SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-12477
AMGEN INC.
(Exact name of registrant as specified in its charter)
Delaware 95-3540776
------------------------------- -----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1840 Dehavilland Drive, Thousand Oaks, California 91320-1789
----------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (805) 447-1000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
As of March 31, 1996, the registrant had 265,837,952 shares of Common
Stock, $.0001 par value, outstanding.
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AMGEN INC.
INDEX
Page No.
PART I FINANCIAL INFORMATION
Item 1.Financial Statements .......................3
Condensed Consolidated Statements of
Operations - three months
ended March 31, 1996 and 1995 ...................4
Condensed Consolidated Balance Sheets -
March 31, 1996 and December 31, 1995 ............5
Condensed Consolidated Statements of
Cash Flows - three months
ended March 31, 1996 and 1995 ...............6 - 7
Notes to Condensed Consolidated Financial
Statements ......................................8
Item 2.Management's Discussion and Analysis
of Financial Condition and Results of
Operations ................................13
PART II OTHER INFORMATION
Item 1.Legal Proceedings .........................21
Item 5.Other Information..........................21
Item 6.Exhibits and Reports on Form 8-K ..........21
Signatures........................................22
Index to Exhibits.................................23
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The information in this report for the three months ended
March 31, 1996 and 1995 is unaudited but includes all adjustments
(consisting only of normal recurring accruals) which Amgen Inc.
("Amgen" or the "Company") considers necessary for a fair
presentation of the results of operations for those periods.
The condensed consolidated financial statements should be read
in conjunction with the Company's financial statements and the notes
thereto contained in the Company's Annual Report on Form 10-K for the
year ended December 31, 1995.
Interim results are not necessarily indicative of results for
the full fiscal year.
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AMGEN INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
(Unaudited)
Three Months Ended
March 31,
1996 1995
------- -------
Revenues:
Product sales $476.9 $411.2
Corporate partner revenues 21.8 19.8
Royalty income 9.2 8.4
------ ------
Total revenues 507.9 439.4
------ ------
Operating expenses:
Cost of sales 66.9 66.6
Research and development 130.6 113.9
Marketing and selling 67.6 58.8
General and administrative 39.2 34.6
Loss of affiliates, net 13.3 12.7
------ ------
Total operating expenses 317.6 286.6
------ ------
Operating income 190.3 152.8
------ ------
Other income (expense):
Interest and other income 19.0 12.9
Interest expense, net (2.3) (3.8)
------ ------
Total other income (expense) 16.7 9.1
------ ------
Income before income taxes 207.0 161.9
Provision for income taxes 63.4 53.3
------ ------
Net income $143.6 $108.6
====== ======
Earnings per share:
Primary earnings per share $0.51 $0.39
Fully diluted earnings per share $0.51 $0.39
Shares used in calculation of:
Primary earnings per share 283.6 279.5
Fully diluted earnings per share 283.6 280.3
See accompanying notes.
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AMGEN INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except per share data)
(Unaudited)
March 31, December 31,
1996 1995
---------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 62.4 $ 66.7
Marketable securities 873.3 983.6
Trade receivables, net 213.0 199.3
Inventories 90.2 88.8
Other current assets 114.7 115.7
-------- --------
Total current assets 1,353.6 1,454.1
Property, plant and equipment at cost, net 758.4 743.8
Investments in affiliated companies 97.7 95.7
Other assets 157.1 139.2
-------- --------
$2,366.8 $2,432.8
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 32.0 $ 54.4
Commercial paper - 69.7
Other accrued liabilities 404.7 459.7
Current portion of long-term debt 78.2 -
-------- --------
Total current liabilities 514.9 583.8
Long-term debt 99.0 177.2
Commitments and contingencies
Stockholders' equity:
Common stock, and additional paid-in
capital; $.0001 par value; 750.0
shares authorized; outstanding -
265.8 shares in 1996 and 265.7 shares
in 1995 906.8 864.8
Retained earnings 846.1 807.0
-------- --------
Total stockholders' equity 1,752.9 1,671.8
-------- --------
$2,366.8 $2,432.8
======== ========
See accompanying notes.
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AMGEN INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
Three Months Ended
March 31,
1996 1995
------- -------
Cash flows from operating activities:
Net income $143.6 $108.6
Depreciation and amortization 27.9 19.7
Loss of affiliates, net 13.3 12.7
Cash provided by (used in):
Trade receivables, net (13.7) 5.6
Inventories (1.4) 5.5
Other current assets 1.0 6.3
Accounts payable (22.4) 3.0
Accrued liabilities (55.0) (5.1)
------ ------
Net cash provided by operating
activities 93.3 156.3
------ ------
Cash flows from investing activities:
Purchases of property, plant and
equipment (42.5) (25.0)
Proceeds from maturities of marketable
securities 84.9 35.3
Proceeds from sales of marketable
securities 383.5 303.2
Purchases of marketable securities (358.1) (421.5)
(Increase) decrease in investments in
affiliated companies (2.0) 4.6
Increase in other assets (17.9) (6.3)
------ ------
Net cash provided by (used in)
investing activities 47.9 (109.7)
------ ------
See accompanying notes.
(Continued on next page)
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AMGEN INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In millions)
(Unaudited)
Three Months Ended
March 31,
1996 1995
------- -------
Cash flows from financing activities:
Decrease in commercial paper $(69.7) $ (0.3)
Repayment of long-term debt - (2.2)
Net proceeds from issuance of common
stock upon the exercise of stock
options 33.4 23.8
Tax benefit related to stock options 8.6 5.7
Repurchases of common stock (104.5) (75.2)
Other (13.3) (10.7)
------ ------
Net cash used in financing activities (145.5) (58.9)
------ ------
Decrease in cash and cash equivalents (4.3) (12.3)
Cash and cash equivalents at beginning of
period 66.7 211.3
------ ------
Cash and cash equivalents at end of period $ 62.4 $199.0
====== ======
See accompanying notes.
PAGE 7
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AMGEN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
1. Summary of significant accounting policies
Business
Amgen Inc. ("Amgen" or the "Company") is a global biotechnology
company that develops, manufactures and markets human therapeutics
based on advanced cellular and molecular biology.
Principles of consolidation
The condensed consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries as well as
affiliated companies for which the Company has a controlling
financial interest and exercises control over their operations
("majority controlled affiliates"). All material intercompany
transactions and balances have been eliminated in consolidation.
Investments in affiliated companies which are 50% or less owned and
where the Company exercises significant influence over operations are
accounted for using the equity method. All other equity investments
are accounted for under the cost method. The caption "Loss of
affiliates, net" includes Amgen's equity in the operating results of
affiliated companies and the minority interest others hold in the
operating results of Amgen's majority controlled affiliates.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined in a manner which approximates the first-in, first-out
(FIFO) method. Inventories are shown net of applicable reserves and
allowances. Inventories consist of the following (in millions):
March 31, December 31,
1996 1995
------- -------
Raw materials $13.8 $11.8
Work in process 42.0 45.9
Finished goods 34.4 31.1
----- -----
$90.2 $88.8
===== =====
Product sales
Product sales consist of two products, EPOGEN(R) (Epoetin alfa)
and NEUPOGEN(R) (Filgrastim).
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Quarterly NEUPOGEN(R) sales volume in the United States is
influenced by a number of factors including underlying demand,
seasonal changes in cancer chemotherapy administration, and
wholesaler inventory management practices. Wholesaler inventory
reductions have tended to reduce domestic NEUPOGEN(R) sales in the
first quarter of each year. In prior years, NEUPOGEN(R) sales in the
European Union ("EU") have experienced a seasonal decline to varying
degrees in the third quarter.
The Company has the exclusive right to sell Epoetin alfa for
dialysis, diagnostics and all non-human uses in the United States.
The Company sells Epoetin alfa under the brand name EPOGEN(R). Amgen
has granted to Ortho Pharmaceutical Corporation, a subsidiary of
Johnson & Johnson ("Johnson & Johnson"), a license relating to
Epoetin alfa for sales in the United States for all human uses except
dialysis and diagnostics. Pursuant to this license, Amgen does not
recognize product sales it makes into the exclusive market of Johnson
& Johnson and does recognize the product sales made by Johnson &
Johnson into Amgen's exclusive market. These sales amounts, and
adjustments thereto, are derived from third-party data on shipments
to end users and their usage (see Note 4, "Contingencies - Johnson &
Johnson arbitrations").
Income taxes
Income taxes are accounted for in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109 (Note 3).
Stock option and purchase plans
The Company's stock options and purchase plans are accounted for
under Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees".
Earnings per share
Earnings per share are computed in accordance with the treasury
stock method. Primary and fully diluted earnings per share are based
upon the weighted average number of common shares and dilutive common
stock equivalents during the period in which they were outstanding.
Common stock equivalents are outstanding options under the Company's
stock option plans.
Use of estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results may
differ from those estimates.
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Basis of presentation
The financial information for the three months ended March 31,
1996 and 1995 is unaudited but includes all adjustments (consisting
only of normal recurring accruals) which the Company considers
necessary for a fair presentation of the results of operations for
these periods. Interim results are not necessarily indicative of
results for the full fiscal year.
Reclassification
Certain prior period amounts have been reclassified to conform
to the current period presentation.
2. Debt
During the three months ended March 31, 1996, the Company paid
off all outstanding commercial paper.
As of March 31, 1996, $150 million was available under the
Company's line of credit for borrowing and to support the Company's
commercial paper program. No borrowings on this line of credit were
outstanding at March 31, 1996.
Long-term debt consists of the following (in millions):
March 31, December 31,
1996 1995
-------- --------
Medium Term Notes $109.0 $109.0
Promissory notes 68.2 68.2
------ ------
177.2 177.2
Less current portion (78.2) -
------ ------
$ 99.0 $177.2
====== ======
The Company has registered $200 million of unsecured medium term
debt securities ("Medium Term Notes") of which $109.0 million were
outstanding at March 31, 1996. These Medium Term Notes bear interest
at fixed rates averaging 5.8% and mature in one to seven years.
PAGE 10
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3. Income taxes
The provision for income taxes consists of the following (in
millions):
Three Months Ended
March 31,
1996 1995
------ ------
Federal(including U.S. possessions) $57.3 $48.5
State 6.1 4.8
----- -----
$63.4 $53.3
===== =====
4. Contingencies
Johnson & Johnson arbitrations
In September 1985, the Company granted Johnson & Johnson a
license relating to certain patented technology and know-how of the
Company to sell a genetically engineered form of recombinant human
erythropoietin, called Epoetin alfa, throughout the United States for
all human uses except dialysis and diagnostics. Johnson & Johnson
sells Epoetin alfa under the brand name PROCRIT(R).
A number of disputes have arisen between Amgen and Johnson &
Johnson as to their respective rights and obligations under the
various agreements between them, including the agreement granting the
license (the "License Agreement"). These disputes have been the
subject of arbitration proceedings before Judicial Arbitration and
Mediation Services, Inc. in Chicago, Illinois commencing in January
1989. A dispute that has not yet been resolved and is the subject of
the current arbitration proceeding relates to the audit methodology
currently employed by the Company for Epoetin alfa sales. The
Company and Johnson & Johnson are required to compensate each other
for Epoetin alfa sales which either party makes into the other
party's exclusive market. The Company has established and is
employing an audit methodology to assign the proceeds of sales of
EPOGEN(R) and PROCRIT(R) in Amgen's and Johnson & Johnson's
respective exclusive markets. Based upon this audit methodology, the
Company is seeking payment of approximately $10 million from Johnson
& Johnson for the period 1989 through 1994. Johnson & Johnson has
disputed this methodology and is proposing an alternative methodology
for adoption by the arbitrator pursuant to which it is seeking
payment of approximately $419 million for the period 1989 through
1994. If, as a result of the arbitration proceeding, a methodology
different from that currently employed by the Company is instituted
to assign the proceeds of sales between the parties, it may yield
results that are different from the results of the audit methodology
currently employed by the Company. As a result of the arbitration,
it is possible that the Company would recognize a different level of
EPOGEN(R) sales than are currently being recognized. As a result of
PAGE 11
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the arbitration, the Company may be required to pay additional
compensation to Johnson & Johnson for sales during prior periods, or
Johnson & Johnson may be required to pay compensation to the Company
for such prior period sales. While it is impossible to predict
accurately or determine the outcome of these proceedings, based
primarily upon the merits of its claims and based upon certain
liabilities established due to the inherent uncertainty of any
arbitrated result, the Company believes that the outcome of these
proceedings will not have a material adverse effect on its financial
statements.
The trial commenced in March 1996 regarding the audit
methodologies and compensation for sales by Johnson & Johnson into
Amgen's exclusive market and sales by Amgen into Johnson & Johnson's
exclusive market.
The Company has filed a demand in the arbitration to terminate
Johnson & Johnson's rights under the License Agreement and to recover
damages for breach of the License Agreement. A hearing on this
demand will be scheduled following the adjudication of the audit
methodologies for Epoetin alfa sales. On October 27, 1995, the
Company filed a complaint in the Circuit Court of Cook County,
Illinois, which is now pending in the United States District Court
for the Northern District of Illinois, seeking an order compelling
Johnson & Johnson to arbitrate the Company's claim for termination
before the arbitrator. The Company is unable to predict at this time
the outcome of the demand for termination or when it will be
resolved.
On October 2, 1995, Johnson & Johnson filed a demand for a
separate arbitration proceeding against the Company before the
American Arbitration Association ("AAA") in Chicago, Illinois.
Johnson & Johnson alleges in this demand that the Company has
breached the License Agreement. The demand also includes allegations
of various antitrust violations. In this demand, Johnson & Johnson
seeks an injunction, declaratory relief, unspecified compensatory
damages, punitive damages and costs. The Company has filed a motion
to stay the arbitration pending the outcome of the existing
arbitration proceedings before Judicial Arbitration and Mediation
Services, Inc. discussed above. The Company has also filed an answer
and counterclaim denying that AAA has jurisdiction to hear or decide
the claims stated in the demand, denying the allegations in the
demand and counterclaiming for certain unpaid invoices.
Synergen ANTRIL(TM) litigation
Several lawsuits have been filed against the Company's wholly
owned subsidiary, Amgen Boulder Inc. (formerly Synergen, Inc.),
alleging misrepresentations in connection with Synergen's research
and development of ANTRIL(TM) for the treatment of sepsis. One suit
brought by three Synergen stockholders alleges violations of state
securities laws, fraud and misrepresentation and seeks an unspecified
amount of compensatory damages and punitive damages. Another suit,
proposed as a class action, filed by a limited partner of a
partnership with which Amgen Boulder Inc. is affiliated, seeks
rescission of certain payments made to one of the defendants
(or unspecified
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damages not less than $50 million) and treble damages based on a
variety of allegations. Broker-dealers who acted as market makers in
Synergen options have also filed a suit claiming in excess of
$3.2 million in trading losses.
While it is not possible to predict accurately or determine the
eventual outcome of the Johnson & Johnson arbitration proceedings,
the Synergen litigation or various other legal proceedings (including
patent disputes) involving Amgen, the Company believes that the
outcome of these proceedings will not have a material adverse effect
on its financial statements.
5. Stockholders' equity
During the three months ended March 31, 1996, the Company
repurchased 1.75 million shares of its common stock at a total cost
of $104.5 million under its common stock repurchase program. The
Board of Directors has authorized the Company to repurchase up to
$450 million of shares during the 1996 calendar year. Stock
repurchased under the program is retired.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
Cash provided by operating activities has been and is expected
to continue to be the Company's primary source of funds. During the
three months ended March 31, 1996, operations provided $93.3 million
of cash compared with $156.3 million during the same period last
year. The decrease in the current year period is primarily due to
the timing of payments of income taxes and certain operating expenses.
The Company had cash, cash equivalents and marketable securities
of $935.7 million at March 31, 1996, compared with $1,050.3 million
at December 31, 1995.
Capital expenditures totaled $42.5 million for the three months
ended March 31, 1996, compared with $25.0 million for the same period
a year ago. Over the next few years, the Company expects to spend
approximately $250 million to $350 million per year on capital
projects and equipment to expand the Company's global operations.
The Company receives cash from the exercise of employee stock
options. During the three months ended March 31, 1996, stock options
and their related tax benefits provided $42.0 million of cash
compared with $29.5 million for the period last year. Proceeds from
the exercise of stock options and their related tax benefits will
vary from period to period based upon, among other factors,
fluctuations in the market value of the Company's stock relative to
the exercise price of such options.
The Company has a stock repurchase program to offset the
dilutive effect of its employee benefit stock option and stock
purchase plans. During the three months ended March 31, 1996, the
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Company purchased 1.75 million shares of its common stock at a cost of
$104.5 million compared with 2.3 million shares purchased at a cost
of $75.2 million during the same period last year. The Company
expects to repurchase $350 million to $450 million of its stock under
the program in 1996.
To provide for financial flexibility and increased liquidity,
the Company has established several sources of debt financing. The
Company has a shelf registration under which it could issue up to
$200 million of Medium Term Notes. At March 31, 1996, $109.0 million
of Medium Term Notes were outstanding which mature in one to seven
years. The Company has a commercial paper program which provides for
short-term borrowings up to an aggregate face amount of $200 million.
As of March 31, 1996, the Company had no outstanding commercial
paper. The Company also has a $150 million revolving line of credit.
No borrowings on this line of credit were outstanding at March 31,
1996.
The Company invests its cash in accordance with a policy that
seeks to maximize returns while ensuring both liquidity and minimal
risk of principal loss. The policy limits investments to certain
types of instruments issued by institutions with investment grade
credit ratings, and places restrictions on maturities and
concentration by type and issuer. The majority of the Company's
portfolio is composed of fixed income investments which are subject
to the risk of market interest rate fluctuations, and all the
Company's investments are subject to risks associated with the
ability of the issuers to perform their obligations under the
instruments.
The Company has a program to manage certain portions of its
exposure to fluctuations in foreign currency exchange rates. These
exposures primarily result from European sales. The Company
generally hedges the related receivables with foreign currency
forward contracts, which typically mature within six months. The
Company uses foreign currency option and forward contracts which
generally expire within 12 months to hedge certain anticipated future
sales. At March 31, 1996, outstanding option and forward contracts
totaled $14.3 million and $71.1 million, respectively.
The Company believes that existing funds, cash generated from
operations, and existing sources of debt financing are adequate to
satisfy its working capital and capital expenditure requirements and
to support its stock repurchase program for the foreseeable future.
However, the Company may raise additional capital from time to time
to take advantage of favorable conditions in the markets or in
connection with the Company's corporate development activities.
Results of Operations
Product sales
Product sales increased $65.7 million or 16% for the three
months ended March 31, 1996, compared with the same period last year.
PAGE 14
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NEUPOGEN(R) (Filgrastim)
Worldwide NEUPOGEN(R) sales were $232.8 million for the three
months ended March 31, 1996, an increase of $20.5 million or 10% over
the same period last year.
Domestic sales of NEUPOGEN(R) were $162.7 million for the three
months ended March 31, 1996, an increase of $15.4 million or 10% over
the same period last year. This increase is primarily due to demand
growth, which was slightly less than sales growth.
International sales of NEUPOGEN(R), primarily in Europe, were
$70.1 million for the three months ended March 31, 1996, an increase
of $5.1 million or 8% over the same period last year. This increase
is primarily due to increased demand, and to a lesser extent,
favorable effects of strengthened foreign currencies. The Company's
overall share of the colony stimulating factor market in the EU has
decreased since the introduction in 1994 of competing colony
stimulating factor products.
Quarterly NEUPOGEN(R) sales volume in the United States is
influenced by a number of factors including underlying demand,
seasonal change in cancer chemotherapy administration, and wholesaler
inventory management practices. Wholesaler inventory reductions have
tended to reduce domestic NEUPOGEN(R) sales in the first quarter
of each year. In prior years, NEUPOGEN sales in the EU have
experienced a seasonal decline to varying degrees in the third
quarter.
The ongoing and intensifying cost containment pressures in the
health care marketplace, including use of guidelines in patient care,
have contributed to the slowing of growth in domestic NEUPOGEN(R)
usage over the past several years. These pressures are expected to
continue to influence such growth for the foreseeable future.
EPOGEN(R) (Epoetin alfa)
EPOGEN(R) sales were $244.1 million for the three months ended
March 31, 1996, an increase of $45.2 million or 23% over the same
period last year. This increase is primarily due to a continued
increase in the U.S. dialysis patient population and the
administration of higher doses.
Cost of sales
Cost of sales as a percentage of product sales was 14.0% and
16.2% for the three months ended March 31, 1996 and 1995,
respectively. In 1996, cost of sales as a percentage of product
sales is expected to range from 14%-15%.
Research and development
During the three months ended March 31, 1996, research and
development expenses increased $16.7 million or 15% compared with the
same period last year. This increase is primarily due to clinical
and preclinical activities necessary to initiate new programs and to
further advance existing product development activities. Annual
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research and development expenses are expected to increase at a rate
exceeding the anticipated annual product sales growth rate due to
planned increases in internal efforts on new product discovery and
development and increases in external research collaboration costs,
including acquisitions of product and technology rights.
Marketing and selling
Marketing and selling expenses increased $8.8 million or 15%
during the three months ended March 31, 1996 compared with the same
period last year. This increase primarily reflects marketing efforts
to increase the number of patients receiving NEUPOGEN(R) and to bring
more patients receiving EPOGEN(R) within the target hematocrit range.
In 1996, marketing and selling expenses combined with general and
administrative expenses are expected to have an aggregate annual
growth rate lower than the anticipated annual product sales growth
rate.
General and administrative
General and administrative expenses increased $4.6 million or
13% during the three months ended March 31, 1996 compared with the
same period last year. This increase is primarily due to higher
staff-related and legal expenses. In 1996, general and
administrative expenses combined with marketing and selling expenses
are expected to have an aggregate annual growth rate lower than the
anticipated annual product sales growth rate.
Interest and other income
Interest and other income increased $6.1 million or 47% during
the three months ended March 31, 1996 compared with the same period
last year. This increase is primarily due to higher cash balances
and capital gains in the current year period. Interest and other
income is expected to fluctuate from period to period primarily due
to changes in cash balances and interest rates.
Income taxes
The Company's effective tax rate for the three months ended
March 31, 1996 was 30.6% compared with 32.9% for the same period last
year. The decrease in the tax rate is due to increased realization
of net operating losses of an acquired company and continued tax
benefits from the sale of products manufactured in the Puerto Rico
fill-and-finish facility.
Financial Outlook
Worldwide NEUPOGEN(R) sales for 1996 are expected to grow at a
rate lower than the 1995 growth rate. Future NEUPOGEN(R) sales
increases are dependent primarily upon further penetration of
existing markets, the timing and nature of additional indications for
which the product may be approved and the effects of competitive
products. NEUPOGEN(R) usage is expected to continue to be affected
by cost containment pressures on health care providers worldwide. In
addition, international NEUPOGEN(R) sales will continue to be subject
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to changes in foreign currency exchange rates and increased
competition.
EPOGEN(R) sales for 1996 are expected to grow at a rate lower
than the 1995 growth rate. The Company anticipates that increases in
both the U.S. dialysis patient population and dosing will continue to
drive EPOGEN(R) sales. The Company believes that as more dialysis
patients' hematocrits reach target levels, the contribution of dosing
to sales increases will diminish. Patients receiving treatment for
end stage renal disease are covered primarily under medical programs
provided by the federal government. Therefore, EPOGEN(R) sales may
also be affected by future changes in reimbursement rates or the
basis for reimbursement by the federal government.
The Company anticipates that total product sales and earnings
will grow at double digit rates in 1996, but these growth rates are
expected to be lower than 1995 growth rates. Estimates of future
product sales and earnings, however, are necessarily speculative in
nature and are difficult to predict with accuracy.
Except for the historical information contained herein, the
matters discussed herein are by their nature forward-looking. For
the reasons stated, or for various unanticipated reasons, actual
results may differ materially.
Factors That May Affect Future Results
Amgen operates in a rapidly changing environment that involves a
number of risks, some of which are beyond the Company's control. The
following discussion highlights some of these risks and others are
discussed elsewhere herein and in other documents filed by the
Company with the Securities and Exchange Commission.
Period to period fluctuations
The Company's operating results may fluctuate for a number of
reasons. The forecasting of revenue is inherently uncertain for a
variety of reasons. Because the Company plans its operating
expenses, many of which are relatively fixed in the short term, on
the basis that revenues will continue to grow, even a relatively
small revenue shortfall may cause a period's results to be below
expectations. Such a revenue shortfall could arise from any number
of factors, including lower than expected demand, wholesalers' buying
patterns, product pricing strategies, fluctuations in foreign
currency exchange rates, changes in government or private
reimbursement, transit interruptions, overall economic conditions or
natural disasters (including earthquakes).
See "Results of Operations - Product sales - NEUPOGEN(R)
(Filgrastim)" for a discussion regarding quarterly NEUPOGEN(R) sales.
The Company's stock price, like that of other biotechnology
companies, is subject to significant volatility. If revenues or
earnings in any quarter fail to meet the investment community's
expectations, there could be an immediate impact on the Company's
stock price. The stock price may also be affected by, among other
things, clinical trial results and other product development related
announcements by Amgen or its competitors, regulatory matters,
intellectual property and legal matters, or broader industry and
market trends unrelated to the Company's performance.
PAGE 17
<PAGE>
Rapid growth
In light of management's views of the potential for future
growth of the Company's business, the Company has adopted an
aggressive growth plan that includes substantial and increased
investments in research and development and investments in facilities
that will be required to support significant growth. This plan
carries with it a number of risks, including a higher level of
operating expenses, the difficulty of attracting and assimilating a
large number of new employees, and the complexities associated with
managing a larger and faster growing organization.
Product development
The Company intends to continue to develop product candidates.
Successful product development in the biotechnology industry is
highly uncertain and only a small minority of research and
development programs ultimately result in commercially successful
drugs. Product development is dependent on numerous factors, many of
which are beyond the Company's control. Product candidates that
appear promising in the early phases of development may fail to reach
market for numerous reasons. They may be found to be ineffective or
to have harmful side effects in clinical or preclinical testing, fail
to receive necessary regulatory approvals, be uneconomic because of
manufacturing costs or other factors, or be precluded from
commercialization by the proprietary rights of others. Success in
preclinical and early clinical trials does not ensure that large
scale clinical trials will be successful. Clinical results are
frequently susceptible to varying interpretations which may delay,
limit or prevent further clinical development or regulatory
approvals. The length of time necessary to complete clinical trials
and receive approval for product marketing by regulatory authorities
varies significantly by product and indication and is often difficult
to predict.
Regulatory approvals
The success of current products and future product candidates of
the Company will depend in part upon maintaining and obtaining
regulatory approval to market products. Domestic and foreign
statutes and regulations govern matters relating to the Company's
products and product candidates and the research and development
activities associated with them. The Company's product candidates
may prove to have undesirable side effects that may interrupt or
delay clinical studies and could ultimately prevent or limit their
commercial use. The Company or regulatory authorities may suspend or
terminate clinical trials at any time if the participants in such
trials are believed to be exposed to unacceptable health risks. Even
if regulatory approval is obtained, a marketed product and its
manufacturer are subject to continued review. Later discovery of
previously unknown problems with a product or manufacturer may result
in restrictions on such product or manufacturer, including withdrawal
of the product from the market. Failure to obtain necessary
approvals, or the restriction, suspension, or revocation of any
approvals, or the failure to comply with regulatory requirements
could have a material adverse effect on the Company.
PAGE 18
<PAGE>
Reimbursement
The success of the Company's products partially depends upon the
extent to which a consumer is willing to pay the price or able to
obtain reimbursement for the cost of these products from government
health administration authorities, private health insurers, and other
organizations. Significant uncertainties exist as to the
reimbursement status of newly approved therapeutic products, and
current reimbursement policies for existing products may change. It
is possible that changes in reimbursement or failure to obtain
reimbursement may reduce the demand for or the price of the Company's
products.
Several factors could influence the pricing or reimbursement for
the Company's products including: (1) third-party payors continuing
to challenge the prices charged for medical services and products,
(2) the trend towards managed care in the United States, (3) the
growth of organizations which could control or significantly
influence the purchase of health care services and products, and (4)
legislative proposals to reform health care or reduce government
insurance programs. NEUPOGEN(R) usage has been and is expected to
continue to be affected by cost containment pressures on health care
providers worldwide. In addition, patients receiving EPOGEN(R) in
connection with treatment for end stage renal disease are covered
primarily under medical programs provided by the federal government.
Therefore, EPOGEN(R) sales may also be affected by future changes in
reimbursement rates or the basis for reimbursement by the federal
government.
Competition
Substantial competition exists in the biotechnology industry
from pharmaceutical and biotechnology companies which may have
technical or competitive advantages. The Company competes with these
companies in the development of technologies and processes and
sometimes competes with them in acquiring technology from academic
institutions, government agencies, and other private and public
research organizations. There can be no assurance that the Company
will be able to produce or acquire rights to products that have
commercial potential. Even if the Company achieves product
commercialization, there can be no assurance that one or more of the
Company's competitors may not: (1) achieve product commercialization
earlier than the Company, (2) receive patent protection that
dominates or adversely affects the Company's activities, or (3) have
significantly greater marketing capabilities.
The field of biotechnology has undergone rapid and significant
technological change. The Company expects that the technology
associated with the Company's research and development will continue
to develop rapidly, and the Company's future success will depend in
large part on its ability to maintain a competitive position with
respect to this technology. Rapid technological development by the
Company or others may result in some of the Company's product
candidates, products, or processes becoming obsolete before the
Company recovers a significant portion of the research, development,
PAGE 19
<PAGE>
manufacturing, and commercialization expenses it incurs. This could
have a material adverse effect on the Company.
Intellectual property and legal matters
The patent positions of pharmaceutical and biotechnology
companies can be highly uncertain and involve complex legal and
factual questions. Accordingly the breadth of claims allowed in such
companies' patents cannot be predicted. Patent disputes are frequent
and can preclude commercialization of products. The Company is and
may in the future be involved in material patent litigation. Such
litigation, if decided adversely, could subject the Company to
significant liabilities and cause the Company to obtain third party
licenses or cease using the technology or product in dispute.
The Company is involved in arbitration proceedings with Ortho
Pharmaceutical Corporation, a subsidiary of Johnson & Johnson
("Johnson & Johnson"), relating to a license granted by the Company
to Johnson & Johnson for sales of Epoetin alfa in the United States
for all human uses except dialysis and diagnostics. See Note 4
to the Condensed Consolidated Financial Statements - "Contingencies -
Johnson and Johnson arbitrations." While it is impossible to predict
accurately or determine the outcome of these proceedings, based
primarily upon the merits of its claims and based upon certain
liabilities established due to the inherent uncertainty of any
arbitrated result, the Company believes that the outcome of these
proceedings will not have a material adverse effect on its financial
statements. However, it is possible that an adverse decision could,
depending on its magnitude, have a material adverse effect on the
financial statements.
Legal Matters
The Company is engaged in arbitration proceedings with one of
its licensees and various legal proceedings relating to Synergen.
For a discussion of these matters see Note 4 to the Condensed
Consolidated Financial Statements.
PAGE 20
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is engaged in arbitration proceedings with one of
its licensees. For a complete discussion of these matters see Note 4
to the Condensed Consolidated Financial Statements - "Contingencies -
Johnson & Johnson arbitrations". Other legal proceedings are also
reported in Note 4 to the Condensed Consolidated Financial Statements
and in the Company's Form 10-K for the year ended December 31, 1995,
with material developments since that report described below. While
it is not possible to predict accurately or to determine the eventual
outcome of these matters, the Company believes that the outcome of
these legal proceedings will not have a material adverse effect on
the financial statements of the Company.
Biogen litigation
On June 15, 1994, Biogen, Inc. filed suit in Tokyo District
Court in Japan, against Amgen K.K., a subsidiary of the Company,
seeking an injunctive relief for the alleged infringement of two
Japanese patents relating to alpha interferon. The Company
subsequently answered the complaint, denying allegations of
infringement.
Item 5. Other Information
The Company's 1997 Annual Meeting of Stockholders will be held
on May 8, 1997, at 10:30 A.M., PDT, at the Regency Beverly Wilshire,
9500 Wilshire Boulevard, Los Angeles, California.
Item 6. Exhibits and Reports on Form 8-K
(a) Reference is made to the Index to Exhibits included herein.
(b) No reports on Form 8-K were filed during the three months
ended March 31, 1996.
PAGE 21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Amgen Inc.
(Registrant)
Date: 5/14/96 By:/s/ Robert S. Attiyeh
------------------ ------------------------------------
Robert S. Attiyeh
Senior Vice President, Finance
and Corporate Development, and
Chief Financial Officer
Date: 5/14/96 By:/s/ Larry A. May
------------------ ------------------------------------
Larry A. May
Vice President, Corporate
Controller and Chief
Accounting Officer
PAGE 22
<PAGE>
AMGEN INC.
INDEX TO EXHIBITS
Exhibit No. Description
3.1 Restated Certificate of Incorporation. (6)
3.2 Certificate of Amendment to Restated Certificate of
Incorporation, effective as of July 24, 1991. (11)
3.3 Bylaws, as amended to date. (16)
4.1 Indenture dated January 1, 1992 between the Company and
Citibank N.A., as trustee. (12)
4.2 Forms of Commercial Paper Master Note Certificates. (15)
10.1* Company's Amended and Restated 1991 Equity Incentive
Plan. (22)
10.2* Company's Amended and Restated 1984 Stock Option Plan.
(22)
10.3 Shareholder's Agreement of Kirin-Amgen, Inc., dated May
11, 1984, between the Company and Kirin Brewery Company,
Limited (with certain confidential information deleted
therefrom). (1)
10.4 Amendment Nos. 1, 2, and 3, dated March 19, 1985, July
29, 1985 and December 19, 1985, respectively, to the
Shareholder's Agreement of Kirin-Amgen, Inc., dated May
11, 1984 (with certain confidential information deleted
therefrom). (3)
10.5 Product License Agreement, dated September 30, 1985, and
Technology License Agreement, dated, September 30, 1985
between the Company and Ortho Pharmaceutical Corporation
(with certain confidential information deleted
therefrom). (2)
10.6 Product License Agreement, dated September 30, 1985, and
Technology License Agreement, dated September 30, 1985
between Kirin-Amgen, Inc. and Ortho Pharmaceutical
Corporation (with certain confidential information
deleted therefrom). (3)
10.7* Company's Amended and Restated Employee Stock Purchase
Plan. (23)
10.8 Research, Development Technology Disclosure and License
Agreement PPO, dated January 20, 1986, by and between
the Company and Kirin Brewery Co., Ltd. (4)
10.9 Amendment Nos. 4 and 5, dated October 16, 1986
(effective July 1, 1986) and December 6, 1986 (effective
July 1, 1986), respectively, to the Shareholders
Agreement of Kirin-Amgen, Inc. dated May 11, 1984 (with
certain confidential information deleted therefrom). (5)
10.10 Assignment and License Agreement, dated October 16,
1986, between the Company and Kirin-Amgen, Inc. (with
certain confidential information deleted therefrom). (5)
10.11 G-CSF European License Agreement, dated December 30,
1986, between Kirin-Amgen, Inc. and the Company (with
certain confidential information deleted therefrom). (5)
10.12 Research and Development Technology Disclosure and
License Agreement: GM-CSF, dated March 31, 1987, between
PAGE 23
<PAGE>
Kirin Brewery Company, Limited and the Company (with
certain confidential information deleted therefrom). (5)
10.13* Company's Amended and Restated 1987 Directors' Stock
Option Plan. (22)
10.14* Company's Amended and Restated 1988 Stock Option Plan.
(22)
10.15* Company's Retirement and Savings Plan, amended and
restated as of January 1, 1993. (13)
10.16 Amendment, dated June 30, 1988, to Research,
Development, Technology Disclosure and License
Agreement: GM-CSF dated March 31, 1987, between Kirin
Brewery Company, Limited and the Company. (6)
10.17 Agreement on G-CSF in the EU, dated September 26, 1988,
between Amgen Inc. and F. Hoffmann-La Roche & Co.
Limited Company (with certain confidential information
deleted therefrom). (8)
10.18 Supplementary Agreement to Agreement dated January 4,
1989 to Agreement on G-CSF in the EU, dated September
26, 1988, between the Company and F. Hoffmann-La Roche &
Co. Limited Company, (with certain confidential
information deleted therefrom). (8)
10.19 Agreement on G-CSF in Certain European Countries, dated
January 1, 1989, between Amgen Inc. and F. Hoffmann-La
Roche & Co. Limited Company (with certain confidential
information deleted therefrom). (8)
10.20 Rights Agreement, dated January 24, 1989, between Amgen
Inc. and American Stock Transfer and Trust Company,
Rights Agent. (7)
10.21 First Amendment to Rights Agreement, dated January 22,
1991, between Amgen Inc. and American Stock Transfer and
Trust Company, Rights Agent. (9)
10.22 Second Amendment to Rights Agreement, dated April 2,
1991, between Amgen Inc. and American Stock Transfer and
Trust Company, Rights Agent. (10)
10.23 Agency Agreement, dated November 21, 1991, between Amgen
Manufacturing, Inc. and Citicorp Financial Services
Corporation. (13)
10.24 Agency Agreement, dated May 21, 1992, between Amgen
Manufacturing, Inc. and Citicorp Financial Services
Corporation. (13)
10.25 Guaranty, dated July 29, 1992, by the Company in favor
of Merck Sharp & Dohme Quimica de Puerto Rico, Inc. (14)
10.26 936 Promissory Note No. 01, dated December 11, 1991,
issued by Amgen Manufacturing, Inc. (13)
10.27 936 Promissory Note No. 02, dated December 11, 1991,
issued by Amgen Manufacturing, Inc. (13)
10.28 936 Promissory Note No. 001, dated July 29, 1992, issued
by Amgen Manufacturing, Inc. (13)
10.29 936 Promissory Note No. 002, dated July 29, 1992, issued
by Amgen Manufacturing, Inc. (13)
10.30 Guaranty, dated November 21, 1991, by the Company in
favor of Citicorp Financial Services Corporation. (13)
10.31 Partnership Purchase Agreement, dated March 12, 1993,
between the Company, Amgen Clinical Partners, L.P.,
Amgen Development Corporation, the Class A limited
partners and the Class B limited partner. (14)
PAGE 24
<PAGE>
10.32* Amgen Supplemental Retirement Plan dated June 1, 1993.
(17)
10.33 Promissory Note of Mr. Kevin W. Sharer, dated June 4,
1993. (17)
10.34 Promissory Note of Mr. Larry A. May, dated February 24,
1993. (18)
10.35* First Amendment dated October 26, 1993 to the Company's
Retirement and Savings Plan. (18)
10.36* Amgen Performance Based Management Incentive Plan. (18)
10.37 Agreement and Plan of Merger, dated as of November 17,
1994, among Amgen Inc., Amgen Acquisition Subsidiary,
Inc. and Synergen, Inc. (19)
10.38 Third Amendment to Rights Agreement, dated as of
February 21, 1995, between Amgen Inc. and American Stock
Transfer Trust and Trust Company (20)
10.39 Credit Agreement, dated as of June 23, 1995, among Amgen
Inc., the Borrowing Subsidiaries named therein, the
Banks named therein, Swiss Bank Corporation and ABN AMRO
Bank N.V., as Issuing Banks, and Swiss Bank Corporation,
as Administrative Agent. (21)
10.40* Conforming Amendments to the Amgen Retirement and
Savings Plan. (23)
10.41* Second Amendment to the Amgen Retirement and Savings
Plan. (23)
10.42* Third Amendment to the Amgen Retirement and Savings
Plan. (23)
10.43* Fourth Amendment to the Amgen Retirement and Savings
Plan. (23)
10.44 Promissory Note of Mr. George A. Vandeman, dated
December 15, 1995. (23)
10.45 Promissory Note of Mr. George A. Vandeman, dated
December 15, 1995. (23)
10.46 Promissory Note of Mr. Stan Benson, dated March 19,
1996. (23)
11 Computation of per share earnings.
27 Financial Data Schedule.
----------------
* Management contract or compensatory plan or arrangement.
(1) Filed as an exhibit to the Annual Report on Form 10-K for the
year ended March 31, 1984 on June 26, 1984 and incorporated
herein by reference.
(2) Filed as an exhibit to Quarterly Report on Form 10-Q for the
quarter ended September 30, 1985 on November 14, 1985 and
incorporated herein by reference.
(3) Filed as an exhibit to Quarterly Report on Form 10-Q for the
quarter ended December 31, 1985 on February 3, 1986 and
incorporated herein by reference.
(4) Filed as an exhibit to Amendment No. 1 to Form S-1 Registration
Statement (Registration No. 33-3069) on March 11, 1986 and
incorporated herein by reference.
(5) Filed as an exhibit to the Form 10-K Annual Report for the year
ended March 31, 1987 on May 18, 1987 and incorporated herein by
reference.
PAGE 25
<PAGE>
(6) Filed as an exhibit to Form 8 amending the Quarterly Report on
Form 10-Q for the quarter ended June 30, 1988 on August 25, 1988
and incorporated herein by reference.
(7) Filed as an exhibit to the Form 8-K Current Report dated January
24, 1989 and incorporated herein by reference.
(8) Filed as an exhibit to the Annual Report on Form 10-K for the
year ended March 31, 1989 on June 28, 1989 and incorporated
herein by reference.
(9) Filed as an exhibit to the Form 8-K Current Report dated January
22, 1991 and incorporated herein by reference.
(10) Filed as an exhibit to the Form 8-K Current Report dated April
12, 1991 and incorporated herein by reference.
(11) Filed as an exhibit to the Form 8-K Current Report dated July
24, 1991 and incorporated herein by reference.
(12) Filed as an exhibit to Form S-3 Registration Statement dated
December 19, 1991 and incorporated herein by reference.
(13) Filed as an exhibit to the Annual Report on Form 10-K for the
year ended December 31, 1992 on March 30, 1993 and incorporated
herein by reference.
(14) Filed as an exhibit to the Form 8-A dated March 31, 1993 and
incorporated herein by reference.
(15) Filed as an exhibit to the Form 10-Q for the quarter ended March
31, 1993 on May 17, 1993 and incorporated herein by reference.
(16) Filed as an exhibit to the Form 10-Q for the quarter ended June
30, 1993 on August 16, 1993 and incorporated herein by
reference.
(17) Filed as an exhibit to the Form 10-Q for the quarter ended
September 30, 1993 on November 12, 1993 and incorporated herein
by reference.
(18) Filed as an exhibit to the Annual Report on Form 10-K for the
year ended December 31, 1993 on March 25, 1994 and incorporated
herein by reference.
(19) Filed as an exhibit to the Form 8-K Current Report dated
November 18, 1994 on December 2, 1994 and incorporated herein by
reference.
(20) Filed as an exhibit to the Form 8-K Current Report dated
February 21, 1995 on March 7, 1995 and incorporated herein by
reference.
(21) Filed as an exhibit to the Form 10-Q for the quarter ended
June 30, 1995 on August 11, 1995 and incorporated herein by
reference.
(22) Filed as an exhibit to the Form 10-Q for the quarter ended
September 30, 1995 on November 13, 1995 and incorporated herein
by reference.
(23) Filed as an exhibit to the Annual Report on Form 10-K for the
year ended December 31, 1995 on March 29, 1996 and incorporated
herein by reference.
PAGE 26
<PAGE>
EXHIBIT 11
AMGEN INC.
COMPUTATION OF PER SHARE EARNINGS
PRIMARY COMPUTATION
(In millions, except per share data)
(Unaudited)
Three Months Ended
March 31,
1996 1995
------- -------
Net income $143.6 $108.6
====== ======
Applicable common and common stock
equivalent shares:
Weighted average shares of common stock
outstanding during the period 266.0 265.2
Incremental number of shares outstanding
during the period resulting from the
assumed exercises of stock options and
warrants 17.6 14.3
------ ------
Weighted average shares of common stock and
common stock equivalents outstanding during
the period 283.6 279.5
====== ======
Earnings per common share primary $ .51 $ .39
====== ======
EXHIBIT 11
AMGEN INC.
COMPUTATION OF PER SHARE EARNINGS
FULLY DILUTED COMPUTATION
(In millions, except per share data)
(Unaudited)
Three Months Ended
March 31,
1996 1995
------- -------
Net income $143.6 $108.6
====== ======
Applicable common and common stock
equivalent shares:
Weighted average shares of common stock
outstanding during the period 266.0 265.2
Incremental number of shares outstanding
during the period resulting from the
assumed exercises of stock options and
warrants 17.6 15.1
------ ------
Weighted average shares of common stock and
common stock equivalents outstanding during
the period 283.6 280.3
====== ======
Earnings per common share fully diluted $ .51 $ .39
====== ======
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 62
<SECURITIES> 873
<RECEIVABLES> 213
<ALLOWANCES> 0
<INVENTORY> 90
<CURRENT-ASSETS> 1354
<PP&E> 758
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<SALES> 477
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