<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
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.)
One Amgen Center Drive, Thousand Oaks, California 91320-1799
- -----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (805) 447-1000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
As of March 31, 1999, the registrant had 511,997,051 shares of Common Stock,
$.0001 par value, outstanding.
<PAGE>
AMGEN INC.
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements................. 3
Condensed Consolidated Statements of
Operations - three months
ended March 31, 1999 and 1998...............4
Condensed Consolidated Balance Sheets -
March 31, 1999 and December 31, 1998........5
Condensed Consolidated Statements of
Cash Flows - three months
ended March 31, 1999 and 1998...............6
Notes to Condensed Consolidated Financial
Statements..................................7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations...........................13
PART II OTHER INFORMATION
Item 1. Legal Proceedings....................23
Item 6. Exhibits and Reports on Form 8-K.....24
Signatures...................................25
Index to Exhibits............................26
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The information in this report for the three months ended March 31, 1999
and 1998 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, 1998.
Interim results are not necessarily indicative of results for the full
fiscal year.
3
<PAGE>
AMGEN INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In millions, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
-------------- --------------
<S> <C> <C>
Revenues:
Product sales $688.3 $566.8
Corporate partner revenues 27.0 22.6
Royalty income 30.2 16.0
-------------- --------------
Total revenues 745.5 605.4
-------------- --------------
Operating expenses:
Cost of sales 92.4 79.0
Research and development 188.0 152.5
Selling, general and administrative 132.9 113.1
Loss of affiliates, net 2.8 6.2
-------------- --------------
Total operating expenses 416.1 350.8
-------------- --------------
Operating income 329.4 254.6
Other income (expense):
Interest and other income 18.5 15.2
Interest expense, net (2.2) (2.2)
-------------- --------------
Total other income (expense) 16.3 13.0
-------------- --------------
Income before income taxes 345.7 267.6
Provision for income taxes 98.5 80.3
-------------- --------------
Net income $247.2 $187.3
============== ==============
Earnings per share:
Basic $ 0.48 $ 0.37
Diluted $ 0.46 $ 0.35
Shares used in calculation of earnings per share:
Basic 511.7 512.5
Diluted 540.4 528.1
</TABLE>
See accompanying notes.
4
<PAGE>
AMGEN INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------------- -----------------
ASSETS
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 114.1 $ 201.1
Marketables securities 1,203.9 1,074.9
Trade receivables, net 369.6 319.9
Inventories 117.2 110.8
Other current assets 168.2 156.6
----------------- -----------------
Total current assets 1,973.0 1,863.3
----------------- -----------------
Property, plant and equipment at cost, net 1,482.1 1,450.2
Investments in affiliated companies 127.3 120.9
Other assets 235.9 237.8
----------------- -----------------
$3,818.3 $3,672.2
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 95.1 $ 121.6
Commercial paper 99.9 99.7
Accrued liabilities 656.9 659.7
Current portion of long-term debt - 6.0
----------------- -----------------
Total current liabilities 851.9 887.0
Long-term debt 223.0 223.0
Contingencies
Stockholders' equity:
Preferred stock: $.0001 par value; 5 shares
authorized; none issued or outstanding - -
Common stock and additional paid-in capital;
$.0001 par value; 750 shares authorized;
outstanding - 512.0 shares in 1999 and
509.2 shares in 1998 1,821.0 1,671.9
Retained earnings 938.9 894.3
Accumulated other comprehensive loss (16.5) (4.0)
----------------- -----------------
Total stockholders' equity 2,743.4 2,562.2
----------------- -----------------
$3,818.3 $3,672.2
================= =================
</TABLE>
5
<PAGE>
AMGEN INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
-------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 247.2 $ 187.3
Depreciation and amortization 44.4 36.1
Loss of affiliates, net 2.8 6.2
Cash provided by (used in):
Trade receivables, net (49.7) (20.2)
Inventories (6.4) (8.9)
Other current assets (8.3) 15.3
Accounts payable (26.5) 10.9
Accrued liabilities (2.8) 66.1
-------------- ---------------
Net cash provided by operating activities 200.7 292.8
-------------- ---------------
Cash flows from investing activities:
Purchases of property, plant and equipment (76.3) (127.4)
Proceeds from maturities of marketable securities 10.3 -
Proceeds from sales of marketable securities 206.0 180.1
Purchases of marketable securities (352.6) (169.0)
Increase in investments in affiliated companies (0.1) (0.4)
Increase in other assets (0.8) (12.3)
-------------- ---------------
Net cash used in investing activities (213.5) (129.0)
-------------- ---------------
Cash flows from financing activities:
Repayment of long-term debt (6.0) -
Net proceeds from issuance of common stock upon
the exercise of stock options 98.7 34.4
Tax benefits related to stock options 50.3 13.4
Repurchases of common stock (202.5) (337.8)
Other (14.7) (8.3)
-------------- ---------------
Net cash used in financing activities (74.2) (298.3)
-------------- ---------------
Decrease in cash and cash equivalents (87.0) (134.5)
Cash and cash equivalents at beginning of period 201.1 239.1
-------------- ---------------
Cash and cash equivalents at end of period $ 114.1 $ 104.6
============== ===============
</TABLE>
See accompanying notes.
6
<PAGE>
AMGEN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
1. Summary of significant accounting policies
Business
Amgen Inc. ("Amgen" or the "Company") is a global biotechnology company
that discovers, develops, manufactures and markets human therapeutics based on
advances in cellular and molecular biology.
Principles of consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries as well as affiliated companies for which the
Company has a controlling financial interest and exercises control over their
operations ("majority controlled affiliates"). All material intercompany
transactions and balances have been eliminated in consolidation. Investments in
affiliated companies which are 50% or less owned and where the Company exercises
significant influence over operations are accounted for using the equity method.
All other equity investments are accounted for under the cost method. The
caption "Loss of affiliates, net" includes Amgen's equity in the operating
results of affiliated companies and the minority interest others hold in the
operating results of Amgen's majority controlled affiliates.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
in a manner which approximates the first-in, first-out (FIFO) method.
Inventories are shown net of applicable reserves and allowances. Inventories
consist of the following (in millions):
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------------- -----------------
<S> <C> <C>
Raw materials $ 23.8 $ 18.1
Work in process 50.2 49.1
Finished goods 43.2 43.6
----------------- -----------------
$117.2 $110.8
================= =================
</TABLE>
Product sales
Product sales consist of three products, EPOGEN(R) (Epoetin alfa),
NEUPOGEN(R) (Filgrastim) and INFERGEN(R) (Interferon alfacon-1).
The Company has the exclusive right to sell Epoetin alfa for dialysis,
diagnostics and all non-human uses in the United States.
7
<PAGE>
The Company sells Epoetin alfa under the brand name EPOGEN(R). Amgen has granted
to Ortho Pharmaceutical Corporation (which has assigned its rights under the
product license agreement to Ortho Biotech, Inc.), a subsidiary of Johnson &
Johnson ("Johnson & Johnson"), a license relating to Epoetin alfa for sales in
the United States for all human uses except dialysis and diagnostics. Pursuant
to this license, Amgen does not recognize product sales it makes into the
exclusive market of Johnson & Johnson and does recognize the product sales made
by Johnson & Johnson into Amgen's exclusive market. Sales in Amgen's exclusive
market and adjustments thereto are derived from Company shipments and from
third-party data on shipments to end users and their usage (see Note 6,
"Contingencies - Johnson & Johnson arbitrations"). Sales of the Company's other
products are recognized when shipped.
Foreign currency transactions
The Company has a program to manage foreign currency risk. As part of this
program, it has purchased foreign currency option and forward contracts to hedge
against possible reductions in values of certain anticipated foreign currency
cash flows generally over the next 12 months, primarily resulting from its sales
in Europe. At March 31, 1999, the Company had option and forward contracts to
exchange foreign currencies for U.S. dollars of $47.7 million and $28.9 million,
respectively, all having maturities of eight months or less. The option
contracts, which have only nominal intrinsic value at the time of purchase, are
designated as effective hedges of anticipated foreign currency transactions for
financial reporting purposes and accordingly, the net gains on such contracts
are deferred and recognized in the same period as the hedged transactions. The
forward contracts do not qualify as hedges for financial reporting purposes and
accordingly, are marked-to-market. Net gains on option contracts (including
option contracts for hedged transactions whose occurrence are no longer
probable) and changes in market values of forward contracts are reflected in
"Interest and other income". The deferred premiums on option contracts and fair
values of forward contracts are included in "Other current assets".
The Company has additional foreign currency forward contracts to hedge
exposures to foreign currency fluctuations of certain assets and liabilities
denominated in foreign currencies. At March 31, 1999, the Company had forward
contracts to exchange foreign currencies for U.S. dollars of $31.3 million, all
having maturities of less than one month. These contracts are designated as
effective hedges and accordingly, gains and losses on these forward contracts
are recognized in the same period the offsetting gains and losses of hedged
assets and liabilities are realized and recognized. The fair values of the
forward contracts are included in the corresponding captions of the hedged
assets and liabilities. Gains and losses on forward contracts, to the extent
they differ in amount from the hedged assets and liabilities, are included in
"Interest and other income".
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities,"
8
<PAGE>
which is required to be adopted in fiscal years beginning after June 15, 1999.
Because of the Company's minimal use of derivatives, management anticipates that
the adoption of this new statement will not have a significant effect on
earnings or the financial position of the Company.
Employee stock option and stock purchase plans
The Company's employee stock options and stock purchase plans are accounted
for under Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees".
Earnings per share
Basic earnings per share is based upon the weighted-average number of
common shares outstanding. Diluted earnings per share is based upon the
weighted-average number of common shares and dilutive potential common shares
outstanding. Potential common shares are outstanding options under the
Company's employee stock option plans which are included under the treasury
stock method.
9
<PAGE>
The following table sets forth the computation for basic and diluted
earnings per share (in millions, except per share information):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Numerator for basic and diluted
earnings per share - net income $247.2 $187.3
=============== ===============
Denominator:
Denominator for basic earnings
per share - weighted-average shares 511.7 512.5
Effect of dilutive securities -
employee stock options 28.7 15.6
Denominator for diluted earnings
per share - adjusted weighted- --------------- ---------------
average shares 540.4 528.1
=============== ===============
Basic earnings per share $ 0.48 $ 0.37
Diluted earnings per share $ 0.46 $ 0.35
</TABLE>
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimates.
Basis of presentation
The financial information for the three months ended March 31, 1999 and
1998 is unaudited but includes all adjustments (consisting only of normal
recurring accruals) which the Company considers necessary for a fair
presentation of the results of operations for these periods. Interim results
are not necessarily indicative of results for the full fiscal year.
Reclassification
Certain prior year amounts have been reclassified to conform to the current
year presentation.
2. Debt
As of March 31, 1999, the Company had $223 million of unsecured debt
securities outstanding. These unsecured debt securities consisted of: 1) $100
million of debt securities that bear interest
10
<PAGE>
at a fixed rate of 6.5% and mature in 2007 that were issued in December 1997
under a $500 million debt shelf registration (the "Shelf"), 2) $100 million of
debt securities that bear interest at a fixed rate of 8.1% and mature in 2097,
and 3) $23 million of debt securities that bear interest at a fixed rate of 6.2%
and mature in less than five years. Under the Shelf, all of the remaining $400
million of debt securities available for issuance may be offered under the
Company's medium term note program from time to time with terms to be determined
by market conditions.
The Company has a commercial paper program which provides for unsecured
short-term borrowings up to an aggregate of $200 million. As of March 31, 1999,
commercial paper with a face amount of $100 million was outstanding. These
borrowings had maturities of less than three months and had effective interest
rates averaging 5.1%.
The Company also has an unsecured $150 million credit facility that expires
on May 28, 2003. As of March 31, 1999, no amounts were outstanding under this
line of credit.
3. Income taxes
The provision for income taxes consists of the following (in millions):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
------------- -------------
<S> <C> <C> <C>
Federal (including U.S. possessions) $90.7 $74.9
State 7.8 5.4
------------- -------------
$98.5 $80.3
============= =============
</TABLE>
The Company's effective tax rate for the three months ended March 31, 1999
was 28.5% compared with 30.0% for the same period last year. The decrease in
the effective tax rate in the current year is due to increased federal tax
credits and the expected realization of other tax attributes.
4. Stockholders' equity
During the three months ended March 31, 1999, the Company repurchased 2.9
million shares of its common stock at a total cost of $202.5 million under its
common stock repurchase program. In October 1998, the Board of Directors
authorized the Company to repurchase up to an additional $1 billion of common
stock through December 31, 1999. At March 31, 1999, $597.5 million of this
authorization remained. Stock repurchased under the program is retired.
11
<PAGE>
5. Comprehensive income
During the three months ended March 31, 1999 and 1998, total comprehensive
income was $234.7 million and $184.3 million, respectively. The Company's other
comprehensive income/loss is comprised of unrealized gains and losses on the
Company's available-for-sale securities and foreign currency translation
adjustments.
6. Contingencies
Johnson & Johnson arbitrations
In September 1985, the Company granted Johnson & Johnson's affiliate, Ortho
Pharmaceutical Corporation, a license relating to certain patented technology
and know-how of the Company to sell a genetically engineered form of recombinant
human erythropoietin, called Epoetin alfa, throughout the United States for all
human uses except dialysis and diagnostics. A number of disputes have arisen
between Amgen and Johnson & Johnson as to their respective rights and
obligations under the various agreements between them, including the agreement
granting the license (the "License Agreement").
A dispute between Amgen and Johnson & Johnson that has been the subject of
an arbitration proceeding relates to the audit methodology currently employed by
the Company to account for Epoetin alfa sales. The Company and Johnson & Johnson
are required to compensate each other for Epoetin alfa sales that either party
makes into the other party's exclusive market, sometimes described as
"spillover" sales. The Company has established and is employing an audit
methodology to measure each party's spillover sales and to allocate the net
profits from those sales to the appropriate party. The arbitrator in this
matter (the "Arbitrator") issued an opinion adopting the Company's audit
methodology with certain adjustments and, subsequently, issued his final order
confirming that the Company was the successful party in the arbitration. As a
result, Johnson & Johnson was ordered to pay to the Company all costs and
expenses, including reasonable attorneys' fees, that the Company incurred in the
arbitration as well as one-half of the audit costs. The Company submitted a
bill for such costs incurred over an eight year period in the amount of
approximately $110 million. On January 20, 1999, Johnson & Johnson informed the
Company that it intends to contest substantially all costs and expenses,
including reasonable attorneys' fees, that the Company incurred in the
arbitration as well as one-half of the audit costs.
On April 15, 1999, the Arbitrator ruled that the Company cannot recover
certain of its fees and costs. Although further clarification of the
Arbitrator's order will be required, and although he will determine at a later
date the specific amount of the unrecoverable fees, the Company estimates that
the ruling may reduce the Company's potential recovery of such fees and costs by
an amount in the range of approximately $12 million to $17 million. In addition
to determining that amount, the Arbitrator will determine how much of the
Company's remaining claim the Company is entitled to recover from Johnson &
Johnson.
12
<PAGE>
On October 26, 1998, Johnson & Johnson filed a petition in the Circuit
Court of Cook County, Illinois seeking to vacate or modify the Arbitrator's
award to the Company of all costs and expenses, including reasonable attorney's
fees and costs, that the Company incurred in the arbitration. On January 8,
1999, the Company filed a motion to dismiss Johnson & Johnson's petition. That
motion remains pending. Due to remaining uncertainties the Company has not
recognized any benefit from the recovery of attorneys' fees and costs or audit
costs.
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 based on the Company's claim that Johnson & Johnson has
intentionally sold PROCRIT(R) (the brand name under which Johnson & Johnson
sells Epoetin alfa) into the Company's exclusive dialysis market. Johnson &
Johnson disputed the Arbitrator's jurisdiction to decide the Company's demand.
On March 2, 1999, the Illinois Court of Appeals denied Johnson & Johnson's
appeal of the Company's successful motion for summary judgment affirming the
Arbitrator has jurisdiction over this matter. Pursuant to the Arbitrator's
ruling, discovery has commenced. No trial date has been set. The Company is
unable to predict at this time the outcome of its demand for termination of the
License Agreement or when it will be resolved.
While it is not possible to predict accurately or determine the eventual
outcome of the above described legal matters or various other legal proceedings
(including patent disputes) involving Amgen, the Company believes that the
outcome of these proceedings will not have a material adverse effect on its
annual financial statements.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
The Company had cash, cash equivalents and marketable securities of $1,318
million at March 31, 1999, compared with $1,276 million at December 31, 1998.
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,
1999, operations provided $200.7 million of cash compared with $292.8 million
during the same period last year.
Capital expenditures totaled $76.3 million for the three months ended March
31, 1999, compared with $127.4 million for the same period a year ago. The
Company anticipates spending approximately $300 million to $400 million in 1999
on capital projects and equipment to expand the Company's global operations.
Thereafter, over the next few years, the Company anticipates that capital
expenditures will average in excess of $300 million per year.
The Company receives cash from the exercise of employee stock options.
During the three months ended March 31, 1999, stock options
13
<PAGE>
and their related tax benefits provided $149 million of cash compared with $47.8
million for the same period last year. Proceeds from the exercise of stock
options and their related tax benefits will vary from period to period based
upon, among other factors, fluctuations in the market value of the Company's
stock relative to the exercise price of such options.
The Company has a stock repurchase program primarily to offset the dilutive
effect of its employee stock option and stock purchase plans. During the three
months ended March 31, 1999, the Company purchased 2.9 million shares of its
common stock at a cost of $202.5 million compared with 12.5 million shares
purchased at a cost of $337.8 million during the same period last year. In
October 1998, the Board of Directors authorized the Company to repurchase up to
an additional $1 billion of common stock through December 31, 1999. At March
31, 1999, $597.5 million of this authorization remained.
To provide for financial flexibility and increased liquidity, the Company
has established several sources of debt financing. As of March 31, 1999, the
Company had $223 million of unsecured debt securities outstanding. These
unsecured debt securities consisted of: 1) $100 million of debt securities that
bear interest at a fixed rate of 6.5% and mature in 2007 that were issued in
December 1997 under a $500 million debt shelf registration (the "Shelf"), 2)
$100 million of debt securities that bear interest at a fixed rate of 8.1% and
mature in 2097 and 3) $23 million of debt securities that bear interest at a
fixed rate of 6.2% and mature in less than five years. Under the Shelf, all of
the remaining $400 million of debt securities available for issuance may be
offered under the Company's medium-term note program.
The Company's sources of debt financing also include a commercial paper
program which provides for short-term borrowings up to an aggregate face amount
of $200 million. As of March 31, 1999, commercial paper with a face amount of
$100 million was outstanding. These borrowings had maturities of less than
three months and had effective interest rates averaging 5.1%. In addition, the
Company has an unsecured $150 million credit facility that expires on May 28,
2003. This credit facility supports the Company's commercial paper program. As
of March 31, 1999, no amounts were outstanding under this line of credit.
The primary objectives for the Company's investment portfolio are liquidity
and safety of principal. Investments are made to achieve the highest rate of
return to the Company, consistent with these two objectives. The Company's
investment policy limits investments to certain types of instruments issued by
institutions with investment grade credit ratings and places restrictions on
maturities and concentration by type and issuer. The Company invests its excess
cash in securities with varying maturities to meet projected cash needs.
The Company believes that existing funds, cash generated from operations
and existing sources of debt financing are adequate to satisfy its working
capital and capital expenditure requirements for the foreseeable future, as well
as to support its stock repurchase
14
<PAGE>
program. However, the Company may raise additional capital from time to time.
Results of Operations
Product sales
Product sales were $688.3 million during the three months ended March 31,
1999, an increase of $121.5 million or 21% over the same period last year.
Quarterly product sales volume is influenced by a number of factors, including
underlying demand and wholesaler inventory management practices.
EPOGEN(R) (Epoetin alfa)
EPOGEN(R) sales were $394.9 million for the three months ended March 31,
1999, an increase of $90.5 million or 30% over the same period last year. This
increase was primarily due to the administration of higher doses and the
continuing growth in the U.S. dialysis patient population. The administration
of higher doses of EPOGEN(R) was principally due to changes in reimbursement
announced in March and June 1998 by the Health Care Financing Administration
("HCFA"), discussed below, as well as many dialysis providers using better
anemia management practices, including using hemoglobin instead of hematocrit to
measure red blood cell counts.
In September 1997, HCFA implemented changes (the "HCFA Policy Changes") to
its reimbursement policy. Prior to the HCFA Policy Changes, fiscal
intermediaries under contract with HCFA were authorized to pay reimbursement
claims for patients whose hematocrits exceeded 36 percent, the top of the
suggested target hematocrit range in the Company's labeling, if deemed medically
justified. Under the HCFA Policy Changes, medical justification was not
accepted for payment of claims of hematocrits that exceeded 36 percent and, if
the current month's hematocrit was greater than 36 percent and the patient's
hematocrit exceeded 36.5 percent on an historical 90-day "rolling average"
basis, reimbursement for the current month would be denied in full. Beginning
in the second quarter of 1997, the Company experienced a decline in the growth
rate of EPOGEN(R) sales as dialysis providers attempted to lower hematocrits by
lowering or withholding EPOGEN(R) doses in order to avoid or minimize claim
denials under the HCFA Policy Changes. However, in March 1998, HCFA announced
the easing of restrictions on reimbursement that had been instituted under the
HCFA Policy Changes. In June 1998, HCFA announced further revisions.
In March 1998, HCFA issued two revisions (the "March HCFA Revisions") to
the HCFA Policy Changes in a program memorandum. The first revision provided
that, for a month in which the three month "rolling average" hematocrit exceeds
36.5 percent, HCFA would pay the lower of 100 percent of the actual dosage
billed for that month, or 80 percent of the prior month's allowable EPOGEN(R)
dosage. The second revision re-established authorization to make payment for
EPOGEN(R) when a patient's hematocrit exceeded 36 percent when accompanied by
documentation establishing medical necessity. In
15
<PAGE>
June 1998, HCFA issued another program memorandum establishing additional
revisions (the "June HCFA Revisions") to the reimbursement policy. The policy
now states that pre-payment review of claims has been eliminated and fiscal
intermediaries should conduct post-payment reviews of those dialysis providers
with an atypical number of patients with hematocrit levels above a 90-day
"rolling average" of 37.5 percent. Additionally, HCFA stated that it is
encouraging dialysis providers to maintain a hematocrit level within the range
of 33 to 36 percent as recommended by the Dialysis Outcomes Quality Initiative.
HCFA also stated that it plans to develop a national policy for medical
justification for physicians who target their patients' hematocrits greater than
36 percent. In the interim, individual patient treatment will continue to be
subject to the physician's discretion and documentation must satisfy the
judgment of the fiscal intermediary. The June HCFA Revisions supersede the HCFA
Policy Changes and the March HCFA Revisions.
NEUPOGEN(R) (Filgrastim)
Worldwide NEUPOGEN(R) sales were $287 million for the three months ended
March 31, 1999, an increase of $25.8 million or 10% over the same period last
year. This increase was primarily due to the growth in demand within the U.S.
cancer chemotherapy market, the effect of higher prices in the U.S. and
favorable foreign currency effects.
Cost containment pressures in the U.S. health care marketplace have limited
growth in domestic NEUPOGEN(R) sales. These pressures are expected to continue
to influence growth for the foreseeable future.
The growth of the colony stimulating factor ("CSF") market in the European
Union ("EU") in which NEUPOGEN(R) competes has remained essentially flat,
principally due to EU government pressures on physician prescribing practices in
response to ongoing government initiatives to reduce health care expenditures.
Additionally, the Company faces competition from another granulocyte CSF
product. Amgen's CSF market share in the EU has remained relatively constant
over the last few years, however, the Company expects that the competitive
intensity may increase in the near future.
Other product sales
INFERGEN(R) (Interferon alfacon-1) sales were $6.3 million for the three
months ended March 31, 1999, an increase of $5.1 million or 425% over the same
period last year. INFERGEN(R) was launched in October 1997 for the treatment of
chronic hepatitis C virus infection. There are existing treatments, including a
new therapy launched in 1998, for this infection against which INFERGEN(R)
competes. The Company cannot predict the extent to which it will penetrate this
market.
Cost of sales
16
<PAGE>
Cost of sales as a percentage of product sales was 13.4% and 13.9% for the
three months ended March 31, 1999 and 1998, respectively.
Research and development
During the three months ended March 31, 1999, research and development
expenses increased $35.5 million or 23% compared with the same period last year.
This increase is primarily due to costs related to the collaboration with
PRAECIS PHARMACEUTICALS INCORPORATED and higher staff-related costs necessary to
support ongoing product development activities.
Selling, general and administrative
Selling, general and administrative expenses increased $19.8 million or 18%
during the three months ended March 31, 1999 compared with the same period last
year. This increase was primarily due to higher staff-related costs, outside
marketing expenses and information management consulting fees.
Income taxes
The Company's effective tax rate for the three months ended March 31, 1999
was 28.5% compared with 30.0% for the same period last year. The decrease in
the effective tax rate in the current year is due to increased federal tax
credits and the expected realization of other tax attributes.
Foreign currency transactions
The Company has a program to manage certain portions of its exposure to
fluctuations in foreign currency exchange rates arising from international
operations. The Company generally hedges the receivables and payables with
foreign currency forward contracts, which typically mature within one to three
months. The Company uses foreign currency option and forward contracts which
generally expire within 12 months to hedge certain anticipated future sales and
expenses. At March 31, 1999, outstanding foreign currency option and forward
contracts totaled $47.7 million and $60.2 million, respectively.
Year 2000
The Year 2000 problem (the "Year 2000 Problem") results from computer
programs and devices that do not differentiate between the year 1900 and the
year 2000 because they were written using two digits rather than four to define
the applicable year; accordingly, computer systems that have time-sensitive
calculations may not properly recognize the year 2000. This could result in
system failures or miscalculations causing disruptions of the Company's
operations, including, without limitation, manufacturing, distribution, clinical
development, research and other business activities. The Year 2000 Problem is
likely to affect the Company's computer hardware, software, systems, devices,
applications and manufacturing equipment, including without limitation, its non-
17
<PAGE>
information technology systems (such as elevators, HVAC equipment, security
systems and other equipment containing embedded technology such as
microcontrollers) (collectively, "Computer Systems"). Amgen is not currently
year 2000 compliant. Like many corporations, the Company does not have any
previous experience with an issue like the Year 2000 Problem. The Year 2000
Problem potentially affects the Company across its world-wide locations and
within substantially all of its business activities. Although the Company
believes it is developing an appropriate program to address the Year 2000
Problem, it cannot guarantee that its program will succeed or will be timely.
The following is a discussion of the Company's year 2000 program.
Amgen has conducted an initial review of its Computer Systems to identify
those areas that could be affected by the Year 2000 Problem and has established
a program to address year 2000 issues. The Company has substantially completed
its evaluation of its functional areas and site locations worldwide.
Additionally, the Company has appointed a program manager for year 2000
compliance. The Company has identified the following three principal areas of
potential Computer Systems exposure at Amgen to the Year 2000 Problem, in
addition to supplier and customer issues which are discussed elsewhere:
- - Process Control, Instruments and Environmental Monitoring and Control
Systems: these types of systems are used in the Company's manufacturing and
clinical trial processes, among other operations. These generally are
systems, devices and instruments which utilize date functionality and
generate, send, receive or manipulate date-stamped data and signals. These
systems may be found in data acquisition/processing software, laboratory
instrumentation and other equipment with embedded code, for example. These
devices and instruments may be controlled by installed software, firmware or
other embedded control algorithms.
- - Servers, Desktops and Infrastructure: these generally are desktop
computers (PCs and Macintosh) and server computer equipment (NT and UNIX),
telecommunications, local area networks, wide area networks, and include
system hardware, firmware, installed commercial application software, e-mail,
video teleconferencing and electronic calendaring systems, for example.
- - Custom Applications and Business Systems: these generally are systems
which the Company either wrote or for which the Company has purchased the
source code, or applications purchased from an external vendor. These systems
include applications developed or purchased by a functional area on computer
systems located within Amgen's corporate departments and operated by
departmental personnel, such as Amgen's core business systems (including
financial systems and sales operations systems), fund transfer systems and
personnel management systems.
Amgen has planned an inventory, business risk assessment, remediation,
testing and implementation phase in these areas. The Company plans to test
appropriate Computer Systems and implement them in their year 2000-compliant
form following remediation. The Company has substantially completed the
inventory phase and the business risk
18
<PAGE>
assessment phase. The Company expects to have substantially completed the
remediation, testing and implementation phases by May 31, 1999, July 31, 1999
and September 30, 1999, respectively. Year 2000 compliance testing of the
Company's Computer Systems has commenced. Since the commencement of its year
2000 efforts, the Company has in the past missed some deadlines at various
stages of developing and implementing its program. However, some schedule
slippage has been recovered and the Company is working to recover others. The
Company is currently behind schedule in some projects. The Company cannot
guarantee that it will meet internal or external deadlines for year 2000
compliance.
The Company is using both internal and external resources to identify,
correct/reprogram and test its Computer Systems for year 2000 compliance.
However, the Company cannot guarantee that these resources will be available at
a reasonable cost or at all, due, in part, to competing demands for these
resources which the Company anticipates will increase as January 1, 2000 nears.
Further, while the Company plans to complete modifications of its business
critical Computer Systems prior to the year 2000, if modifications of such
business critical Computer Systems, or Computer Systems of Suppliers (as defined
below) are not completed in a timely manner, the Year 2000 Problem could have a
material adverse effect on the operations and financial position of the Company.
The Company has begun to identify critical providers of information, goods
and services ("Suppliers") in order to assess their year 2000
compliance/readiness. Suppliers have been prioritized based on business
criticality and year 2000 surveys were distributed. Although the Company cannot
control Suppliers' response time or rate to the Company's surveys, the Company
hopes to have assessed survey responses by May 31, 1999 and confirmed year 2000
readiness of selected Suppliers by August 31, 1999. The Company does not intend
to contact entities that are not critical and cannot guarantee that such
entities will be year 2000 compliant. The Company plans to visit selected
Suppliers to confirm their year 2000 compliance. In some cases, the Company
also plans to stock extra inventory and qualify alternate suppliers, although
the Company cannot guarantee the availability of additional supplies or the year
2000 compliance of alternate suppliers. The failure of Suppliers to become year
2000 compliant on a timely basis, or at all, could have a material adverse
effect on the Company.
The Company is also working to identify its key customers and to understand
year 2000 exposure and compliance in that area. However, the Company believes
that the failure of its key customers to become year 2000 compliant on a timely
basis, or at all, could have a material adverse effect on the Company.
The Company may also be affected by the failure of other third parties to
be year 2000 compliant even though these third parties do not directly conduct
business with Amgen. For example, the failure of state, federal and private
payors or reimbursers to be year 2000 compliant and thus unable to make timely,
proper or complete payments to sellers and users of the Company's products,
could have a material adverse effect on the Company. The Government Accounting
Office has
19
<PAGE>
stated that the Health Care Financing Administration, the principal federal
reimburser for the Company's marketed products, may not become fully year 2000
compliant on a timely basis.
The Company is in the process of developing a "most reasonably likely worst
case year 2000 scenario" and identifying the principal risks to Amgen. The
Company has commenced contingency planning and anticipates finalizing a
contingency plan by mid-1999 and implementing such plan by November 1999.
As of March 31, 1999, total expenditures related to the Company's year 2000
program, including, without limitation, anticipated upgrades, remediation and
new Computer Systems, are expected to range from $40 million to $60 million,
approximately one-third of which is expected to be capital expenditures.
However, these amounts are only estimates and are based on information currently
available to the Company; the Company cannot guarantee that these amounts will
be adequate to address the Company's year 2000 compliance needs. As of March
31, 1999, the Company estimates that it had incurred approximately $16 million
in its year 2000 efforts, including without limitation, internal staff costs,
outside consulting fees and Computer Systems upgrades.
The statements set forth herein concerning the Year 2000 Problem which are
not historical facts are forward-looking statements that involve risks and
uncertainties that could cause actual results to differ materially from those in
the forward-looking statements. There can be no guarantee that any estimates or
other forward-looking statements will be achieved and actual results could
differ significantly from those planned or contemplated. The Company plans to
update the status of its year 2000 program as necessary in its periodic filings
and in accordance with applicable securities laws.
Financial Outlook
The Company expects the sales growth rate for EPOGEN(R) in 1999 to be in
the low-twenties. The Company believes that dialysis providers have increased
doses primarily in response to the June HCFA Revisions and due to certain
dialysis providers using hemoglobin instead of hematocrit to measure red blood
cell counts (see "Results of Operations - Product sales - EPOGEN(R) (Epoetin
alfa)"). The Company also believes that increases in the U.S. dialysis patient
population and dose will continue to grow EPOGEN(R) sales in the near term.
Patients receiving treatment for end stage renal disease are covered primarily
under medical programs provided by the federal government. Therefore, EPOGEN(R)
sales may also be affected by future changes in reimbursement rates or a change
in the basis for reimbursement by the federal government.
The Clinton administration has proposed a Medicare cost savings plan which
includes a provision for cutting Medicare reimbursement of EPOGEN(R) by 10%.
This proposal will be addressed during the federal government's fiscal year 2000
budget process. The Company believes the proposal, if enacted, would primarily
affect dialysis
20
<PAGE>
providers that use EPOGEN(R) and it is difficult to predict its impact on Amgen.
The Company expects a high single digit sales growth rate for NEUPOGEN(R)
in 1999. Future NEUPOGEN(R) sales growth is dependent primarily upon further
penetration of existing markets, the effects of competitive products and the
timing and nature of additional indications for which the product may be
approved. Although not approved or promoted for use in Amgen's domestic or
foreign markets, except for Australia and Canada, the Company believes that
currently less than 5% of its worldwide NEUPOGEN(R) sales are from off-label use
as a supportive therapy to various AIDS treatments. Changes in AIDS therapies,
including protease inhibitors that may be less myelosuppressive than other AIDS
treatments, are believed to have adversely affected and may continue to affect
such sales. NEUPOGEN(R) usage is expected to continue to be affected by cost
containment pressures on health care providers worldwide. In addition, reported
NEUPOGEN(R) sales will continue to be affected by changes in foreign currency
exchange rates, government budgets and increased competition in Europe.
Generally, in the U.S. the cost of drugs and biologicals administered to
Medicare-eligible patients receiving outpatient services, such as chemotherapy
infusion, is reimbursed under Medicare only if those drugs and biologicals
qualify for coverage under Medicare Part B. Generally, drugs and biologicals
that are "usually self-administered" are not covered by Medicare. However,
Medicare does pay for some drugs and biologicals that are furnished incident to
a physician's services. Currently, NEUPOGEN(R) is reimbursed by HCFA under
Medicare Part B. HCFA has established broad Medicare coverage policies and, in
some cases, interpretations of its policies. However, the Medicare program is
administered by local carriers (typically a private insurance organization that
contracts with HCFA) in each state, which is overseen by a medical director
under contract with HCFA. These carriers and medical directors have the
authority to interpret Medicare reimbursement coverage policies. The Company is
aware that medical directors in a few states have preliminarily considered that
NEUPOGEN(R) should not be eligible for reimbursement under Medicare Part B
principally because, in their opinions, it is "usually self-administered" when
delivered subcutaneously. Although to date no local carrier has adopted
guidelines or coverage policies that would exclude NEUPOGEN(R) from Medicare
Part B coverage, there can be no assurance that these or other carriers, or HCFA
itself, will not in the future adopt interpretations or guidelines under
Medicare Part B or otherwise, that could exclude or limit reimbursement for
NEUPOGEN(R). Any guidelines or policies that limit or eliminate reimbursement
for NEUPOGEN(R) could adversely affect NEUPOGEN(R) sales.
The Clinton administration has proposed a reduction in the basis upon which
Medicare reimburses outpatient prescription drugs from the current 95% of
average wholesale price ("AWP") to a proposed 83% of AWP. This proposal would
impact reimbursement of NEUPOGEN(R). The Company believes that this new
recommendation, if enacted, would primarily affect customers that use
NEUPOGEN(R) and it is difficult to predict its impact on Amgen.
21
<PAGE>
INFERGEN(R) (Interferon alfacon-1) was launched in October 1997 for the
treatment of chronic hepatitis C virus infection. There are other treatments,
including a new therapy launched in 1998, for this infection against which
INFERGEN(R) competes. The Company cannot predict the extent to which it will
penetrate this market. The Company is presently engaged in certain litigation
related to INFERGEN(R), as described in "Part I, Item 3. Legal Proceedings -
INFERGEN(R) litigation" in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998.
The Company anticipates the growth rate for total product sales in 1999 to
be in the mid-to-high teens. For 1999, Amgen expects earnings per share will be
between $1.80 and $1.85. Estimates of future product sales, operating expenses,
and earnings per share are necessarily speculative in nature and are difficult
to predict with accuracy.
Except for the historical information contained herein, the matters
discussed herein are by their nature forward-looking. Investors are cautioned
that forward-looking statements or projections made by the Company, including
those made in this document, are subject to risks and uncertainties that may
cause actual results to differ materially from those projected. Reference is
made in particular to forward-looking statements regarding product sales,
earnings per share and expenses. Amgen operates in a rapidly changing
environment that involves a number of risks, some of which are beyond the
Company's control. Future operating results and the Company's stock price may
be affected by a number of factors, including, without limitation: (i) the
results of preclinical and clinical trials; (ii) regulatory approvals of product
candidates, new indications and manufacturing facilities; (iii) reimbursement
for Amgen's products by governments and private payors; (iv) health care
guidelines and policies relating to Amgen's products; (v) intellectual property
matters (patents) and the results of litigation; (vi) competition; (vii)
fluctuations in operating results and (viii) rapid growth of the Company. These
factors and others are discussed herein and in the sections appearing in "Item
1. Business-Factors That May Affect Amgen" in the Company's Annual Report on
Form 10-K for the year ended December 31, 1998 which sections are incorporated
herein by reference and filed as on exhibit hereto.
Legal Matters
The Company is engaged in arbitration proceedings with one of its
licensees. For a discussion of these matters, see Note 6 to the Condensed
Consolidated Financial Statements.
22
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is engaged in arbitration proceedings with one of its
licensees. For a discussion of these matters, see Note 6 to the Condensed
Consolidated Financial Statements, "Contingencies". These matters and other
legal proceedings are also reported in the Company's Annual Report on Form 10-K
for the year ended December 31, 1998, with material developments since December
31, 1998 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 proceedings will not have a material adverse effect on the
annual financial statements of the Company.
Genentech litigation
On April 9, 1999, Genentech, Inc. and the Company appeared for a hearing
without written briefing in the United States District Court for the Northern
District of California, pertaining to the tentative ruling on claim construction
of specific terms recited in the `362, `619 and `013 patents. Discovery is
currently ongoing. No trial date has been set.
FoxMeyer Health Corporation
In the Delaware Bankruptcy Court, Avatex Corporation ("Avatex") moved
to revise the motion granted in part by that court which estopped Avatex from
pursuing three of the seven counts ("Counts 1-3") in the suit filed in the
District Court of Dallas County, Dallas, Texas by FoxMeyer Health Corporation
(the "FoxMeyer Lawsuit"). The Company and McKesson Corporation and the eleven
other "Manufacturer Defendants" (the "Defendants") filed objections to all of
the relief requested and cross-moved for an injunction of the FoxMeyer Lawsuit
until final determination by the Federal Bankruptcy Court in Delaware as to of
whether Avatex and the Chapter 7 Trustee for FoxMeyer Corporation and FoxMeyer
Drug Corporation are precluded from litigating the remaining counts of the
FoxMeyer Lawsuit. After engaging in limited discovery, the Defendants filed
another summary judgment motion in the Federal Bankruptcy Court in Delaware on
January 29, 1999, arguing that Avatex and the Chapter 7 Trustee are precluded
from asserting all counts of the FoxMeyer Lawsuit.
On January 7, 1999, the Federal Bankruptcy Court in Texas (the "Texas
Bankruptcy Court") entered an order: a) denying the Avatex motion which had
requested dismissal of Counts 1-3 of the FoxMeyer Lawsuit without prejudice; b)
denying stay pending the remand appeal sought by the Defendants and c) granting
a limited interim stay until February 8, 1999 to permit the Defendants to make
an orderly request for stay from the U.S. District Court judge hearing the
appeals. Avatex has cross appealed the dismissal with prejudice of Counts 1-3
by the Texas Bankruptcy Court. The U.S. District Court in Dallas has entered an
agreed order staying discovery until May 17, 1999. On April 13, 1999, the U.S.
District Court judge in Dallas stayed the
23
<PAGE>
remand until May 17, 1999, and indicated that he would rule on the remand and
venue transfer appeal by May 17, 1999.
The Defendants' renewed motion for summary judgment filed in the Federal
Bankruptcy Court in Delaware seeking an injunction against both Avatex and the
Chapter 7 Trustee and staying prosecution of all counts of the FoxMeyer Lawsuit
based upon preclusion has been briefed and orally argued. Additional discovery,
however, may occur prior to any ruling on the renewed summary judgment.
Securities litigation
The Company has obtained a stay of the California Superior Court for the
County of Ventura action pending resolution of the U.S. District Court for the
Central District of California action (the "federal action") and, on February 4,
1999, the Company filed a motion to dismiss the federal action which is
scheduled for hearing on May 24, 1999.
Johnson & Johnson arbitrations
The Company is engaged in arbitration proceedings with one of its
licensees. See Note 6 to the Condensed Consolidated Financial Statements,
"Contingencies--Johnson & Johnson arbitrations".
Item 6. Exhibits and Reports on Form 8-K
(a) Reference is made to the Index to Exhibits included herein.
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K during the three months
ended March 31, 1999. The report filed on February 1, 1999 reported under Item
5 that: (i) the Company's Board of Directors had declared a two-for-one split of
the Company's common stock effected in the form of a 100 percent stock dividend
on outstanding stock to stockholders of record on February 12, 1999 and (ii) the
Company was amending its registration statement No. 333-53929 to adjust the
number of shares being registered under such registration statement to reflect
such stock split and any future stock splits, stock dividends or similar
transactions. In addition, an exhibit relating to the amendment to the
Company's registration statement was filed under Item 7.
24
<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: 5/5/99 By:/s/Kathryn E. Falberg
- --------------- ----------------------------------
Kathryn E. Falberg
Senior Vice President, Finance
and Chief Financial Officer
Date: 5/5/99 By:/s/Marc M.P. de Garidel
- --------------- -------------------------------
Marc M.P. de Garidel
Vice President, Controller and
Chief Accounting Officer
25
<PAGE>
AMGEN INC.
INDEX TO EXHIBITS
Exhibit No. Description
3.1 Restated Certificate of Incorporation as amended. (17)
3.2 Amended and Restated Bylaws. (25)
4.1 Indenture dated January 1, 1992 between the Company and Citibank
N.A., as trustee. (8)
4.2 First Supplement to Indenture, dated February 26, 1997 between the
Company and Citibank N.A., as trustee. (14)
4.3 Officer's Certificate pursuant to Sections 2.1 and 2.3 of the
Indenture, as supplemented, establishing a series of securities "8-
1/8% Debentures due April 1, 2097." (16)
4.4 8-1/8% Debentures due April 1, 2097. (16)
4.5 Form of stock certificate for the common stock, par value $.0001 of
the Company. (17)
4.6 Officer's Certificate pursuant to Sections 2.1 and 2.3 of the
Indenture, dated as of January 1, 1992, as supplemented by the First
supplemental Indenture, dated as of February 26, 1997, each between
the Company and Citibank, N.A., as Trustee, establishing a series of
securities entitled "6.50% Notes Due December 1, 2007". (20)
4.7 6.50% Notes Due December 1, 2007 described in Exhibit 4.6. (20)
4.8 Corporate Commercial Paper - Master Note between and among Amgen
Inc., as Issuer, Cede & Co., as nominee of The Depository Trust
Company and Citibank, N.A. as Paying Agent. (23)
10.1 Company's Amended and Restated 1991 Equity Incentive Plan. (26)
10.2 Sixth Amendment to the Company's Amended and Restated Retirement and
Savings Plan as amended and restated April 1, 1996. (26)
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
26
<PAGE>
Corporation (with certain confidential information deleted
therefrom). (3)
10.7 Company's Amended and Restated Employee Stock Purchase Plan. (12)
10.8 Research, Development Technology Disclosure and License Agreement
PPO, dated January 20, 1986, by and between the Company and Kirin
Brewery Co., Ltd. (4)
10.9 Amendment Nos. 4 and 5, dated October 16, 1986 (effective July 1,
1986) and December 6, 1986 (effective July 1, 1986), respectively,
to the Shareholders Agreement of Kirin-Amgen, Inc. dated May 11,
1984 (with certain confidential information deleted therefrom). (5)
10.10 Assignment and License Agreement, dated October 16, 1986, between
the Company and Kirin-Amgen, Inc. (with certain confidential
information deleted therefrom). (5)
10.11 G-CSF European License Agreement, dated December 30, 1986, between
Kirin-Amgen, Inc. and the Company (with certain confidential
information deleted therefrom). (5)
10.12 Research and Development Technology Disclosure and License
Agreement: GM-CSF, dated March 31, 1987, between Kirin Brewery
Company, Limited and the Company (with certain confidential
information deleted therefrom). (5)
10.13 Company's Amended and Restated 1988 Stock Option Plan. (12)
10.14 Company's Amended and Restated Retirement and Savings Plan. (12)
10.15 Amendment, dated June 30, 1988, to Research, Development, Technology
Disclosure and License Agreement: GM-CSF dated March 31, 1987,
between Kirin Brewery Company, Limited and the Company. (6)
10.16 Agreement on G-CSF in Certain European Countries, dated January 1,
1989, between Amgen Inc. and F. Hoffmann-La Roche & Co. Limited
Company (with certain confidential information deleted therefrom).
(7)
10.17 Partnership Purchase Agreement, dated March 12, 1993, between the
Company, Amgen Clinical Partners, L.P., Amgen Development
Corporation, the Class A limited partners and the Class B limited
partner. (9)
10.18 Amgen Inc. Supplemental Retirement Plan (As Amended and Restated
Effective January 1, 1998). (23)
10.19 Promissory Note of Mr. Kevin W. Sharer, dated June 4, 1993. (10)
10.20 Amgen Performance Based Management Incentive Plan. (15)
10.21 Credit Agreement, dated as of May 28, 1998, among Amgen Inc., the
Borrowing Subsidiaries named therein, the Banks named therein,
Citibank, N.A., as Issuing Bank, and Citicorp USA, Inc., as
Administrative Agent. (24)
10.22 Promissory Note of Mr. George A. Vandeman, dated December 15, 1995.
(11)
10.23 Promissory Note of Mr. George A. Vandeman, dated December 15, 1995.
(11)
10.24 Promissory Note of Mr. Stan Benson, dated March 19, 1996. (11)
10.25 Amendment No. 1 to the Company's Amended and Restated Retirement and
Savings Plan. (12)
27
<PAGE>
10.26 Amendment Number 5 to the Company's Amended and Restated Retirement
and Savings Plan dated January 1, 1993. (15)
10.27 Amendment Number 2 to the Company's Amended and Restated Retirement
and Savings Plan dated April 1, 1996. (15)
10.28 Amgen Inc. Change of Control Severance Plan effective as of October
20, 1998. (26)
10.29 Preferred Share Rights Agreement, dated February 18, 1997, between
Amgen Inc. and American Stock Transfer and Trust Company, Rights
Agent. (13)
10.30 Agreement, dated May 30, 1995, between the Company and George A.
Vandeman. (15)
10.31 First Amendment, effective January 1, 1998, to the Company's Amended
and Restated Employee Stock Purchase Plan. (18)
10.32 Third Amendment, effective January 1, 1997, to the Company's Amended
and Restated Retirement and Savings Plan dated April 1, 1996. (18)
10.33 Heads of Agreement dated April 10, 1997, between the Company and
Kirin Amgen, Inc., on the one hand, and F. Hoffmann-La Roche Ltd, on
the other hand (with certain confidential information deleted
therefrom). (18)
10.34 Binding Term Sheet, dated August 20, 1997, between Guilford
Pharmaceuticals Inc. and GPI NIL Holdings, Inc., and Amgen Inc.
(with certain confidential information deleted therefrom). (19)
10.35 Promissory Note of Ms. Kathryn E. Falberg, dated April 7, 1995. (21)
10.36 Promissory Note of Mr. Edward F. Garnett, dated July 18, 1997. (21)
10.37 Fourth Amendment to the Company's Amended and Restated Retirement
and Savings Plan as amended and restated effective April 1, 1996.
(21)
10.38 Fifth Amendment to the Company's Amended and Restated Retirement and
Savings Plan as amended and restated effective April 1, 1996. (21)
10.39 Company's Amended and Restated 1987 Directors' Stock Option Plan.
(15)
10.40 Amended and Restated Agreement on G-CSF in the EU between Amgen Inc.
and F. Hoffmann-La Roche Ltd (with certain confidential information
deleted therefrom). (23)
10.41 Collaboration and License Agreement, dated December 15, 1997,
between the Company, GPI NIL Holdings, Inc. and Guilford
Pharmaceuticals Inc. (with certain confidential information deleted
therefrom). (22)
27* Financial Data Schedule.
99* Sections appearing under the heading "Business - Factors That May
Affect Amgen" in the Company's Annual Report on Form 10-K for the
year ended December 31, 1998.
- ----------------
* Filed herewith.
(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.
28
<PAGE>
(2) Filed as an exhibit to Quarterly Report on Form 10-Q for the quarter ended
September 30, 1985 on November 14, 1985 and incorporated herein by
reference.
(3) Filed as an exhibit to Quarterly Report on Form 10-Q for the quarter ended
December 31, 1985 on February 3, 1986 and incorporated herein by reference.
(4) Filed as an exhibit to Amendment No. 1 to Form S-1 Registration Statement
(Registration No. 33-3069) on March 11, 1986 and incorporated herein by
reference.
(5) Filed as an exhibit to the Form 10-K Annual Report for the year ended March
31, 1987 on May 18, 1987 and incorporated herein by reference.
(6) Filed as an exhibit to Form 8 amending the Quarterly Report on Form 10-Q
for the quarter ended June 30, 1988 on August 25, 1988 and incorporated
herein by reference.
(7) Filed as an exhibit to the Form 8 dated November 8, 1989, amending the
Annual Report on Form 10-K for the year ended March 31, 1989 on June 28,
1989 and incorporated herein by reference.
(8) Filed as an exhibit to Form S-3 Registration Statement dated December 19,
1991 and incorporated herein by reference.
(9) Filed as an exhibit to the Form 8-A dated March 31, 1993 and incorporated
herein by reference.
(10) Filed as an exhibit to the Form 10-Q for the quarter ended September 30,
1993 on November 12, 1993 and incorporated herein by reference.
(11) Filed as an exhibit to the Annual Report on Form 10-K for the year ended
December 31, 1995 on March 29, 1996 and incorporated herein by reference.
(12) Filed as an exhibit to the Form 10-Q for the quarter ended September 30,
1996 on November 5, 1996 and incorporated herein by reference.
(13) Filed as an exhibit to the Form 8-K Current Report dated February 18, 1997
on February 28, 1997 and incorporated herein by reference.
(14) Filed as an exhibit to the Form 8-K Current Report dated March 14, 1997 on
March 14, 1997 and incorporated herein by reference.
(15) Filed as an exhibit to the Annual Report on Form 10-K for the year ended
December 31, 1996 on March 24, 1997 and incorporated herein by reference.
(16) Filed as an exhibit to the Form 8-K Current Report dated April 8, 1997 on
April 8, 1997 and incorporated herein by reference.
(17) Filed as an exhibit to the Form 10-Q for the quarter ended March 31, 1997
on May 13, 1997 and incorporated herein by reference.
(18) Filed as an exhibit to the Form 10-Q for the quarter ended June 30, 1997 on
August 12, 1997 and incorporated herein by reference.
(19) Filed as exhibit 10.47 to the Guilford Pharmaceuticals Inc. Form 8-K
Current Report dated August 20, 1997 on September 4, 1997 and incorporated
herein by reference.
(20) Filed as an exhibit to the Form 8-K Current Report dated and filed on
December 5, 1997 and incorporated herein by reference.
29
<PAGE>
(21) Filed as an exhibit to the Annual Report on Form 10-K for the year ended
December 31, 1997 on March 24, 1998 and incorporated herein by reference.
(22) Filed as Exhibit 10.40 to the Guilford Pharmaceuticals Inc. Form 10-K for
the year ended December 31, 1997 on March 27, 1998 and incorporated herein
by reference.
(23) Filed as an exhibit to the Form 10-Q for the quarter ended March 31, 1998
on May 13, 1998 and incorporated herein by reference.
(24) 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.
(25) Filed as an exhibit to the Form 10-Q for the quarter ended September 30,
1998 on November 16, 1998 and incorporated herein by reference.
(26) 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.
30
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S QUARTERLY
REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 114
<SECURITIES> 1,204
<RECEIVABLES> 390
<ALLOWANCES> 21
<INVENTORY> 117
<CURRENT-ASSETS> 1,973
<PP&E> 2,127
<DEPRECIATION> 645
<TOTAL-ASSETS> 3,818
<CURRENT-LIABILITIES> 852
<BONDS> 223
0
0
<COMMON> 0
<OTHER-SE> 2,743
<TOTAL-LIABILITY-AND-EQUITY> 3,818
<SALES> 688
<TOTAL-REVENUES> 746
<CGS> 92
<TOTAL-COSTS> 92
<OTHER-EXPENSES> 188<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2
<INCOME-PRETAX> 346
<INCOME-TAX> 99
<INCOME-CONTINUING> 247
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 247
<EPS-PRIMARY> 0.48<F2>
<EPS-DILUTED> 0.46
<FN>
<F1>ITEM CONSISTS OF RESEARCH AND DEVELOPMENT EXPENSES.
<F2>"EPS-PRIMARY" DENOTES BASIC EPS.
</FN>
</TABLE>
<PAGE>
EXHIBIT 99
AMGEN INC.
Factors That May Affect Amgen
Amgen operates in a rapidly changing environment that involves a number of
risks, some of which are beyond our control. The following discussion
highlights some of these risks and others are discussed elsewhere herein.
Product development
We intend to continue an aggressive product 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 was not effective in treating a specified condition or
illness
- - the product candidate had harmful side effects on humans
- - the necessary regulatory bodies (such as the FDA) did not approve our product
candidate for an indicated use
- - the product candidate was not economical for us to manufacture it
- - other companies or people may have proprietary rights to our product
candidate (e.g. 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
- - the product candidate did not demonstrate acceptable clinical trial results
even though it demonstrated positive preclinical trial results
For example, in 1997, we announced the failure of BDNF (for the treatment
of ALS by subcutaneous injection administration route), because the product
candidate, as administered, did not produce acceptable clinical results in a
specific indication after a phase 3 trial, even though BDNF had progressed
through preclinical and earlier clinical trials. Of course, there may be other
factors that prevent us from marketing a product. We cannot guarantee we will
be able to produce commercially successful products. Further, clinical trial
results are frequently susceptible to varying interpretations by scientists,
medical personnel, regulatory personnel, statisticians and others which may
delay, limit or prevent further clinical development or regulatory approvals of
a product candidate. Also, the length of time that it takes for us to complete
clinical trials and obtain regulatory approval for product marketing has in the
past varied by product and by the indicated use of a product. We expect that
this will likely be the case with future product candidates and we cannot
predict the length of time to complete necessary clinical trials and obtain
regulatory approval. See "- Regulatory matters."
1
<PAGE>
Regulatory matters
Our research, preclinical testing, clinical trials, facilities,
manufacturing, pricing and sales and marketing are subject to extensive
regulation by numerous state and federal governmental authorities in the U.S.,
such as the FDA and the Health Care Financing Administration ("HCFA"), as well
as by foreign countries and the European Union (the "EU"). Currently, we are
required in the U.S. and in foreign countries to obtain approval from those
countries' regulatory authorities before we can market and sell our products in
those countries. The success of our current and future products will depend in
part upon obtaining and maintaining regulatory approval to market products in
approved indications in the U.S. and foreign markets. In our experience, the
regulatory approval process is a lengthy and complex process, both in the U.S.
and in foreign countries, including countries in the EU. Even if we obtain
regulatory approval, both our manufacturing processes and our marketed products
are subject to continued review. Later discovery of previously unknown problems
with our products or manufacturing processes may result in restrictions on such
product or manufacturing processes, including withdrawal of the products from
the market. Our failure to obtain necessary approvals, or the restriction,
suspension or revocation of any approvals, or our failure to comply with
regulatory requirements could prevent us from manufacturing or selling our
products which could have a material adverse effect on us and our results of
operations.
Reimbursement; Third party payors
In both domestic and foreign markets, sales of our products are dependent,
in part, on the availability of reimbursement from third party payors such as
state and federal governments (for example, under Medicare and Medicaid programs
in the U.S.) and private insurance plans. In certain foreign markets, the
pricing and profitability of our products generally are subject to government
controls. In the U.S., there have been, and we expect there will continue to
be, a number of state and federal proposals that limit the amount that state or
federal governments will pay to reimburse the cost of drugs. In addition, we
believe the increasing emphasis on managed care in the U.S. has and will
continue to put pressure on the price and usage of our products, which may
impact product sales. Further, when a new therapeutic is approved, the
reimbursement status and rate of such a product is uncertain. In addition,
current reimbursement policies for existing products may change at any time.
Changes in reimbursement or our failure to obtain reimbursement for our products
may reduce the demand for, or the price of, our products, which could result in
lower product sales or revenues which could have a material adverse effect on us
and our results of operations. For example, in the U.S. the use of EPOGEN(R) in
connection with treatment for end stage renal disease is funded primarily by the
U.S. federal government. Therefore, as in the past, EPOGEN(R) sales could be
affected by future changes in reimbursement rates or the basis for reimbursement
by the federal government. For example, in early 1997, HCFA instituted a
reimbursement change for EPOGEN(R) which adversely affected the Company's
EPOGEN(R) sales. See "Item 7. Management's Discussion and Analysis of
Financial
2
<PAGE>
Condition and Results of Operations - Results of Operations - Product
sales - EPOGEN(R) (Epoetin alfa)."
Guidelines
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 may also publish, from time to time, guidelines or
recommendations to the health care and patient communities. These organizations
may make recommendations that affect a patient's usage of certain therapies,
drugs or procedures, including our products. Recommendations of government
agencies or these other groups/organizations may relate to such matters as
usage, dosage, route of administration and use of concomitant therapies.
Recommendations or guidelines that are followed by patients and health care
providers could result in, among other things, decreased use of our products
which could have a material adverse effect on our results of operations. In
addition, the perception by the investment community or stockholders that such
recommendations or guidelines will be followed could adversely affect prevailing
market prices for our common stock.
Intellectual property and legal matters
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. Accordingly, the patents and patent
applications relating to our products and technologies may be challenged,
invalidated or circumvented by third parties and might not protect us against
competitors with similar products or technology. Patent disputes are frequent
and can preclude commercialization of products. We are currently, and in the
future may be, involved in patent litigation. The results of such litigation
could subject us to competition and/or significant liabilities, could require us
to enter into third party licenses or could cause us 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.
The Company is currently involved in arbitration proceedings with Ortho
Pharmaceutical Corporation (which has assigned its rights under the Product
License Agreement to Ortho Biotech, Inc.), 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 U.S. for all human uses except
dialysis. See Note 4 to the Consolidated Financial Statements, "Contingencies -
Johnson & Johnson arbitrations".
Competition
We operate in a highly competitive environment. Our principal competitors
are pharmaceutical and biotechnology companies. Some of our competitors, mainly
large pharmaceutical corporations, have greater clinical, research, regulatory
and marketing resources than
3
<PAGE>
we do. In addition, some of our competitors may
have technical or competitive advantages over us for the development of
technologies and processes and the acquisition of technology from academic
institutions, government agencies and other private and public research
organizations. We cannot guarantee that we will be able to produce or acquire
rights to products that have commercial potential. Even if we achieve
successful product commercialization, we cannot guarantee that one or more of
our competitors will not achieve product commercialization earlier than we do,
obtain patent protection that dominates or adversely affects our activities, or
have significantly greater marketing capabilities.
Fluctuations in operating results
Our operating results may fluctuate from period to period for a number of
reasons. In budgeting our operating expenses, some of which are fixed in the
short term, we assume that revenues will continue to grow. Accordingly, even a
relatively small revenue shortfall may cause a period's results to be below our
expectations. A revenue shortfall could arise from any number of factors, such
as:
- - lower than expected demand for our products
- - changes in the government's or private payor's reimbursement policies for our
products
- - changes in wholesaler buying patterns
- - increased competition from new or existing products
- - fluctuations in foreign currency exchange rates
- - changes in our product pricing strategies
Of course, there may be other factors that affect the Company's revenues in
any given period.
Rapid growth
We have an aggressive growth plan that includes substantial and increasing
investments in research and development and facilities. Our plan has a number
of risks, such as:
- - the need to generate higher revenues to cover a higher level of operating
expenses
- - the need to manage complexities associated with a larger and faster growing
organization
- - the need to accurately anticipate demand for the products we manufacture and
maintain adequate manufacturing capacity
Of course, there may be other risks and we cannot guarantee that we will be
able to successfully manage these or other risks.
Stock price volatility
Our stock price, like that of other biotechnology companies, is extremely
volatile. Our stock price may be affected by, among other things, clinical
trial results and other product-development announcements by us or our
competitors, regulatory matters, announcements in the scientific and research
community, intellectual property and legal matters, changes in reimbursement
policies or
4
<PAGE>
medical practices or broader industry and market trends unrelated to
our performance. In addition, if our revenues or earnings in any period fail to
meet the investment community's expectations, there could be an immediate
adverse impact on our stock price.
5
