volumes, and to a lesser extent, higher manufacturing costs due to changes in the product mix. In 2005, we expect cost of sales to be affected by further product mix changes, including the impact of higher ENBREL® sales as it has significantly higher manufacturing costs
Research and royalty expenses as compared to our other principal products.
R&D expenses are primarily comprised of salaries and benefits associated with R&D personnel, overhead and occupancy costs, clinical trial and related clinical manufacturing costs, contract services, and other outside costs. R&D expenses increased 23%14% for the year ended December 31, 2005, primarily driven by higher staff-related costs, which included the full year integration of the Tularik operations and the buildup of our R&D organization to support the growth in our pipeline. The 2005 growth also reflects higher costs relating to key clinical trials and clinical manufacturing, including the continued ramp up of large-scale phase 3 trials for denosumab (formally known as AMG 162), Amgen’s investigational therapy for bone loss. In 2005, staff-related costs and clinical trial and clinical manufacturing costs increased approximately $171 million and $118 million, respectively. In 2006, we expect our total R&D expenses to increase 30-40% primarily due to higher staff-related costs and a significant increase in clinical trial and clinical manufacturing costs. Staff-related costs are expected to increase due to a significant increase in personnel throughout 2006. Clinical trial and clinical manufacturing costs are expected to increase due to several large ongoing late-stage clinical trials initiated in 2005 as well as additional planned trials for 2006. These include trials in denosumab, panitumumab, AMG 706, Aranesp®, Sensipar®, and ENBREL (see “Item 1. Business — Research and Development and Selected Product Candidates.”) Our expected increase in R&D costs for 2006 does not include any incremental R&D costs associated with the proposed acquisition of Abgenix (see “Item 1. Business — Joint Ventures and Business Relationships — Abgenix, Inc.”)
In 2004, R&D expenses increased 23% over the prior year, primarily driven by higher staff-related costs including the addition of R&D personnel from Tularik, and to a lesser extent, higher costs relating to clinical manufacturing and key clinical trials costs, including the commencement of large-scale
33
Acquired in-process research and clinical trial costs to support our development efforts for AMG 162 and Aranesp® (TREAT) (see “Item 1. Business — Research and Development and Selected Product Candidates”).
IPR&D represents an estimate of the fair value of the various R&D projects and technologies in the acquired company’s pipeline that, as of the acquisition date, had not reached technological feasibility and had no alternative future use. In 2004, and 2002, we incurred chargesa charge of $554 million, and $2,992 million, respectively, associated with writing off the fair value of IPR&D acquired in the Tularik and Immunex acquisitions, respectivelyacquisition (see Note 7, “Acquisitions” in the consolidated financial statements)Consolidated Financial Statements). Assuming successful completion of the proposed acquisition of Abgenix expected to close by April 2006, we would expect to incur a charge for IPR&D. However, the amount of this charge has not yet been determined.
62
Selling, general and administrative (“
SG&A”)&A expenses are primarily comprised of salaries and benefits associated with sales and marketing, finance, legal, and other administrative personnel; outside marketing expenses; overhead and occupancy costs; and other general and administrative costs. SG&A increased 9% for the year ended December 31, 2005, primarily due to higher outside marketing expenses in support of our principal products. Outside marketing expenses include the Wyeth profit share related to ENBREL, which has increased due to ENBREL sales growth. In 2005, outside marketing expenses and staff-related costs increased approximately $241 million and $42 million, respectively. During 2005, SG&A as a percentage of sales decreased from 26% to 23% as we leveraged our prior year SG&A spending. In 2006, we expect higher Wyeth profit share expense due to expected ENBREL sales growth. However, total SG&A expense growth for 2006 is expected to be comparable to 2005 growth to allow greater investment in the pipeline.
In 2004, SG&A increased 31% for the year ended December 31, 2004, primarily due to higher staff-related costs and higher outside marketing expenses, which reflects higher spending to support our products in competitive markets and sales growth. Outside marketing expenses include the Wyeth profit share related to ENBREL®, which has increased due to ENBREL® sales growth. In 2004, staff-related costs and outside marketing expenses increased approximately $255 million and $236 million, respectively.
Other items, net
In 2005, we expect higher Wyeth profit share expense due to expected ENBREL® sales growth; however, we expect to see some leveragingother items, net consisted of our 2004 SG&A spending during 2005. Additionally, SG&A expenses in the fourth quarter are expected to increase over the previous three quarters in a trend similar to that which has occurred in previous years.
In 2003, other items, net consisted of a benefit for the recovery of costs and expenses associated with a legal award related to an arbitration proceeding with Johnson & Johnson of $74 million, partially offset by a charitable contribution to the Amgen Foundation of $50 million.
(See Note 12, “Other items, net”, to the consolidated financial statementsConsolidated Financial Statements for further discussion.
Income taxes
Our effective tax rate was 30.4%24.5%, 28.8%30.4%, and (103.3%)28.8% for 2005, 2004, and 2003 and 2002 respectively.
Our effective tax rate for 2005 has decreased primarily due to favorable resolution of prior year foreign tax credit claims and research and development tax credits with the Internal Revenue Service (“IRS”), and the absence of the write-off of non-deductible IPR&D costs in connection with the acquisition of Tularik in 2004. This decrease was partially offset by the tax on the repatriation of foreign earnings in 2005 under the American Jobs Creation Act of 2004.
The 2004 has increased primarilyeffective tax rate was higher than the 2003 effective tax rate due to the write-off of non-deductible IPR&D costs of $554 million in connection with the acquisition of Tularik. This increase was partially offset by an increase in the amount of foreign earnings intended to be invested indefinitely outside of the United States.
34
On October 22, 2004, the President of the United States signed the American Jobs Creation Act, of 2004 (the “Jobs Act”), which providesprovided a temporary incentive to repatriate undistributed foreign earnings. However, uncertainty remains as to how to interpret numerous provisions inOne provision of the American Jobs Act. As such,Creation Act effectively reduced the tax rate by providing an 85% dividend-received deduction for certain dividends from controlled foreign corporations. In the fourth quarter of 2005, we are currently evaluatingrepatriated $500 million of foreign earnings, which was the maximum amount of foreign earnings qualifying for the reduced tax rate. The tax expense incurred on the repatriation provisions of the Jobs Act and our 2004 results of operations do not reflect any impact relating to such repatriation provisions.
(See Note 3, “Income taxes”, to the consolidated financial statementsConsolidated Financial Statements for further discussion.)
Stock option expense
In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard (“(‘SFAS”) No. 123R, “Share-Based Payment”.Payment.” Subsequently, the Securities and Exchange Commission (“SEC”) provided for a phase-in implementation process for SFAS No. 123R, will requirewhich required us to adopt the new accounting standard no later than January 1, 2006. SFAS No. 123R requires us to account for our stock options using a fair-value-based method as described in such statement and recognize the resulting compensation expense in our financial statements. We currently accountPrior to January 1, 2006, we accounted for our employee stock options using the intrinsic value method under APB No. 25, “Accounting for Stock Issued to Employees” and related Interpretations, which generally results in no employee stock option expense. We plan to adoptadopted SFAS No. 123R using the modified-retrospective transition method on JulyJanuary 1, 20052006 and do not plan to restate our financial statements for periods ending prior periods. We plan to January 1, 2005. We expect that our after tax expense for stock options forcontinue to use the full twelve monthsBlack-Scholes option valuation model in 2005 will range between $170 million to $220 million, or $0.13 to $0.17 per share. The estimated after tax expense for 2005 is less thanestimating the corresponding pro forma expense amount for 2004 ($292 million, see Note 1, “Summary of significant accounting policies — Employee stock options” in the consolidated financial statements) principally due to a reduction in the estimated number of stock options to be granted in 2005 and a reduction in the estimated fair value of the stock option awards issued under SFAS No. 123R. The adoption of SFAS No. 123R will have a material impact on our stock options, which is primarily due to a lower estimated future volatilityresults of our stock price, reflecting the consideration of implied volatility in our publicly traded equity instruments. However, theoperations. The actual annual stock option expense in 20052006 is dependent on a number of factors including the number of stock options granted, our common stock price and related expected volatility, and other inputs utilized in estimating the fair value of the stock options at the time of grant. Accordingly,We expect the adoptionimpact of stock option compensation expense to be in the range of $0.12 to $0.14 per share in 2006 compared to $0.19 for 2005 (see Note 1, “Summary of SFAS No. 123R will havesignificant accounting policies — Employee stock options” in the Consolidated Financial Statements). The estimated impact of stock option expense for 2006 is less than the corresponding pro forma expense amount for 2005 principally due to a material impact on our resultsreduction in the estimated number of operations.
The following table summarizes selected financial data (amounts in millions):
|
| December 31, |
| December 31, |
| ||||||
Cash, cash equivalents, and marketable securities |
|
| $ | 5,255 |
|
|
| $ | 5,808 |
|
|
Total assets |
|
| 29,297 |
|
|
| 29,221 |
|
| ||
Current debt |
|
| — |
|
|
| 1,173 |
|
| ||
Non-current debt |
|
| 3,957 |
|
|
| 3,937 |
|
| ||
Stockholders’ equity |
|
| 20,451 |
|
|
| 19,705 |
|
|
December 31, | December 31, | |||||||
2004 | 2003 | |||||||
Cash, cash equivalents, and marketable securities | $ | 5,808 | $ | 5,123 | ||||
Total assets | 29,221 | 26,113 | ||||||
Current debt | 1,173 | — | ||||||
Non-current debt | 3,937 | 3,080 | ||||||
Stockholders’ equity | 19,705 | 19,389 |
We believe that existing funds, cash generated from operations, and existing sources of and access to financing are adequate to satisfy our working capital, capital expenditure and debt service requirements for the foreseeable future, as well as to support our stock repurchase programs.programs and other business initiatives, including acquisitions and licensing activities (see “Item 1. Business — Joint Ventures and Business Relationships — Abgenix, Inc.” for further discussion regarding the proposed Abgenix acquisition). However, in order to provide for greater financial flexibility and liquidity, we may raise additional capital from time to time.
35Cash, cash equivalents, and marketable securities
United States (see “Results of Operations — Income taxes”).States. If these funds are repatriated for use in our U.S. operations, additional taxes on certain of these amounts would be required to be paid. Based on our preliminary analysis to date,In the fourth quarter of 2005, we are limitedrepatriated $500 million of foreign earnings, which was the maximum amount of foreign earnings qualifying for the reduced tax rate under the American Jobs Act to repatriate up to $500 millionAct. The repatriation of these funds resulted in foreign profits to take advantagean increase in our tax provision of the 85% dividends received deduction.
The primary objectives for our marketable securities portfolio, which is primarily comprised of fixed income investments, isare liquidity and safety of principal. Investments are made with the objective of achieving the highest rate of return, consistent with these two objectives. Our investment policy limits investments to certain types of instruments issued by institutions primarily with investment grade credit ratings and places restrictions on maturities and concentration by type and issuer.
Financing arrangements
As of December 31, 2004,2005 we had Convertible Notesconvertible notes (30-year, zero-coupon senior convertible notes) with an accreted value of $2.9$1.8 billion outstanding and having an aggregate face amount of $3.95$2.36 billion and yield to maturity of 1.125% (“convertible notes”). The original issue discount of $1.13 billion is being accreted to the balance of the Convertible Notes and recognized as interest expense over the life of the Convertible Notes using the effective interest method. The holders of the Convertible Notesconvertible notes may require us to purchase, generally for cash, all or a portion of their convertible notes on various dates the earliest of which is March 1, 2005,(the “Put Option”), at a price equal to the original issuance price plus the accrued original issue discount (“accreted value”) through the purchase dates. In such event, under the terms of the Convertible Notes, we have the right to pay the purchase price in cash and/or shares of common stock, which would be issued at the then current market price. On March 2, 2005, as a result of certain holders of the Convertible Notes exercising their March 1, 2005 put option, we repurchased $1,175 million, or approximately 40%, of the outstanding Convertible Notes at their then-accreted value for cash. Concurrently, we amended the terms of the Convertible Notes to add an additional putdate. The earliest date in order to permit the remaining holders, at their option, to cause us to repurchase the Convertible Noteswas on March 1, 2006, athowever, the then-accreted value.holders of substantially all of the convertible notes did not require us to repurchase such notes on that date. The next date that the holders of these notes may require us to repurchase all or a portion of these notes is on March 1, 2007. Accordingly, the portionconvertible notes were classified as non-current in the accompanying Consolidated Balance Sheet as of December 31, 2005. Holders of the Convertible Notes outstanding at December 31, 2004 not repurchased on March 2, 2005 was classifiedconvertible notes may convert each of their convertible notes according to the terms as long-term debt (seeoutlined in Note 4, “Financing arrangements — Convertible notes” toarrangements” in the consolidated financial statements)Consolidated Financial Statements. Moody’s and Standard & Poor’s rate our outstanding convertible notes A2 and A+, respectively.
As of December 31, 2005 we had $2.0 billion of long-term notes outstanding. These long-term notes consisted of: 1) $1.0 billion of notes that bear interest at a fixed rate of 4.0% and mature in 2009 (the “2009 Notes,”), and 2) $1.0 billion of notes that bear interest at a fixed rate of 4.85% and mature in 2014 (the “2014 Notes.”) Moody’s and Standard & Poor’s rate our outstanding long-term senior notes A2 and A+, respectively.
As of December 31, 2005, we had $200 million of additional long-term debt securities outstanding. These long-term debt securities consisted of: 1) $100 million of debt securities that bear interest at a fixed rate of 6.5% and mature in 2007 (the “2007 Notes”) under a $500 million debt shelf registration (the “$500 Million Shelf”), and 2) $100 million of debt securities that bear interest at a fixed rate of 8.1% and mature in 2097 (the “Century Notes”). Our Convertible Notes areoutstanding long-term debt is rated A2 by Moody’s and A+ by Standard & Poor’s.
In February 2006, we issued $2.5 billion principal amount of convertible notes due in 2011 (the “2011 Convertible Notes”) and $2.5 billion principal amount of convertible notes due in 2013 (the “2013 Convertible Notes”) in a private placement. The 2011 Convertible Notes and the 2013 Convertible Notes were issued at par and pay interest at a rate of 0.125% and 0.375%, respectively. The 2011 Convertible Notes and the 2013 Convertible Notes may convert eachbe convertible based on an initial conversion rate of their12.5247 shares and 12.5814 shares, respectively, per $1,000 principal amount of notes into 8.8601 shares(which represents an initial conversion price of approximately $79.84 and $79.48 per share, respectively). The 2011 Convertible Notes and the 2013 Convertible Notes may only be converted: 1) during any calendar quarter beginning after June 30, 2006 if the closing price of our common stock exceeds 130% of Amgen (the “conversion rate”) at any time on or before the maturity date. Therespective conversion price per share asduring a defined period at the end of any day willthe previous quarter, 2) if we make specified distributions to holders
of our common stock or specified corporate transactions occur, or 3) one month prior to the respective maturity date. Upon conversion, a holder would receive: 1) cash equal to the original issuance price pluslesser of the accrued original issue discount to that day, divided by the conversion rate, or $83.22 per share as of December 31, 2004.
Concurrent with the issuance of the 2011 Convertible Notes and the 2013 Convertible Notes, we purchased convertible note hedges in private transactions. The convertible note hedges allow us to receive shares of our common stock and/or cash from the counterparties to the transactions equal to the amounts of common stock and/or cash related to the excess conversion value that we would pay to the holders of the 2011 Convertible Notes and the 2013 Convertible Notes upon conversion. These transactions will terminate the earlier of the maturity dates of the related notes or the first day none of the related notes remain outstanding due to conversion or otherwise. The convertible note hedges, which cost an aggregate of approximately $1.5 billion, will be recorded as a reduction of equity.
Also concurrent with the issuance of the 2011 Convertible Notes and the 2013 Convertible Notes, we sold warrants to acquire shares of our common stock at an exercise price of $107.90 per share in a private placement. Pursuant to these transactions, warrants for general corporate purposes, including capital expenditures31.3 million shares of our common stock may be settled in May 2011 and working capital.
We have a $1.0 billion five-year unsecured revolving credit facility to be used for general corporate purposes, including commercial paper support.support, which matures in November 2010. Additionally, we increased the size of ourhave a commercial paper authorization by $1.0 billionprogram, which provides for unsecured, short-term borrowings of up to an aggregate of $1.2 billion. No amounts were outstanding under the credit facility or commercial paper program as of December 31, 2004.
We have a $1.0 billion shelf registration (the “$1 Billion Shelf”) which allows us to issue debt securities, common stock, and associated preferred share purchase rights, preferred stock, warrants to purchase debt securities, common stock or preferred stock, securities purchase contracts, securities purchase units and depositary shares. The $1 Billion Shelf was established to provide for further financial flexibility and the securities available for issuance may be offered from time to time with terms to be determined at the time of issuance. As of December 31, 2004,2005, no securities had been issued under the $1 Billion Shelf.
36
Cash flows
The following table summarizes our cash flow activity for the years ended December 31, 2005, 2004, 2003, and 20022003 (amounts in millions):
|
| 2005 |
| 2004 |
| 2003 |
| |||
Net cash provided by operating activities |
| $ | 4,911 |
| $ | 3,697 |
| $ | 3,567 |
|
Net cash used in investing activities |
| (59 | ) | (1,399 | ) | (3,210 | ) | |||
Net cash used in financing activities |
| (4,538 | ) | (1,609 | ) | (1,372 | ) | |||
2004 | 2003 | 2002 | ||||||||||
Net cash provided by operating activities | $ | 3,697 | $ | 3,567 | $ | 2,249 | ||||||
Net cash used in investing activities | (1,399 | ) | (3,210 | ) | (2,864 | ) | ||||||
Net cash (used in) provided by financing activities | (1,609 | ) | (1,372 | ) | 1,778 |
Operating
Cash provided by operating activities has been and is expected to continue to be our primary recurring source of funds. The increase in cash provided by operating activities during the year ended December 31, 2005 resulted primarily from higher cash receipts from customers driven by the growth in product sales and timing differences of cash payments relating to our tax and other accrued liabilities (see Consolidated Statements of Cash Flows).
The increase in cash provided by operations for 2004 resulted primarily from higher cash receipts from customers driven by the growth in product sales. This increase was partially offset primarily by the timing of cash payments relatingrelated to our tax liabilities (See consolidated statements(see Consolidated Statements of cash flows)Cash Flows).
Investing
Capital expenditures totaled $1,336$867 million in 20042005 compared with $1,357 million$1.3 billion in 2004 and $1.4 billion in 2003. Capital expenditures in 2005 primarily related to the prior year. Puerto Rico manufacturing expansion which included a new manufacturing plant for the commercial production of Neulasta® and NEUPOGEN® approved by the FDA in September 2005, Thousand Oaks site expansion, Colorado manufacturing expansion, and site development to support the new ENBREL manufacturing plant in Rhode Island, also approved by the FDA in September 2005.
Capital expenditures in 2004 primarily related to the Thousand Oaks site expansion, the new ENBREL®ENBREL manufacturing plant in Rhode Island, and the Puerto Rico manufacturing expansion. Capital expenditures in 2003 primarily related to the new ENBREL®ENBREL manufacturing plant in Rhode Island, the Puerto Rico manufacturing expansion, and the Seattle research center which was completed in January 2004.
We currently estimate 20052006 spending on capital projects and equipment to be consistent with 2004.in excess of $1 billion as we continue to increase our manufacturing and R&D operations globally. The most significant of these expenditures are expected to relate tobe incurred with the start of engineering and construction of a new ENBREL®process development, bulk manufacturing plantand formulation, fill, and finish facility in Rhode Island,Ireland, the further expansion of the Puerto Rico bulk manufacturing, formulation, fill, and finish facilities, the expansion of R&D operations at existing sites in the United States and the Thousand Oaks site expansion.United Kingdom and the construction of a new development center in Uxbridge, United Kingdom. For additional information on our planned capital projects, see “Item 1. Business — Manufacturing and Raw Materials.”
In addition, we expect to spend approximately $2.2 billion by the end of April 2006, in conjunction with our proposed acquisition of Abgenix. We will also assume Abgenix’s debt in connection with this proposed transaction.
Financing
In December 2003,2004, the Board of Directors (the “Board”) authorized us to repurchase up to $5.0 billion of common stock. Additionally, in December 2004,2005, the Board authorized us to repurchase up to an additional $5.0 billion of common stock. As of December 31, 2004, $5,969 million2005, $6.5 billion was available for stock repurchases.repurchases under these programs. The manner of purchases, amount we spend, and the number of shares repurchased varieswill vary based on a variety of factors including the stock price and blackout periods in which we are restricted from repurchasing shares.shares, and may include private block purchases as well as market transactions. Repurchases under our stock repurchase programs reflect, in part, our confidence in the long-term value of Amgen common stock. Additionally, we believe that it is an effective way of returning cash to our stockholders. A summary of our repurchase activity for the years ended December 31, 2005, 2004, and 2003 is as follows (amounts in millions):
|
| 2005 |
| 2004 |
| 2003 |
| |||||||||||||||
|
| Shares |
| Dollars |
| Shares |
| Dollars |
| Shares |
| Dollars |
| |||||||||
First quarter |
|
| 26.8 |
|
| $ | 1,675 |
|
| 10.1 |
|
| $ | 650 |
|
| 8.2 |
|
| $ | 451 |
|
Second quarter |
|
| 12.1 |
|
| 750 |
|
| 17.4 |
|
| 1,000 |
|
| 7.3 |
|
| 449 |
| |||
Third quarter |
|
| 9.5 |
|
| 769 |
|
| 24.0 |
|
| 1,398 |
|
| 4.8 |
|
| 323 |
| |||
Fourth quarter |
|
| 14.8 |
|
| 1,236 |
|
| 17.6 |
|
| 1,024 |
|
| 9.4 |
|
| 578 |
| |||
Total |
|
| 63.2 |
|
| $ | 4,430 |
|
| 69.1 |
|
| $ | 4,072 |
|
| 29.7 |
|
| $ | 1,801 |
|
2004 | 2003 | ||||||||||||||||
Shares | Dollars | Shares | Dollars | ||||||||||||||
First quarter | 10 | $ | 650 | 8 | $ | 451 | |||||||||||
Second quarter | 17 | 1,000 | 7 | 449 | |||||||||||||
Third quarter | 24 | 1,398 | 5 | 324 | |||||||||||||
Fourth quarter | 18 | 1,024 | 10 | 577 | |||||||||||||
Total | 69 | $ | 4,072 | 30 | $ | 1,801 | |||||||||||
37
On March 2, 2005, as a result of certain holders of the convertible notes exercising their March 1, 2005 put option, we issued $1.0repurchased $1.6 billion aggregate principal amount of 4.00% seniorconvertible notes due 2009 (the “2009 Notes”) and $1.0at their then-accreted value for $1.2 billion aggregate principal amountin cash, or approximately 40%, of 4.85% senior notes due 2014 (the “2014 Notes”). The net proceeds of $1,989 million are intended to be used for purchases of shares under our stock repurchase program and for general corporate purposes, including capital expenditures and working capital.
We receive cash from the exercise of employee stock options and proceeds from the sale of stock pursuant to the employee stock purchase plan. Employee stock option exercises and proceeds from the sale of stock by us pursuant to the employee stock purchase plans provided $1.1 billion, $453 million, and $529 million of cash during the years ended December 31, 2005, 2004, and 2003 respectively. Proceeds from the exercise of employee stock options will vary from period to period based upon, among other factors, fluctuations in the market value of our stock relative to the exercise price of such options.
In November 2004, we issued $1.0 billion aggregate principal amount of 4.00% senior notes due 2009 and $1.0 billion aggregate principal amount of 4.85% senior notes due 2014. The net proceeds totaled $1,989 million and were intended for purchases of stock under the stock repurchase program then in affect and for general corporate purposes, including capital expenditures and working capital.
In February 2006, we raised $5.0 billion of cash proceeds by issuing convertible notes at par in a private placement. Of the $5.0 billion convertible notes, $2.5 billion pay interest at 0.125 percent and are due in 2011 and $2.5 billion pay interest at 0.375 percent and are due in 2013. A total of $3.0 billion of the net proceeds from these debt issuances were used to repurchase common stock under our stock repurchase program. Concurrent with the issuance of the convertible notes, we purchased convertible note hedges at a cost of approximately $1.5 billion. Also in February 2006, we sold 62.8 million warrants to acquire shares of our common stock for proceeds of $774 million, 31.3 million of which may be settled in May 2011 and 31.5 million of which may be settled in May 2013. For further information on these transactions, see “Financing arrangements” above.
68
We do not have any off-balance sheet arrangements that are currently material or reasonably likely to be material to our financial position or results of operations.
Contractual obligations represent future cash commitments and liabilities under agreements with third parties, and exclude contingent liabilities for which we cannot reasonably predict future payment. Accordingly, the table below excludes contractual obligations relating to milestone and royalty payments due to third parties and purchase price consideration for proposed mergers and acquisitions (see “Item 1. Business — Joint Ventures and Business Relationships — Abgenix, Inc.”), all of which are contingent upon certain future events. Such events could include, but are not limited to, development milestones, regulatory approvals, product sales, and product sales.shareholder approval for proposed transactions. Additionally, the expected timing of payment of the obligations presented below is estimated based on current information. Timing of payments and actual amounts paid may be different depending on the timing of receipt of goods or services or changes to agreed-upon terms or amounts for some obligations.
The following chart represents our contractual obligations as of December 31, 2004,2005, aggregated by type (in millions):
Payments Due by Period | ||||||||||||||||||||
Less Than | 1-3 | 3-5 | More Than | |||||||||||||||||
Contractual Obligations | Total | 1 Year | Years | Years | 5 Years | |||||||||||||||
Long-term debt obligations(1) | $ | 6,584 | $ | 1,278 | (2) | $ | 2,068 | (2) | $ | 1,190 | $ | 2,048 | ||||||||
Operating lease obligations | 656 | 81 | 131 | 96 | 348 | |||||||||||||||
Purchase obligations(3) | 2,291 | 1,087 | 525 | 298 | 381 | |||||||||||||||
Total contractual obligations | $ | 9,531 | $ | 2,446 | $ | 2,724 | $ | 1,584 | $ | 2,777 | ||||||||||
|
| Payments due by period |
| |||||||||||||||||||
Contractual obligations |
|
|
| Total |
| Less than |
| 1-3 |
| 3-5 |
| More than |
| |||||||||
Long-term debt obligations(1) |
| $ | 5,326 |
|
| $ | 103 |
|
| $ | 2,081 | (2) | $ | 1,150 |
|
| $ | 1,992 |
|
| ||
Operating lease obligations |
| 658 |
|
| 74 |
|
| 129 |
| 94 |
|
| 361 |
|
| |||||||
Purchase obligations(3) |
| 2,879 |
|
| 1,249 |
|
| 1,014 |
| 331 |
|
| 285 |
|
| |||||||
Total contractual obligations |
| $ | 8,863 |
|
| $ | 1,426 |
|
| $ | 3,224 |
| $ | 1,575 |
|
| $ | 2,638 |
|
| ||
(1) The long-term obligation amounts in the above table differ from the related carrying amounts on the Consolidated Balance Sheet as of December 31, 2005 due to the accretion of the original issue discount on the convertible notes and the inclusion of future interest payments. Future interest payments are included on the 2007 Notes, the 2009 Notes, the 2014 Notes, and the Century Notes at fixed rates of 6.5%, 4.00%, 4.85%, and 8.1%, respectively, through maturity in 2007, 2009, 2014, and 2097, respectively. | |
38(2) Holders of the convertible notes could have required us to purchase all or a portion of the notes on specific dates as early as March 1, 2006 at the original issuance price plus accrued original issue discount (“accreted value”) through the purchase dates. However, the holders of substantially all of the convertible notes did not require us to repurchase such notes on this date. Consequently, the amounts above reflect the convertible notes’ accreted value on March 1, 2007, the next put date. (See Note 4, “Financing arrangements” to the Consolidated Financial Statements for further discussion of the terms of the convertible notes.)
ordinary course of business. Our obligation to pay certain of these amounts may be reduced based on certain future events.
The preparation of our consolidated financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the notes to the financial statements. Some of those judgments can be subjective and complex, and therefore, actual results could differ materially from those estimates under different assumptions or conditions.
Product sales, sales incentives and returns
Sales of our products other than EPOGEN®EPOGEN® (see “EPOGEN®“EPOGEN® revenue recognition” below) are recognized when shipped and title and risk of loss have passed. This typically occurs at the time products are shipped to the customer, generally a wholesale distributor.
In the United States, we utilize these wholesalers as the principal means of distributing our products to healthcare providers such as clinics, hospitals, and pharmacies. Products we sell outside the United States are principally distributed to hospitals and/or wholesalers depending upon the distribution practice in each country for which the product has been launched. We monitor the inventory levels of our products at our wholesale distributors using third-party data, and we believe that wholesaler inventories have been maintained at appropriate levels (generally two to three weeks) given end-user demand. Accordingly, historical fluctuations in wholesaler inventory levels have not significantly impacted our method of estimating sales incentives and returns.
Accruals for estimated rebates, (including Medicaid), wholesaler chargebacks, discounts, and other incentives (collectively “sales incentives”) are recorded in the same period that the related sales are recorded and are recognized as a reduction in product sales. Sales incentive accruals are based on reasonable 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 incentives are product-specific and, therefore, for any given year, can be impacted by the mix of products sold.
Reductions in product sales relating to sales incentives are comprised of the following (amounts in millions):
|
| 2005 |
| 2004 |
| 2003 |
| |||
Rebates |
| $ | 1,344 |
| $ | 1,033 |
| $ | 520 |
|
Wholesaler chargebacks |
| 1,559 |
| 1,069 |
| 553 |
| |||
Discounts and other incentives |
| 891 |
| 490 |
| 286 |
| |||
Total sales incentives |
| $ | 3,794 |
| $ | 2,592 |
| $ | 1,359 |
|
Percent of gross product sales |
| 24 | % | 20 | % | 15 | % |
2004 | 2003 | ||||||||
Rebates | $ | 1,033 | $ | 520 | |||||
Wholesaler chargebacks | 1,069 | 553 | |||||||
Discounts and other incentives | 490 | 286 | |||||||
Total sales incentives | $ | 2,592 | $ | 1,359 | |||||
Rebates earned by healthcare providers such as clinics, hospitals and pharmacies in the United States are the sales incentives that are most difficult to estimate. These rebates are performance-based offers that are primarily based on attaining contractually specifiedcontractually-specified sales volumes and growth. As a result, the calculation of
39
attributable to rebates recognized in 20042005 would have had an approximate $50$65 million effect on our reported product sales in 2004.
Wholesaler chargebacks are another type of arrangement included in “sales incentives” that relatesrelate to our contractual agreements to sell products to healthcare providers in the United States at fixed prices that are lower than the list prices we charge wholesalers. When the healthcare providers purchase our products through wholesalers at these reduced prices, the wholesaler charges us for the difference between the prices they pay us and the prices they sold the products to the healthcare providers. These chargebacks from wholesalers totaled $1,559million in 2005, $1,069 million in 2004, and $553 million in 2003. Accruals for wholesaler chargebacks are less difficult to estimate than rebates and closely approximate actual results since chargeback amounts are fixed at the date of purchase by the healthcare provider and we settle these deductions generally within a few weeks of incurring the liability.
Amounts accrued for sales incentives are adjusted when trends or significant events indicate that adjustment is appropriate. Accruals are also adjusted to reflect actual results. However, such adjustments to date have not been material to our results of operations or financial position. The following table summarizes amounts recorded in accrued liabilities regarding sales incentives (amounts in millions):
Balance at | Amounts | Balance at | ||||||||||||||
Beginning | Charged Against | End of | ||||||||||||||
of Period | Product Sales* | Payments | Period | |||||||||||||
Year ended December 31, 2004 | $ | 358 | $ | 2,592 | $ | 2,361 | $ | 589 | ||||||||
Year ended December 31, 2003 | $ | 212 | $ | 1,359 | $ | 1,213 | $ | 358 |
|
| Balance at |
| Amounts |
| Payments |
| Balance at |
| ||||||||||||
Year ended: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
December 31, 2005 |
|
| $ | 589 |
|
|
| $ | 3,794 |
|
|
| $ | 3,519 |
|
|
| $ | 864 |
|
|
December 31, 2004 |
|
| $ | 358 |
|
|
| $ | 2,592 |
|
|
| $ | 2,361 |
|
|
| $ | 589 |
|
|
* Includes immaterial amounts related to prior year product sales based on changes in estimates. Such amounts represented approximately 1% of incentive amounts charged against product sales for both 2005 and 2004.
Accruals for estimated sales returns are recorded in the same period that the related product sales are recorded and are recognized as reductions in 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 returns have been insignificant, amounting to approximately 1% of gross product sales.
EPOGEN® revenue recognition
We have the exclusive right to sell Epoetin alfa for dialysis, certain diagnostics, and all non-human, non-research uses in the United States. We granted to Johnson & Johnson a license relating to Epoetin alfa for sales in the United States for all human uses except dialysis and diagnostics. Pursuant to this license, Amgen and Johnson & Johnson are required to compensate each other for Epoetin alfa sales that either party makes into the other party’s exclusive market, sometimes referred to as “spillover”.“spillover.” Accordingly, we do not recognize product sales we make into the exclusive market of Johnson & Johnson and do recognize the product sales made by Johnson & Johnson into our exclusive market. Sales in our exclusive market are derived from our sales to our customers, as adjusted for spillover. We are employing an arbitrated audit methodology to measure each party’s spillover based on independent third-party data on shipments to end users and their estimated usage. Data on end user usage is derived in part using market sampling techniques, and accordingly, the results of such sampling can produce variability in the amount of recognized spillover. We initially recognize spillover based on estimates of shipments to end users and their usage, utilizing historical third-party data and subsequently adjust such amounts based on revised third-party data as received. Differences between initial estimates of spillover and amounts based
on revised third-party data could produce materially different amounts for recognized EPOGEN®EPOGEN® sales. However, such differences to date have not been material.
40Deferred income taxes
The American Jobs Creation Act provides a temporary incentive to repatriate undistributed foreign earnings. However, we are currently evaluating the repatriation provisionswas enacted on October 22, 2004. One provision of the American Jobs Creation Act as there is uncertainty aseffectively reduced the tax rate on a qualifying repatriation of earnings by providing for an 85% dividend-received deduction. In the fourth quarter of 2005, we repatriated $500 million under the American Jobs Creation Act, which was the maximum amount of foreign earnings qualifying for the reduced rate. The tax expense incurred on this repatriation was approximately $43 million. We intend to howcontinue to interpret manyindefinitely reinvest any undistributed earnings of its provisions.
Contingencies
In the ordinary course of business, we are involved in various types of legal proceedings such as intellectual property disputes, contractual disputes, tax claims, and governmental investigations. Certain of these proceedings are discussed in “Item 3. Legal Proceedings”.Proceedings.” We record accruals for such contingencies to the extent we conclude their occurrence is both probable and estimable. We consider all relevant factors when making assessments regarding these contingencies.
Our income tax returns are routinely audited by the Internal Revenue ServiceIRS and various state and foreign tax authorities. Significant disputes may arise with these tax authorities involving issues of the timing and amount of deductions and allocations of income among various tax jurisdictions because of differing interpretations of tax laws and regulations. We periodically evaluate our exposures associated with tax filing positions. While we believe our positions comply with applicable laws, we record liabilities based upon estimates of the ultimate outcomes of these matters.
While it is not possible to predict accurately or determine the eventual outcome of these matters, we do not believe any such items currently pending will have a material adverse effect on our annual consolidated financial statements, although an adverse resolution in any quarterly reporting period of one or more of these items could have a material impact on the results of operations for that period.
Valuation of acquired intangible assets
We have acquired and continue to acquire intangible assets primarily via the tangibleacquisition of biotechnology companies. These intangible assets primarily consist of technology associated with human therapeutic products and in-process product candidates as well as goodwill arising in business combinations. When significant identifiable intangible assets are acquired, and liabilities assumed based on their estimated fair values at the acquisition date. Anan independent third-party valuation firm wasis engaged to assist in determining the fair values of various research and development projects and technologies in Turlarik’s pipeline that,these assets as of the acquisition date, had not reached technological feasibilitydate. Discounted cash flow models are typically used in these valuations, and had no alternative future use. This valuation requiredthese models require the use of significant estimates and assumptions including but not limited to:
· determining the timing and expected costs to complete the in-process projects,
· projecting regulatory approvals,
· estimating future cash flows from product sales resulting from completed products and in-process projects,
· and developing appropriate discount rates and probability rates by project.
We believe the fair values assigned to the intangible assets acquired and liabilities assumed are based upon reasonable estimates and assumptions given current available facts and circumstances. However, certain estimates for the purchase price allocation may change due to unanticipated events and as subsequent information becomes available.
41
42
43
44
45
46
47
48
49
50
51
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following tables provide information about our financial instruments that are sensitive to changes in interest rates. For our investment portfolio and debt obligations, the tables present principal cash flows and related weighted-average interest rates by expected maturity dates. Additionally, we have assumed our available-for-sale debt securities, comprised primarily of corporate debt instruments and treasury securities, are similar enough to aggregate those securities for presentation purposes. Interest income earned on our fixed income investment portfolio is impacted by fluctuations in U.S. interest rates upon reinvestment of funds received on maturity or sale of securities at the then current market rates. Changes in interest rates do not affect interest expense incurred on our 2007 Notes, 2009 Notes, 2014 Notes, Century Notes and convertible notes because they bear interest at fixed rates. However, in 2003 and 2004, we entered into interest rate swap agreements, which qualify and are designated as fair value hedges, to protect against possible increases in value of our non-convertible notes, which swapped fixed interest payments for variable interest payments over the lives of the respective notes. For the interest rate swaps, the tables present the notional amounts and related weighted-average interest rates by contractual maturity date. Variable rates relating to the interest
52
Interest Rate Sensitivity
Principal (Notional) Amount by Expected Maturity as of December 31, 2005
(Dollars in millions)
Average Interest Rate
|
| 2006 |
| 2007 |
| 2008 |
| 2009 |
| 2010 |
| There- |
| Total |
| Fair |
| ||||||||||
Available-for-sale debt securities |
| $ | 2,926 |
| $ | 470 |
| $ | 585 |
| $ | 309 |
| $ | 248 |
| $ | 541 |
| $ | 5,079 |
|
| $ | 5,049 |
|
|
Average interest rate |
| 1.7 | % | 4.4 | % | 4.1 | % | 4.2 | % | 4.1 | % | 4.3 | % |
|
|
|
|
|
| ||||||||
Medium and long-term notes |
| — |
| $ | 100 |
| — |
| $ | 1,000 |
| — |
| $ | 1,100 |
| $ | 2,200 |
|
| $ | 2,201 |
|
| |||
Average interest rate |
| — |
| 6.5 | % | — |
| 4.0 | % | — |
| 5.1 | % |
|
|
|
|
|
| ||||||||
Convertible notes(1) |
| — |
| $ | 1,782 |
| — |
| — |
| — |
| — |
| $ | 1,782 |
|
| $ | 1,837 |
|
| |||||
Interest rate |
| — |
| 1.125 | % | — |
| — |
| — |
| — |
|
|
|
|
|
|
| ||||||||
Interest rate swaps related to debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Pay variable/receive fixed |
| — |
| $ | 100 |
| — |
| $ | 500 |
| — |
| $ | 1,100 |
| $ | 1,700 |
|
| $ | (35 | ) |
| |||
Average pay rate |
| — |
| 4.4 | % | — |
| 4.6 | % | — |
| 4.5 | % |
|
|
|
|
|
| ||||||||
Average receive rate |
| — |
| 3.6 | % | — |
| 3.9 | % | — |
| 4.7 | % |
|
|
|
|
|
| ||||||||
73
There- | Fair value | |||||||||||||||||||||||||||||||
2005 | 2006 | 2007 | 2008 | 2009 | after | Total | 12/31/04 | |||||||||||||||||||||||||
Available-for-sale debt securities | $ | 4,021 | $ | 630 | $ | 241 | $ | 268 | $ | 221 | — | $ | 5,381 | $ | 5,390 | |||||||||||||||||
Average Interest rate | 1.9 | % | 3.3 | % | 5.1 | % | 4.3 | % | 3.9 | % | — | |||||||||||||||||||||
Medium and long-term notes | — | — | $ | 100 | — | $ | 1,000 | $ | 1,100 | $ | 2,200 | $ | 2,242 | |||||||||||||||||||
Interest rate | — | — | 6.5 | % | — | 4.0 | % | 5.1 | % | |||||||||||||||||||||||
Convertible Notes(1) | $ | 1,175 | $ | 1,762 | — | — | — | — | $ | 2,937 | $ | 2,933 | ||||||||||||||||||||
Interest rate | 1.125 | % | 1.125 | % | — | — | — | — | ||||||||||||||||||||||||
Interest rate swaps related to available-for-sale debt securities: | ||||||||||||||||||||||||||||||||
Pay fixed/receive variable | $ | 120 | $ | 25 | — | — | — | — | $ | 145 | $ | (1) | ||||||||||||||||||||
Average pay rate | 4.2 | % | 4.5 | % | — | — | — | — | ||||||||||||||||||||||||
Average receive rate | 2.2 | % | 2.2 | % | — | — | — | — | ||||||||||||||||||||||||
Interest rate swaps related to debt: | ||||||||||||||||||||||||||||||||
Pay variable/receive fixed | — | — | $ | 100 | — | $ | 500 | $ | 1,100 | $ | 1,700 | — | ||||||||||||||||||||
Average pay rate | — | — | 2.4 | % | — | 2.5 | % | 2.5 | % | |||||||||||||||||||||||
Average receive rate | — | — | 3.6 | % | — | 3.9 | % | 4.7 | % |
|
| 2005 |
| 2006 |
| 2007 |
| 2008 |
| 2009 |
| There- |
| Total |
| Fair |
| ||||||||||
Available-for-sale debt securities |
| $ | 4,021 |
| $ | 630 |
| $ | 241 |
| $ | 268 |
| $ | 221 |
| — |
| $ | 5,381 |
|
| $ | 5,390 |
|
| |
Average interest rate |
| 1.9 | % | 3.3 | % | 5.1 | % | 4.3 | % | 3.9 | % | — |
|
|
|
|
|
|
| ||||||||
Medium and long-term notes |
| — |
| — |
| $ | 100 |
| — |
| $ | 1,000 |
| $ | 1,100 |
| $ | 2,200 |
|
| $ | 2,242 |
|
| |||
Average interest rate |
| — |
| — |
| 6.5 | % | — |
| 4.0 | % | 5.1 | % |
|
|
|
|
|
| ||||||||
Convertible notes(1) |
| $ | 1,175 |
| $ | 1,762 |
| — |
| — |
| — |
| — |
| $ | 2,937 |
|
| $ | 2,933 |
|
| ||||
Interest rate |
| 1.125 | % | 1.125 | % | — |
| — |
| — |
| — |
|
|
|
|
|
|
| ||||||||
Interest rate swaps related to available-for-sale debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Pay fixed/receive variable |
| $ | 120 |
| $ | 25 |
| — |
| — |
| — |
| — |
| $ | 145 |
|
| $ | (1 | ) |
| ||||
Average pay rate |
| 4.2 | % | 4.5 | % | — |
| — |
| — |
| — |
|
|
|
|
|
|
| ||||||||
Average receive rate |
| 2.2 | % | 2.2 | % | — |
| — |
| — |
| — |
|
|
|
|
|
|
| ||||||||
Interest rate swaps related to debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Pay variable/receive fixed |
| — |
| — |
| $ | 100 |
| — |
| $ | 500 |
| $ | 1,100 |
| $ | 1,700 |
|
| — |
|
| ||||
Average pay rate |
| — |
| — |
| 2.4 | % | — |
| 2.5 | % | 2.5 | % |
|
|
|
|
|
| ||||||||
Average receive rate |
| — |
| — |
| 3.6 | % | — |
| 3.9 | % | 4.7 | % |
|
|
|
|
|
| ||||||||
(1)Holders of the convertible notes were able to require us to purchase all or a portion of the notes on specific dates as early as March 1, 2005 at the original issuance price plus accrued original issue discount (“accreted value”) through the purchase dates. On March 2, 2005, as a result of certain holders of the convertible notes exercising their March 1, 2005 Put Option, we repurchased $1.2 billion, or approximately 40%, of the outstanding convertible notes at their then-accreted value for cash. Concurrently, we amended the terms of the convertible notes to add an additional put date in order to permit the remaining holders, at their option, to cause us to repurchase the remaining convertible notes on March 1, 2006 at the then-accreted value. However, the holders of substantially all of the convertible notes did not require us to repurchase such notes on this date. Consequently, for the December 31, 2003
There- | Fair value | |||||||||||||||||||||||||||||||
2004 | 2005 | 2006 | 2007 | 2008 | after | Total | 12/31/03 | |||||||||||||||||||||||||
Available-for-sale debt securities | $ | 2,077 | $ | 1,254 | $ | 667 | $ | 393 | $ | 476 | $ | — | $ | 4,867 | $ | 4,882 | ||||||||||||||||
Average Interest rate | 2.8 | % | 4.0 | % | 4.1 | % | 5.2 | % | 3.7 | % | — | |||||||||||||||||||||
Medium and long-term notes | — | — | — | $ | 100 | — | $ | 100 | $ | 200 | $ | 249 | ||||||||||||||||||||
Interest rate | — | — | — | 6.5 | % | — | 8.1 | % | ||||||||||||||||||||||||
Convertible Notes(1) | — | $ | 2,917 | — | — | — | — | $ | 2,917 | $ | 2,979 | |||||||||||||||||||||
Interest rate | — | 1.125 | % | — | — | — | — | |||||||||||||||||||||||||
Interest rate swaps related to available-for-sale debt securities: | ||||||||||||||||||||||||||||||||
Pay fixed/receive variable | $ | 25 | $ | 120 | $ | 25 | — | — | — | $ | 170 | $ | (8) | |||||||||||||||||||
Average pay rate | 3.9 | % | 4.2 | % | 4.5 | % | — | — | — | |||||||||||||||||||||||
Average receive rate | 1.3 | % | 2.3 | % | 3.4 | % | — | — | — | |||||||||||||||||||||||
Interest rate swaps related to debt: | ||||||||||||||||||||||||||||||||
Pay variable/receive fixed | — | — | — | $ | 100 | — | $ | 100 | $ | 200 | $ | (5) | ||||||||||||||||||||
Average pay rate | — | — | — | 4.6 | % | — | 5.1 | % | ||||||||||||||||||||||||
Average receive rate | — | — | — | 3.6 | % | — | 5.5 | % |
53
Our results of operations are affected by fluctuations in the value of the U.S. dollar as compared to foreign currencies, predominately the Euro, as a result of the sales of our products in foreign markets. Foreign currency forward and option contracts are used to hedge against the effects of such fluctuations. Both positive and negative impacts to our international product sales from movements in foreign exchange rates have been mitigated by the natural, opposite impact tothat the investments in foreign exchange rates have on our international operating expenses and as a result of our foreign currency hedging activities. Our hedging activities seek to offset the impact, both positive and negative, that foreign exchange rate changes may have on our results of operations. As such, the impact to our results of operations from changes in foreign currency exchange rates has been largely mitigated.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated herein by reference to the financial statements and schedule listed in Item 15 (a)1 and (a)2 of Part IV ofand included in this Form 10-K Annual Report.
None.
Item 9A. CONTROLS AND PROCEDURES
We maintain “disclosure controls and procedures”, as such term is defined under Exchange Act Rule 13a-15(e), that are designed to ensure that information required to be disclosed in Amgen’s Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to Amgen’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, Amgen’s management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and in reaching a reasonable level of assurance Amgen’s management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. We have carried out an evaluation under the supervision and with the participation of our management, including Amgen’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of Amgen’s disclosure controls and procedures. Based upon their evaluation and subject to the foregoing, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2004.
Further, management determined that, as of December 31, 2004,2005, there were no changes in our internal control over financial reporting that occurred during the fourth fiscal quarter then ended that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
5475
Management’s Report On Internal Control Over Financial Reporting
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004.2005. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on our assessment, management believes that the Company maintained effective internal control over financial reporting as of December 31, 2004,2005, based on those criteria.
Management’s assessment of the effectiveness of the Company’s internal control over financial reporting has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report appearing below, which expresses unqualified opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004.2005.
Report Of Independent Registered Public Accounting Firm
On Internal Control Over Financial Reporting
55
We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that Amgen Inc. (the “Company”) maintained effective internal control over financial reporting as of December 31, 2004,2005, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management’s assessment that Amgen Inc. maintained effective internal control over financial reporting as of December 31, 2004,2005, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Amgen Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004,2005, based on the COSO criteria.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheetsConsolidated Balance Sheets of Amgen Inc. as of December 31, 2005 and 2004 and 2003related Consolidated Statements of Operations, Stockholders’ Equity and related consolidated statements of operations, stockholders’ equity and cash flowsCash Flows for each of the three years in the period ended December 31, 20042005 of Amgen Inc. and our report dated March 4, 20052, 2006 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
Los Angeles, California
5677
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information about our Directors is incorporated by reference from the section entitled “ELECTION OF DIRECTORS “ in our Proxy Statement for the 2006 Annual Meeting of Stockholders to be filed with the SEC within 120 days of December 31, 2005 (the “Proxy Statement”). Information about compliance with Section 16(a) of the Registrant
57
58
We maintain a code of ethics applicable to our principal executive officer, principal financial officer, principal accounting officer or controller, and other persons performing similar functions. To view this code of ethics free of charge, please visit our website atwww.amgen.com (This website address is not intended to function as a hyperlink, and the information contained in our website is not intended to be a part of this filing). We intend to satisfy the disclosure requirements under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision of this code of ethics, if any, by posting such information on our website as set forth above.
Item 11. EXECUTIVE COMPENSATION
Information about director and executive compensation consists of (i) an annual retainer of $55,000; (ii) an Audit Committee chair fee of $20,000; (iii) a Compensation Committee chair fee of $10,000; (iv) an other committee chair fee of $6,000; (v) Board meeting fees of $3,000 per meeting ($1,500 for telephonic attendance), and (vi) committee meeting fees of $1,500 per meeting ($750 for telephonic attendance).
59
Long-term Compensation | |||||||||||||||||||||||||||||
Annual Compensation | Awards | ||||||||||||||||||||||||||||
Other Annual | Restricted | Securities | All Other | ||||||||||||||||||||||||||
Salary | Compensation | Stock | Underlying | Compensation | |||||||||||||||||||||||||
Name and Principal Position | Year | ($)(1) | Bonus ($) | ($) | Award(s) ($) | Options (#) | ($)(2) | ||||||||||||||||||||||
Kevin W. Sharer | 2004 | 1,301,954 | 3,622,000 | 255,382 | (3) | — | 225,000 | 364,284 | |||||||||||||||||||||
Chairman of the Board, | 2003 | 1,098,333 | 2,475,000 | 217,844 | (3) | — | 450,000 | 530,554 | |||||||||||||||||||||
Chief Executive Officer | 2002 | 980,000 | 1,800,000 | 16,140 | (3) | — | 450,000 | 497,750 | (4) | ||||||||||||||||||||
and President | |||||||||||||||||||||||||||||
George J. Morrow | 2004 | 823,815 | 1,700,000 | (5) | 1,555 | (6) | — | 75,000 | 3,404,845 | (7) | |||||||||||||||||||
Executive Vice President, | 2003 | 756,001 | 1,390,000 | (5) | 1,577 | (6) | — | 150,000 | 3,249,161 | (7) | |||||||||||||||||||
Global Commercial Operations | 2002 | 683,335 | 1,276,252 | (5) | 20,148 | (6) | — | 150,000 | 3,024,607 | (7) | |||||||||||||||||||
Roger M. Perlmutter | 2004 | 794,393 | 1,460,000 | (5) | 10,837 | (8) | — | 75,000 | 1,717,129 | (9) | |||||||||||||||||||
Executive Vice President, | 2003 | 737,333 | 1,365,000 | (5) | 101,802 | (8) | — | 150,000 | 1,595,624 | (9) | |||||||||||||||||||
Research and Development | 2002 | 683,333 | 1,276,250 | (5) | 235,279 | (8) | — | 150,000 | 1,415,339 | (9) | |||||||||||||||||||
Dennis M. Fenton | 2004 | 767,755 | 1,210,000 | 1,406 | (10) | 1,257,198 | (11) | 75,000 | 181,491 | ||||||||||||||||||||
Executive Vice President, | 2003 | 726,800 | 1,145,000 | — | — | 150,000 | 344,494 | ||||||||||||||||||||||
Operations and Corporate | 2002 | 680,000 | 1,071,000 | — | — | 150,000 | 13,181 | ||||||||||||||||||||||
Compliance Officer | |||||||||||||||||||||||||||||
Richard D. Nanula | 2004 | 695,442 | 1,095,000 | 1,611 | (12) | — | 75,000 | 163,738 | |||||||||||||||||||||
Executive Vice President, | 2003 | 658,334 | 1,040,000 | 1,441 | (12) | — | 150,000 | 188,849 | |||||||||||||||||||||
and Chief Financial Officer | 2002 | 616,667 | 971,250 | — | — | 225,000 | 57,343 |
60
Plan | Year | Sharer | Morrow | Perlmutter | Fenton | Nanula | ||||||||||||||||||
SRP | 2004 | $ | 354,034 | $ | 201,179 | $ | 195,045 | $ | 171,241 | $ | 153,488 | |||||||||||||
2003 | $ | 514,554 | $ | 226,112 | $ | 155,013 | $ | 328,494 | $ | 172,849 | ||||||||||||||
2002 | $ | (18,250 | ) | $ | 83,307 | $ | 56,884 | $ | (2,819 | ) | $ | 41,343 | ||||||||||||
401(k) | 2004 | $ | 10,250 | $ | 10,250 | $ | 10,250 | $ | 10,250 | $ | 10,250 | |||||||||||||
2003 | $ | 16,000 | $ | 16,000 | $ | 16,000 | $ | 16,000 | $ | 16,000 | ||||||||||||||
2002 | $ | 16,000 | $ | 16,000 | $ | 16,000 | $ | 16,000 | $ | 16,000 |
61
Individual Grants | ||||||||||||||||||||||||
Number of | Percent of | Potential Realizable Value | ||||||||||||||||||||||
Securities | Total Options | at Assumed Annual Rates | ||||||||||||||||||||||
Underlying | Granted to | of Stock Price Appreciation | ||||||||||||||||||||||
Options | Employees in | Exercise | for Option Term(1) | |||||||||||||||||||||
Granted | Fiscal | or Base | Expiration | |||||||||||||||||||||
Name | (#)(2) | Year(3) | Price ($/sh) | Date | 5% ($) | 10% ($) | ||||||||||||||||||
Kevin W. Sharer | 225,000 | (4) | 1.38% | 59.48 | 3/15/11 | 5,448,225 | 12,696,681 | |||||||||||||||||
George J. Morrow | 75,000 | (4) | 0.46% | 59.48 | 3/15/11 | 1,816,075 | 4,232,227 | |||||||||||||||||
Roger M. Perlmutter | 75,000 | (4) | 0.46% | 59.48 | 3/15/11 | 1,816,075 | 4,232,227 | |||||||||||||||||
Dennis M. Fenton | 75,000 | (4) | 0.46% | 59.48 | 3/15/11 | 1,816,075 | 4,232,227 | |||||||||||||||||
Richard D. Nanula | 75,000 | (4) | 0.46% | 59.48 | 3/15/11 | 1,816,075 | 4,232,227 |
62
Individual Grants | ||||||||||||||||
Number of | ||||||||||||||||
Securities Underlying | Value of Unexercised | |||||||||||||||
Shares | Unexercised Options at | In-the-Money Options | ||||||||||||||
Acquired on | Value Realized | Fiscal Year-End (#) | at Fiscal Year-End ($)(1) | |||||||||||||
Name | Exercise(#) | ($)(2) | Exerciseable/Unexerciseable | Exerciseable/Unexerciseable | ||||||||||||
Kevin W. Sharer | 3,534 | 140,757 | 898,820/1,135,000 | 5,795,606/8,596,602 | ||||||||||||
George J. Morrow | 59,998 | 1,273,607 | 240,002/425,000 | 771,352/2,978,050 | ||||||||||||
Roger M. Perlmutter | — | — | 275,000/425,000 | 1,870,825/3,043,675 | ||||||||||||
Dennis M. Fenton | 169,378 | 7,234,677 | 396,544/416,998 | 5,649,430/2,790,338 | ||||||||||||
Richard D. Nanula | — | — | 345,000/425,000 | 1,646,250/2,770,550 |
Number of | Future Payout Value ($)(2) | |||||||||||||||||||
Units | ||||||||||||||||||||
Name | (#)(1) | Performance Period | Threshold(3) | Target(3) | Maximum(3) | |||||||||||||||
Kevin W. Sharer | 112,500 | 01/01/04 to 12/31/06 | $ | 0 | $ | 6,691,500 | $ | 15,055,875 | ||||||||||||
George J. Morrow | 37,500 | 01/01/04 to 12/31/06 | $ | 0 | $ | 2,230,500 | $ | 5,018,625 | ||||||||||||
Roger M. Perlmutter | 37,500 | 01/01/04 to 12/31/06 | $ | 0 | $ | 2,230,500 | $ | 5,018,625 | ||||||||||||
Dennis M. Fenton | 37,500 | 01/01/04 to 12/31/06 | $ | 0 | $ | 2,230,500 | $ | 5,018,625 | ||||||||||||
Richard D. Nanula | 37,500 | 01/01/04 to 12/31/06 | $ | 0 | $ | 2,230,500 | $ | 5,018,625 |
63
64
65
66
67
68
69
70
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Securities Authorized for Issuance Under Equity Compensation Plan InformationPlans
The following table sets forth certain information as of December 31, 20042005 concerning our common stock that may be issued upon the exercise of options or pursuant to purchases of stock under all of our equity compensation plans approved by stockholders and equity compensation plans not approved by stockholders in effect as of December 31, 2004:2005:
| (a) |
| (b) |
| (c) |
| ||||||||||
|
|
|
|
|
| Number of |
| |||||||||
|
|
|
|
|
| Securities Remaining |
| |||||||||
|
| Number of |
| Weighted |
| Available for Future |
| |||||||||
|
| Securities to be |
| Average |
| Issuance Under |
| |||||||||
|
| Issued Upon |
| Exercise Price |
| Equity Compensation |
| |||||||||
|
| Exercise of |
| Outstanding |
| Plans (Excluding |
| |||||||||
|
| Outstanding |
| Options and |
| Securities Reflected |
| |||||||||
Plan Category |
|
|
| Options and Rights |
| Rights |
| in Column (a)) |
| |||||||
Equity compensation plans approved by Amgen security holders: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Amended and Restated 1987 Directors’ Stock Option Plan(1) |
|
| 38,400 |
|
|
| $ | 14.72 |
|
|
| — |
|
| ||
Amended and Restated 1991 Equity Incentive Plan |
|
| 15,714,092 |
|
|
| $ | 47.65 |
|
|
| 34,952,828 |
|
| ||
Amended and Restated Employee Stock Purchase Plan |
|
| — |
|
|
| $ | — | (2) |
|
| 11,047,202 |
|
| ||
Total Approved Plans |
|
| 15,752,492 |
|
|
| $ | 47.57 |
|
|
| 46,000,030 |
|
| ||
Equity compensation plans not approved by Amgen security holders: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Amended and Restated 1993 Equity Incentive Plan(3) |
|
| 3,004,872 |
|
|
| $ | 29.84 |
|
|
| — |
|
| ||
Amended and Restated 1999 Equity Incentive Plan(3) |
|
| 12,172,643 |
|
|
| $ | 61.79 |
|
|
| 3,340,677 |
|
| ||
Amgen Inc. Amended and Restated 1997 Equity Incentive Plan(4) |
|
| 3,020,498 |
|
|
| $ | 38.12 |
|
|
| 179,165 |
|
| ||
Tularik Inc. 1991 Stock Plan(4) |
|
| 15,017 |
|
|
| $ | 1.98 |
|
|
| — |
|
| ||
Amended and Restated 1997 Special Non-Officer Equity Incentive Plan |
|
| 36,426,414 |
|
|
| $ | 57.15 |
|
|
| 1,962,902 |
|
| ||
Foreign Affiliate Plans: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Amgen Limited Sharesave Plan |
|
| — |
|
|
| $ | — | (5) |
|
| 372,839 |
|
| ||
The Amgen Limited 2000 UK Company Employee Share Option Plan(6) |
|
| — |
|
|
| $ | — |
|
|
| 300,000 |
|
| ||
Total Unapproved Plans |
|
| 54,639,444 |
|
|
| $ | 55.61 |
|
|
| 6,155,583 |
|
| ||
Total All Plans |
|
| 70,391,936 |
|
|
| $ | 53.81 |
|
|
| 52,155,613 |
|
| ||
(c) | ||||||||||||||
(a) | Number of | |||||||||||||
Number of | (b) | Securities Remaining | ||||||||||||
Securities to be | Weighted | Available for Future | ||||||||||||
Issued Upon | Average | Issuance Under | ||||||||||||
Exercise of | Exercise Price | Equity Compensation | ||||||||||||
Outstanding | Outstanding | Plans (Excluding | ||||||||||||
Options and | Options and | Securities Reflected | ||||||||||||
Plan Category | Rights | Rights | in Column (a)) | |||||||||||
Equity compensation plans approved by Amgen security holders: | ||||||||||||||
Amended and Restated 1987 Directors’ Stock Option Plan(1) | 121,600 | $ | 10.45 | — | ||||||||||
Amended and Restated 1991 Equity Incentive Plan | 16,851,899 | $ | 56.83 | 38,239,303 | ||||||||||
Amended and Restated Employee Stock Purchase Plan | — | $ | — | (2) | 12,431,637 | |||||||||
Total Approved Plans | 16,973,499 | $ | 56.49 | 50,670,940 | ||||||||||
Equity compensation plans not approved by Amgen security holders: | ||||||||||||||
Amended and Restated 1993 Equity Incentive Plan(3) | 5,241,185 | $ | 26.77 | — | ||||||||||
Amended and Restated 1999 Equity Incentive Plan(3) | 10,085,813 | $ | 58.07 | 6,711,124 | ||||||||||
Amgen Inc. Amended and Restated 1997 Equity Incentive Plan(4) | 3,478,667 | $ | 31.14 | 600,103 | ||||||||||
Tularik Inc. 1991 Stock Plan(4) | 21,272 | $ | 1.95 | — | ||||||||||
Tularik Inc. Amended and Restated 1997 Non-Employee Directors’ Stock Option Plan(4) | — | $ | — | — | ||||||||||
Amended and Restated 1997 Special Non-Officer Equity Incentive Plan | 53,411,760 | $ | 51.31 | 1,976,219 | ||||||||||
Foreign Affiliate Plans: | ||||||||||||||
Amgen Limited Sharesave Plan | — | $ | — | (5) | 372,839 | |||||||||
The Amgen Limited 2000 UK Company Employee Share Option Plan(6) | — | $ | — | 300,000 | ||||||||||
Total Unapproved Plans | 72,238,697 | $ | 49.49 | 9,960,285 | ||||||||||
Total All Plans | 89,212,196 | $ | 50.82 | 60,631,225 | ||||||||||
(1)The Amended and Restated 1987 Directors’ Stock Option Plan (the “1987 Plan”) terminated on January 27, 1997. Although there are options still outstanding under the 1987 Plan, no shares are available for issuance under this plan for future grants.
71(2)The purchase occurred on December 31, 2005 (the “Purchase Date”) with a purchase of an aggregate 1,384,425 shares of Common Stock at a purchase price of $54.64 per share, such purchase price reflects the lesser of 85% of either the closing price of the Common Stock on the Purchase Date or the closing price of the Common Stock on the start date of the applicable employee’s participation in the plan.
(4)This plan was assumed by Amgen in connection with the merger of Tularik Inc. with and into Amgen SF, LLC, a wholly owned subsidiary of Amgen, on August 13, 2004 (the “Merger”). This plan was previously approved by Tularik Inc.’s shareholders. The Tularik Inc. 1991 Stock Plan (the “Tularik 1991 Plan”) was terminated on March 14, 1997 by Tularik Inc. Although there are options still outstanding under the Tularik 1991 Plan, no shares are available for issuance under these plans for future grants.
(5)As of December 31, 2003, there were no further offerings under the Amgen Limited Sharesave Plan and last share purchase under this plan was March 31, 2003.
Summary of Equity Compensation Plans Not Approved by Stockholders
The following is a summary of the equity compensation plans, which have shares available for issuance for future grants as of December 31, 20042005 and were adopted or assumed by the Board without the approval of our stockholders:
Amended and Restated 1999 Equity Incentive Plan
The Amended and Restated 1999 Equity Incentive Plan (formerly known as the Immunex Corporation 1999 Stock Option Plan) (the “1999 Plan”) was assumed pursuant to the terms of the merger agreement between the Company and Immunex Corporation which was approved by the Company’s stockholders in May 2002. The plan was previously approved by Immunex Corporation’s shareholders. The 1999 Plan consists of two articles — Article I which governs awards granted prior to July 15, 2002 (the “Restatement Date”) and Article II which governs awards granted on or after the Restatement Date. As the terms of Stock Awards (as defined below) made pursuant to the 1999 Plan going forward are governed exclusively by Article II of the plan, the following is a description of the material provisions of Article II of the 1999 Plan. This description is qualified in its entirety by reference to the 1999 Plan itself, which was filed as an exhibit to the Company’s Form S-8 dated July 16, 2002.
Stock Subject to the 1999 Plan. Subject to adjustments upon certain changes in the common stock, the shares available for issuance under the 1999 Plan upon exercise of the outstanding grants made pursuant to the 1999 Plan are Amgen’s common stock. The number of shares authorized for issuance under the 1999 Plan is 19,273,852. Awards of (i) incentive stock options, (ii) nonqualified stock options, (iii) stock bonuses, and (iv) rights to purchase restricted stock (“Stock Award”) may be granted under the 1999 Plan.
Administration. The 1999 Plan is administered by the Board of Directors. The Board of Directors has delegated administration of the 1999 Plan to the committees of the Board and certain officers of Amgen Inc.
Eligibility. Incentive stock options may be granted under the 1999 Plan to all employees (including officers) of Amgen or its affiliates. All employees (including officers) and directors of Amgen or its affiliates and consultants to Amgen or its affiliates, or trusts for the benefit of such an employee, director or consultant or his or her spouse or members of their immediate family (“permitted trusts”) designated by any such employee, director or consultant, are eligible to receive Stock Awards other than incentive stock options under the 1999 Plan.
For incentive stock options granted under the 1999 Plan, the aggregate fair market value, determined at the time of grant, of the shares of common stock with respect to which such options are exercisable for the first time by an optionee during any calendar year (under all such plans of Amgen or any affiliate of Amgen) may
72
Terms of Discretionary Options. The following is a description of the permissible terms of options granted under the 1999 Plan, other than options awarded to non-employee directors which are described
below under the heading “Terms of Non-Discretionary Options Awarded to Non-Employee Directors” (the options described in this section are referred to as “Discretionary Options”). Individual Discretionary Option grants may be more restrictive as to any or all of the permissible terms described below.
The exercise price of Discretionary Options must be equal to at least 100% of the fair market value of the underlying stock on the date of the option grant. The exercise price of Discretionary Options must be paid either: (i) in cash at the time the option is exercised; or (ii) at the discretion of the Board, (a) by delivery of common stock of Amgen that has been held for the period required to avoid a charge to Amgen’s earnings, (b) pursuant to a deferred payment or other arrangement, or (c) in any other form of legal consideration acceptable to the Board.
Generally, optionees may designate certain specified trusts as beneficiaries with respect to Discretionary Options. In the absence of such a designation, after the death of the optionee, Discretionary Options shall be exercisable by the person(s) to whom the optionee’s rights pass by will or by the laws of descent and distribution. Generally, during the lifetime of an optionee who is a natural person, only the optionee may exercise the Discretionary Option.
The maximum term of Discretionary Options is 10 years. Absent death, disability or voluntary retirement in certain circumstances, Discretionary Options generally terminate three months after termination of the optionee’s employment or relationship as a consultant or director of Amgen or any affiliate of Amgen. Individual options by their terms may provide for exercise within a longer period of time following termination of employment or the relationship as a director or consultant.
Discretionary Options either become exercisable in cumulative increments or are exercisable in full immediately. The Board has the power to accelerate the beginning of the period during which an option may be exercised (the “vesting date”). Options granted from the Restatement Date under the 1999 Plan typically vest at the rate of 25% per year during the optionee’s employment or service as a consultant. Stock options typically provide for the acceleration of the vesting of options if the optionee voluntarily retires at or after age 60 after having been an employee of Amgen or its affiliate for at least fifteen consecutive years and such retirement is not the result of permanent and total disability (“Voluntary Retirement”). Generally, if any optionee shall terminate his or her employment or relationship as a director or consultant with Amgen or an affiliate due to death or disability, then, in such event, the vesting date for those Discretionary Options granted to such employee, director or consultant or to the permitted trust of such employee, director or consultant which have not vested as of the date of such employee’s, director’s or consultant’s termination for reasons of death or disability shall automatically be accelerated by twelve monthsin full for each fullthose with five or more years or to December 31 of the year following the year in which the termination occurs for those with less than five years of employment or relationship with Amgen of such employee, director or consultant. Upon Voluntary Retirement, Discretionary Options shall not terminate until the earlier of the termination date set forth in the applicable grant agreement or three yearseighteen months following the date of Voluntary Retirement. The Board also has the power to accelerate the time during which a Discretionary Option may be exercised. To the extent provided by the terms of a Discretionary Option, an optionee may satisfy any federal, state or local tax withholding obligations relating to the exercise of such option by (1) a cash payment upon exercise, (2) by authorizing Amgen to withhold a portion of the stock otherwise issuable to the optionee, (3) by delivering already-owned stock of Amgen or (4) by a combination of these means.
Terms of Non-Discretionary Options Awarded to Non-Employee Directors. The Board may from time to time adopt award programs under the 1999 Plan providing for the grant of formula or non-discretionary Stock Awards to directors of Amgen who are not employees of Amgen or any affiliate. The terms and conditions of any such program shall be established by the Board in its sole discretion, subject to the terms and conditions of the 1999 Plan.
Terms of Stock Bonuses and Purchases of Restricted Stock. Stock bonuses and purchases of restricted stock shall be in such form and contain such terms and conditions as the Board shall deem appropriate. The following is a description of some of the permissible terms of stock bonuses and purchases of restricted stock
73
The purchase price under each stock purchase agreement shall be determined by the Board and may provide for a nominal purchase price or a purchase price that is less than fair market value of the underlying common stock on the award date. The Board may determine that eligible participants may be awarded stock pursuant to a stock bonus agreement in consideration for past services actually rendered to Amgen or for its benefit.
The purchase price of stock acquired pursuant to a stock purchase agreement must be paid in accordance with the same terms as Discretionary Options. See “Terms of Discretionary Options.”
Shares of common stock sold or awarded under the 1999 Plan may, but need not, be subject to a repurchase option in favor of the Company in accordance with a vesting schedule determined by the Board. To the extent provided by the terms of a stock bonus or restricted stock purchase agreement, a participant may satisfy any federal, state or local tax withholding obligations relating to the lapsing of a repurchase option or vesting of a stock bonus or a restricted stock award in the same manner as that of Discretionary Options. See “Terms of Discretionary Options.”
Generally, rights under a stock bonus or restricted stock purchase agreement shall not be assignable by any participant under the 1999 Plan.
Adjustment Provisions. If there is any change in the stock subject to the 1999 Plan or subject to any Stock Award granted under the 1999 Plan (through merger, consolidation, reorganization, recapitalization, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company), the 1999 Plan and outstanding Stock Awards thereunder will be appropriately adjusted as to the class and the maximum number of shares subject to such plan, the maximum number of shares which may be granted to a participant in a calendar year, the class, number of shares and price per share of stock subject to such outstanding Stock Awards.
Change in Control. For purposes of the 1999 Plan, a Change in Control occurs at the following times: (i) upon the acquisition of beneficial ownership of 50% or more of either the then outstanding shares of common stock or the combined voting power of the Company’s then outstanding voting securities entitled to vote generally in the election of directors; or (ii) at the time individuals making up the Incumbent Board (as defined in the 1999 Plan) cease for any reason to constitute at least a majority of the Board; or (iii) immediately prior to the consummation by the Company of a reorganization, merger, or consolidation with respect to which persons who were the stockholders of the Company immediately prior to such transaction do not, immediately thereafter, own more than 50% of the combined voting power of the reorganized, merged or consolidated company’s voting securities entitled to vote generally in the election of directors, or a liquidation or dissolution of the Company or the sale of all or substantially all of the assets of the Company; or (iv) the occurrence of any other event which the incumbent Board determines is a Change of Control. Upon the occurrence of a Change in Control, to the extent permitted by applicable law, the vesting and exercisability of any outstanding Stock Awards under the 1999 Plan will accelerate. Upon and following such acceleration, at the election of the holder of the Stock Award, the Stock Award may be (a) exercised with respect to stock options or, if the surviving or acquiring corporation agrees to assume the Stock Awards or substitute similar awards, (b) assumed or (c) replaced with substitute Stock Awards. Options not exercised, substituted or assumed prior to or upon the Change in Control shall be terminated.
82
Duration, Amendment and Termination. The Board may suspend or terminate the 1999 Plan without stockholder approval or ratification at any time or from time to time. No incentive stock options may be granted under the 1999 Plan after February 22, 2009. No amendment, suspension or termination may impair the rights or obligations under any Stock Award except with the consent of the person to whom the Stock Award was granted.
Amgen Inc. Amended and Restated 1997 Equity Incentive Plan
The Amgen Inc. Amended and Restated 1997 Equity Incentive Plan (formerly known as the Tularik Inc. 1997 Equity Incentive Plan, as amended) (the “Acquired 1997 Plan”) was assumed by Amgen in connection
74
· The Acquired 1997 Plan will terminate on March 2, 2007;
· Subject to adjustments upon certain changes in the common stock, the number of shares authorized for issuance under Article II of the Acquired 1997 Plan is 1,153,152;
· No Stock Award may be granted to any person under Article II of the Acquired 1997 Plan who is an employee or director of or consultant to the Company or its affiliates (other than Tularik Inc.) on the Restatement Date;
· Under Article II of the Acquired 1997 Plan, no person may receive Stock Awards for more than 451,000 shares of common stock in any calendar year;
· Subject to adjustments upon certain changes in the common stock, under Article II of the Acquired 1997 Plan no more than 902,006 of the shares eligible for issuance under the plan in any calendar year may be issued upon exercise of Incentive Stock Options under the plan;
· The purchase price under each stock purchase agreement shall be not less than fifty (50%) of the fair market value of the Company’s Common Stock on the date such award is made; and
· The Board shall have the power to condition the grant or vesting of stock bonuses and rights to purchase restricted stock under Article II of the Acquired 1997 Plan upon attainment of performance goals with respect to any one or more of the following business criteria with respect to the Company, any affiliate, any division, any operating unit or any product line: (i) return on capital, assets or equity, (ii) sales or revenue, (iii) net income, (iv) cash flow, (v) earnings per share, (vi) adjusted earnings or adjusted net income (as defined by the plan), (vii) working capital, (vii) total shareholder return, (ix) economic value or (x) product development, research, in-licensing, out-licensing, litigation, human resources, information services, manufacturing, manufacturing capacity, production, inventory, site development, plant, building or facility development, government relations, product market share, mergers, acquisitions or sales of assets or subsidiaries.
Terms of Restricted Stock Units (RSUs).The following is a description of the permissible terms of RSUs granted under the Acquired 1997 Plan after the Restatement Date. Individual grants of RSUs may be more restrictive as to any or all of the permissible terms described below.
RSUs granted under the Acquired 1997 Plan shall constitute stock bonuses and shall be in such form and contain such terms and conditions as the Board shall deem appropriate. RSUs vest in cumulative increments or vest fully after a specified holding period. RSUs granted from the Restatement Date under the Acquired 1997 Plan typically vest at the rate of 25% per year during the grantee’s employment or service as a consultant. Absent death, disability or Voluntary Retirement, in certain circumstances, unvested RSUs shall automatically expire and terminate on the date of termination of employment. The Board also has the power to accelerate the vesting period for RSUs or suspend vesting during leaves of absences.
Upon a grantee’s Voluntary Retirement, the RSUs scheduled to vest between and including the date of such retirement and December 31 of the second year following the year in which the retirement occurs shall accelerate to vest immediately. If the grantee terminates his or her employment or relationship as a consultant with Amgen or an affiliate due to death or disability and has been employed for less than five full years, the RSUs scheduled to vest between and including the date of such death or disability and December 31 in the first year following such termination, shall accelerate to vest immediately. If the grantee terminates his or her employment or relationship as a consultant with Amgen or an affiliate due to death or disability and has been employed for five or more years, the RSUs scheduled to vest between and including the date of such death or disability and December 31 in the second year following such termination, shall accelerate to vest immediately.
To the extent provided by the terms of the RSUs, the grantee may satisfy any federal, state or local tax withholding obligations by (1) authorizing Amgen to withhold a portion of the stock otherwise issuable to grantee, (2) deducting such obligations from compensation, (3) a cash payment upon vesting or (4) by a combination of these means.
Amended and Restated 1997 Special Non-Officer Equity Incentive Plan
The Amended and Restated 1997 Special Non-Officer Equity Incentive Plan (the “1997 Plan”) was adopted by the Company on December 8, 1997. This description is qualified in its entirety by reference to the 1997 Plan itself, which was filed as an exhibit to the Company’s Form 10-Q for the quarter ended September 30, 2002. Except as described below, the material provisions of the 1997 Plan are substantially similar to those of Article II of the 1999 Plan described above (reference to the 1999 Plan are deemed to be replaced with references to the 1997 Plan, as applicable):
75· The 1997 Plan terminates on December 9, 2007;
· The 1997 Plan does not provide for non-discretionary grants to Directors of the Company;
· Under the 1997 Plan, no person may receive Stock Awards for more than 2,000,000 shares of common stock in any calendar year.
The Amgen Limited Sharesave Plan
The Amgen Limited Sharesave Plan (the “Sharesave Plan”) was adopted by the Board of Directors of Amgen Limited, the Company’s indirectly wholly-owned UK subsidiary, and approved by the Board of Directors of the Company in October 1998. In general, the Sharesave Plan authorizes Amgen Limited to grant options to certain employees of Amgen Limited to buy shares of the Company’s common stock
during three-year offering periods through savings contributions and guaranteed company bonuses. The principal purposes of the Sharesave Plan are to provide the Company’s eligible Amgen Limited employees with benefits comparable to those received by U.S. employees under the Company’s Amended and Restated Employee Stock Purchase Plan through the granting of options. Under the Sharesave Plan, not more than 400,000 shares of common stock are authorized for issuance upon exercise of options subject to adjustment upon certain changes in the Company’s common stock. The Sharesave Plan is administered by the Board of Directors of Amgen Limited. Options are generally exercisable during the six months following the three year offering period at an exercise price determined by the Board, which cannot be less than 80% of the market value of the Company’s common stock determined in accordance with sections 272 and 273 of the UK Taxation of Chargeable Gains Act of 1992 (the “Act of 1992”) and agreed for the purpose of the Sharesave Plan with the Shares Valuation Division (the “Division”) of the Inland Revenue for the business day last preceding the date of invitation (the “Exercise Price Determination Process”) at the commencement of the offering. Amounts in the Sharesave Plan are paid to the participants to the extent that options are not exercised.
Amgen Limited 2000 UK Company Employee Share Option Plan
The Amgen Limited 2000 UK Company Employee Share Option Plan (“CSOP”) was adopted by the Board of Directors of Amgen Limited and approved by the Board of Directors of the Company in June 1999. The CSOP was established to provide stock option grants to employees of Amgen Limited in accordance with certain UK tax laws. The terms of the CSOP are, to the extent permitted under UK laws, consistent with the Company’s 1997 Plan, as described above, with the exception of the following variations: (i) options cannot be granted to consultants, (ii) options cannot be transferred, (iii) options outstanding after an employee’s death must be exercised within 12 months of the date of such death, and (iv) the change in control provision is eliminated. No termination date has been specified for the CSOP. Although 300,000 shares of common stock are authorized for issuance under the CSOP, no shares have been issued under the CSOP.
76
77
Information about security ownership of certain productsbeneficial owners and management is incorporated by reference from the sections entitled “SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS AND CERTAIN BENEFICIAL OWNERS — Common Stock” and “SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS AND CERTAIN BENEFICIAL OWNERS — Contractual Contingent Payment Rights” in specified geographic areas. In 2004, each such director earned $200,368 for each whole Class A CCPR held. The following table sets forth certain information regarding the ownership of the Company’s Class A CCPRs as of February 28, 2005, by: (i) each director and nominee; (ii) each of the Named Executive Officers; and (iii) all directors and nominees, Named Executive Officers and executive officers as a group:
78
Information about certain relationships and transactions with related parties is incorporated by such act. Prior to the Sarbanes-Oxley Act, the Company had made personal loans to the executive officers of the Company listed below, generally in connection with their relocation closer to the Company. The annual interest rate on the loans to each officer, except the loan to Mr. Nanula, was 3% during the year ended December 31, 2004 and will be 3% for the year ending December 31, 2005. These interest rates are established and adjusted annually based on the average introductory rates on adjustable loans offered by California banks and savings and loans. The loan to Mr. Nanula is fixed at 5% for the term of the loan.
Largest | ||||||||||||||||
Aggregate | Aggregate | |||||||||||||||
Indebtedness | Outstanding | |||||||||||||||
Original | Since | Indebtedness | ||||||||||||||
Amount of | January 1, | at March 1, | ||||||||||||||
Name | Date of Loan | Loan ($) | 2004 ($) | 2005 ($) | ||||||||||||
Hassan Dayem | July 2002 | 500,000 | 500,000 | 500,000 | ||||||||||||
Brian M. McNamee | May 2001 | 500,000 | 500,000 | — | ||||||||||||
George J. Morrow | March 2001 | 1,000,000 | �� | 750,000 | 500,000 | |||||||||||
Richard D. Nanula | June 2001 | 3,000,000 | 3,212,500 | 3,100,000 | ||||||||||||
Roger M. Perlmutter | June 2001 | 1,000,000 | 1,000,000 | 1,000,000 |
79
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information about the fees paid to Ernst & Young LLP for the years ended December 31, 2004 and 2003:
2004 | 2003 | |||||||
Audit | $ | 4,970,000 | $ | 2,215,000 | ||||
Audit-Related | 230,000 | 615,000 | ||||||
Tax | 814,000 | 1,760,000 | ||||||
All Other | 18,000 | 15,000 | ||||||
Total Fees | $ | 6,032,000 | $ | 4,605,000 | ||||
85
(a)1. Index to Financial Statements
The following Consolidated Financial Statements are included herein:
Page | ||||
F-1 | ||||
F-2 | ||||
Consolidated Balance Sheets at December 31, | F-3 | |||
F-4 | ||||
F-5 | ||||
F-6 - |
80
The following Schedule is filed as part of this Form 10-K Annual Report:
Page | ||||
F-32 |
All other schedules are omitted because they are not applicable, or not required, or because the required information is included in the consolidated statementsConsolidated Financial Statements or notes thereto.
(a)3. Exhibits
Exhibit No. | Description | |||
3 | .1 | Restated Certificate of Incorporation as amended.(9) | ||
3 | .2 | Amended and Restated Bylaws of Amgen Inc. (as amended and restated July 13, 2004).(43) | ||
3 | .3 | Certificate of Amendment of Restated Certificate of Incorporation.(17) | ||
3 | .4 | Certificate of Designations of Series A Junior Participating Preferred Stock.(20) | ||
4 | .1 | Indenture dated January 1, 1992 between the Company and Citibank N.A., as trustee.(3) | ||
4 | .2 | First Supplement to Indenture, dated February 26, 1997 between the Company and Citibank N.A., as trustee.(6) | ||
4 | .3 | Officer’s Certificate pursuant to Sections 2.1 and 2.3 of the Indenture, as supplemented, establishing a series of securities “81/8% Debentures due April 1, 2097.”(8) | ||
4 | .4 | 81/8% Debentures due April 1, 2097.(8) | ||
4 | .5 | Form of stock certificate for the common stock, par value $.0001 of the Company.(9) | ||
4 | .6 | Officer’s Certificate pursuant to Sections 2.1 and 2.3 of the Indenture, dated as of January 1, 1992, as supplemented by the First supplemental Indenture, dated as of February 26, 1997, each between Amgen Inc. and Citibank, N.A., as Trustee, establishing a series of securities entitled “6.50% Notes Due December 1, 2007”.(11) | ||
4 | .7 | 6.50% Notes Due December 1, 2007 described in Exhibit 4.6.(11) | ||
4 | .8 | Corporate Commercial Paper — Master Note between and among Amgen Inc., as Issuer, Cede & Co., as nominee of The Depository Trust Company and Citibank, N.A. as Paying Agent.(12) | ||
4 | .9 | Indenture, dated as of August 4, 2003, between the Company and JP Morgan Chase Bank, N.A., as trustee.(46) | ||
4 | .10 | Indenture, dated as of March 1, 2002, between Amgen Inc. and LaSalle Bank National Association.(27) | ||
4 | .11 | Form of Liquid Yield OptiontmNote due 2032.(27) | ||
4 | .12 | Registration Rights Agreement, dated as of March 1, 2002, between Amgen Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated.(27) | ||
4 | .13 | Officers’ Certificate of Amgen Inc. dated November 18, 2004, including forms of the Company’s 4.00% Senior Notes due 2009 and 4.85% Senior Notes due 2014.(48) | ||
4 | .14 | Form of 4.00% Senior Note due 2014.(48) | ||
4 | .15 | Registration Rights Agreement, dated as of November 18, 2004, among Amgen Inc. and Morgan Stanley & Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated as representatives of the several initial purchasers.(48) | ||
4 | .16 | Supplemental Indenture, dated as of March 2, 2005, between Amgen Inc. and LaSalle Bank National Association.(52) | ||
10 | .1+ | Amended and Restated 1991 Equity Incentive Plan(as of December 2004).(49) | ||
10 | .2+ | Amgen Inc. Amended and Restated 1997 Equity Incentive Plan(as of August 2004).(50) | ||
10 | .3 | Shareholder’s Agreement of Kirin-Amgen, Inc., dated May 11, 1984, between the Company and Kirin Brewery Company, Limited.(20) | ||
10 | .4 | Amendment Nos. 1, 2, and 3, dated March 19, 1985, July 29, 1985 and December 19, 1985, respectively, to the Shareholder’s Agreement of Kirin-Amgen, Inc., dated May 11, 1984.(17) | ||
10 | .5 | Product License Agreement, dated September 30, 1985, and Technology License Agreement, dated, September 30, 1985 between Amgen Inc. and Ortho Pharmaceutical Corporation.(17) |
81
Exhibit No. | Description | |||
10 | .6 | Product License Agreement, dated September 30, 1985, and Technology License Agreement, dated September 30, 1985 between Kirin-Amgen, Inc. and Ortho Pharmaceutical Corporation.(17) | ||
10 | .7+ | Amended and Restated Employee Stock Purchase Plan of Amgen Inc.(17) | ||
10 | .8 | Research, Development Technology Disclosure and License Agreement PPO, dated January 20, 1986, by and between Amgen Inc. and Kirin Brewery Co., Ltd.(1) | ||
10 | .9 | Amendment Nos. 4 and 5, dated October 16, 1986 (effective July 1, 1986) and December 6, 1986 (effective July 1, 1986), respectively, to the Shareholders Agreement of Kirin-Amgen, Inc. dated May 11, 1984.(20) | ||
10 | .10 | Assignment and License Agreement, dated October 16, 1986, between Amgen Inc. and Kirin-Amgen, Inc.(20) | ||
10 | .11 | G-CSF European License Agreement, dated December 30, 1986, between Kirin-Amgen, Inc. and Amgen Inc.(20) | ||
10 | .12+ | Retirement and Savings Plan of Amgen Inc. (as amended and restated effective January 1, 2003).(41) | ||
10 | .13 | Purchase Agreement, dated as of November 15, 2004, among Amgen Inc. and Morgan Stanley & Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated as representatives of the several initial purchasers.(48) | ||
10 | .14+* | First Amendment to the Amgen Retirement and Savings Plan (As Amended and Restated Effective As of January 1, 2003). | ||
10 | .15 | Amendment, dated June 30, 1988, to Research, Development, Technology Disclosure and License Agreement: GM-CSF dated March 31, 1987, between Kirin Brewery Company, Limited and Amgen Inc.(2) | ||
10 | .16 | ENBREL® Supply Agreement, dated April 12, 2002, between Immunex Corporation and Genentech, Inc. (with certain confidential information deleted therefrom).(31) | ||
10 | .17 | Partnership Purchase Agreement, dated March 12, 1993, between Amgen Inc., Amgen Clinical Partners, L.P., Amgen Development Corporation, the Class A limited partners and the Class B limited partner.(4) | ||
10 | .18+* | Second Amendment to the Amgen Retirement and Savings Plan (As Amended And Restated Effective As Of January 1, 2003). | ||
10 | .19+ | First Amendment to Amgen Inc. Change of Control Severance Plan.(17) | ||
10 | .20+ | First Amendment to the Amgen Inc. Executive Incentive Plan.(49) | ||
10 | .21 | G-CSF United States License Agreement dated June 1, 1987 (effective July 1, 1986) between Kirin-Amgen, Inc. and Amgen Inc.(20) | ||
10 | .22 | Amendment No. 1 dated October 20, 1988 to Kirin-Amgen, Inc./Amgen G-CSF United States License Agreement dated June 1, 1987 (effective July 1, 1986).(20) | ||
10 | .23 | Amendment No. 2 dated October 17, 1991 (effective November 13, 1990) to Kirin-Amgen, Inc./Amgen G-CSF United States License Agreement dated June 1, 1987 (effective July 1, 1986).(20) | ||
10 | .24 | Amendment No. 10 dated March 1, 1996 to the Shareholders’ Agreement of Kirin-Amgen, Inc. dated May 11, 1984.(20) | ||
10 | .25+ | Amgen Inc. Change of Control Severance Plan effective as of October 20, 1998.(14) | ||
10 | .26 | Preferred Share Rights Agreement, dated as of December 12, 2000, between Amgen Inc. and American Stock Transfer and Trust Company, as Rights Agent.(19) | ||
10 | .27+ | First Amendment, effective January 1, 1998, to the Amended and Restated Employee Stock Purchase Plan of Amgen Inc.(10) | ||
10 | .28 | Amendment No. 11 dated March 20, 2000 to the Shareholders’ Agreement of Kirin-Amgen, Inc. dated May 11, 1984.(20) | ||
10 | .29+ | Agreement between Amgen Inc. and Dr. Fabrizio Bonanni, dated March 3, 1999.(16) | ||
10 | .30 | Amendment No. 1 dated June 1, 1987 to Kirin-Amgen, Inc./Amgen G-CSF European License Agreement dated December 30, 1986.(20) |
82
Exhibit No. | Description | |||
10 | .31 | Amendment No. 2 dated March 15, 1988 to Kirin-Amgen, Inc./Amgen G-CSF European License Agreement dated December 30, 1986.(20) | ||
10 | .32 | Amendment No. 3 dated October 20, 1988 to Kirin-Amgen, Inc./Amgen G-CSF European License Agreement dated December 30, 1986.(20) | ||
10 | .33 | Amendment No. 4 dated December 29, 1989 to Kirin-Amgen, Inc./Amgen G-CSF European License Agreement dated December 30, 1986.(20) | ||
10 | .34+ | Amended and Restated 1987 Directors’ Stock Option Plan of Amgen Inc.(7) | ||
10 | .35+ | Amgen Inc. Amended and Restated 1993 Equity Incentive Plan (formerly known as the Immunex Corporation 1993 Stock Option Plan).(39) | ||
10 | .36+ | Amgen Inc. Executive Incentive Plan. (28) | ||
10 | .37+ | Promissory Note of Dr. Fabrizio Bonanni, dated October 29, 1999.(16) | ||
10 | .38+ | 2002 Special Severance Pay Plan for Amgen Employees.(35) | ||
10 | .39 | Amendment No. 6 dated May 11, 1984 to the Shareholders’ Agreement of Kirin-Amgen, Inc. dated May 11, 1984.(20) | ||
10 | .40 | Amendment No. 7 dated July 17, 1987 (effective April 1, 1987) to the Shareholders’ Agreement of Kirin-Amgen, Inc. dated May 11, 1984.(20) | ||
10 | .41 | Amendment No. 8 dated May 28, 1993 (effective November 13, 1990) to the Shareholders’ Agreement of Kirin-Amgen, Inc. dated May 11, 1984.(20) | ||
10 | .42 | Amendment No. 9 dated December 9, 1994 (effective June 14, 1994) to the Shareholders’ Agreement of Kirin-Amgen, Inc. dated May 11, 1984.(20) | ||
10 | .43+ | Agreement between Amgen Inc. and Mr. George J. Morrow, dated March 3, 2001.(21) | ||
10 | .44+ | Promissory Note of Mr. George J. Morrow, dated March 11, 2001.(21) | ||
10 | .45+ | Agreement between Amgen Inc. and Dr. Roger M. Perlmutter, M.D., Ph.D., dated March 5, 2001.(21) | ||
10 | .46+ | Agreement between Amgen Inc. and Mr. Brian McNamee, dated May 5, 2001.(22) | ||
10 | .47+ | Agreement between Amgen Inc. and Mr. Richard Nanula, dated May 15, 2001.(22) | ||
10 | .48+ | Promissory Note of Mr. Richard Nanula, dated June 27, 2001.(22) | ||
10 | .49+ | Promissory Note of Dr. Roger M. Perlmutter, dated June 29, 2001.(22) | ||
10 | .50 | Amendment No. 1 to ENBREL® Supply Agreement, effective as of September 20, 2002 (with certain confidential information deleted therefrom).(41) | ||
10 | .51+ | Second Amendment to the Amgen Inc. Change of Control Severance Plan.(23) | ||
10 | .52+* | Third Amendment to the Amgen Inc. Change of Control Severance Plan. | ||
10 | .53+ | Promissory Note of Mr. Brian McNamee, dated May 30, 2001.(23) | ||
10 | .54+ | Restricted Stock Purchase Agreement between Amgen Inc. and Mr. Richard Nanula, dated May 16, 2001.(23) | ||
10 | .55+* | Fourth Amendment to the Amgen Inc. Change of Control Severance Plan. | ||
10 | .56+ | Agreement between Amgen Inc. and Dr. Beth C. Seidenberg, dated December 21, 2001.(26) | ||
10 | .57+ | Amendment to Agreement between Amgen Inc. and Dr. Beth C. Seidenberg, dated December 21, 2001.(26) | ||
10 | .58+ | Form of Performance Unit Agreement (Amended and Restated Effective December 6, 2004). (49) | ||
10 | .59 | Amendment No. 2 to ENBREL® Supply Agreement, effective as of July 16, 2002. | ||
10 | .60+ | Amgen Inc. Executive Nonqualified Retirement Plan, effective January 1, 2001.(26) | ||
10 | .61+ | Amgen Inc. Performance Award Program (Amended and Restated Effective December 6, 2004). (49) | ||
10 | .62+ | Fourth Amendment to the Amgen Retirement and Savings Plan (As Amended and Restated Effective as of January 1, 2003).(49) | ||
10 | .63+ | Agreement between Amgen Inc. and Dr. Joseph Miletich, dated March 22, 2002.(29) |
83
Exhibit No. | Description | |||
10 | .64+ | Restricted Stock Purchase Agreement between Amgen Inc. and Dr. Joseph Miletich, dated April 1, 2002.(29) | ||
10 | .65+ | Fifth Amendment to the Amgen Inc. Change of Control Severance Plan.(49) | ||
10 | .66 | Agreement Regarding Governance and Commercial Matters by and among Wyeth (formerly American Home Products Corporation), American Cyanamid Company and Amgen Inc. dated December 16, 2001 (with certain confidential information deleted therefrom).(28) | ||
10 | .67+ | Amgen Inc. Supplemental Retirement Plan (As Amended and Restated Effective January 1, 2005).(45) | ||
10 | .68+ | Amgen Inc. Amended and Restated 1999 Stock Purchase Plan (formerly known as the Immunex Corporation 1999 Stock Purchase Plan).(32) | ||
10 | .69 | ENBREL® Supply Agreement among Immunex Corporation, American Home Products Corporation and Boehringer Ingelheim Pharma KG, dated as of November 5, 1998 (with certain confidential information deleted therefrom).(33) | ||
10 | .70 | Amendment No. 1 to the ENBREL® Supply Agreement among Immunex Corporation, American Home Products Corporation and Boehringer Ingelheim Pharma KG, dated June 27, 2000 (with certain confidential information deleted therefrom).(34) | ||
10 | .71 | Amendment No. 2 to the ENBREL® Supply Agreement among Immunex Corporation, American Home Products Corporation and Boehringer Ingelheim Pharma KG, dated June 3, 2002 (with certain confidential information deleted therefrom).(35) | ||
10 | .72 | Asset Purchase Agreement, dated May 2, 2002, by and between Immunex Corporation and Schering Aktiengesellschaft (with certain confidential information deleted therefrom).(35) | ||
10 | .73 | Amendment No. 1 to the Asset Purchase Agreement dated as of September 25, 2002, by and between Immunex Corporation and Schering Aktiengesellschaft.(35) | ||
10 | .74 | Amendment No. 2 to the Asset Purchase Agreement dated as of July 17, 2002, by and between Immunex Corporation and Schering Aktiengesellschaft.(35) | ||
10 | .75+ | Promissory Note of Ms. Beth Seidenberg, dated March 20, 2002.(35) | ||
10 | .76+ | Agreement between Amgen Inc. and Edward Fritzky, dated July 15, 2002.(35) | ||
10 | .77+ | Amgen Nonqualified Deferred Compensation Plan (As Amended and Restated Effective January 1, 2005).(45) | ||
10 | .78+ | Stock Option Agreement between Amgen Inc. and Edward Fritzky, dated July 15, 2002.(35) | ||
10 | .79+ | Promissory Note of Dr. Hassan Dayem, dated July 10, 2002.(35) | ||
10 | .80 | Amendment No. 3 to the ENBREL® Supply Agreement among Immunex Corporation, American Home Products Corporation and Boehringer Ingelheim Pharma KG, dated December 18, 2002 (with certain confidential information deleted therefrom).(38) | ||
10 | .81+ | Forms of Option Grant Agreements under the Company’s Amended and Restated 1991 Equity Incentive Plan, effective December 2003.(51) | ||
10 | .82+ | Amgen Inc. Credit Agreement, dated as of July 16, 2004, among Amgen Inc. the Banks therein named, Citibank N.A., as Issuing Bank, Citicorp USA, Inc., as Administrative Agent and Barclays Bank PLC, as Syndication Agent.(44) | ||
10 | .83+ | Restricted Stock Purchase Agreement between Amgen Inc. and Dr. Beth C. Seidenberg, dated January 14, 2002 and First Amendment thereto dated September 20, 2002.(38) | ||
10 | .84+ | Restricted Stock Purchase Agreement between Amgen Inc. and Brian M. McNamee, dated March 3, 2003.(40) | ||
10 | .85 | Amendment No. 3 to ENBREL® Supply Agreement, effective as of March 26, 2003 (with certain confidential information deleted therefrom).(41) | ||
10 | .86 | Amendment No. 4 to ENBREL® Supply Agreement, effective as of October 31, 2003 (with certain confidential information deleted therefrom).(41) | ||
10 | .87 | Description of Amendment No. 1 to Amended and Restated Promotion Agreement, effective as of July 8, 2003 (with certain confidential information deleted therefrom).(41) | ||
10 | .88+ | Amended and Restated Agreement between Amgen Inc. and David J. Scott, dated February 16, 2004.(41) |
84
Exhibit No. | Description | |||
10 | .89+ | Amgen Inc. Director Equity Incentive Program (Amended and Restated Effective December 6, 2004).(49) | ||
10 | .90+ | Form of Restricted Stock Unit Agreement.(41) | ||
10 | .91+ | Amgen Inc. Performance Award Program, effective as of December 9, 2003.(41) | ||
10 | .92+ | Form of Performance Unit Agreement.(41) | ||
10 | .93 | Description of Amendment No. 2 to Amended and Restated Promotion Agreement, effective as of April 20, 2004.(43) | ||
10 | .94+ | Third Amendment to the Amgen Retirement and Savings Plan (As Amended and Restated Effective as of January 1, 2003).(45) | ||
21 | * | Subsidiaries of the Company. | ||
23 | Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm. The consent set forth on page 90 is incorporated herein by reference. | |||
24 | Power of Attorney. The Power of Attorney set forth on page 89 is incorporated herein by reference. | |||
31 | * | Rule 13a-14(a) Certifications. | ||
32 | ** | Section 1350 Certifications. |
Exhibit No. | Description | |||
3.1* | Amended and Restated Certificate of Incorporation (as amended and restated December 6, 2005). | |||
3.2 | Amended and Restated Bylaws of Amgen Inc. (as amended and restated May 11, 2005).(56) | |||
3.3 | Certificate of Designations of Series A Junior Participating Preferred Stock.(22) | |||
4.1 | Indenture dated January 1, 1992 between the Company and Citibank N.A., as trustee.(3) | |||
4.2 | 6.50% Notes Due December 1, 2007.(11) | |||
4.3 | First Supplemental Indenture, dated February 26, 1997, to Indenture, dated January 1, 1992, between the Company and Citibank N.A., as trustee.(6) | |||
4.4 | Officer’s Certificate pursuant to Sections 2.1 and 2.3 of the Indenture, dated as of January 1, 1992, as supplemented by the First Supplemental Indenture, dated as of February 26, 1997, each between Amgen Inc. and Citibank, N.A., as Trustee, establishing a series of securities entitled “6.50% Notes Due December 1, 2007”(11) | |||
4.5 | 81¤8% Debentures due April 1, 2097.(8) | |||
4.6 | Officer’s Certificate pursuant to Sections 2.1 and 2.3 of the Indenture, dated as of January 1, 1992, as supplemented by the First Supplemental Indenture, dated as of February 26, 1997, each between the Company and Citibank, N.A., as Trustee, establishing a series of securities entitled “81¤8% Debentures due April 1, 2097.”(8) |
4.7 | Form of Liquid Yield Option™ Note due 2032.(29) | |
4.8 | Indenture, dated as of March 1, 2002, between Amgen Inc. and LaSalle Bank National Association.(29) | |
4.9 | Supplemental Indenture, dated as of March 2, 2005, between Amgen Inc. and LaSalle Bank National Association.(48) | |
4.10 | Registration Rights Agreement, dated as of March 1, 2002, between Amgen Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated.(29) | |
4.11 | Indenture, dated as of August 4, 2003, between the Company and JP Morgan Chase Bank, N.A., as trustee.(39) | |
4.12 | Form of 4.00% Senior Note due 2009.(45) | |
4.13 | Form of 4.85% Senior Notes due 2014.(45) | |
4.14 | Officers Certificate of Amgen Inc. dated November 18, 2004, including forms of the Company’s 4.00% Senior Notes due 2009 and 4.85% Senior Notes due 2014.(45) | |
4.15 | Registration Rights Agreement, dated as of November 18, 2004, among Amgen Inc. and Morgan Stanley & Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated as representatives of the several initial purchasers.(45) | |
4.16 | Form of Zero Coupon Convertible Note due 2032(54) | |
4.17 | Indenture, dated as of May 6, 2005, between Amgen Inc. and LaSalle Bank National Association.(54) | |
4.18 | Indenture, dated as of February 17, 2006, between Amgen Inc. and JP Morgan Chase Bank, N.A., as trustee (including form of 0.125% Convertible Senior Note due 2011).(60) | |
4.19 | Indenture, dated as of February 17, 2006, between Amgen Inc. and JP Morgan Chase Bank, N.A., as trustee (including form of 0.375% Convertible Senior Note due 2013).(60) | |
4.20 | Registration Rights Agreement, dated as of February 17, 2006, among Amgen Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated, Citigroup Global Markets Inc., J.P. Morgan Securities Inc., Lehman Brothers Inc., Bear, Stearns & Co. Inc., Credit Suisse Securities (USA) LLC.(60) | |
10.1 | Corporate Commercial Paper - Master Note between and among Amgen Inc., as Issuer, Cede & Co., as nominee of The Depository Trust Company and Citibank, N.A. as Paying Agent.(12) | |
10.2 | Form of stock certificate for the common stock, par value $.0001 of the Company.(9) | |
10.3+ | Amended and Restated 1991 Equity Incentive Plan (as of December 5, 2005).(59) | |
10.4+ 10.5+ | Forms of Stock Option Grant Agreements and Restricted Stock Unit Agreements for the Amended and Restated 1991 Equity Incentive Plan (Amended and Restated effective December 5, 2005).(59) | |
10.6+ | Amgen Inc. Director Equity Incentive Program (Amended and Restated effective December 6, 2005).(59) | |
10.7+ | Forms of Stock Option and Restricted Stock Unit Agreements pursuant to the Director Equity Incentive Plan.(59) | |
10.8+ | Amgen Inc. Amended and Restated 1997 Equity Incentive Plan (as of December 5, 2005).(59) | |
10.9+ | Forms of Stock Option Grant Agreements and Restricted Stock Unit Agreements for the 1997 Equity Incentive Plan (Amended and Restated effective December 5, 2005).(59) |
10.10+ | Amended and Restated 1999 Equity Incentive Plan (as of December 5, 2005).(59) | |
10.11+ | Forms of Stock Option Grant Agreements for 1999 Equity Incentive Plan (Amended and Restated December 5, 2005).(59) | |
10.13+ | Amgen Inc. Amended and Restated Employee Stock Purchase Plan.(19) | |
10.14+ | First Amendment, effective July 12, 2005, to the Amgen Inc. Amended and Restated Employee Stock Purchase Plan.(55) | |
10.15+ | Amgen Retirement and Savings Plan (As Amended and Restated effective January 1, 2006).(57) | |
10.16+ | Amgen Supplemental Retirement Plan (As Amended and Restated effective January 1, 2005).(44) | |
10.17+ | First Amendment to Amgen Supplemental Retirement Plan.(57) | |
10.18+ | Amgen Inc. Change of Control Severance Plan.(14) | |
10.19+ | First Amendment to Amgen Inc. Change of Control Severance Plan.(19) | |
10.20+ | Second Amendment to the Amgen Inc. Change of Control Severance Plan.(25) | |
10.21+ | Third Amendment to the Amgen Inc. Change of Control Severance Plan.(50) | |
10.22+ | Fourth Amendment to the Amgen Inc. Change of Control Severance Plan.(50) | |
10.23+ | Fifth Amendment to the Amgen Inc. Change of Control Severance Plan.(46) | |
10.24+ | Amgen Inc. Executive Incentive Plan.(30) | |
10.25+ | First Amendment to the Amgen Inc. Executive Incentive Plan.(46) | |
10.26+ | Amgen Inc. Executive Nonqualified Retirement Plan.(28) | |
10.27+ | Amgen Nonqualified Deferred Compensation Plan (As Amended and Restated effective January 1, 2005).(44) | |
10.28+ | First Amendment to Amgen Nonqualified Deferred Compensation Plan.(57) | |
10.29+ | Amended and Restated Amgen Inc. Performance Award Program (Amended and Restated effective December 5, 2005).(59) | |
10.30+ | Form of Performance Unit Agreement (Amended and Restated effective December 5, 2005).(59) | |
10.31+ | Amended and Restated 1987 Directors’ Stock Option Plan of Amgen Inc.(7) | |
10.32+ | 2002 Special Severance Pay Plan for Amgen Employees.(35) | |
10.33+ | Agreement between Amgen Inc. and Mr. George J. Morrow, dated March 3, 2001.(23) | |
10.34+ | Promissory Note of Mr. George J. Morrow, dated March 11, 2001.(23) | |
10.35+ | Agreement between Amgen Inc. and Dr. Roger M. Perlmutter, M.D., Ph.D., dated March 5, 2001.(23) | |
10.36+ | Promissory Note of Dr. Roger M. Perlmutter, dated June 29, 2001.(24) | |
10.37+ | Agreement between Amgen Inc. and Mr. Brian McNamee, dated May 5, 2001.(24) | |
10.38+ | Promissory Note of Mr. Brian McNamee, dated May 30, 2001.(25) | |
10.39+ | Restricted Stock Purchase Agreement between Amgen Inc. and Brian M. McNamee, dated March 3, 2003.(38) | |
10.40+ | Agreement between Amgen Inc. and Mr. Richard Nanula, dated May 15, 2001.(24) |
10.41+ | Promissory Note of Mr. Richard Nanula, dated June 27, 2001.(24) | |
10.42+ | Restricted Stock Purchase Agreement between Amgen Inc. and Mr. Richard Nanula, dated May 16, 2001.(25) | |
10.43+ | Promissory Note of Dr. Hassan Dayem, dated July 10, 2002.(35) | |
10.44+ | Amended and Restated Agreement between Amgen Inc. and David J. Scott, dated February 16, 2004.(40) | |
10.45+* | Restricted Stock Purchase Agreement between Amgen Inc. and Dennis M. Fenton, dated December 6, 2004. | |
10.46 | Product License Agreement, dated September 30, 1985, and Technology License Agreement, dated, September 30, 1985 between Amgen Inc. and Ortho Pharmaceutical Corporation.(19) | |
10.47 | Shareholder’s Agreement of Kirin-Amgen, Inc., dated May 11, 1984, between the Company and Kirin Brewery Company, Limited.(22) | |
10.48 | Amendment Nos. 1, 2, and 3, dated March 19, 1985, July 29, 1985 and December 19, 1985, respectively, to the Shareholder’s Agreement of Kirin-Amgen, Inc., dated May 11, 1984.(19) | |
10.49 | Amendment Nos. 4, 5, 6, 7, 8, 9, 10 and 11 dated October 16, 1986 (effective July 1, 1986), December 6, 1986 (effective July 1, 1986), May 11, 1984, July 17, 1987 (effective April 1, 1987), May 28, 1993 (effective November 13, 1990), December 9, 1994 (effective June 14, 1994), March 1, 1996 and March 20, 2000 respectively, to the Shareholders Agreement of Kirin-Amgen, Inc. dated May 11, 1984.(22) | |
10.50 | Amendment No. 12 dated January 31, 2001 to the Shareholders Agreement of Kirin-Amgen, Inc. dated May 11, 1984.(56) | |
10.51 | Product License Agreement, dated September 30, 1985, and Technology License Agreement, dated September 30, 1985 between Kirin-Amgen, Inc. and Ortho Pharmaceutical Corporation.(19) | |
10.52 | Research, Development Technology Disclosure and License Agreement PPO, dated January 20, 1986, by and between Amgen Inc. and Kirin Brewery Co., Ltd.(1) | |
10.53 | Amendment, dated June 30, 1988, to Research, Development, Technology Disclosure and License Agreement: GM-CSF dated March 31, 1987, between Kirin Brewery Company, Limited and Amgen Inc.(2) | |
10.54 | Assignment and License Agreement, dated October 16, 1986, between Amgen Inc. and Kirin-Amgen, Inc.(22) | |
10.55 | G-CSF United States License Agreement dated June 1, 1987 (effective July 1, 1986), Amendment No. 1 dated October 20, 1988 and Amendment No. 2 dated October 17, 1991 (effective November 13, 1990) between Kirin-Amgen, Inc. and Amgen Inc.(22) | |
10.56 | G-CSF European License Agreement, dated December 30, 1986, Amendment No. 1 dated June 1, 1987, Amendment No. 2 dated March 15, 1998, Amendment No. 3 dated October 20, 1988, and Amendment No. 4 dated December 29, 1989 between Kirin-Amgen, Inc. and Amgen Inc.(22) | |
10.57 | Partnership Purchase Agreement dated March 12, 1993, between Amgen Inc., Amgen Clinical Partners, L.P., Amgen Development Corporation, the Class A limited partners and the Class B limited partner.(4) |
10.58 | ENBREL® Supply Agreement among Immunex Corporation, American Home Products Corporation and Boehringer Ingelheim Pharma KG, dated as of November 5, 1998 (with certain confidential information deleted therefrom).(15) | |
10.59 | Amendment No. 1 to the ENBREL® Supply Agreement among Immunex Corporation, American Home Products Corporation and Boehringer Ingelheim Pharma KG, dated June 27, 2000 (with certain confidential information deleted therefrom).(33) | |
10.60 | Amendment No. 2 to the ENBREL® Supply Agreement among Immunex Corporation, American Home Products Corporation and Boehringer Ingelheim Pharma KG, dated June 3, 2002 (with certain confidential information deleted therefrom).(35) | |
10.61 | Amendment No. 3 to the ENBREL® Supply Agreement among Immunex Corporation, American Home Products Corporation and Boehringer Ingelheim Pharma KG, dated December 18, 2002 (with certain confidential information deleted therefrom).(37) | |
10.62 | Amendment No. 4 to the ENBREL® Supply Agreement among Immunex Corporation, American Home Products Corporation and Boehringer Ingelheim Pharma KG, dated May 21, 2004.(56) | |
10.63 | Amendment No. 5 to the ENBREL® Supply Agreement among Immunex Corporation, American Home Products Corporation and Boehringer Ingelheim Pharma KG, dated August 30, 2005.(58) | |
10.64 | Agreement Regarding Governance and Commercial Matters by and among Wyeth (formerly American Home Products Corporation), American Cyanamid Company and Amgen Inc. dated December 16, 2001 (with certain confidential information deleted therefrom).(30) | |
10.65 | Asset Purchase Agreement dated May 2, 2002, by and between Immunex Corporation and Schering Aktiengesellschaft (with certain confidential information deleted therefrom).(35) | |
10.66 | Amendment No. 1 dated as of September 25, 2002 and Amendment No. 2 dated as of July 17, 2002to the Asset Purchase Agreement dated as of September 25, 2002, by and between Immunex Corporation and Schering Aktiengesellschaft.(35) | |
10.67 | Amended and Restated Promotion Agreement By and Among Wyeth, Amgen Inc. and Immunex Corporation entered into as of December 16, 2001 (with certain confidential information deleted therefrom).(30) | |
10.68 | Description of Amendment No. 1 to Amended and Restated Promotion Agreement By and Among Wyeth, Amgen Inc. and Immunex Corporation, effective as of July 8, 2003 (with certain confidential information deleted therefrom).(40) | |
10.69 | Description of Amendment No. 2 to Amended and Restated Promotion Agreement By and Among Wyeth, Amgen Inc. and Immunex Corporation, effective as of April 20, 2004.(42) | |
10.70 | Description of Amendment No. 3 To Amended and Restated Promotion Agreement By and Among Wyeth, Amgen Inc. and Immunex Corporation, effective as of January 1, 2005, (with certain confidential information deleted therefrom).(53) | |
10.71 | Amgen Inc. Credit Agreement, dated as of July 16, 2004, among Amgen Inc. the Banks therein named, Citibank N.A., as Issuing Bank, Citicorp USA, Inc., as Administrative Agent and Barclays Bank PLC, as Syndication Agent.(43) | |
10.72 | First Amendment dated as of December 6, 2004, to the Credit Agreement, dated as of July 16, 2004, among Amgen Inc. the Banks therein named, Citibank N.A., as Issuing Bank, Citicorp USA, Inc., as Administrative Agent and Barclays Bank PLC, as Syndication Agent.(59). |
10.73 | Purchase Agreement, dated as of November 15, 2004, among Amgen Inc. and Morgan Stanley & Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated as representatives of the several initial purchasers.(45) | |
10.74 | Purchase Agreement, dated as of February 14, 2006, among Amgen Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated, Citigroup Global Markets Inc., J.P. Morgan Securities Inc., Lehman Brothers Inc., Bear, Stearns & Co. Inc., Credit Suisse Securities (USA) LLC.(60) | |
10.75* | Confirmation of OTC Convertible Note Hedge related to 2011 Notes, dated February 14, 2006, between Amgen Inc. and Merrill Lynch International. | |
10.76* | Confirmation of OTC Convertible Note Hedge related to 2013 Notes, dated February 14, 2006, between Amgen Inc. and Merrill Lynch International. | |
10.77* | Confirmation of OTC Convertible Note Hedge related to 2011 Notes, dated February 14, 2006, between Amgen Inc. and Morgan Stanley & Co. International Limited and Morgan Stanley Bank as agent. | |
10.78* | Confirmation of OTC Warrant Transaction, dated February 14, 2006, between Amgen Inc. and Merrill Lynch International for warrants expiring in 2011. | |
10.79* | Confirmation of OTC Warrant Transaction, dated February 14, 2006, between Amgen Inc. and Merrill Lynch International for warrants expiring in 2013. | |
10.80* | Confirmation of OTC Warrant Transaction, dated February 14, 2006, between Amgen Inc. and Morgan Stanley & Co. International Limited and Morgan Stanley Bank as agent for warrants expiring in 2011. | |
10.81* | Accelerated Share Repurchase Agreement, dated February 16, 2006, between Amgen Inc. and Citigroup Global Markets Inc. | |
21* | Subsidiaries of the Company. | |
23 | Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm. The consent set forth on page 97 is incorporated herein by reference. | |
24 | Power of Attorney. The Power of Attorney set forth on page 96 is incorporated herein by reference. | |
31* | Rule 13a-14(a) Certifications. | |
32** | Section 1350 Certifications. |
(* = filed herewith)
(** = furnished herewith and not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended)
(+ = management contract or compensatory plan or arrangement.)
(1) Filed as an exhibit to Amendment No. 1 to Form S-1 Registration Statement (Registration No. 33-3069) on March 11, 1986 and incorporated herein by reference.
(2) Filed as an exhibit to Form 8 amending the Quarterly Report on Form 10-Q for the quarter ended June 30, 1988 on August 25, 1988 and incorporated herein by reference.
(3) Filed as an exhibit to Form S-3 Registration Statement dated December 19, 1991 and incorporated herein by reference.
(4) Filed as an exhibit to the Form 8-A dated March 31, 1993 and incorporated herein by reference.
(5) Filed as an exhibit to the Form 10-Q for the quarter ended September 30, 1996 on November 5, 1996 and incorporated herein by reference.
(6) Filed as an exhibit to the Form 8-K Current Report dated March 14, 1997 on March 14, 1997 and incorporated herein by reference.
(7) Filed as an exhibit to the Annual Report on Form 10-K for the year ended December 31, 1996 on March 24, 1997 and incorporated herein by reference.
(8) Filed as an exhibit to the Form 8-K Current Report dated April 8, 1997 on April 8, 1997 and incorporated herein by reference.
(9) Filed as an exhibit to the Form 10-Q for the quarter ended March 31, 1997 on May 13, 1997 and incorporated herein by reference.
(10) Filed as an exhibit to the Form 10-Q for the quarter ended June 30, 1997 on August 12, 1997 and incorporated herein by reference.
(11) Filed as an exhibit to the Form 8-K Current Report dated and filed on December 5, 1997 and incorporated herein by reference.
(12) Filed as an exhibit to the Form 10-Q for the quarter ended March 31, 1998 on May 13, 1998 and incorporated herein by reference.
(13) Filed as an exhibit to the Form 10-Q for the quarter ended June 30, 1998 on August 14, 1998 and incorporated herein by reference.
(14) Filed as an exhibit to the Annual Report on Form 10-K for the year ended December 31, 1998 on March 16, 1999 and incorporated herein by reference.
(15) Filed as an exhibit to the Annual Report on Form 10-K of Immunex Corporation for the year ended December 31, 1998.
(16) Filed as an exhibit to the Form S-8 dated March 17, 1999 and incorporated herein by reference.
(17) Filed as an exhibit to the Form 10-Q for the quarter ended June 30, 1999 on August 3, 1999 and incorporated herein by reference.
(18) Filed as an exhibit to the Annual Report on Form 10-K for the year ended December 31, 1999 on March 7, 2000 and incorporated herein by reference.
(19) Filed as an exhibit to the Form 10-Q for the quarter ended June 30, 2000 on August 1, 2000 and incorporated herein by reference.
(20) Filed as an exhibit to the Form 10-Q for the quarter ended September 30, 2000 on November 14, 2000 and incorporated herein by reference.
(21) Filed as an exhibit to the Form 8-K Current Report dated December 13, 2000 on December 18, 2000 and incorporated herein by reference.
(22) Filed as an exhibit to the Annual Report on Form 10-K for the year ended December 31, 2000 on March 7, 2001 and incorporated herein by reference.
(23) Filed as an exhibit to the Form 10-Q for the quarter ended March 31, 2001 on May 14, 2001 and incorporated herein by reference.
(24) Filed as an exhibit to the Form 10-Q for the quarter ended June 30, 2001 on July 27, 2001 and incorporated herein by reference.
(25) Filed as an exhibit to the Form 10-Q for the quarter ended September 30, 2001 on October 26, 2001 and incorporated herein by reference. (26) Filed as an exhibit to the Form 8-K Current Report dated December 16, 2001 on December 17, 2001 and incorporated herein by reference. (27) Filed as an exhibit to the Form S-4 Registration Statement dated January 31, 2002 and incorporated herein by reference. (28) Filed as an exhibit to the Annual Report on Form 10-K for the year ended December 31, 2001 on February 26, 2002 and incorporated herein by reference. (29) Filed as an exhibit to the Form 8-K Current Report dated February 21, 2002 on March 1, 2002 and incorporated herein by reference. (30) Filed as an exhibit to Amendment No. 1 to the Form S-4 Registration Statement dated March 22, 2002 and incorporated herein by reference. (31) Filed as an exhibit to the Form 10-Q for the quarter ended March 31, 2002 on April 29, 2002 and incorporated herein by reference. (32) Filed as an exhibit to the Post-effective Amendment No. 1 to the Form S-4 Registration Statement dated July 15, 2002 and incorporated herein by reference. (33) Filed as an exhibit to Form 8-K Current Report of Immunex Corporation dated April 12, 2002 on May 7, 2002 and incorporated herein by reference. (34) Filed as an exhibit to the Form 10-Q of Immunex Corporation for the quarter ended June 30, 2000. (35) Filed as an exhibit to the Form 10-Q for the quarter ended June 30, 2002 on August 13, 2002 and incorporated herein by reference. (36) Filed as an exhibit to the Form 10-Q for the quarter ended September 30, 2002 on November 5, 2002 and incorporated herein by reference. (37) Filed as an exhibit to the Form 10-K for the year ended December 31, 2002 on March 10, 2003 and incorporated herein by reference. (38) Filed as an exhibit to the Form 10-Q for the quarter ended June 30, 2003 on July 30, 2003 and incorporated herein by reference. (39) Filed as an exhibit to Form S-3 Registration Statement dated August 4, 2003 and incorporated herein by reference. (40) Filed as an exhibit to the Annual Report on Form 10-K for the year ended December 31, 2003 on March 11, 2004 and incorporated herein by reference. (41) Filed as an exhibit to the Form S-4 dated April 26, 2004 and incorporated herein by reference. (42) Filed as an exhibit to the Form S-4/A dated June 29, 2004 and incorporated herein by reference. (43) Filed as an exhibit to the Form 10-Q for the quarter ended June 30, 2004 on August 6, 2004 and incorporated herein by reference. (44)Filed as an exhibit to the Form 8-K Current Report | ||
85
86
(45) Filed as an exhibit to report our Third Amendment to the Amgen Retirement and Savings Plan (As Amended and Restated Effective as of January 2003) (the “Amgen 401(k) Plan”) and the Amendment and Restatement of the Amgen Supplemental Retirement Plan (As Amended and Restated Effective November 1, 1999) and the Amgen Nonqualified Deferred Compensation Plan. This October 5, 2004 report also described the terms of a retention payment to be credited to the account of Fabrizio Bonanni, Senior Vice President, Manufacturing in the Nonqualified Deferred Compensation Plan. A report dated October 20, 2004 was furnished to the SEC and contained our press release announcing our earnings for the three and nine months ended September 30, 2004. A reportForm 8-K dated November 15, 2004 was filed with the SEC reporting our entry into and terms of a Purchase Agreement for our sale (on the date of such agreement) of $1,000,000,000 in principal amount of our 4.00% Senior Notes due 2009 (the “2009 Notes”), datedincorporated herein by reference.
(46) Filed as of November 15, 2004 among Amgen and Morgan Stanley & Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated as representatives of the initial purchasers of the 2009 Notes and the forms and terms of the collateral agreements relatedan exhibit to this sale. A reportForm 8-K dated December 6, 2004 was filed withand incorporated herein by reference.
(47) Filed as an exhibit to Form S-8 dated August 16, 2004 and incorporated herein by reference.
(48) Filed as an exhibit to Form 8-K dated March 2, 2005 and incorporated herein by reference.
(49) Filed as an exhibit to Form 8-K dated March 7, 2005 and incorporated herein by reference.
(50) Filed as an exhibit to Form 10-K for the SECyear ended December 31, 2004 on March 9, 2005 and incorporated herein by reference.
(51) Filed as an exhibit to report our: Fourth AmendmentForm S-4 dated March 14, 2005 and incorporated by reference.
(52) Filed as an exhibit to Form S-4 dated April 5, 2005 and incorporated by reference.
(53) Filed as an exhibit to Form 10-Q for the Amgen 401(k) Plan; Fifth Amendmentquarter ended March 31, 2005 on May 4, 2005 and incorporated herein by reference.
(54) Filed as an exhibit to Form 8-K dated May 5, 2005 and incorporated herein by reference.
(55) Filed as an exhibit to Form 8-K dated July 11, 2005 and incorporated herein by reference.
(56) Filed as an exhibit to Form 10-Q for the Amgen Inc. Change of Control Severance Plan; First Amendmentquarter ended June 30, 2005 on August 8, 2005 and incorporated herein by reference.
(57) Filed as an exhibit to Form 8-K dated October 19, 2005 and incorporated herein by reference.
(58) Filed as an exhibit to Form 10-Q for the Amgen Inc. Executive Incentive Planquarter ended September 30, 2005 on November 9, 2005.
(59) Filed as an exhibit to Form 8-K dated December 8, 2005 and the Amendmentincorporated herein by reference.
(60) Filed as an exhibit to Form 8-K dated February 21, 2006 and Restatement of the 1991 Equity Incentive Plan and the corresponding Amendment and Restatement of the Amgen Inc. Performance Award Program and the form of performance unit agreement under such program.
8794
AMGEN INC. | |||
(Registrant) | |||
Date: |
03/10/06 | By: | /s/ RICHARD D. NANULA | |
Richard D. Nanula |
Executive Vice President | |||
and Chief Financial Officer |
88
KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Richard D. Nanula and Timothy O. Martin,Michael A. Kelly, or either of them, his or her attorney-in-fact, each 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 all that each of said attorneys-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/ KEVIN W. SHARER | ||||||||||
Chairman of the Board, Chief Executive | 3/10/06 | |||||||||
Kevin W. Sharer | Officer and President, and Director | |||||||||
(Principal Executive Officer) | ||||||||||
/s/ | Executive Vice President and | 3/10/06 | ||||||||
Richard D. Nanula | Chief Financial Officer | |||||||||
(Principal Financial Officer) | ||||||||||
/s/ MICHAEL A. KELLY | Vice President Corporate | 3/10/06 | ||||||||
Michael A. Kelly | Planning and | |||||||||
(Principal Accounting Officer) | ||||||||||
/s/ DAVID BALTIMORE | Director | 3/10/06 | ||||||||
David Baltimore | ||||||||||
/s/ FRANK J. BIONDI, JR. | Director | 3/10/06 | ||||||||
Frank J. Biondi, Jr. | ||||||||||
/s/ JERRY D. CHOATE | Director | 3/10/06 | ||||||||
Jerry D. Choate | ||||||||||
/s/ FREDERICK W. GLUCK | Director | 3/10/06 | ||||||||
Frederick W. Gluck | ||||||||||
/s/ FRANK C. HERRINGER | Director | 3/10/06 | ||||||||
Frank C. Herringer | ||||||||||
/s/ FRANKLIN P. JOHNSON, JR. | Director | 3/10/06 | ||||||||
Franklin P. Johnson, Jr. | ||||||||||
/s/ GILBERT S. OMENN | Director | 3/10/06 | ||||||||
Gilbert S. Omenn | ||||||||||
/s/ JUDITH C. PELHAM | Director | 3/10/06 | ||||||||
Judith C. Pelham | ||||||||||
/s/ J. PAUL REASON | Director | 3/10/06 | ||||||||
J. Paul Reason | ||||||||||
/s/ DONALD B. RICE | Director | 3/10/06 | ||||||||
Donald B. Rice | ||||||||||
/s/ LEONARD D. SCHAEFFER | Director | 3/10/06 | ||||||||
Leonard D. Schaeffer |
8996
We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-5111) pertaining to the 1984 Stock Option Plan, 1981 Incentive Stock Option Plan and Nonqualified Stock Option Plan of Amgen Inc., in the Registration Statement (Form S-8 No. 33-24013) pertaining to the Amended and Restated 1988 Stock Option Plan of Amgen Inc., in the Registration Statement (Form S-8 No. 33-39183) pertaining to the Amended and Restated Employee Stock Purchase Plan, in the Registration Statement (Form S-8 No. 33-39104) pertaining to the Amended and Restated Amgen Retirement and Savings Plan, in the Registration Statements (Form S-3/S-8 No. 33-29791 and Form S-8 No. 33-42501) pertaining to the Amended and Restated 1987 Directors’ Stock Option Plan, in the Registration Statement (Form S-8 No. 33-42072) pertaining to the Amgen Inc. Amended and Restated 1991 Equity Incentive Plan, in the Registration Statement (Form S-8 No. 33-47605) pertaining to the Retirement and Savings Plan for Amgen Puerto Rico, Inc., in the Registration Statement (Form S-8 No. 333-44727) pertaining to the Amgen Inc. 1997 Special Non-Officer Equity Incentive Plan, in the Registration Statement (Form S-3 No. 333-19931) of Amgen Inc., in the Registration Statement (Form S-3 No. 333-40405) of Amgen Inc., in the Registration Statement (Form S-8 No. 333-62735) pertaining to the Amgen Inc. Amended and Restated 1997 Special Non-Officer Equity Incentive Plan, in the Registration Statement (Form S-3 No. 333-53929) pertaining to the Amgen Inc. 1997 Special Non-Officer Equity Incentive Plan, the Amgen Inc. Amended and Restated 1991 Equity Incentive Plan, the Amended and Restated 1988 Stock Option Plan of Amgen Inc. and the Amended and Restated 1987 Directors’ Stock Option Plan, in the Registration Statement (Form S-8 No. 333-74585) pertaining to the Amgen Limited Sharesave Plan, in the Registration Statement (Form S-8 No. 333-81284) pertaining to the Amgen Nonqualified Deferred Compensation Plan, in the Registration Statement (Form S-8 No. 333-56672) pertaining to the Amended and Restated 1997 Special Non-Officer Equity Incentive Plan, in the Registration Statement (Form S-3 No. 333-56664 and Amendment No. 1 thereto) pertaining to the Amgen Inc. 1997 Special Non-Officer Equity Incentive Plan, the Amgen Inc. Amended and Restated 1991 Equity Incentive Plan, the Amended and Restated 1988 Stock Option Plan of Amgen Inc., and the Amended and Restated 1987 Directors’ Stock Option Plan, in the Registration Statement (Form S-8 No. 333-83824) pertaining to the Amgen Inc. Amended and Restated 1997 Special Non-Officer Equity Incentive Plan, in the Registration Statement (Form S-3 No. 333-88834) pertaining to Amgen Inc.’s Liquid Yield OptiontmOption™ Notes, in the Registration Statement (Form S-3 No. 333-92450 and Amendment No. 1 thereto) pertaining to Amgen Inc.’s Common Stock, in the Registration Statement (Form S-8 No. 333-92424 and Amendment No. 1 thereto) pertaining to the Amgen Inc. Amended and Restated 1993 Equity Incentive Plan (formerly known as the Immunex Corporation 1993 Stock Option Plan), the Amgen Inc. Amended and Restated 1999 Equity Incentive Plan (formerly known as the Immunex Corporation 1999 Stock Option Plan), the Amgen Inc. Amended and Restated 1999 Employee Stock Purchase Plan (formerly known as the Immunex Corporation 1999 Employee Stock Purchase Plan), the Immunex Corporation Stock Option Plan for Nonemployee Directors, and the Amgen Inc. Profit Sharing 401(k) Plan and Trust (formerly known as the Immunex Corporation Profit Sharing 401(k) Plan and Trust), in the Registration Statement (Form S-3 No. 333-107639 and Amendment 1 thereto) relating to debt securities, common stock and associated preferred share repurchase rights, preferred stock, warrants to purchase debt securities, common stock or preferred stock, securities purchase contracts, securities purchase units and depositary shares of Amgen Inc. and in the related Prospectuses, and in the Registration Statement (Form S-8 No. 333-118254) pertaining to the Amgen Inc. Amended and Restated 1997 Equity Incentive Plan (formerly known as the Tularik Inc. 1997 Equity Incentive Plan, as amended), the Tularik Inc. 1991 Stock Plan, as amended, the Tularik Inc. Amended and Restated 1997 Non-Employee Directors’ Stock Option Plan, as amended, the Amgen Salary Savings Plan (formerly known as Tularik Salary Savings Plan), and a Nonstatutory Stock Option Agreement, and in the Registration Statement (Form S-3 No. 333-132286) relating to the potential resale of securities acquired from Amgen Inc. by selling security holders in unregistered private offerings, of our
reports dated March 4, 2005,2, 2006, with respect to the consolidated financial statements and schedule of Amgen Inc., Amgen Inc. management’s assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of Amgen Inc., included in this Annual Report (Form 10-K) for the year ended December 31, 2004.
/s/Ernst & Young LLP | |
Los Angeles, California | |
March 7, 2006 |
9098
Report of Independent Registered Public Accounting Firm
on the Financial Statements
We have audited the accompanying consolidated balance sheetsConsolidated Balance Sheets of Amgen Inc. (the “Company”) as of December 31, 20042005 and 2003,2004, and the related consolidated statementsConsolidated Statements of operations, stockholders’ equity,Operations, Stockholders’ Equity, and cash flowsCash Flows for each of the three years in the period ended December 31, 2004.2005. Our audits also included the financial statement schedule listed in the Index at Item 15(a)2. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Amgen Inc. at December 31, 20042005 and 2003,2004, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2004,2005, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Amgen Inc.’s internal control over financial reporting as of December 31, 2004,2005, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 4, 20052, 2006 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Los Angeles, California
March 4, 2005
F-1F-1
|
| 2005 |
| 2004 |
| 2003 |
| |||
Revenues: |
|
|
|
|
|
|
| |||
Product sales |
| $ | 12,022 |
| $ | 9,977 |
| $ | 7,868 |
|
Other revenues |
| 408 |
| 573 |
| 488 |
| |||
Total revenues |
| 12,430 |
| 10,550 |
| 8,356 |
| |||
Operating expenses: |
|
|
|
|
|
|
| |||
Cost of sales (excludes amortization of acquired intangible assets presented below) |
| 2,082 |
| 1,731 |
| 1,341 |
| |||
Research and development |
| 2,314 |
| 2,028 |
| 1,655 |
| |||
Write-off of acquired in-process research and development |
| — |
| 554 |
| — |
| |||
Selling, general and administrative |
| 2,790 |
| 2,556 |
| 1,957 |
| |||
Amortization of acquired intangible assets |
| 347 |
| 333 |
| 336 |
| |||
Other items, net |
| 49 |
| — |
| (24 | ) | |||
Total operating expenses |
| 7,582 |
| 7,202 |
| 5,265 |
| |||
Operating income |
| 4,848 |
| 3,348 |
| 3,091 |
| |||
Other income (expense): |
|
|
|
|
|
|
| |||
Interest and other income, net |
| 119 |
| 85 |
| 113 |
| |||
Interest expense, net |
| (99 | ) | (38 | ) | (31 | ) | |||
Total other income |
| 20 |
| 47 |
| 82 |
| |||
Income before income taxes |
| 4,868 |
| 3,395 |
| 3,173 |
| |||
Provision for income taxes |
| 1,194 |
| 1,032 |
| 914 |
| |||
Net income |
| $ | 3,674 |
| $ | 2,363 |
| $ | 2,259 |
|
Earnings per share: |
|
|
|
|
|
|
| |||
Basic |
| $ | 2.97 |
| $ | 1.86 |
| $ | 1.75 |
|
Diluted |
| $ | 2.93 |
| $ | 1.81 |
| $ | 1.69 |
|
Shares used in calculation of earnings per share: |
|
|
|
|
|
|
| |||
Basic |
| 1,236 |
| 1,271 |
| 1,288 |
| |||
Diluted |
| 1,258 |
| 1,320 |
| 1,346 |
|
2004 | 2003 | 2002 | ||||||||||||
Revenues: | ||||||||||||||
Product sales | $ | 9,977 | $ | 7,868 | $ | 4,991 | ||||||||
Other revenues | 573 | 488 | 532 | |||||||||||
Total revenues | 10,550 | 8,356 | 5,523 | |||||||||||
Operating expenses: | ||||||||||||||
Cost of sales (excludes amortization of acquired intangible assets presented below) | 1,731 | 1,341 | 736 | |||||||||||
Research and development | 2,028 | 1,655 | 1,117 | |||||||||||
Write-off of acquired in-process research and development | 554 | — | 2,992 | |||||||||||
Selling, general and administrative | 2,556 | 1,957 | 1,449 | |||||||||||
Amortization of acquired intangible assets | 333 | 336 | 155 | |||||||||||
Other items, net | — | (24 | ) | (141 | ) | |||||||||
Total operating expenses | 7,202 | 5,265 | 6,308 | |||||||||||
Operating income (loss) | 3,348 | 3,091 | (785 | ) | ||||||||||
Other income (expense): | ||||||||||||||
Interest and other income, net | 85 | 113 | 144 | |||||||||||
Interest expense, net | (38 | ) | (31 | ) | (44 | ) | ||||||||
Total other income | 47 | 82 | 100 | |||||||||||
Income (loss) before income taxes | 3,395 | 3,173 | (685 | ) | ||||||||||
Provision for income taxes | 1,032 | 914 | 707 | |||||||||||
Net income (loss) | $ | 2,363 | $ | 2,259 | $ | (1,392 | ) | |||||||
Earnings (loss)per share: | ||||||||||||||
Basic | $ | 1.86 | $ | 1.75 | $ | (1.21 | ) | |||||||
Diluted | $ | 1.81 | $ | 1.69 | $ | (1.21 | ) | |||||||
Shares used in calculation of earnings (loss) per share: | ||||||||||||||
Basic | 1,271 | 1,288 | 1,154 | |||||||||||
Diluted | 1,320 | 1,346 | 1,154 |
See accompanying notes.
F-2F-2
|
| 2005 |
| 2004 |
| ||
ASSETS |
|
|
|
|
| ||
Current assets: |
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 1,840 |
| $ | 1,526 |
|
Marketable securities |
| 3,415 |
| 4,282 |
| ||
Trade receivables, net |
| 1,769 |
| 1,461 |
| ||
Inventories |
| 1,258 |
| 888 |
| ||
Other current assets |
| 953 |
| 1,013 |
| ||
Total current assets |
| 9,235 |
| 9,170 |
| ||
Property, plant, and equipment, net |
| 5,038 |
| 4,712 |
| ||
Intangible assets, net |
| 3,742 |
| 4,033 |
| ||
Goodwill |
| 10,495 |
| 10,525 |
| ||
Other assets |
| 787 |
| 781 |
| ||
|
| $ | 29,297 |
| $ | 29,221 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
| ||
Accounts payable |
| $ | 596 |
| $ | 507 |
|
Accrued liabilities |
| 2,999 |
| 2,477 |
| ||
Convertible notes |
| — |
| 1,173 |
| ||
Total current liabilities |
| 3,595 |
| 4,157 |
| ||
Deferred tax liabilities |
| 1,163 |
| 1,294 |
| ||
Convertible notes |
| 1,759 |
| 1,739 |
| ||
Other long-term debt |
| 2,198 |
| 2,198 |
| ||
Other non-current liabilities |
| 131 |
| 128 |
| ||
Commitments and contingencies |
|
|
|
|
| ||
Stockholders’ equity: |
|
|
|
|
| ||
Preferred stock; $0.0001 par value; 5 shares authorized; none issued or outstanding |
| — |
| — |
| ||
Common stock and additional paid-in capital; $0.0001 par value; 2,750 shares authorized; outstanding — 1,224 shares in 2005 and 1,260 shares in 2004 |
| 23,561 |
| 22,078 |
| ||
Accumulated deficit |
| (3,132 | ) | (2,376 | ) | ||
Accumulated other comprehensive income |
| 22 |
| 3 |
| ||
Total stockholders’ equity |
| 20,451 |
| 19,705 |
| ||
|
| $ | 29,297 |
| $ | 29,221 |
|
2004 | 2003 | |||||||||
ASSETS | ||||||||||
Current assets: | ||||||||||
Cash and cash equivalents | $ | 1,526 | $ | 837 | ||||||
Marketable securities | 4,282 | 4,286 | ||||||||
Trade receivables, net of allowance for doubtful accounts of $29 in 2004 and $27 in 2003 | 1,461 | 1,008 | ||||||||
Inventories | 888 | 713 | ||||||||
Other current assets | 1,013 | 558 | ||||||||
Total current assets | 9,170 | 7,402 | ||||||||
Property, plant, and equipment, net | 4,712 | 3,799 | ||||||||
Intangible assets, net | 4,033 | 4,288 | ||||||||
Goodwill | 10,525 | 9,820 | ||||||||
Other assets | 781 | 804 | ||||||||
$ | 29,221 | $ | 26,113 | |||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||
Current liabilities: | ||||||||||
Accounts payable | $ | 507 | $ | 327 | ||||||
Accrued liabilities | 2,477 | 2,129 | ||||||||
Convertible notes | 1,173 | — | ||||||||
Total current liabilities | 4,157 | 2,456 | ||||||||
Deferred tax liabilities | 1,294 | 1,146 | ||||||||
Convertible notes | 1,739 | 2,880 | ||||||||
Other long-term debt | 2,198 | 200 | ||||||||
Other non-current liabilities | 128 | 42 | ||||||||
Commitments and contingencies | ||||||||||
Stockholders’ equity: | ||||||||||
Preferred stock; $0.0001 par value; 5 shares authorized; none issued or outstanding | — | — | ||||||||
Common stock and additional paid-in capital; $0.0001 par value; 2,750 shares authorized; outstanding-1,260 shares in 2004 and 1,284 shares in 2003 | 22,078 | 19,995 | ||||||||
Accumulated deficit | (2,376 | ) | (667 | ) | ||||||
Accumulated other comprehensive income | 3 | 61 | ||||||||
Total stockholders’ equity | 19,705 | 19,389 | ||||||||
$ | 29,221 | $ | 26,113 | |||||||
See accompanying notes.
F-3F-3
|
|
|
| Common |
|
|
| Accumulated |
|
|
| ||||||||||||
|
|
|
| stock and |
|
|
| other |
|
|
| ||||||||||||
|
| Number |
| additional |
| Accumulated |
| comprehensive |
|
|
| ||||||||||||
|
| of shares |
| paid-in capital |
| deficit |
| income |
| Total |
| ||||||||||||
Balance at December 31, 2002 |
|
| 1,289 |
|
|
| $ | 19,344 |
|
|
| $ | (1,125 | ) |
|
| $ | 67 |
|
| $ | 18,286 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income |
|
| — |
|
|
| — |
|
|
| 2,259 |
|
|
| — |
|
| 2,259 |
| ||||
Other comprehensive loss, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Unrealized losses on securities, net of reclassification adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (57 | ) |
| (57 | ) | ||||
Foreign currency translation adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 51 |
|
| 51 |
| ||||
Total other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
| (6 | ) | ||||
Comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
| 2,253 |
| ||||
Issuance of common stock upon the exercise of employee stock options and in connection with an employee stock purchase plan |
|
| 25 |
|
|
| 538 |
|
|
| — |
|
|
| — |
|
| 538 |
| ||||
Tax benefits related to employee stock options |
|
| — |
|
|
| 113 |
|
|
| — |
|
|
| — |
|
| 113 |
| ||||
Repurchases of common stock |
|
| (30 | ) |
|
| — |
|
|
| (1,801 | ) |
|
| — |
|
| (1,801 | ) | ||||
Balance at December 31, 2003 |
|
| 1,284 |
|
|
| 19,995 |
|
|
| (667 | ) |
|
| 61 |
|
| 19,389 |
| ||||
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income |
|
| — |
|
|
| — |
|
|
| 2,363 |
|
|
| — |
|
| 2,363 |
| ||||
Other comprehensive loss, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Unrealized losses on securities, net of reclassification adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (82 | ) |
| (82 | ) | ||||
Foreign currency translation adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 24 |
|
| 24 |
| ||||
Total other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
| (58 | ) | ||||
Comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
| 2,305 |
| ||||
Issuance of common stock for the acquisition of Tularik Inc. |
|
| 24 |
|
|
| 1,332 |
|
|
| — |
|
|
| — |
|
| 1,332 |
| ||||
Fair value of options assumed from Tularik |
|
| — |
|
|
| 71 |
|
|
| — |
|
|
| — |
|
| 71 |
| ||||
Issuance of common stock upon the exercise of employee stock options and in connection with an employee stock purchase plan |
|
| 21 |
|
|
| 513 |
|
|
| — |
|
|
| — |
|
| 513 |
| ||||
Tax benefits related to employee stock options |
|
| — |
|
|
| 167 |
|
|
| — |
|
|
| — |
|
| 167 |
| ||||
Repurchases of common stock |
|
| (69 | ) |
|
| — |
|
|
| (4,072 | ) |
|
| — |
|
| (4,072 | ) | ||||
Balance at December 31, 2004 |
|
| 1,260 |
|
|
| 22,078 |
|
|
| (2,376 | ) |
|
| 3 |
|
| 19,705 |
| ||||
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income |
|
| — |
|
|
| — |
|
|
| 3,674 |
|
|
| — |
|
| 3,674 |
| ||||
Other comprehensive income, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Unrealized gains on securities, net of reclassification adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 65 |
|
| 65 |
| ||||
Foreign currency translation adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (46 | ) |
| (46 | ) | ||||
Total other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
| 19 |
| ||||
Comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
| 3,693 |
| ||||
Issuance of common stock upon the exercise of employee stock options and in connection with an employee stock purchase plan |
|
| 27 |
|
|
| 1,207 |
|
|
| — |
|
|
| — |
|
| 1,207 |
| ||||
Tax benefits related to employee stock options |
|
| — |
|
|
| 276 |
|
|
| — |
|
|
| — |
|
| 276 |
| ||||
Repurchases of common stock |
|
| (63 | ) |
|
| — |
|
|
| (4,430 | ) |
|
| — |
|
| (4,430 | ) | ||||
Balance at December 31, 2005 |
|
| 1,224 |
|
|
| $ | 23,561 |
|
|
| $ | (3,132 | ) |
|
| $ | 22 |
|
| $ | 20,451 |
|
Common | Accumulated | ||||||||||||||||||||||
Stock and | (Accumulated | Other | |||||||||||||||||||||
Number | Additional | Deficit)/ Retained | Comprehensive | ||||||||||||||||||||
of Shares | Paid-in Capital | Earnings | Income | Total | |||||||||||||||||||
Balance at December 31, 2001 | 1,046 | $ | 3,474 | $ | 1,687 | $ | 56 | $ | 5,217 | ||||||||||||||
Comprehensive loss: | |||||||||||||||||||||||
Net loss | — | — | (1,392 | ) | — | (1,392 | ) | ||||||||||||||||
Other comprehensive income, net of tax: | |||||||||||||||||||||||
Unrealized losses on securities, net of reclassification adjustments | — | — | — | (17 | ) | (17 | ) | ||||||||||||||||
Foreign currency translation adjustments | — | — | — | 28 | 28 | ||||||||||||||||||
Total other comprehensive income | — | — | — | — | 11 | ||||||||||||||||||
Comprehensive loss | — | — | — | — | (1,381 | ) | |||||||||||||||||
Issuance of common stock for the acquisition of Immunex Corporation | 244 | 14,313 | — | — | 14,313 | ||||||||||||||||||
Fair value of options assumed from Immunex | — | 870 | — | — | 870 | ||||||||||||||||||
Issuance of common stock upon the exercise of employee stock options and in connection with an employee stock purchase plan | 27 | 435 | — | — | 435 | ||||||||||||||||||
Tax benefits related to employee stock options | — | 252 | — | — | 252 | ||||||||||||||||||
Repurchases of common stock | (28 | ) | — | (1,420 | ) | — | (1,420 | ) | |||||||||||||||
Balance at December 31, 2002 | 1,289 | 19,344 | (1,125 | ) | 67 | 18,286 | |||||||||||||||||
Comprehensive income: | |||||||||||||||||||||||
Net income | — | — | 2,259 | — | 2,259 | ||||||||||||||||||
Other comprehensive loss, net of tax: | |||||||||||||||||||||||
Unrealized losses on securities, net of reclassification adjustments | — | — | — | (57 | ) | (57 | ) | ||||||||||||||||
Foreign currency translation adjustments | — | — | — | 51 | 51 | ||||||||||||||||||
Total other comprehensive loss | — | — | — | — | (6 | ) | |||||||||||||||||
Comprehensive income | — | — | — | — | 2,253 | ||||||||||||||||||
Issuance of common stock upon the exercise of employee stock options and in connection with an employee stock purchase plan | 25 | 538 | — | — | 538 | ||||||||||||||||||
Tax benefits related to employee stock options | — | 113 | — | — | 113 | ||||||||||||||||||
Repurchases of common stock | (30 | ) | — | (1,801 | ) | — | (1,801 | ) | |||||||||||||||
Balance at December 31, 2003 | 1,284 | 19,995 | (667 | ) | 61 | 19,389 | |||||||||||||||||
Comprehensive income: | |||||||||||||||||||||||
Net income | — | — | 2,363 | — | 2,363 | ||||||||||||||||||
Other comprehensive loss, net of tax: | |||||||||||||||||||||||
Unrealized losses on securities, net of reclassification adjustments | — | — | — | (82 | ) | (82 | ) | ||||||||||||||||
Foreign currency translation adjustments | — | — | — | 24 | 24 | ||||||||||||||||||
Total other comprehensive loss | — | — | — | — | (58 | ) | |||||||||||||||||
Comprehensive income | — | — | — | — | 2,305 | ||||||||||||||||||
Issuance of common stock for the acquisition of Tularik Inc. | 24 | 1,332 | — | — | 1,332 | ||||||||||||||||||
Fair value of options assumed from Tularik | — | 71 | — | — | 71 | ||||||||||||||||||
Issuance of common stock upon the exercise of employee stock options and in connection with an employee stock purchase plan | 21 | 513 | — | — | 513 | ||||||||||||||||||
Tax benefits related to employee stock options | — | 167 | — | — | 167 | ||||||||||||||||||
Repurchases of common stock | (69 | ) | — | (4,072 | ) | — | (4,072 | ) | |||||||||||||||
Balance at December 31, 2004 | 1,260 | $ | 22,078 | $ | (2,376 | ) | $ | 3 | $ | 19,705 | |||||||||||||
See accompanying notes.
F-4F-4
|
| 2005 |
| 2004 |
| 2003 |
| |||
Cash flows from operating activities: |
|
|
|
|
|
|
| |||
Net income |
| $ | 3,674 |
| $ | 2,363 |
| $ | 2,259 |
|
Depreciation and amortization |
| 841 |
| 734 |
| 687 |
| |||
Write-off of acquired in-process research and development |
| — |
| 554 |
| — |
| |||
Tax benefits related to employee stock options |
| 315 |
| 203 |
| 269 |
| |||
Deferred income taxes |
| (95 | ) | 57 |
| (442 | ) | |||
Other items, net |
| 166 |
| 161 |
| 100 |
| |||
Cash provided by (used in) changes in operating assets and liabilities, net of acquisitions: |
|
|
|
|
|
|
| |||
Trade receivables, net |
| (308 | ) | (453 | ) | (256 | ) | |||
Inventories |
| (370 | ) | (175 | ) | (168 | ) | |||
Other current assets |
| (47 | ) | (85 | ) | (33 | ) | |||
Accounts payable |
| 72 |
| 179 |
| 74 |
| |||
Accrued income taxes |
| 81 |
| (318 | ) | 683 |
| |||
Other accrued liabilities |
| 582 |
| 477 |
| 394 |
| |||
Net cash provided by operating activities |
| 4,911 |
| 3,697 |
| 3,567 |
| |||
Cash flows from investing activities: |
|
|
|
|
|
|
| |||
Purchases of property, plant, and equipment |
| (867 | ) | (1,336 | ) | (1,357 | ) | |||
Purchases of marketable securities |
| (9,597 | ) | (6,869 | ) | (5,320 | ) | |||
Proceeds from sales of marketable securities |
| 9,835 |
| 6,606 |
| 3,339 |
| |||
Proceeds from maturities of marketable securities |
| 603 |
| 208 |
| 371 |
| |||
Cash paid for acquisitions, net of cash acquired |
| — |
| 115 |
| — |
| |||
Other |
| (33 | ) | (123 | ) | (243 | ) | |||
Net cash used in investing activities |
| (59 | ) | (1,399 | ) | (3,210 | ) | |||
Cash flows from financing activities: |
|
|
|
|
|
|
| |||
Repurchases of common stock |
| (4,430 | ) | (4,072 | ) | (1,801 | ) | |||
Repayment of debt |
| (1,175 | ) | — |
| (123 | ) | |||
Net proceeds from issuance of common stock upon the exercise of employee stock options and in connection with an employee stock purchase plan |
| 1,087 |
| 453 |
| 529 |
| |||
Issuance of debt, net of issuance costs |
| — |
| 1,989 |
| — |
| |||
Other |
| (20 | ) | 21 |
| 23 |
| |||
Net cash used in financing activities |
| (4,538 | ) | (1,609 | ) | (1,372 | ) | |||
Increase (decrease) in cash and cash equivalents |
| 314 |
| 689 |
| (1,015 | ) | |||
Cash and cash equivalents at beginning of year |
| 1,526 |
| 837 |
| 1,852 |
| |||
Cash and cash equivalents at end of year |
| $ | 1,840 |
| $ | 1,526 |
| $ | 837 |
|
2004 | 2003 | 2002 | |||||||||||||
Cash flows from operating activities: | |||||||||||||||
Net income (loss) | $ | 2,363 | $ | 2,259 | $ | (1,392 | ) | ||||||||
Write-off of acquired in-process research and development | 554 | — | 2,992 | ||||||||||||
Depreciation and amortization | 734 | 687 | 447 | ||||||||||||
Tax benefits related to employee stock options | 203 | 269 | 252 | ||||||||||||
Deferred income taxes | 57 | (442 | ) | 175 | |||||||||||
Other non-cash expenses | 161 | 100 | 25 | ||||||||||||
Cash provided by (used in) changes in operating assets and liabilities, net of acquisitions: | |||||||||||||||
Trade receivables, net | (453 | ) | (256 | ) | (122 | ) | |||||||||
Inventories | (175 | ) | (168 | ) | (102 | ) | |||||||||
Other current assets | (85 | ) | (33 | ) | (5 | ) | |||||||||
Accounts payable | 179 | 74 | 11 | ||||||||||||
Accrued income taxes | (318 | ) | 683 | (103 | ) | ||||||||||
Other accrued liabilities | 477 | 394 | 71 | ||||||||||||
Net cash provided by operating activities | 3,697 | 3,567 | 2,249 | ||||||||||||
Cash flows from investing activities: | |||||||||||||||
Purchases of property, plant, and equipment | (1,336 | ) | (1,357 | ) | (659 | ) | |||||||||
Purchases of marketable securities | (21,488 | ) | (5,320 | ) | (2,953 | ) | |||||||||
Proceeds from sales of marketable securities | 13,079 | 3,339 | 1,622 | ||||||||||||
Proceeds from maturities of marketable securities | 8,354 | 371 | 778 | ||||||||||||
Cash paid for acquisitions, net of cash acquired | 115 | — | (1,899 | ) | |||||||||||
Other | (123 | ) | (243 | ) | 247 | ||||||||||
Net cash used in investing activities | (1,399 | ) | (3,210 | ) | (2,864 | ) | |||||||||
Cash flows from financing activities: | |||||||||||||||
Issuance of debt, net of issuance costs | 1,989 | — | 2,765 | ||||||||||||
Repayment of debt | — | (123 | ) | — | |||||||||||
Net proceeds from issuance of common stock upon the exercise of employee stock options and in connection with an employee stock purchase plan | 453 | 529 | 428 | ||||||||||||
Repurchases of common stock | (4,072 | ) | (1,801 | ) | (1,420 | ) | |||||||||
Other | 21 | 23 | 5 | ||||||||||||
Net cash (used in) provided by financing activities | (1,609 | ) | (1,372 | ) | 1,778 | ||||||||||
Increase (decrease) in cash and cash equivalents | 689 | (1,015 | ) | 1,163 | |||||||||||
Cash and cash equivalents at beginning of period | 837 | 1,852 | 689 | ||||||||||||
Cash and cash equivalents at end of period | $ | 1,526 | $ | 837 | $ | 1,852 | |||||||||
See accompanying notes.
F-5F-5
1. Summary of significant accounting policies
Business
Amgen Inc., including its subsidiaries, (“Amgen”) is a global biotechnology company that discovers, develops, manufactures, and markets human therapeutics based on advances in cellular and molecular biology.
Principles of consolidation
The consolidated financial statements include the accounts of Amgen as well as its wholly owned subsidiaries and majority-owned affiliates (affiliated companies in which we have a majority ownership interest and exercise control over its operations) that are not considered variable interest entities.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 financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates.
Cash equivalents
We consider cash equivalents to be only those investments which are highly liquid, readily convertible to cash, and which mature within three months from date of purchase.
Available-for-sale securities
We consider our investment portfolio and marketable equity investments available-for-sale as defined in Statement of Financial Accounting Standards (“SFAS”) No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” Accordingly, these investments are recorded at fair value, which is based on quoted market prices. For the years ended December 31, 2005, 2004, 2003, and 2002,2003, realized gains totaled $25 million, $23 million, $28 million, and $19$28 million, respectively, and realized losses totaled $20 million, $27 million, $16 million, and $14$16 million, respectively. The cost of securities sold is based on the specific identification method. The fair values of available-for-sale investments by type of security, contractual maturity, and classification in the balance sheets are as follows (in millions):
|
|
|
| Gross |
| Gross |
| Estimated |
| ||||||||||||||
|
| Amortized |
| unrealized |
| unrealized |
| fair |
| ||||||||||||||
December 31, 2005 |
|
|
| cost |
| gains |
| losses |
| value |
| ||||||||||||
Type of security: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Corporate debt securities |
|
| $ | 1,556 |
|
|
| $ | 1 |
|
|
| $ | (15 | ) |
|
| $ | 1,542 |
|
| ||
U.S. Treasury securities and obligations of U.S. government agencies |
|
| 2,699 |
|
|
| — |
|
|
| (16 | ) |
|
| 2,683 |
|
| ||||||
Other interest bearing securities |
|
| 824 |
|
|
| — |
|
|
| — |
|
|
| 824 |
|
| ||||||
Total debt securities |
|
| 5,079 |
|
|
| 1 |
|
|
| (31 | ) |
|
| 5,049 |
|
| ||||||
Equity securities |
|
| 105 |
|
|
| 8 |
|
|
| (1 | ) |
|
| 112 |
|
| ||||||
|
|
| $ | 5,184 |
|
|
| $ | 9 |
|
|
| $ | (32 | ) |
|
| $ | 5,161 |
|
| ||
Gross | Gross | Estimated | |||||||||||||||
Amortized | Unrealized | Unrealized | Fair | ||||||||||||||
December 31, 2004 | Cost | Gains | Losses | Value | |||||||||||||
Type of security: | |||||||||||||||||
Corporate debt securities | $ | 2,181 | $ | 4 | $ | (11 | ) | $ | 2,174 | ||||||||
U.S. Treasury securities and obligations of U.S. government agencies | 2,328 | 2 | (7 | ) | 2,323 | ||||||||||||
Other interest bearing securities | 893 | — | — | 893 | |||||||||||||
Total debt securities | 5,402 | 6 | (18 | ) | 5,390 | ||||||||||||
Equity securities | 119 | 26 | — | 145 | |||||||||||||
$ | 5,521 | $ | 32 | $ | (18 | ) | $ | 5,535 | |||||||||
F-6F-6
|
|
|
| Gross |
| Gross |
| Estimated |
| ||||||||||||||
|
| Amortized |
| unrealized |
| unrealized |
| fair |
| ||||||||||||||
December 31, 2004 |
|
|
| cost |
| gains |
| losses |
| value |
| ||||||||||||
Type of security: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Corporate debt securities |
|
| $ | 2,181 |
|
|
| $ | 4 |
|
|
| $ | (11 | ) |
|
| $ | 2,174 |
|
| ||
U.S. Treasury securities and obligations of U.S. government agencies |
|
| 2,328 |
|
|
| 2 |
|
|
| (7 | ) |
|
| 2,323 |
|
| ||||||
Other interest bearing securities |
|
| 893 |
|
|
| — |
|
|
| — |
|
|
| 893 |
|
| ||||||
Total debt securities |
|
| 5,402 |
|
|
| 6 |
|
|
| (18 | ) |
|
| 5,390 |
|
| ||||||
Equity securities |
|
| 119 |
|
|
| 26 |
|
|
| — |
|
|
| 145 |
|
| ||||||
|
|
| $ | 5,521 |
|
|
| $ | 32 |
|
|
| $ | (18 | ) |
|
| $ | 5,535 |
|
| ||
Gross | Gross | Estimated | |||||||||||||||
Amortized | Unrealized | Unrealized | Fair | ||||||||||||||
December 31, 2003 | Cost | Gains | Losses | Value | |||||||||||||
Type of security: | |||||||||||||||||
Corporate debt securities | $ | 2,468 | $ | 24 | $ | (8 | ) | $ | 2,484 | ||||||||
U.S. Treasury securities and obligations of U.S. government agencies | 1,816 | 6 | (7 | ) | 1,815 | ||||||||||||
Other interest bearing securities | 583 | — | — | 583 | |||||||||||||
Total debt securities | 4,867 | 30 | (15 | ) | 4,882 | ||||||||||||
Equity securities | 101 | 55 | — | 156 | |||||||||||||
$ | 4,968 | $ | 85 | $ | (15 | ) | $ | 5,038 | |||||||||
December 31, | |||||||||
Contractual Maturity: | 2004 | 2003 | |||||||
Maturing in one year or less | $ | 2,374 | $ | 1,051 | |||||
Maturing after one year through three years | 1,429 | 1,997 | |||||||
Maturing after three years | 1,587 | 1,834 | |||||||
Total debt securities | 5,390 | 4,882 | |||||||
Equity securities | 145 | 156 | |||||||
$ | 5,535 | $ | 5,038 | ||||||
December 31, | ||||||||
Classification in Balance Sheets: | 2004 | 2003 | ||||||
Cash and cash equivalents | $ | 1,526 | $ | 837 | ||||
Marketable securities | 4,282 | 4,286 | ||||||
Other assets-non current | 167 | 196 | ||||||
5,975 | 5,319 | |||||||
Less cash | (440 | ) | (281 | ) | ||||
$ | 5,535 | $ | 5,038 | |||||
|
| December 31, |
| ||||||
Contractual maturity: |
|
|
| 2005 |
| 2004 |
| ||
Maturing in one year or less |
| $ | 2,913 |
| $ | 2,374 |
| ||
Maturing after one year through three years |
| 1,351 |
| 1,429 |
| ||||
Maturing after three years |
| 785 |
| 1,587 |
| ||||
Total debt securities |
| 5,049 |
| 5,390 |
| ||||
Equity securities |
| 112 |
| 145 |
| ||||
|
| $ | 5,161 |
| $ | 5,535 |
| ||
|
| December 31, |
| ||||||
Classification in balance sheets: |
|
|
| 2005 |
| 2004 |
| ||
Cash and cash equivalents |
| $ | 1,840 |
| $ | 1,526 |
| ||
Marketable securities |
| 3,415 |
| 4,282 |
| ||||
Other assets — noncurrent |
| 83 |
| 167 |
| ||||
|
| 5,338 |
| 5,975 |
| ||||
Less cash |
| (177 | ) | (440 | ) | ||||
|
| $ | 5,161 |
| $ | 5,535 |
| ||
The primary objectives for our fixed income investment portfolio are liquidity and safety of principal. Investments are made with the objective of achieving the highest rate of return consistent with these two objectives. Our investment policy limits investments to certain types of instruments issued by institutions primarily with investment grade credit ratings and places restrictions on maturities and concentration by type and issuer.
F-7F-7
Inventories
Inventories are stated at the lower of cost or market. Cost, which include amounts related to materials, labor, and overhead, is determined in a manner which approximates the first-in, first-out (FIFO) method. Inventories consisted of the following (in millions):
|
| December 31, |
| ||||
|
| 2005 |
| 2004 |
| ||
Raw materials |
| $ | 145 |
| $ | 117 |
|
Work in process |
| 758 |
| 565 |
| ||
Finished goods |
| 355 |
| 206 |
| ||
|
| $ | 1,258 |
| $ | 888 |
|
December 31, | ||||||||
2004 | 2003 | |||||||
Raw materials | $ | 117 | $ | 125 | ||||
Work in process | 565 | 452 | ||||||
Finished goods | 206 | 136 | ||||||
$ | 888 | $ | 713 | |||||
Depreciation
Depreciation of buildings, equipment, furniture, and fixtures is provided over their estimated useful lives on a straight-line basis. Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or lease terms. Useful lives by asset category are as follows:
Asset Category | Years | |||||
Buildings and improvements | 10-40 | |||||
Manufacturing equipment | 5-12 | |||||
Laboratory equipment | 5-12 | |||||
Furniture, fixtures, and | 3-15 |
Property, plant, and equipment
Property, plant, and equipment are recorded at historical cost and consisted of the following (in millions):
|
| December 31, |
| ||||
|
| 2005 |
| 2004 |
| ||
Land |
| $ | 294 |
| $ | 285 |
|
Buildings and improvements |
| 2,485 |
| 2,096 |
| ||
Manufacturing equipment |
| 923 |
| 641 |
| ||
Laboratory equipment |
| 618 |
| 624 |
| ||
Furniture, fixtures, and other equipment |
| 2,043 |
| 1,844 |
| ||
Construction in progress |
| 958 |
| 1,302 |
| ||
|
| 7,321 |
| 6,792 |
| ||
Less accumulated depreciation and amortization |
| (2,283 | ) | (2,080 | ) | ||
|
| $ | 5,038 |
| $ | 4,712 |
|
December 31, | ||||||||
2004 | 2003 | |||||||
Land | $ | 285 | $ | 217 | ||||
Buildings and improvements | 2,096 | 1,783 | ||||||
Manufacturing equipment | 641 | 609 | ||||||
Laboratory equipment | 684 | 555 | ||||||
Furniture, fixtures, and office equipment | 1,784 | 1,344 | ||||||
Construction in progress | 1,302 | 1,018 | ||||||
6,792 | 5,526 | |||||||
Less accumulated depreciation and amortization | (2,080 | ) | (1,727 | ) | ||||
$ | 4,712 | $ | 3,799 | |||||
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.
F-8
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Intangible assets and goodwill
Intangible assets are recorded at cost, less accumulated amortization. Amortization of intangible assets is provided over their estimated useful lives ranging from 75 to 15 years on a straight-line basis (weighted average
F-8
|
| Weighted average |
| December 31, |
| ||||||||
Intangible assets subject to amortization |
|
|
| amortization period |
| 2005 |
| 2004 |
| ||||
Acquired product technology rights: |
|
|
|
|
|
|
|
|
| ||||
Developed product technology |
|
| 14.3 years |
|
| $ | 3,077 |
| $ | 3,077 |
| ||
Core technology |
|
| 15 years |
|
| 1,348 |
| 1,348 |
| ||||
Trade name |
|
| 15 years |
|
| 190 |
| 190 |
| ||||
Other intangible assets |
|
| 12 years |
|
| 335 |
| 252 |
| ||||
|
|
|
|
|
| 4,950 |
| 4,867 |
| ||||
Less accumulated amortization |
|
|
|
|
| (1,208 | ) | (834 | ) | ||||
|
|
|
|
|
| $ | 3,742 |
| $ | 4,033 |
| ||
December 31, | |||||||||||||
Weighted Average | |||||||||||||
Intangible Assets Subject to Amortization | Amortization Period | 2004 | 2003 | ||||||||||
Acquired product technology rights: | |||||||||||||
Developed product technology | 14.5 years | $ | 3,077 | $ | 3,077 | ||||||||
Core technology | 15 years | 1,348 | 1,348 | ||||||||||
Trade name | 15 years | 190 | 190 | ||||||||||
Other intangible assets | 13.3 years | 252 | 165 | ||||||||||
4,867 | 4,780 | ||||||||||||
Less accumulated amortization | (834 | ) | (492 | ) | |||||||||
$ | 4,033 | $ | 4,288 | ||||||||||
Acquired product technology rights relate to the identifiable intangible assets acquired in connection with the Immunex Corporation (“Immunex”) acquisition in July 2002. Amortization of acquired product technology rights is included in “Amortization of acquired intangible assets” in the accompanying consolidated statementsConsolidated Statements of operations.Operations. Amortization of other intangible assets is principally included in “Selling, general and administrative” expense in the accompanying consolidated statementsConsolidated Statements of operations.Operations. We review our intangible assets for impairment periodically and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
We had $10,525$10,495 million and $9,820$10,525 million of goodwill at December 31, 20042005 and 2003,2004, respectively, which primarily relates to the acquisition of Immunex. The increasedecrease in goodwill from the prior year is due primarily due to $752 million related to the Tularik Inc. (“Tularik”) acquisition (see Note 7, “Acquisitions”) partially offset by a tax benefitbenefits realized upon exercise of Immunex related stock options.options during the year ended December 31, 2005. We perform an impairment test annually and whenever events or changes in circumstances indicate that the carrying amount of goodwill may not be recoverable.
Product sales
Product sales primarily consist of sales of EPOGEN®Aranesp® (darbepoetin alfa), EPOGEN® (Epoetin alfa), Aranesp® (darbepoetin alfa), ENBREL® (etanercept), Neulasta®Neulasta® (pegfilgrastim)/NEUPOGEN® (Filgrastim), and NEUPOGEN® (Filgrastim)Enbrel® (etanercept).
We have the exclusive right to sell Epoetin alfa for dialysis, certain diagnostics and all non-human, non-research uses in the United States. We sell Epoetin alfa under the brand name EPOGEN®EPOGEN®. We have granted to Ortho Pharmaceutical Corporation (which has assigned its rights under the product license agreement to Ortho Biotech Products, L.P.), a subsidiary of Johnson & Johnson (“Johnson & Johnson”), a license relating to Epoetin alfa for sales in the United States for all human uses except dialysis and diagnostics. The license agreement, which is perpetual, can be terminated upon mutual agreement of the parties, or default. Pursuant to this license, Amgen and Johnson & Johnson are required to compensate each other for Epoetin alfa sales that either party makes into the other party’s exclusive market, sometimes referred to as “spillover”.“spillover.” Accordingly, we do not recognize product sales we make into the exclusive market of Johnson & Johnson and do recognize the product sales made by Johnson & Johnson into our exclusive market. Sales in our exclusive market are derived from our sales to our customers, as adjusted for
F-9
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
spillover. We are employing an arbitrated audit methodology to measure each party’s spillover based on estimates of and subsequent adjustments thereto of third-party data on shipments to end users and their usage.
F-9
Other revenues
Other revenues consist 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 third-party results are reliably measurable and collectibility is reasonably assured. Royalty estimates are made in advance of amounts collected using historical and forecasted trends. Pursuant to the license agreement with Johnson & Johnson, noted above, the Company earnswe earn a 10% royalty on sales of Epoetin alfa by Johnson & Johnson in the United States. Corporate partner revenues are primarily comprised of amounts earned from Kirin-Amgen, Inc. (“KA”) for certain research and development (“R&D”) activities and are generally earned as the R&D activities are performed and the amounts become due (see Note 2, “Related party transactions”). In addition, corporate partner revenues include license fees and milestone payments associated with collaborations with third parties. Revenue from non-refundable, upfront license fees where the Company haswe have continuing involvement is recognized ratably over the development or agreement period. Revenue associated with performance milestones is recognized based upon the achievement of the milestones, as defined in the respective agreements. The Company’sOur collaboration agreements with third parties are performed on a “best efforts” basis with no guarantee of either technological or commercial success.
Research and development costs
R&D costs, which are expensed as incurred, are primarily comprised of the following types of costs incurred in performing R&D activities: salaries and benefits, overhead and occupancy costs, clinical trial and related clinical manufacturing costs, contract services, and other outside costs. R&D expenses also include such costs related to activities performed on behalf of corporate partners.
Acquired in-process research and development
The fair value of acquired in-process research and development (“IPR&D”) projects and technologies which have no alternative future use and which have not reached technological feasibility at the date of acquisition are expensed as incurredincurred. In 2004, as part of the acquisition of Tularik Inc. (“Tularik”), we wrote off $554 million of IPR&D (see Note 7, “Acquisitions”). Acquired IPR&D is considered part of total R&D expense.
Selling, general and administrative costs
Selling, general and administrative expenses are primarily comprised of salaries and benefits associated with sales and marketing, finance, legal, and other administrative personnel; outside marketing expenses; overhead and occupancy costs; and other general and administrative costs.
F-10
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
We have a co-promotion agreement with Wyeth. Under the terms of this agreement, Amgen and Wyeth market and sell ENBREL®ENBREL in the United States and Canada and develop certain future indications of ENBREL®ENBREL for use in these geographic territories. The rights to detail and promote ENBREL in the United States and Canada for oncology indications are reserved for us. Wyeth is paid a share of the resulting profits on sales of ENBREL®,ENBREL, after deducting the applicable costs of sales, including manufacturing costs and royalties paid to third parties, and expenses associated with R&D and sales and marketing. Such amounts paid to Wyeth are included in “Selling, general and administrative” expense in the accompanying consolidated statementsConsolidated Statements of operations.Operations. The rights to market ENBREL®ENBREL outside of the United States and Canada are reserved to Wyeth. We also have a global supply agreement with Wyeth related to the manufacture, supply, inventory, and allocation of supplies of ENBREL®.
F-10
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, 2005, 2004, and 2003 were $99 million, $38 million, and $31 million, respectively. Interest costs capitalized for the years ended December 31, 2005, 2004, and 2003, and 2002, were $30 million, $20 million, $24 million, and $8$24 million, respectively. Interest paid, net of interest rate swap settlement activity, during the years ended December 31, 2005, 2004, and 2003, and 2002, totaled $24$84 million, $21$13 million, and $24$19 million, respectively.
Earnings per share
Basic earnings (loss) per share (“EPS”) is based upon the weighted-average number of common shares outstanding. Diluted earnings (loss) per shareEPS is based upon the weighted-average number of common shares and dilutive potential common shares outstanding. Potential common shares outstanding include stock options under our employee stock option plans and potential issuances of stock under our other equity incentive plans and under the assumed conversion of our Modified Convertible Notes utilizing the treasury stock method (collectively “Dilutive Securities”). CommonPotential common shares outstanding also include common shares to be issued under the assumed conversion of our Convertible Notes under the outstanding 30-year, zero-coupon seniorif-converted method. For further information regarding our convertible notes, (the “Convertible Notes”) (seesee Note 4, “Financing arrangements — Convertible notes”) are included under the if-converted method when dilutive.
F-11
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table sets forth the computation for basic and diluted earnings (loss) per shareEPS (in millions, except per share information):
|
| Years ended December 31, |
| |||||||
|
| 2005 |
| 2004 |
| 2003 |
| |||
Income (Numerator): |
|
|
|
|
|
|
| |||
Net income for basic EPS |
| $ | 3,674 |
| $ | 2,363 |
| $ | 2,259 |
|
Adjustment for interest expense on Convertible Notes, net of tax |
| 6 |
| 21 |
| 21 |
| |||
Income for diluted EPS, after assumed conversion of Convertible Notes |
| $ | 3,680 |
| $ | 2,384 |
| $ | 2,280 |
|
Shares (Denominator): |
|
|
|
|
|
|
| |||
Weighted-average shares for basic EPS |
| 1,236 |
| 1,271 |
| 1,288 |
| |||
Effect of Dilutive Securities |
| 12 |
| 14 |
| 23 |
| |||
Effect of Convertible Notes, after assumed conversion of Convertible Notes |
| 10 |
| 35 |
| 35 |
| |||
Adjusted weighted-average shares for diluted EPS |
| 1,258 |
| 1,320 |
| 1,346 |
| |||
Basic earnings per share |
| $ | 2.97 |
| $ | 1.86 |
| $ | 1.75 |
|
Diluted earnings per share |
| $ | 2.93 |
| $ | 1.81 |
| $ | 1.69 |
|
Years Ended December 31, | |||||||||||||
2004 | 2003 | 2002 | |||||||||||
Income(Loss)(Numerator): | |||||||||||||
Net income(loss) for basic EPS | $ | 2,363 | $ | 2,259 | $ | (1,392 | ) | ||||||
Adjustment for interest expense on Convertible Notes, net of tax | 21 | 21 | — | ||||||||||
Income (loss) for diluted EPS, after assumed conversion of Convertible Notes | $ | 2,384 | $ | 2,280 | $ | (1,392 | ) | ||||||
Shares(Denominator): | |||||||||||||
Weighted-average shares for basic EPS | 1,271 | 1,288 | 1,154 | ||||||||||
Effect of Dilutive Securities | 14 | 23 | — | ||||||||||
Effect of Convertible Notes, after assumed conversion of Convertible Notes | 35 | 35 | — | ||||||||||
Adjusted weighted-average shares for diluted EPS | 1,320 | 1,346 | 1,154 | ||||||||||
Basic earnings(loss) per share | $ | 1.86 | $ | 1.75 | $ | (1.21 | ) | ||||||
Diluted earnings(loss) per share | $ | 1.81 | $ | 1.69 | $ | (1.21 | ) | ||||||
As of December 31, 2005, 2004, and 2003, we had employee stock options to purchase 3 million, 51 million, and 38 million shares, respectively, with exercise prices greater than the average market prices of common stock were excluded fromfor each of the computationrespective years.
Employee stock options
In December 2004, the Financial Accounting Standards Board issued SFAS No. 123R, “Share-Based Payment.” Subsequently, the Securities and Exchange Commission (“SEC”) provided for a phase-in implementation process for SFAS No. 123R, which required us to adopt the new accounting standard no later than January 1, 2006. SFAS No. 123R requires us to account for our stock options using a fair-value-based method as described in such statement and recognize the resulting compensation expense in our financial statements. Prior to January 1, 2006, we accounted for our employee stock options using the intrinsic value method under APB No. 25, “Accounting for Stock Issued to Employees” and related Interpretations, which generally results in no employee stock option expense. We adopted SFAS No. 123R on January 1, 2006 and do not plan to restate our financial statements for prior periods. We plan to continue to use the Black-Scholes option valuation model in estimating the fair value of diluted earnings per share because their effect was anti-dilutive. In 2002,the stock option awards issued under SFAS No. 123R. The adoption of SFAS No. 123R will have a material impact on our results of operations. The actual annual stock option expense in 2006 is dependent on a number of factors including the number of stock options to purchase 103 million shares were outstanding. The weighted averagegranted, our common stock price and related expected volatility, and other inputs utilized in estimating the fair value of the stock options at the time of grant. We expect the impact of these options and common sharesstock option compensation expense to be issued underin the assumed conversionrange of the outstanding Convertible Notes was excluded from the computation of diluted earnings$0.12 to $0.14 per share in 2002 because their effect was anti-dilutive as2006 compared to $0.19 for 2005. The estimated impact of stock option expense for 2006 is less than the corresponding pro forma expense amount for 2005 principally due to a resultreduction in the estimated number of stock options to be granted in 2006 in favor of a combination of other equity awards. Other equity awards are comprised of restricted stock, restricted stock units, and performance units. Stock-based compensation expense relating to these other equity awards for the net loss.
F-11F-12
2004 was $106 million and $45 million, respectively. For the year ended December 31, 2003, stock-based compensation expense relating to other equity awards was not significant.
Prior to the adoption of SFAS No. 123R on January 1, 2006 and for all periods reported herein, we accounted for our employee stock options under the recognition and measurement principles of Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations which generally results in no stock option expense.and disclosed the effect on net income and EPS if we had applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation”. We grant our employee stock options at exercise prices equal to the market value of the underlying common stock on the date of grant and the related number of shares granted is fixed at that point in time resulting in no employee stock option expense reflected in net income (loss).
The following table illustrates the effect on net income (loss) and earnings (loss) per shareEPS if we had applied the fair value recognition provisions of SFAS No. 123 “Accounting for Stock-Based Compensation” (see Note 6, “Employee stock options”)(in millions, except per share information):
|
| Years ended December 31, |
| |||||||
|
| 2005 |
| 2004 |
| 2003 |
| |||
Net income |
| $ | 3,674 |
| $ | 2,363 |
| $ | 2,259 |
|
Stock based compensation, net of tax |
| (233 | ) | (292 | ) | (198 | ) | |||
Pro forma net income |
| $ | 3,441 |
| $ | 2,071 |
| $ | 2,061 |
|
Earnings per share: |
|
|
|
|
|
|
| |||
Basic |
| $ | 2.97 |
| $ | 1.86 |
| $ | 1.75 |
|
Impact of stock option expense |
| (0.19 | ) | (0.23 | ) | (0.15 | ) | |||
Basic — pro forma |
| $ | 2.78 |
| $ | 1.63 |
| $ | 1.60 |
|
Diluted |
| $ | 2.93 |
| $ | 1.81 |
| $ | 1.69 |
|
Impact of stock option expense |
| (0.19 | ) | (0.23 | ) | (0.14 | ) | |||
Diluted — pro forma |
| $ | 2.74 |
| $ | 1.58 |
| $ | 1.55 |
|
Years Ended December 31, | |||||||||||||
2004 | 2003 | 2002 | |||||||||||
Net income(loss) | $ | 2,363 | $ | 2,259 | $ | (1,392 | ) | ||||||
Stock based compensation, net of tax | 292 | 198 | 190 | ||||||||||
Pro forma net income(loss) | $ | 2,071 | $ | 2,061 | $ | (1,582 | ) | ||||||
Earnings(loss) per share: | |||||||||||||
Basic | $ | 1.86 | $ | 1.75 | $ | (1.21 | ) | ||||||
Impact of stock option expense | (0.23 | ) | (0.15 | ) | (0.16 | ) | |||||||
Basic — pro forma | $ | 1.63 | $ | 1.60 | $ | (1.37 | ) | ||||||
Diluted | $ | 1.81 | $ | 1.69 | $ | (1.21 | ) | ||||||
Impact of stock option expense | (0.23 | ) | (0.14 | ) | (0.16 | ) | |||||||
Diluted — pro forma | $ | 1.58 | $ | 1.55 | $ | (1.37 | ) | ||||||
F-12Derivative instruments
We recognize all of our derivative instruments as either assets or liabilities at fair value in our consolidated balance sheet.Consolidated Balance Sheets. Fair value is determined based on quoted market prices. The accounting for changes in the fair value (i.e., unrealized gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. WeFor derivatives designated as hedges, we also formally assess, both at inception and periodically 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.
F-13
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Periodically, we enter into foreign currency forward and option contracts to protect against possible changes in values of certain anticipated foreign currency cash flows, primarily resulting from sales outside the United States.in Europe. These contracts are designated as cash flow hedges and accordingly, the gains and losses on these forward and option contracts are reported as a component of other comprehensive income and reclassified into interest and other income, net in the same periods during which the hedged transactions affect earnings. No portions of these foreign currency forward and option contracts are excluded from the assessment of hedge effectiveness, and there are no material ineffective portions of these hedging instruments. At December 31, 20042005 and 2003,2004, amounts in accumulated other comprehensive income related to cash flow hedges were not material. We also enter into foreign currency forward contracts to reduce exposures to foreign currency fluctuations of certain assets and liabilities denominated in foreign currencies. These forward contracts have not been designated as hedges and accordingly, gains and losses on these foreign currency forward contracts are recognized in interest and other income, net in the current period. During the years ended December 31, 2005, 2004 2003 and 2002,2003, gains and losses on these foreign currency forward contracts were not material.
To protect against possible reductions in value of certain of itsour available-for-sale marketable equity securities and certain available-for-sale fixed income investments, we have entered into equity forward contracts and interest rate swap agreements which qualify and are designated as fair value hedges. The gains and (losses)losses on the equity forward contracts as well as the offsetting losses and gains on the hedged equity securities are recognized in interest and other income, net in the current period. During the years ended December 31, 2005, 2004, 2003, and 2002,2003, gains and losses on the portions of these equity forwards excluded from the assessment of hedge effectiveness and the ineffective portions of these hedging instruments were not material. The interest rate swap agreements were liquidated in 2004 and in 2005 when the underlying available-for-sale fixed income securities either matured or were sold. The terms of the interest rate swap agreements correspondcorresponded to the related hedged investments.investments for the periods that both the interest rate swap agreements and the related hedged investments were outstanding. As a result, there iswas no hedge ineffectiveness. During the years ended December 31, 2005, 2004, 2003, and 2002,2003, gains and losses on these interest rate swap agreements were fully offset by the losses and gains on the hedged investments.
We also have interest rate swap agreements, which qualify and are designated as fair value hedges, to protect against possible increases in value of certain debt instruments. The terms of the interest rate swap agreements correspond to the related hedged debt instruments. As a result, there is no hedge ineffectiveness. During the years ended December 31, 2005, 2004, and 2003, gains and losses on these interest rate swap agreements were not material and were fully offset by the losses and gains on the hedged debt instruments.
F-13Reclassifications
We own a 50% interest in KA, a corporation formed in 1984 with Kirin Brewery Company, Limited (“Kirin”) for the development and commercialization of certain products based on advanced biotechnology. We account for our interest in KA under the equity method and include our share of KA’s profits or losses in “Selling, general and administrative” in the consolidated statementsConsolidated Statements of operations.Operations. For the years ended December 31, 2005, 2004, 2003, and 2002,2003, our share of KA’s profits or losses were $25$58 million,
F-14
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
$25 million, and ($2) million, respectively. At December 31, 2005 and $112004, the carrying value of our equity method investment in KA was $180 million respectively.and $132 million, respectively, and is included in non-current other assets in the accompanying Consolidated Balance Sheets. KA’s revenues consist of royalty income related to its licensed technology rights. All of our rights to manufacture and market certain products including erythropoietin, granulocyte colony-stimulating factor (“G-CSF”), darbepoetin alfa, and pegfilgrastim are pursuant to exclusive licenses from KA. We currently market certain of these products under the brand names EPOGEN®EPOGEN® (erythropoietin), NEUPOGEN®NEUPOGEN® (G-CSF), Aranesp®Aranesp® (darbepoetin alfa), and Neulasta®Neulasta® (pegfilgrastim). KA receives royalty income from us, as well as Kirin, Johnson & Johnson, F. Hoffmann-La Roche Ltd, and others under separate product license agreements for certain geographic areas outside of the United States. During the years ended December 31, 2005, 2004, 2003, and 2002,2003, KA earned royalties from us of $288 million, $266 million, $216 million, and $168$216 million, respectively, which are included in “Cost of sales (excludes amortization of acquired intangible assets)” in the consolidated statementsConsolidated Statements of operations.
KA’s expenses primarily consist of costs related to research and developmentR&D activities conducted on its behalf by Amgen and Kirin. KA pays Amgen and Kirin for such services at negotiated rates. During the years ended December 31, 2005, 2004, 2003, and 2002,2003, we earned revenues from KA of $113 million, $187 million, $68 million, and $175$68 million, respectively, for certain research and developmentR&D activities performed on KA’s behalf, which are included in “Other revenues” in the accompanying consolidated statementsConsolidated Statements of operations.
|
| Years ended December 31, |
| |||||||
|
| 2005 |
| 2004 |
| 2003 |
| |||
Current provision: |
|
|
|
|
|
|
| |||
Federal |
| $ | 1,079 |
| $ | 809 |
| $ | 1,155 |
|
State |
| 82 |
| 88 |
| 93 |
| |||
Foreign |
| 128 |
| 78 |
| 108 |
| |||
Total current provision |
| 1,289 |
| 975 |
| 1,356 |
| |||
Deferred (benefit) provision: |
|
|
|
|
|
|
| |||
Federal |
| (90 | ) | 52 |
| (402 | ) | |||
State |
| (7 | ) | 14 |
| (40 | ) | |||
Foreign |
| 2 |
| (9 | ) | — |
| |||
Total deferred (benefit) provision |
| (95 | ) | 57 |
| (442 | ) | |||
|
| $ | 1,194 |
| $ | 1,032 |
| $ | 914 |
|
Years Ended December 31, | ||||||||||||||
2004 | 2003 | 2002 | ||||||||||||
Current provision: | ||||||||||||||
Federal(including U.S. possessions) | $ | 809 | $ | 1,155 | $ | 456 | ||||||||
State | 88 | 93 | 16 | |||||||||||
Foreign | 78 | 108 | 60 | |||||||||||
Total current provision | 975 | 1,356 | 532 | |||||||||||
Deferred(benefit) provision: | ||||||||||||||
Federal(including U.S. possessions) | 52 | (402 | ) | 146 | ||||||||||
State | 14 | (40 | ) | 29 | ||||||||||
Foreign | (9 | ) | — | — | ||||||||||
Total deferred provision (benefit) | 57 | (442 | ) | 175 | ||||||||||
$ | 1,032 | $ | 914 | $ | 707 | |||||||||
F-15
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Deferred income taxes reflect the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and the net tax effects of net operating loss and credit carryforwards. Significant components of our deferred tax assets and liabilities are as follows (in millions):
|
| December 31, |
| ||||
|
| 2005 |
| 2004 |
| ||
Deferred tax assets: |
|
|
|
|
| ||
Intercompany inventory related items |
| $ | 454 |
| $ | 449 |
|
Expense accruals |
| 205 |
| 208 |
| ||
Acquired net operating loss and credit carryforwards |
| 189 |
| 233 |
| ||
Other |
| 151 |
| 163 |
| ||
Total deferred tax assets |
| 999 |
| 1,053 |
| ||
Valuation allowance |
| (102 | ) | (57 | ) | ||
Net deferred tax assets |
| 897 |
| 996 |
| ||
Deferred tax liabilities: |
|
|
|
|
| ||
Acquired intangibles |
| (1,356 | ) | (1,486 | ) | ||
Financing debt instrument |
| (30 | ) | (147 | ) | ||
Fixed assets |
| (85 | ) | — |
| ||
Other |
| (44 | ) | (38 | ) | ||
Total deferred tax liabilities |
| (1,515 | ) | (1,671 | ) | ||
|
| $ | (618 | ) | $ | (675 | ) |
December 31, | ||||||||||
2004 | 2003 | |||||||||
Deferred tax assets: | ||||||||||
Intercompany inventory related items | $ | 449 | $ | 487 | ||||||
Fixed assets | 4 | 220 | ||||||||
Expense accruals | 208 | 94 | ||||||||
Acquired net operating loss and credit carryforwards | 233 | 71 | ||||||||
Other | 159 | 98 | ||||||||
Total deferred tax assets | 1,053 | 970 | ||||||||
Valuation allowance | (57 | ) | (48 | ) | ||||||
Net deferred tax assets | 996 | 922 | ||||||||
Deferred tax liabilities: | ||||||||||
Acquired intangibles | (1,486 | ) | (1,611 | ) | ||||||
Financing debt instrument | (147 | ) | (93 | ) | ||||||
Other | (38 | ) | (78 | ) | ||||||
Total deferred tax liabilities | (1,671 | ) | (1,782 | ) | ||||||
$ | (675 | ) | $ | (860 | ) | |||||
At December 31, 2004,2005, we had net current deferred tax assets of $618$543 million, primarily composed of temporary differences related to inventory, accrued liabilities, and financing debt instruments, as well as acquired net operating losses and credits. At December 31, 2003,2004, our net current deferred tax assets were $286$618 million.
F-15
The reconciliation between the Company’sour effective tax rate and the federal statutory rate is as follows:
|
| Tax rate for the |
| ||||
|
| years ended December 31, |
| ||||
|
| 2005 |
| 2004 |
| 2003 |
|
Statutory rate applied to income before income taxes |
| 35.0 | % | 35.0 | % | 35.0 | % |
Foreign earnings including earnings invested indefinitely |
| (10.3 | )% | (12.8 | )% | (7.5 | )% |
State taxes |
| 1.5 | % | 3.0 | % | 1.7 | % |
Acquired IPR&D |
| 0.0 | % | 5.7 | % | 0.0 | % |
Utilization of tax credits, primarily research and experimentation |
| (0.7 | )% | (0.5 | )% | (0.6 | )% |
Other, net |
| (1.0 | )% | 0.0 | % | 0.2 | % |
|
| 24.5 | % | 30.4 | % | 28.8 | % |
Tax Rate for the | ||||||||||||
Years Ended December 31, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
Statutory rate applied to income before income taxes | 35.0 | % | 35.0 | % | 35.0 | % | ||||||
Acquired IPR&D | 5.7 | % | 0.0 | % | (153.0 | )% | ||||||
Foreign earnings including permanently reinvested amounts | (12.8 | )% | (7.5 | )% | 15.5 | % | ||||||
Benefit of Puerto Rico operations, net of Puerto Rico income taxes | 0.0 | % | 0.0 | % | 2.5 | % | ||||||
State taxes | 3.0 | % | 1.7 | % | (6.5 | )% | ||||||
Utilization of tax credits, primarily research and experimentation | (0.5 | )% | (0.6 | )% | 4.9 | % | ||||||
Other, net | 0.0 | % | 0.2 | % | (1.7 | )% | ||||||
30.4 | % | 28.8 | % | (103.3 | )% | |||||||
F-16
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
We do not provide for U.S. income taxes on undistributed earnings of our foreign operations that are intended to be invested indefinitely outside the United States. At December 31, 2004,2005, these earnings amounted to approximately $2,487$3,635 million. If these earnings were repatriated to the United States, we would be required to accrue and pay approximately $905$1,330 million of additional taxes based on the current tax rates in effect. For the years ended December 31, 2005, 2004, 2003, and 2002,2003, our total foreign profits before income taxes were approximately $1,830 million, $1,443 million, and $956 million, and $360 million, respectively.
On October 22, 2004, the President of the United States signed the American Jobs Creation Act of 2004, (the “Jobs Act”). The Jobs Act createswhich provided a temporary incentive for U.S. corporations to repatriate accumulated income earned abroadundistributed foreign earnings. One provision of the American Jobs Creation Act effectively reduced the tax rate by providing an 85 percent dividends received85% dividend-received deduction for certain dividends from controlled foreign corporations. In the fourth quarter of 2005, we repatriated $500 million of foreign earnings, which was the maximum amount of foreign earnings qualifying for the reduced tax rate. The deduction is subject to a number of limitations. The Internal Revenue Service (“IRS”) issued its first guidancetax expense incurred on the domestic reinvestment plans on January 13, 2005. However, uncertainty remains as to how to interpret numerous provisions in the Jobs Act. As such, we are currently evaluating the repatriation provisions of the Jobs Act and our 2004 results of operations do not reflect any impact relating to such repatriation provisions. Based on our preliminary analysis to date, we are limited under the Jobs Act to repatriate up to $500 million in foreign profits, and we estimate the tax liability to bewas approximately $30 to $40 million if we repatriate the full $500$43 million.
Our income tax returns are routinely audited by the Internal Revenue Service and various state and foreign tax authorities. Significant disputes may arise with these tax authorities involving issues of the timing and amount of deductions and allocations of income among various tax jurisdictions because of differing interpretations of tax laws and regulations. We periodically evaluate our exposures associated with tax filing positions. While we believe our positions comply with applicable laws, we record liabilities based upon estimates of the ultimate outcomes of these matters.
Income taxes paid during the years ended December 31, 2005, 2004, and 2003, and 2002, totaled $840 million, $1,138 million, and $397 million, respectively.
The following table reflects the carrying value of our long-term borrowings under our various financing arrangements as of December 31, 2005 and $438 million, respectively.2004 (in millions):
|
| December 31, |
| ||||
|
| 2005 |
| 2004 |
| ||
Convertible notes |
| $ | 1,759 |
| $ | 2,912 |
|
4.85% notes due 2014 (2014 notes) |
| 1,000 |
| 1,000 |
| ||
4.00% notes due 2009 (2009 notes) |
| 998 |
| 998 |
| ||
6.5% debt securities due 2007 (2007 notes) |
| 100 |
| 100 |
| ||
8.1% notes due 2097 (Century notes) |
| 100 |
| 100 |
| ||
Total borrowings |
| 3,957 |
| 5,110 |
| ||
Less current portion |
| — |
| 1,173 |
| ||
Total non-current debt |
| $ | 3,957 |
| $ | 3,937 |
|
F-16Convertible notes
F-17
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
repurchase of a portion of the Convertible Notes discussed below) or $285.77 per note)note is being accreted to the balance of the Convertible Notes and recognized as interest expense over the life of the Convertible Notes using the effective interest method.
The holders of the Convertible Notes mayhad the right to require us to purchaserepurchase all or a portion of their notes on March 1, 2005, March 1, 2007, March 1, 2012, and March 1, 2017 at a price equal to the original issuance price plus the accrued original issue discount to the purchase dates. In such event, under the terms of the Convertible Notes, we have the right to pay the purchase price in cash and/or shares of common stock, which would be issued at the then current market price.
On May 6, 2005, we exchanged new zero-coupon senior convertible notes (the “Modified Convertible Notes”) and a cash payment of approximately $6 million for approximately 95% of the remaining Convertible Notes then outstanding. In August 2005, we exchanged substantially all of the remaining Convertible Notes. The changes to the Convertible Notes outstanding as a result of the May and August 2005 exchanges combined with those made in March 2005 are being accounted for as a debt modification. Accordingly, all cash paid to the holders of the Modified Convertible Notes and Convertible Notes (collectively, the “convertible notes”) is being amortized to interest expense over the life of the convertible notes using the effective interest method, and the costs incurred to modify the terms of the convertible notes were expensed as incurred. As of December 31, 2005, convertible notes with an accreted value of $1.8 billion and having an aggregate face amount of $2.36 billion remained outstanding. Because the holders of substantially all of the convertible notes did not require us to repurchase such notes on March 1, 2006, the next available put date, the convertible notes were classified as non-current in the accompanying Consolidated Balance Sheet as of December 31, 2005.
The significant terms of the convertible notes are as follows:
· Holders of Convertible Notes and Modified Convertible Notes may convert each of their notes based on a conversion rate of 8.8601 shares of common stock of Amgen as defined below. The conversion price per share of the convertible notes as of any day will equal the original issuance price plus the accrued original issue discount to that day, divided by the conversion rate or $84.15 as of December 31, 2005. The conversion price per share at issuance of the Convertible Notes was $80.61. While the Convertible Notes are convertible into common stock at any time, the Modified Convertible Notes can only be converted if: 1) the closing price of common stock exceeds the conversion price per share during a defined period at the end of the previous calendar quarter, 2) we call the Modified Convertible Notes for redemption, or 3) we make certain significant distributions to common stockholders or enter into specified types of corporate transactions.
F-18
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
· If converted, the Convertible Notes will be settled for a specified number of shares of common stock-based on the stated conversion rate. The conversion of the Modified Convertible Notes will be settled for a “conversion value” equal to the product of the conversion rate (8.8601 shares of Amgen common stock per note as of December 31, 2005) multiplied by the average closing price of our common stock during a specified period following the conversion date. The conversion value is paid in: 1) cash equal to the lesser of the accreted value of the Modified Convertible Notes at the conversion date or the conversion value, and 2) shares of common stock, if any, to the extent the conversion value exceeds the accreted value.
· The conversion rate of the Convertible Notes will be adjusted to the extent we pay cash dividends equal to, or in excess of, a specified amount in any 12-month period. The conversion rate of the Modified Convertible Notes will be adjusted for any cash dividend paid by an amount equal to the dividend divided by the average closing price of common stock during a specified period immediately prior to the ex-dividend date.
· The holders of the convertible notes may require us to purchase all or a portion of their notes on March 1, 2007, March 1, 2012, and March 1, 2017 at a price equal to the original issuance price plus the accrued original issue discount to the purchase dates. In such event, under the terms of the Convertible Notes, we have the right to pay the purchase price in cash and/or shares of common stock, which would be issued at the then current market price. Accordingly,If holders of the portionModified Convertible Notes exercise their option, we must pay the accreted value solely in cash.
· If certain conditions are met, we are required to pay contingent interest on the Convertible Notes for a specified period of time equal to the greater of: 1) our cash dividends per share paid multiplied by the conversion rate or 2) a specified percentage of the market price of the Convertible Notes, outstanding at December 31, 2004 not repurchasedas defined. Contingent interest on March 2, 2005 was classifiedthe Modified Convertible Notes must be paid if these same conditions are met but in an amount equal to a specified percentage of the market price of the Modified Convertible Notes, as long-term debt indefined, without regard to the accompanying consolidated balance sheet.
· We may redeem all or a portion of the Convertible Notesconvertible notes for cash at any time on or after March 1, 2007 at the original issuance price plus accrued original issue discount as of the redemption date. In addition, we will pay contingent cash interest during any six-month period commencing on or after March 2, 2007 if the average market price of a note for a five trading day measurement period preceding the applicable six-month period equals 120% or more of the sum of the original issuance price
Medium and accrued original issue discount for such note. The contingent cash interest in respect of any quarterly period will equal the greater of 1) the amount of regular cash dividends paid by us per share multiplied by the number of shares of common stock deliverable upon conversion of the Convertible Notes at the then applicable conversion rate or 2) 0.0625% of the average market price of a note for a five trading day measurement period preceding the applicable six-month period provided, that if we do not pay cash dividends during a semiannual period we will pay contingent interest semiannually at a rate of 0.125% of the average market price of a note for a five trading day measurement period.
In November 2004, we issued $1.0 billion aggregate principal amount of 4.00% senior notes due 2009 (the “2009 Notes”) and $1.0 billion aggregate principal amount of 4.85% senior notes due 2014 (the “2014
F-17
We had $100 million of debt securities outstanding at December 31, 20042005 and 20032004 with a fixed rate of 6.5% that mature in 2007 (the “2007 Notes”), which were issued under our $500 million debt shelf registration statement (the “500“$500 Million Shelf”) which was established in 1997. See below for additional information on the $500 Million Shelf.
F-19
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
We had $100 million of debt securities outstanding at December 31, 20042005 and 20032004 with a fixed interest rate of 8.1% that mature in 2097 (the “Century Notes”). These securities may be redeemed in whole or in part at our option at any time for a redemption price equal to the greater of the principal amount to be redeemed or the sum of the present values of the principal and remaining interest payments discounted at a determined rate plus, in each case, accrued interest.
Shelf registrations and other facilities
In July 2004, we established a $1.0 billion five-year unsecured revolving credit facility to be used for general corporate purposes, including commercial paper support.support, which matures in November 2010. Additionally, we increased the size of our commercial paper authorization by $1.0 billion to $1.2 billion. No amounts were outstanding under the credit facility or commercial paper program as of December 31, 2004.
In October 2003, we established a $1.0 billion shelf registration (the “$1 Billion Shelf”) to provide for financial flexibility. The $1 Billion Shelf allows us to issue debt securities, common stock, and associated preferred share purchase rights, preferred stock, warrants to purchase debt securities, common stock or preferred stock, securities purchase contracts, securities purchase units and depositary shares. Under the $1 Billion Shelf, all of the securities available for issuance may be offered from time to time with terms to be determined at the time of issuance. As of December 31, 2004,2005, no securities had been issued under the $1 Billion Shelf.
In 1997, pursuant to the $500 Million Shelf, we established a $400 million medium-term note program. All of the $400 million of debt securities available for issuance may be offered from time to time under our medium-term note program with terms to be determined at the time of issuance. As of December 31, 2004,2005, no securities were outstanding under the $400 million medium-term note program.
Certain of our financing arrangements contain non-financial covenants and as of December 31, 2004,2005, we are in compliance with all applicable covenants.
F-18Contractual maturities of long-term debt obligations
Maturity Date | Amount | |||
2005(1) | $ | 1,175 | ||
2006(1) | 1,762 | |||
2007 | 100 | |||
2008 | — | |||
2009 | 1,000 | |||
After 2009 | 1,100 | |||
$ | 5,137 | |||
Maturity date |
|
|
| Amount |
| |||
2006 |
|
| $ | — |
|
| ||
2007(1) |
|
| 1,882 |
|
| |||
2008 |
|
| — |
|
| |||
2009 |
|
| 1,000 |
|
| |||
2010 |
|
| — |
|
| |||
After 2010 |
|
| 1,100 |
|
| |||
|
|
| $ | 3,982 |
|
|
(1) Included in this amount is the remaining convertible notes’ accreted value on March 1, 2007, the next put date (see convertible notes above).
F-20
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Stockholder Rights Agreement
We have an amended and restated preferred stock rights plan effective through December 12, 2010 pursuant to which each share of common stock outstanding and each subsequently issued share have attached to them one whole preferred share purchase right (a “Right”). The Right represents the right to purchase one four-thousandth (1/4000) of a share of Series A Junior Participating Preferred Stock of Amgen at $350.00. These Rights expire on December 12, 2010.
Under certain circumstances, if an acquiring person or group acquires 10% or more of our outstanding common stock, an exercisable Right will entitle its holder (other than the acquirer) to buy shares of common stock of Amgen having a market value of two times the exercise price of one Right. However, in limited circumstances approved by the outside directors of the Board of Directors, a stockholder who enters into an acceptable standstill agreement may acquire up to 20% of the outstanding shares without triggering the Rights. If an acquirer acquires at least 10%, but less than 50%, of our common stock, the Board of Directors may exchange each Right (other than those of the acquirer) for one share of common stock per Right. In addition, under certain circumstances, if we are involved in a merger or other business combination where we are not the surviving corporation, an exercisable Right will entitle its holder to buy shares of common stock of the acquiring company having a market value of two times the exercise price of one Right. We may redeem the Rights at $0.00025 per Right at any time prior to the public announcement that a 10% position has been acquired.
Stock repurchase program
In December 2003,2004, the Board of Directors (the “Board”) authorized us to repurchase up to $5.0 billion of common stock. Additionally, in December 2004,2005, the Board authorized us to repurchase up to an additional $5.0 billion of common stock. As of December 31, 2004, $5,969 million2005, $6.5 billion was available for stock repurchases under these two authorizations. The manner of purchases, amount we spend, and the number of shares repurchased varieswill vary based on a variety of factors including the stock price and blackout periods in which we are restricted from repurchasing shares.
F-19
|
| 2005 |
| 2004 |
| 2003 |
| |||||||||||||||
|
| Shares |
| Dollars |
| Shares |
| Dollars |
| Shares |
| Dollars |
| |||||||||
First quarter |
|
| 26.8 |
|
| $ | 1,675 |
|
| 10.1 |
|
| $ | 650 |
|
| 8.2 |
|
| $ | 451 |
|
Second quarter |
|
| 12.1 |
|
| 750 |
|
| 17.4 |
|
| 1,000 |
|
| 7.3 |
|
| 449 |
| |||
Third quarter |
|
| 9.5 |
|
| 769 |
|
| 24.0 |
|
| 1,398 |
|
| 4.8 |
|
| 323 |
| |||
Fourth quarter |
|
| 14.8 |
|
| 1,236 |
|
| 17.6 |
|
| 1,024 |
|
| 9.4 |
|
| 578 |
| |||
Total |
|
| 63.2 |
|
| $ | 4,430 |
|
| 69.1 |
|
| $ | 4,072 |
|
| 29.7 |
|
| $ | 1,801 |
|
2004 | 2003 | ||||||||||||||||
Shares | Dollars | Shares | Dollars | ||||||||||||||
First quarter | 10 | $ | 650 | 8 | $ | 451 | |||||||||||
Second quarter | 17 | 1,000 | 7 | 449 | |||||||||||||
Third quarter | 24 | 1,398 | 5 | 324 | |||||||||||||
Fourth quarter | 18 | 1,024 | 10 | 577 | |||||||||||||
Total | 69 | $ | 4,072 | 30 | $ | 1,801 | |||||||||||
F-21
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Other comprehensive income/(loss)
Information regarding the components of accumulated other comprehensive income/(loss), net of tax, are as follows (in millions):
|
|
|
|
|
| Accumulated |
| |||||||||
|
| Unrealized |
| Foreign |
| other |
| |||||||||
|
| gains/(losses) |
| currency |
| comprehensive |
| |||||||||
|
| on securities |
| translation |
| income |
| |||||||||
Balance at December 31, 2004 |
|
| $ | (49 | ) |
|
| $ | 52 |
|
|
| $ | 3 |
|
|
Current year other comprehensive income/(loss) |
|
| 65 |
|
|
| (46 | ) |
|
| 19 |
|
| |||
Balance at December 31, 2005 |
|
| $ | 16 |
|
|
| $ | 6 |
|
|
| $ | 22 |
|
|
Accumulated | ||||||||||||
Unrealized | Foreign | Other | ||||||||||
Gains/(Losses) | Currency | Comprehensive | ||||||||||
on Securities | Translation | Income | ||||||||||
Balance at December 31, 2003 | $ | 33 | $ | 28 | $ | 61 | ||||||
Current year other comprehensive(loss)/income | (82 | ) | 24 | (58 | ) | |||||||
Balance at December 31, 2004 | $ | (49 | ) | $ | 52 | $ | 3 | |||||
Other
In addition to common stock, our authorized capital includes 5 million shares of preferred stock, $0.0001 par value, of which 0.7 million shares have been reserved and designated Series A Preferred Stock. At December 31, 20042005 and 2003,2004, no shares of preferred stock were issued or outstanding.
At December 31, 2004,2005, we had reserved 185145 million shares of our common stock, which may be issued through our employee stock option and stock purchase plans and through conversion of our Convertible Notes.
Employee stock option plans
Our employee stock option plans provide for option grants designated as either nonqualified or incentive stock options. Option grants to employees generally vest over a three to five year period and expire seven years from the date of grant. MostEligible employees are eligible to receive a grant of stock options annually with the number of shares generally determined by the employee’s salary grade and performance level. In addition, certain management and professional level employees typically receive a stock option grant upon commencement of employment.
F-20F-22
As of December 31, 2004,2005, we had 4839 million shares of common stock available for future grant under our employee stock option plans. Stock option information with respect to all of our employee stock option plans is as follows (shares in millions):
|
|
| Exercise price |
| ||||||||||||
|
|
|
|
|
|
|
| Weighted- |
| |||||||
|
| Options |
| Low |
| High |
| average |
| |||||||
Balance unexercised at December 31, 2002 |
|
| 103 |
|
| $ | 1.97 |
| $ | 78.00 |
|
| $ | 36.25 |
|
|
Granted |
|
| 19 |
|
| $ | 48.88 |
| $ | 71.54 |
|
| $ | 64.44 |
|
|
Exercised |
|
| (23 | ) |
| $ | 2.09 |
| $ | 69.31 |
|
| $ | 20.98 |
|
|
Forfeited |
|
| (4 | ) |
| $ | 5.05 |
| $ | 78.00 |
|
| $ | 55.59 |
|
|
Balance unexercised at December 31, 2003 |
|
| 95 |
|
| $ | 1.97 |
| $ | 78.00 |
|
| $ | 44.68 |
|
|
Granted |
|
| 16 |
|
| $ | 37.68 |
| $ | 66.23 |
|
| $ | 59.32 |
|
|
Assumed from Tularik Inc. (including 2 million vested options) |
|
| 4 |
|
| $ | 1.11 |
| $ | 129.16 |
|
| $ | 23.15 |
|
|
Exercised |
|
| (20 | ) |
| $ | 2.00 |
| $ | 64.56 |
|
| $ | 20.42 |
|
|
Forfeited |
|
| (6 | ) |
| $ | 12.67 |
| $ | 78.00 |
|
| $ | 59.93 |
|
|
Balance unexercised at December 31, 2004 |
|
| 89 |
|
| $ | 1.11 |
| $ | 129.16 |
|
| $ | 50.82 |
|
|
Granted |
|
| 10 |
|
| $ | 57.33 |
| $ | 83.58 |
|
| $ | 63.47 |
|
|
Exercised |
|
| (25 | ) |
| $ | 1.11 |
| $ | 80.07 |
|
| $ | 39.73 |
|
|
Forfeited |
|
| (6 | ) |
| $ | 10.75 |
| $ | 81.65 |
|
| $ | 59.83 |
|
|
Balance unexercised at December 31, 2005 |
|
| 68 |
|
| $ | 1.67 |
| $ | 129.16 |
|
| $ | 56.03 |
|
|
Exercise Price | |||||||||||||||||
Weighted- | |||||||||||||||||
Shares | Low | High | Average | ||||||||||||||
Balance unexercised at December 31, 2001 | 94 | $ | 6.19 | $ | 78.00 | $ | 33.62 | ||||||||||
Granted | 18 | $ | 31.07 | $ | 62.48 | $ | 40.61 | ||||||||||
Assumed from Immunex Corporation (including 19 million vested options) | 22 | $ | 1.97 | $ | 72.00 | $ | 23.66 | ||||||||||
Exercised | (26 | ) | $ | 2.00 | $ | 60.36 | $ | 15.90 | |||||||||
Forfeited | (5 | ) | $ | 8.50 | $ | 76.44 | $ | 52.01 | |||||||||
Balance unexercised at December 31, 2002 | 103 | $ | 1.97 | $ | 78.00 | $ | 36.25 | ||||||||||
Granted | 19 | $ | 48.88 | $ | 71.54 | $ | 64.44 | ||||||||||
Exercised | (23 | ) | $ | 2.09 | $ | 69.31 | $ | 20.98 | |||||||||
Forfeited | (4 | ) | $ | 5.05 | $ | 78.00 | $ | 55.59 | |||||||||
Balance unexercised at December 31, 2003 | 95 | $ | 1.97 | $ | 78.00 | $ | 44.68 | ||||||||||
Granted | 16 | $ | 37.68 | $ | 66.23 | $ | 59.32 | ||||||||||
Assumed from Tularik Inc. (including 2 million vested options) | 4 | $ | 1.11 | $ | 129.16 | $ | 23.15 | ||||||||||
Exercised | (20 | ) | $ | 2.00 | $ | 64.56 | $ | 20.42 | |||||||||
Forfeited | (6 | ) | $ | 12.67 | $ | 78.00 | $ | 59.93 | |||||||||
Balance unexercised at December 31,2004 | 89 | $ | 1.11 | $ | 129.16 | $ | 50.82 | ||||||||||
At December 31, 2005, 2004, 2003, and 2002,2003, employee stock options to purchase 34 million, 47 million, 52 million, and 6252 million shares were exercisable at weighted-average prices of $51.92, $44.69, and $34.38, and $27.03, respectively.
Information regarding employee stock options outstanding as of December 31, 20042005 is as follows (shares in millions):
|
| Options outstanding |
| Options exercisable |
| ||||||||||||||||||||
|
|
|
|
|
| Weighted- |
|
|
|
|
| ||||||||||||||
|
|
|
| Weighted- |
| average |
|
|
| Weighted- |
| ||||||||||||||
|
|
|
| average |
| remaining |
|
|
| average |
| ||||||||||||||
|
|
|
| exercise |
| contractual |
|
|
| exercise |
| ||||||||||||||
| Price range |
|
| Options |
| price |
| life (years) |
| Options |
| price |
| ||||||||||||
Over $0.00 to $55.00 |
|
| 17 |
|
|
| $ | 33.79 |
|
|
| 3.3 |
|
|
| 13 |
|
|
| $ | 32.00 |
|
| ||
Over $55.00 to $65.00 |
|
| 30 |
|
|
| $ | 59.93 |
|
|
| 4.8 |
|
|
| 11 |
|
|
| $ | 60.58 |
|
| ||
Over $65.00 |
|
| 21 |
|
|
| $ | 68.20 |
|
|
| 3.7 |
|
|
| 10 |
|
|
| $ | 67.77 |
|
| ||
Options Outstanding | Options Exercisable | |||||||||||||||||||
Weighted- | ||||||||||||||||||||
Weighted- | Average | Weighted- | ||||||||||||||||||
Average | Remaining | Average | ||||||||||||||||||
Exercise | Contractual | Exercise | ||||||||||||||||||
Price Range | Shares | Price | Life | Shares | Price | |||||||||||||||
Over $0.00 to $30.00 | 12 | $ | 16.84 | 2.8 | 11 | $ | 16.63 | |||||||||||||
Over $30.00 to $60.00 | 40 | $ | 47.53 | 4.7 | 17 | $ | 40.34 | |||||||||||||
Over $60.00 | 37 | $ | 65.51 | 4.2 | 19 | $ | 65.58 |
Fair value disclosures of employee stock options
The exercise price of employee stock option grants is set at the closing price of our common stock on the date of grant and the related number of shares granted is fixed at that point in time. Therefore, under the principles of APB No. 25, we do not recognize compensation expense associated with the grant of employee stock options. SFAS No. 123 requires the use of option valuation models to provide supplemental information regarding options granted after 1994.
F-21F-23
The weighted average fair value of common stock and stock options on the date of grant, and the assumptions used to estimate the fair value of the stock options using the Black-Scholes option valuation model, were as follows:
|
| 2005 |
| 2004 |
| 2003 |
| |||
Weighted average fair value of common stock |
| $ | 63.47 |
| $ | 59.32 |
| $ | 64.44 |
|
Weighted average fair value of stock options granted |
| $18.46 |
| $22.90 |
| $26.04 |
| |||
Risk-free interest rate |
| 4.0 | % | 2.6 | % | 2.4 | % | |||
Expected life (in years) |
| 5.0 |
| 4.3 |
| 4.0 |
| |||
Expected volatility |
| 23.4 | % | 44.0 | % | 50.0 | % | |||
Expected dividend yield |
| 0 | % | 0 | % | 0 | % | |||
2004 | 2003 | 2002 | ||||||||||
Weighted average fair value of common stock | $ | 59.32 | $ | 64.44 | $ | 40.61 | ||||||
Weighted average fair value of stock options granted | 22.90 | 26.04 | 16.66 | |||||||||
Risk-free interest rate | 2.6 | % | 2.4 | % | 3.6 | % | ||||||
Expected life (in years) | 4.3 | 4.0 | 3.9 | |||||||||
Expected volatility | 44.0 | % | 50.0 | % | 50.0 | % | ||||||
Expected dividend yield | 0 | % | 0 | % | 0 | % |
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options. Our employee stock options have characteristics significantly different from those of traded options such as extremely limited transferability and, in most cases, vesting restrictions. In addition, the assumptions used in option valuation models (see above) are highly subjective, particularly the expected stock price volatility of the underlying stock. Changes in these subjective input assumptions can materially affect the fair value estimate of our employee stock options. For purposes of pro forma disclosures, the estimated fair values of the options are amortized over the options’ vesting periods. See Note 1, “Summary of significant accounting policies —- Employee stock option and stock purchase plans”options” for a detailed computation of pro forma net income (loss) and earnings (loss) per share.
During the quarter ended March 31, 2005, we revised our method of estimating expected volatility used in the Black-Scholes option valuation model to reflect the consideration of implied volatility in our publicly traded equity instruments.
Tularik Inc.
On August 13, 2004, we acquired all of the outstanding common stock of Tularik in a transaction accounted for as a business combination. Tularik was a company engaged in drug discovery related to cell signaling and the control of gene expression. We issued 24 million shares in the acquisition. Additionally, we issued 4 million stock options in exchange for Tularik stock options assumed in the acquisition. The purchase price of $1.5 billion, which included the carrying value of our existing ownership interest in Tularik of approximately 21% or $82 million, was preliminarily allocated to goodwill of $752$755 million, IPR&D of $554 million (see Note 1, “Summary of significant accounting policies — Acquired in-process research and development”), and other net assets acquired of $191$188 million. The amount allocated to IPR&D was immediately expensed in the consolidated statementConsolidated Statement of operationsOperations during the three months ended September 30, 2004. The estimated fair value of these R&D projects was determined through the assistance of an independent valuation firm and was based on discounted cash flows. The final determination of the purchase price allocation is expected to be completed as soon as practicable after the consummation of the acquisition. The results of Tularik’s operations have been included in theour consolidated financial statements commencing August 14, 2004. Pro forma results of operations for the year ended December 31, 2004 assuming the acquisition of Tularik had taken place at the beginning of 2004 would not differ significantly from actual reported results. The merger was structured to qualify as a tax-free reorganization within the meaning of Section 368(a) of the Internal Revenue Code.
F-22F-24
In December 2005, we signed a definitive merger agreement under which we will pay shareholders of Abgenix $22.50 in the consolidated statement of operations during the three months ended September 30, 2002. The estimated faircash per common share for a total value of these R&D projects was determined throughapproximately $2.2 billion and will assume Abgenix’s outstanding debt. The Federal Trade Commission approved the assistance of an independent valuation firmmerger on January 19, 2006 and was based on discounted cash flows. The results of Immunex’s operations have been included inwe expect to close the consolidated financial statements commencing July 16, 2002. The merger was structuredagreement, subject to qualify as a tax-free reorganization within the meaning of Section 368(a) of the Internal Revenue Code.
Year Ended | |||||
December 31, | |||||
2002 | |||||
Product sales | $ | 5,539 | |||
Total revenues | 6,078 | ||||
Net income | 1,487 | ||||
Pro forma earnings per share: | |||||
Basic | $ | 1.16 | |||
Diluted | $ | 1.12 |
8. Commitments and earnings per share for 2002 exclude the acquired IPR&D charge noted above. The pro forma information is not necessarily indicative of results that would have occurred had the acquisition been in effect for the periods presented or indicative of results that may be achieved in the future.
Commitments
We lease certain administrative and laboratory facilities under non-cancelable operating leases that expire through December 2021. The following table summarizes the minimum future rental commitments under non-cancelable operating leases at December 31, 20042005 (in millions):
|
| Lease |
| |||||
Year ended December 31, |
|
|
| payments |
| |||
2006 |
|
| $ | 74 |
|
| ||
2007 |
|
| 71 |
|
| |||
2008 |
|
| 58 |
|
| |||
2009 |
|
| 50 |
|
| |||
2010 |
|
| 44 |
|
| |||
Thereafter |
|
| 361 |
|
| |||
Total |
|
| 658 |
|
| |||
Less income from subleases |
|
| 39 |
|
| |||
Net minimum operating lease payments |
|
| $ | 619 |
|
| ||
Lease | |||||
Year Ended December 31, | Payments | ||||
2005 | $ | 81 | |||
2006 | 70 | ||||
2007 | 61 | ||||
2008 | 51 | ||||
2009 | 45 | ||||
Thereafter | 348 | ||||
Total | 656 | ||||
Less income from subleases | 62 | ||||
Net minimum operating lease payments | $ | 594 | |||
Rental expense on operating leases, net of sublease rental income, for the years ended December 31, 2005, 2004, and 2003 and 2002 was $48 million, $45 million, $30 million, and $26$30 million, respectively. Sublease income for the years ended December 31, 2005, 2004, 2003, and 20022003 was not material.
We are underhave supply agreements with various third-party contract manufacturers for the production, vialing, and packaging of ENBREL®.ENBREL. Under the terms of thethese various contracts, we are required to purchase certain
F-23
|
| Inventory |
| |||||
Year ended December 31, |
|
|
| commitments |
| |||
2006 |
|
| $ | 269 |
|
| ||
2007 |
|
| 139 |
|
| |||
2008 |
|
| 130 |
|
| |||
2009 |
|
| 132 |
|
| |||
2010 |
|
| 127 |
|
| |||
Thereafter |
|
| 263 |
|
| |||
Total contractual purchases |
|
| $ | 1,060 |
|
| ||
Inventory | |||||
Year Ended December 31, | Commitments | ||||
2005 | $ | 313 | |||
2006 | 121 | ||||
2007 | 123 | ||||
2008 | 123 | ||||
2009 | 123 | ||||
Thereafter | 373 | ||||
Total contractual purchases | $ | 1,176 | |||
The amounts above primarily relate to our long-term supply agreement with Boehringer Ingelheim Pharma KG (“BI Pharma”) for the manufacture of commercial quantities of ENBREL®.ENBREL. Amounts owed to
F-25
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
BI Pharma are based on firm commitments for the purchase of production capacity for ENBREL®ENBREL and reflect certain estimates such as production run success rates and bulk drug yields achieved.
Amounts purchased under contractual inventory commitments from third-party contract manufacturers for the years ended December 31, 2005, 2004, and 2003 were $386 million, $268 million, and $282 million, respectively.
Contingencies
In the ordinary course of business, we are involved in various legal proceedings and other matters, including those that are tax-related. While it is not possible to accurately predict or determine the eventual outcome of these items, we do not believe any such items currently pending will have a material adverse effect on our annual consolidated financial statements, although an adverse resolution in any quarterly reporting period of one or more of these items could have a material impact on the results of operations for that period.
We operate in one business segment — human therapeutics. Therefore, results of operations are reported on a consolidated basis for purposes of segment reporting. Enterprise-wide disclosures about revenues by product sales, revenues and long-lived assets by geographic area, and revenues from major customers are presented below.
F-24Revenues
|
| Years ended December 31, |
| |||||||
|
| 2005 |
| 2004 |
| 2003 |
| |||
Product sales: |
|
|
|
|
|
|
| |||
Aranesp® — U.S. |
| $ | 2,104 |
| $ | 1,533 |
| $ | 980 |
|
Aranesp® — International |
| 1,169 |
| 940 |
| 564 |
| |||
EPOGEN® — U.S. |
| 2,455 |
| 2,601 |
| 2,435 |
| |||
Neulasta® — U.S. |
| 1,900 |
| 1,476 |
| 1,175 |
| |||
NEUPOGEN® — U.S. |
| 805 |
| 778 |
| 881 |
| |||
Neulasta® — International |
| 388 |
| 264 |
| 80 |
| |||
NEUPOGEN® — International |
| 411 |
| 397 |
| 386 |
| |||
Enbrel® — U.S. |
| 2,470 |
| 1,827 |
| 1,254 |
| |||
Enbrel® — International |
| 103 |
| 73 |
| 46 |
| |||
Other |
| 217 |
| 88 |
| 67 |
| |||
Total product sales |
| 12,022 |
| 9,977 |
| 7,868 |
| |||
Other revenues |
| 408 |
| 573 |
| 488 |
| |||
Total revenues |
| $ | 12,430 |
| $ | 10,550 |
| $ | 8,356 |
|
Years Ended December 31, | ||||||||||||||
2004 | 2003 | 2002 | ||||||||||||
Product sales: | ||||||||||||||
EPOGEN® | $ | 2,601 | $ | 2,435 | $ | 2,261 | ||||||||
Aranesp® | 2,473 | 1,544 | 416 | |||||||||||
ENBREL® | 1,900 | 1,300 | 362 | |||||||||||
Neulasta® | 1,740 | 1,255 | 464 | |||||||||||
NEUPOGEN® | 1,175 | 1,267 | 1,380 | |||||||||||
Other | 88 | 67 | 108 | |||||||||||
Total product sales | 9,977 | 7,868 | 4,991 | |||||||||||
Other revenues | 573 | 488 | 532 | |||||||||||
Total revenues | $ | 10,550 | $ | 8,356 | $ | 5,523 | ||||||||
Geographic information
Outside the United States, we principally sell: 1) Aranesp® in most countriessell Aranesp®, Neulasta® and NEUPOGEN® in Europe, Canada, and Australia, 2) Neulasta®Australia. We sell ENBREL only in certain countries in Europe commencing with the January 2003 launch, Canada,United States and Australia, 3) NEUPOGEN® in most countries in Europe, Canada, and Australia, and 4) ENBREL® in Canada commencing July 16, 2002.Canada. Information regarding
F-26
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
revenues and long-lived assets (consisting of property, plant, and equipment) attributable to the United States and to all foreign countries collectively is stated below. The geographic classification of product sales was based upon the location of the customer. The geographic classification of all other revenues was based upon the domicile of the entity from which the revenues were earned. Information is as follows (in millions):
|
| Years ended December 31, |
| |||||||
|
| 2005 |
| 2004 |
| 2003 |
| |||
Revenues: |
|
|
|
|
|
|
| |||
United States |
| $ | 10,298 |
| $ | 8,847 |
| $ | 7,246 |
|
Foreign countries |
| 2,132 |
| 1,703 |
| 1,110 |
| |||
Total revenues |
| $ | 12,430 |
| $ | 10,550 |
| $ | 8,356 |
|
Years Ended December 31, | ||||||||||||||
2004 | 2003 | 2002 | ||||||||||||
Revenues: | ||||||||||||||
United States | $ | 8,847 | $ | 7,246 | $ | 5,026 | ||||||||
Foreign countries | 1,703 | 1,110 | 497 | |||||||||||
Total revenues | $ | 10,550 | $ | 8,356 | $ | 5,523 | ||||||||
December 31, | ||||||||||||||
2004 | 2003 | 2002 | ||||||||||||
Long-lived assets: | ||||||||||||||
United States | $ | 3,647 | $ | 3,086 | $ | 2,474 | ||||||||
Foreign countries | 1,065 | 713 | 340 | |||||||||||
Total long-lived assets | $ | 4,712 | $ | 3,799 | $ | 2,814 | ||||||||
|
| December 31, |
| |||||||
|
| 2005 |
| 2004 |
| 2003 |
| |||
Long-lived assets: |
|
|
|
|
|
|
| |||
United States |
| $ | 3,780 |
| $ | 3,647 |
| $ | 3,086 |
|
Foreign countries |
| 1,258 |
| 1,065 |
| 713 |
| |||
Total long-lived assets |
| $ | 5,038 |
| $ | 4,712 |
| $ | 3,799 |
|
F-27
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Major customers
In the United States, we sell primarily to wholesale distributors of pharmaceutical products. With the exception of ENBREL®,ENBREL, we utilize these wholesale distributors as the principal means of distributing our principal products to healthcare providers such as clinics, dialysis centers, hospitals, and pharmacies. With respect to
F-25
|
| 2005 |
| 2004 |
| 2003 |
| |||
AmerisourceBergen Corporation |
|
|
|
|
|
|
| |||
Net product sales |
| $ | 4,760 |
| $ | 3,406 |
| $ | 2,686 |
|
% of total revenues |
| 38 | % | 32 | % | 32 | % | |||
% of U.S. product sales |
| 48 | % | 41 | % | 40 | % | |||
Cardinal Health, Inc. |
|
|
|
|
|
|
| |||
Net product sales |
| $ | 2,370 |
| $ | 1,683 |
| $ | 1,596 |
|
% of total revenues |
| 19 | % | 16 | % | 19 | % | |||
% of U.S. product sales |
| 24 | % | 20 | % | 24 | % | |||
McKesson Corporation |
|
|
|
|
|
|
| |||
Net product sales |
| $ | 2,140 |
| $ | 1,809 |
| $ | 1,340 |
|
% of total revenues |
| 17 | % | 17 | % | 16 | % | |||
% of U.S. product sales |
| 22 | % | 22 | % | 20 | % |
At December 31, 20042005 and 2003,2004, amounts due from these three large wholesalers each exceeded 10% of gross trade receivables, and accounted for 52%62% and 53%52%, respectively, of net trade receivables on a combined basis. At December 31, 2005 and 2004, 30% and 2003, 38% and 37%, respectively, of trade receivables, net were due from customers located outside the United States, primarily in Europe.
Accrued liabilities consisted of the following (in millions):
|
| December 31, |
| ||||
|
| 2005 |
| 2004 |
| ||
Sales incentives and returns |
| $ | 864 |
| $ | 589 |
|
Employee compensation and benefits |
| 737 |
| 610 |
| ||
Income taxes |
| 476 |
| 355 |
| ||
Accrued royalties |
| 230 |
| 146 |
| ||
Other |
| 692 |
| 777 |
| ||
|
| $ | 2,999 |
| $ | 2,477 |
|
December 31, | ||||||||
2004 | 2003 | |||||||
Employee compensation and benefits | $ | 610 | $ | 445 | ||||
Sales incentives and allowances | 589 | 358 | ||||||
Income taxes | 355 | 673 | ||||||
Accrued royalties | 146 | 133 | ||||||
Other | 777 | 520 | ||||||
$ | 2,477 | $ | 2,129 | |||||
F-28
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Fair values of financial instruments
Short-term assets and liabilities
The fair values of cash equivalents, accounts receivable, and accounts payable approximate their carrying value due to the short-term nature of these financial instruments.
Convertible notes
The fair values of our equity method investments at December 31, 2004 and 2003 were approximately $238 million and $413 million, respectively, based on quoted market prices to the extent available. Certain of our equity method investments do not have readily available fair values and therefore the carrying values are considered to approximate their fair values. At December 31, 2004 and 2003, the carrying values of our equity method investments were $238 million and $283 million, respectively, and are included in non-current other assets in the accompanying consolidated balance sheets.
F-26Long-term debt
Other items, net in the accompanying consolidated statementsConsolidated Statements of operationsOperations consists of the following expense/(income) items (in millions):
|
| Years ended |
| ||||||
|
| 2005 |
| 2003 |
| ||||
Legal settlement |
|
| $ | 49 |
|
| $ | — |
|
License Agreement arbitration |
|
| — |
|
| (74 | ) | ||
Amgen Foundation contribution |
|
| — |
|
| 50 |
| ||
|
|
| $ | 49 |
|
| $ | (24 | ) |
Years Ended | ||||||||
December 31, | ||||||||
2003 | 2002 | |||||||
License Agreement arbitration | $ | (74 | ) | $ | (151 | ) | ||
Amgen Foundation contribution | 50 | 50 | ||||||
Termination of collaboration agreements | — | (40 | ) | |||||
$ | (24 | ) | $ | (141 | ) | |||
Legal settlement
In 2005, we settled certain legal matters, primarily related to a patent legal proceeding, and recorded an expense of $49 million, net of amounts previously accrued.
License Agreement arbitration
In September 1985, we granted Johnson & Johnson’s affiliate, Ortho Pharmaceutical Corporation, a license relating to certain patented technology and know-how of Amgen to sell Epoetin alfa throughout the United States for all human uses except dialysis and diagnostics. A number of disputes arose between Amgen and Johnson & Johnson as to their respective rights and obligations under the various agreements between them, including the agreement granting the license (the “License Agreement”). These disputes between Amgen and Johnson & Johnson have been resolved through binding arbitration. One of these disputes related to the alleged violation of the License Agreement by Johnson & Johnson. In October 2002, the Arbitrator issued a final order awarding us $150 million for Johnson & Johnson’s breach of the License Agreement. The legal award of $151 million, which included interest, was recorded in the
F-29
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
fourth quarter of 2002. In January 2003, we were awarded reimbursement of our costs and expenses, as the successful party in the arbitration. In May 2003, the Arbitrator issued a final order awarding us $74 million in such costs and expenses, which were recorded in the second quarter of 2003.
Amgen Foundation contribution
In each of 2003, and 2002, we contributed $50 million to the Amgen Foundation. These contributionsThis contribution will allow the Amgen Foundation to continue its support of non-profit organizations that focus on issues in health and medicine, science education, and other activities that strengthen local communities.
F-27
2005 Quarter ended |
|
|
| Dec. 31(1) |
| Sept. 30(2) |
| June 30(3) |
| Mar. 31 |
| |||||
Product sales |
| $ | 3,168 |
| $ | 3,047 |
| $ | 3,072 |
| $ | 2,735 |
| |||
Gross profit from product sales |
| 2,657 |
| 2,495 |
| 2,542 |
| 2,246 |
| |||||||
Net income |
| 824 |
| 967 |
| 1,029 |
| 854 |
| |||||||
Earnings per share(5): |
|
|
|
|
|
|
|
|
| |||||||
Basic |
| $ | 0.67 |
| $ | 0.78 |
| $ | 0.83 |
| $ | 0.68 |
| |||
Diluted |
| $ | 0.66 |
| $ | 0.77 |
| $ | 0.82 |
| $ | 0.67 |
| |||
2004 Quarter Ended | Dec. 31 | Sept. 30(1) | June 30 | Mar. 31 | |||||||||||||
Product sales | $ | 2,778 | $ | 2,560 | $ | 2,431 | $ | 2,208 | |||||||||
Gross profit from product sales | 2,302 | 2,113 | 1,996 | 1,835 | |||||||||||||
Net income | 689 | 236 | 748 | 690 | |||||||||||||
Earnings per share(4): | |||||||||||||||||
Basic | $ | 0.55 | $ | 0.19 | $ | 0.59 | $ | 0.54 | |||||||||
Diluted | $ | 0.53 | $ | 0.18 | $ | 0.57 | $ | 0.52 |
2003 Quarter Ended | Dec. 31(2) | Sept. 30(3) | June 30 | Mar. 31 | |||||||||||||
Product sales | $ | 2,238 | $ | 2,078 | $ | 1,916 | $ | 1,636 | |||||||||
Gross profit from product sales | 1,849 | 1,738 | 1,587 | 1,353 | |||||||||||||
Net income | 547 | 612 | 607 | 493 | |||||||||||||
Earnings per share(4): | |||||||||||||||||
Basic | $ | 0.43 | $ | 0.47 | $ | 0.47 | $ | 0.38 | |||||||||
Diluted | $ | 0.41 | $ | 0.46 | $ | 0.45 | $ | 0.37 |
2004 Quarter ended |
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| Dec. 31 |
| Sept. 30(4) |
| June 30 |
| Mar. 31 |
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Product sales |
| $ | 2,778 |
| $ | 2,560 |
| $ | 2,431 |
| $ | 2,208 |
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Gross profit from product sales |
| 2,302 |
| 2,113 |
| 1,996 |
| 1,835 |
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Net income |
| 689 |
| 236 |
| 748 |
| 690 |
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Earnings per share(5): |
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Basic |
| $ | 0.55 |
| $ | 0.19 |
| $ | 0.59 |
| $ | 0.54 |
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Diluted |
| $ | 0.53 |
| $ | 0.18 |
| $ | 0.57 |
| $ | 0.52 |
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(1) In the fourth quarter of 2005, we recorded a charge of $43 million for the tax liability incurred as a result of repatriating certain foreign earnings under the American Jobs Act.
(2) In the third quarter of 2005, we recorded a charge of $47 million for writing off the cost of a semi-completed manufacturing asset that will not be used due to a change in manufacturing strategy.
(3) In the second quarter of 2005, we recorded a charge of $49 million for the impact of legal settlements incurred, net of amounts previously accrued, primarily related to settling a patent legal proceeding.
(4) In the third quarter of 2004, we recorded a charge of $554 million related to the write-off of IPR&D related to the Tularik acquisition.
(5) EPS are computed independently for each of the quarters presented. Therefore, the sum of the quarterly EPS information may not equal annual EPS.
See Notes 2,3, 7, and 12 for further discussion of the items described above.
F-28F-30
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In February 2006, we issued $2.5 billion principal amount of convertible notes due in 2011 (the “2011 Convertible Notes”) and $2.5 billion principal amount of convertible notes due in 2013 (the “2013 Convertible Notes”) in a private placement. The 2011 Convertible Notes and the 2013 Convertible Notes were issued at par and pay interest at a rate of 0.125% and 0.375%, respectively. The 2011 Convertible Notes and the 2013 Convertible Notes may be convertible based on an initial conversion rate of 12.5247 shares and 12.5814 shares, respectively, per $1,000 principal amount of notes (which represents an initial conversion price of approximately $79.84 and $79.48 per share, respectively). The 2011 Convertible Notes and the 2013 Convertible Notes may only be converted: 1) during any calendar quarter beginning after June 30, 2006 if the closing price of our common stock exceeds 130% of the respective conversion price per share during a defined period at the end of the previous quarter, 2) if we make specified distributions to holders of our common stock or specified corporate transactions occur, or 3) one month prior to the respective maturity date. Upon conversion, a holder would receive: 1) cash equal to the lesser of the principal amount of the note or the conversion value, as defined, and 2) to the extent the conversion value exceeds the principal amount of the note, shares of our common stock, cash, or a combination of common stock and cash, at our option (the “excess conversion value”). In addition, upon a change in control, as defined, the holders may require us to purchase for cash all or a portion of their notes for 100% of the principal amount of the notes plus accrued and unpaid interest, if any. A total of $3.0 billion of the net proceeds from these debt issuances were used to repurchase common stock under our stock repurchase program.
Concurrent with the issuance of the 2011 Convertible Notes and the 2013 Convertible Notes, we purchased convertible note hedges in private transactions. The convertible note hedges allow us to receive shares of our common stock and/or cash from the counterparties to the transactions equal to the amounts of common stock and/or cash related to the excess conversion value that we would pay to the holders of the 2011 Convertible Notes and the 2013 Convertible Notes upon conversion. These transactions will terminate the earlier of the maturity dates of the related notes or the first day none of the related notes remain outstanding due to conversion or otherwise. The convertible note hedges, which cost an aggregate of approximately $1.5 billion, will be recorded as a reduction of equity.
Also concurrent with the issuance of the 2011 Convertible Notes and the 2013 Convertible Notes, we sold warrants to acquire shares of our common stock at an exercise price of $107.90 per share in a private placement. Pursuant to these transactions, warrants for 31.3 million shares of our common stock may be settled in May 2011 and warrants for 31.5 million shares of our common stock may be settled in May 2013 (the “settlement dates”). If the average price of our common stock during a defined period ending on or about the respective settlement dates exceeds the exercise price of the warrants, the warrants will be settled, at our option, in cash or shares of our common stock. Proceeds received from the issuance of the warrants totaled approximately $774 million.
F-31
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Year ended December 31, 2005: |
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Allowance for doubtful accounts |
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| $ | 29 |
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| $ | 7 |
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| $ | — |
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| $ | 1 |
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| $ | 35 |
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Year ended December 31, 2004: |
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Allowance for doubtful accounts |
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| $ | 27 |
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| $ | 2 |
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| $ | — |
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| $ | — |
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| $ | 29 |
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Year ended December 31, 2003: |
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Allowance for doubtful accounts |
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| $ | 23 |
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| $ | 4 |
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| $ | — |
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| $ | — |
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| $ | 27 |
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Additions | |||||||||||||||||||||
Balance at | Charged to | Balance | |||||||||||||||||||
Beginning | Costs and | Other | at End | ||||||||||||||||||
of Period | Expense | Additions(1) | Deductions | of Period | |||||||||||||||||
Year ended December 31, 2004: | |||||||||||||||||||||
Allowance for doubtful accounts | $ | 27 | $ | 2 | $ | — | $ | — | $ | 29 | |||||||||||
Year ended December 31, 2003: | |||||||||||||||||||||
Allowance for doubtful accounts | $ | 23 | $ | 4 | $ | — | $ | — | $ | 27 | |||||||||||
Year ended December 31, 2002: | |||||||||||||||||||||
Allowance for doubtful accounts | $ | 21 | $ | 1 | $ | 1 | $ | — | $ | 23 |
F-29F-32