The biotechnology company Amgen was founded in 1980 as AMGen. With approximately 20,000 employees, Amgen is one of the world's largest biotechnology companies with annual sales of approximately $ 24 billion in 2018.
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 September 30, 1995 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 September 30, 1995, the registrant had 265,998,635(A) shares of Common Stock, $.0001 par value, outstanding. - --------------- (A)All share numbers have been adjusted retroactively to reflect a two-for-one split of the common stock effected in the form of a 100 percent stock dividend distributed on August 15, 1995 to stockholders of record on August 1, 1995.
AMGEN INC. INDEX Page No. PART I FINANCIAL INFORMATION Item 1. Financial Statements.......................3 Condensed Consolidated Statements of Operations - three and nine months ended September 30, 1995 and 1994 ...............4 Condensed Consolidated Balance Sheets - September 30, 1995 and December 31, 1994 ........5 Condensed Consolidated Statements of Cash Flows - nine months ended September 30, 1995 and 1994 ...........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 .........................18 Item 6.Exhibits and Reports on Form 8-K ..........19 Signatures........................................20 Index to Exhibits.................................21
PART I - FINANCIAL INFORMATION Item 1. Financial Statements The information in this report for the three and nine months ended September 30, 1995 and 1994, 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 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 fiscal year ended December 31, 1994. Interim results are not necessarily indicative of results for the full fiscal year.
AMGEN INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In millions, except per share data) (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 1995 1994 1995 1994 -------- -------- -------- -------- Revenues: Product sales .............. $460.6 $401.7 $1,334.4 $1,136.0 Corporate partner revenues . 23.8 16.9 65.1 49.7 Royalty income ............. 8.9 7.7 26.9 19.3 ------ ------ -------- -------- Total revenues ............ 493.3 426.3 1,426.4 1,205.0 ------ ------ -------- -------- Operating expenses: Cost of sales .............. 64.1 59.1 207.1 176.8 Research and development ... 105.5 81.7 327.7 235.6 Marketing and selling ...... 69.1 61.9 197.8 174.7 General and administrative . 37.6 31.9 106.8 90.4 Loss of affiliates, net .... 15.2 9.8 41.2 25.6 ------ ------ -------- -------- Total operating expenses .. 291.5 244.4 880.6 703.1 ------ ------ -------- -------- Operating Income............. 201.8 181.9 545.8 501.9 ------ ------ -------- -------- Other income (expense): Interest and other income .. 15.4 6.8 46.7 16.0 Interest expense, net ...... (3.6) (3.3) (11.2) (8.7) ------ ------ -------- -------- Total other income (expense) ................ 11.8 3.5 35.5 7.3 ------ ------ -------- -------- Income before income taxes... 213.6 185.4 581.3 509.2 Provision for income taxes... 67.8 71.4 189.2 194.3 ------ ------ -------- -------- Net income................... $145.8 $114.0 $ 392.1 $ 314.9 ====== ====== ======== ======== Earnings per share: Primary .................... $0.52 $0.41 $1.40 $1.12 Fully diluted .............. $0.51 $0.41 $1.38 $1.12 Shares used in calculation of: Primary earnings per share . 281.8 278.5 280.2 280.0 Fully diluted earnings per share ..................... 283.2 279.1 283.8 281.9 See accompanying notes.
AMGEN INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In millions, except per share data) (Unaudited) September 30, December 31, 1995 1994 ----------- ----------- ASSETS Current assets: Cash and cash equivalents ................ $ 145.0 $ 211.3 Marketable securities .................... 846.7 485.4 Trade receivables, net ................... 205.3 194.7 Inventories .............................. 85.8 98.0 Deferred tax assets, net ................. 70.2 70.2 Other current assets ..................... 67.0 56.0 -------- -------- Total current assets ................... 1,420.0 1,115.6 Property, plant and equipment at cost, net 707.9 665.3 Investments in affiliated companies....... 76.4 82.3 Other assets.............................. 143.9 130.9 -------- -------- $2,348.2 $1,994.1 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable ......................... $ 47.2 $ 30.5 Commercial paper ......................... 99.5 99.7 Other accrued liabilities ................ 449.5 406.2 -------- -------- Total current liabilities .............. 596.2 536.4 Long-term debt............................ 177.2 183.4 Contingencies Stockholders' equity: Common stock, $.0001 par value; 750.0 shares authorized; outstanding - 266.0 shares in 1995 and 264.7 shares in 1994 . - - Additional paid-in capital ............... 827.6 719.3 Retained earnings ........................ 747.2 555.0 -------- -------- Total stockholders' equity ............. 1,574.8 1,274.3 -------- -------- $2,348.2 $1,994.1 ======== ======== See accompanying notes.
AMGEN INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) (Unaudited) Nine Months Ended September 30, 1995 1994 ---------- ---------- Cash flows from operating activities: Net income .......................... $ 392.1 $ 314.9 Depreciation and amortization ....... 64.3 57.9 Deferred income taxes ............... - 3.0 Loss of affiliates, net ............. 41.2 25.6 Cash provided by (used in): Trade receivables, net ............ (10.6) (21.8) Inventories ....................... 12.2 (12.5) Other current assets .............. (11.0) (3.8) Accounts payable .................. 16.7 (1.2) Accrued liabilities ............... 43.3 (14.4) --------- --------- Net cash provided by operating activities ...................... 548.2 347.7 --------- --------- Cash flows from investing activities: Purchases of property, plant and equipment ......................... (106.8) (93.7) Proceeds from maturities of marketable securities ............. 79.8 82.7 Proceeds from sales of marketable securities ........................ 894.1 1,174.9 Purchases of marketable securities .. (1,335.2) (1,115.0) Increase in investments in affiliated companies .............. (0.4) (18.8) Increase in other assets ............ (13.0) (9.6) --------- --------- Net cash (used in) provided by investing activities ............ $ (481.5) $ 20.5 --------- --------- See accompanying notes. (Continued on next page)
AMGEN INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (In millions) (Unaudited) Nine Months Ended September 30, 1995 1994 ---------- ---------- Cash flows from financing activities: Decrease in commercial paper ........ $ (0.2) $ (10.2) Proceeds from issuance of long-term debt .............................. - 12.5 Repayment of long-term debt ......... (6.2) (9.3) Net proceeds from issuance of common stock upon the exercise of stock options ........................... 84.6 30.7 Tax benefit related to stock options 23.6 14.5 Net proceeds from issuance of common stock upon the exercise of warrants - 15.3 Repurchases of common stock ......... (199.9) (226.0) Other ............................... (34.9) (22.7) --------- --------- Net cash used in financing activities ...................... (133.0) (195.2) --------- --------- (Decrease) increase in cash and cash equivalents ......................... (66.3) 173.0 Cash and cash equivalents at beginning of period ................. 211.3 128.5 --------- --------- Cash and cash equivalents at end of period .............................. $ 145.0 $ 301.5 ========= ========= See accompanying notes.
AMGEN INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 1995 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 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% owned and/or 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): September 30, December 31, 1995 1994 ------ ------ Raw materials ......... $10.5 $11.0 Work in process ....... 43.8 54.0 Finished goods ........ 31.5 33.0 ----- ----- $85.8 $98.0 ===== ===== Product sales Product sales consist of two products, EPOGEN(R) (Epoetin alfa) and NEUPOGEN(R) (Filgrastim). Quarterly NEUPOGEN(R) sales volume in the United States is influenced by a number of factors including underlying demand, seasonality of cancer chemotherapy administration and wholesaler inventory management practices. Wholesaler inventory reductions tend
to reduce domestic NEUPOGEN(R) sales in the first quarter each year. NEUPOGEN(R) sales in the European Union ("EU") have experienced a decline in the third quarter in prior years due to seasonality. As a result of an agreement between Amgen and Ortho Pharmaceutical Corporation, a subsidiary of Johnson & Johnson ("Johnson & Johnson") covering the U.S. market for the Company's Epoetin alfa product, Amgen does not recognize product sales it makes into the contractual market of Johnson & Johnson and does recognize the product sales made by Johnson & Johnson into Amgen's contractual 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). 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 include outstanding options under the Company's stock option plans and warrants to purchase shares of the Company's common stock. The warrants expired on June 30, 1994. Basis of presentation The financial information for the three and nine months ended September 30, 1995 and 1994 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 As of September 30, 1995, $99.5 million of commercial paper was outstanding. These borrowings generally had maturities of three months or less and had effective interest rates averaging 5.9%. In June 1995, the Company replaced its existing unsecured credit facility with a new unsecured credit facility (the "credit facility"). The credit facility includes a commitment expiring on June 23, 2000 for up to $150.0 million of borrowings under a revolving line of credit (the "revolving line commitment") and a commitment expiring on
December 5, 1997 for up to an additional $73.0 million of letters of credit (the "letters of credit commitment"). As of September 30, 1995, $150.0 million was available under the revolving line commitment for borrowing and to support the Company's commercial paper program. Also, as of September 30, 1995, letters of credit totaling $72.4 million were issued and outstanding to secure the Company's promissory notes and accrued interest thereon. Borrowings under the revolving line commitment bear interest at various rates which are a function of, at the Company's option, either the prime rate of a major bank, the federal funds rate or a Eurodollar base rate. Under the terms of the credit facility, the Company is required to meet a minimum interest coverage ratio and maintain a minimum level of tangible net worth. In addition, the credit facility contains limitations on investments, liens and sale/leaseback transactions. Long-term debt consists of the following (in millions): September 30, December 31, 1995 1994 ------ ------ Medium Term Notes .......... $109.0 $113.0 Promissory notes ........... 68.2 68.2 Other obligations .......... - 2.2 ------ ------ $177.2 $183.4 ====== ====== The Company has registered $200.0 million of unsecured medium term debt securities ("Medium Term Notes") of which $109.0 million were outstanding at September 30, 1995. These Medium Term Notes bear interest at fixed rates averaging 5.8% and mature in approximately two to eight years. 3. Income taxes The provision for income taxes consists of the following (in millions): Three Months Ended Nine Months Ended September 30, September 30, 1995 1994 1995 1994 ----- ----- ------ ------ Federal ............ $63.6 $60.9 $173.8 $166.8 State .............. 4.2 10.5 15.4 27.5 ----- ----- ------ ------ Total ............ $67.8 $71.4 $189.2 $194.3 ===== ===== ====== ====== The decrease in the current year tax rate is due to tax benefits from the sale of products manufactured in the Puerto Rico fill-and- finish facility which began in the first quarter of 1995.
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. ("JAMS") 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 accounting 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 contractual market. The Company has established and is employing an accounting methodology to assign the proceeds of sales of EPOGEN(R) and PROCRIT(R) in Amgen's and Johnson & Johnson's respective contractual markets. Johnson & Johnson has disputed this methodology and is proposing an alternative methodology for adoption by the arbitrator. 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 accounting methodology currently employed by the Company. As a result of the arbitration, it is possible that the Company would recognize a different level of EPOGENR sales than are currently being recognized. As a result of 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. Due to the uncertainties of any arbitrated result, the Company has established net liabilities that exceed the amounts paid to Johnson & Johnson. A trial date is scheduled for March 1, 1996 regarding the accounting methodologies and compensation for sales by Johnson & Johnson into Amgen's contractual market and sales by Amgen into Johnson & Johnson's contractual market. Discovery as to these issues is in progress. The Company also filed a demand in the arbitration seeking termination of the License Agreement and damages. A hearing on this demand will be scheduled following the adjudication of the accounting methodologies for Epoetin alfa sales. On October 30, 1995 Johnson & Johnson filed a complaint in the United States District Court for the District of Delaware seeking to enjoin the arbitrator from hearing the termination claims and a judgment declaring that JAMS does not have
jurisdiction over the claims. The Company is unable to predict at this time the outcome of this demand 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 JAMS 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 litigation Acquisition litigation The Company and its wholly owned subsidiary, Amgen Boulder Inc. (formerly Synergen, Inc.), have been named as defendants in several lawsuits filed in connection with the Company's December 1994 acquisition of Synergen (the ``Acquisition''). One suit, brought by plaintiffs seeking to represent a class of Synergen warrant holders who claim to have been deprived of the benefit of their warrants, includes a request for an injunction, declaratory relief and general damages in the sum of $34.3 million and also names Amgen Boulder Development Corporation as a defendant. The balance of the suits have been brought by plaintiffs who seek to represent a class of stockholders of Synergen common stock. These plaintiffs seek an unspecified amount of compensatory damages, an order rescinding the Acquisition and related equitable relief based upon allegations that the defendants breached their fiduciary duties by failing to maximize stockholder value and defrauded the plaintiffs by omitting to disclose allegedly material information concerning Synergen's future prospects. ANTRIL(TM) litigation Several lawsuits have been filed against Synergen alleging misrepresentations in connection with its 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 Synergen is affiliated, seeks rescission of certain payments made to one of the defendants (or unspecified damages not less than $50.0 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. Capital stock During the nine months ended September 30, 1995, the Company acquired 5.6 million shares of its common stock at a total cost of $199.9 million under its common stock repurchase program. At September 30, 1995, $131.3 million of the amount approved by the Board of Directors remained available for repurchase through December 31, 1995. In July 1995, the Board of Directors approved a two-for-one split of the Company's common stock effected in the form of a 100 percent stock dividend. The dividend was distributed on August 15, 1995, to stockholders of record on August 1, 1995. Accordingly, the condensed consolidated financial statements and the accompanying notes have been retroactively adjusted to give recognition to this stock split. 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 nine months ended September 30, 1995, operations provided $548.2 million of cash compared with $347.7 million during the same period last year. The Company had cash, cash equivalents and marketable securities of $991.7 million at September 30, 1995, compared with $696.7 million at December 31, 1994. Capital expenditures totaled $106.8 million for the nine months ended September 30, 1995, compared with $93.7 million for the same period a year ago. Over the next few years, the Company expects to spend approximately $150.0 million to $300.0 million per year on capital projects to expand the Company's global operations. The Company receives cash from the exercise of employee stock options. During the nine months ended September 30, 1995, stock options and their related tax benefits provided $108.2 million of cash compared with $45.2 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 fluctuations in the market value of the Company's stock relative to the exercise price of such options, among other factors.
The Company has a common stock repurchase program to offset the dilutive effect of its employee benefit stock option and stock purchase plans. Since its inception in 1992 through September 30, 1995, the Company has repurchased $793.7 million of its common stock and is authorized to purchase up to an additional $131.3 million through December 31, 1995. During the nine months ended September 30, 1995, the Company purchased 5.6 million shares of common stock at a cost of $199.9 million compared with 10.2 million shares purchased at a cost of $226.0 million during the same period last year. To provide for financial flexibility and increased liquidity, the Company has established several sources of debt financing. The Company has a shelf registration statement with the Securities and Exchange Commission under which it could issue up to $200.0 million of Medium Term Notes. At September 30, 1995, $109.0 million of Medium Term Notes were outstanding which mature in approximately two to eight years. The Company has a commercial paper program which provides for short-term borrowings up to an aggregate face amount of $200.0 million. At September 30, 1995, $99.5 million of commercial paper was outstanding, generally with maturities of three months or less. The Company also has a $150.0 million revolving line of credit, principally to support the Company's commercial paper program. No borrowings on this line of credit were outstanding at September 30, 1995. 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 Company's fixed income investments are subject to the risk of market interest rate fluctuations, and all of 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, partially offset by costs incurred in Europe. 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 September 30, 1995, outstanding option and forward contracts totaled $25.7 million and $63.2 million, respectively. The Company believes that existing funds, cash generated from operations, and existing sources of debt financing will be adequate to satisfy its working capital and capital expenditure requirements and to support its common 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 14.7% and 17.5% for the three and nine months ended September 30, 1995, respectively, compared with the same periods last year. NEUPOGEN(R) (Filgrastim) The Company's worldwide NEUPOGEN(R) sales were $230.3 million and $689.6 million for the three and nine months ended September 30, 1995, respectively. These amounts represent increases of 7.3% and 13.3%, respectively, over the same periods last year. Domestic sales of NEUPOGEN(R) were $163.7 million and $486.8 million for the three and nine months ended September 30, 1995, respectively. These amounts represent increases of $3.6 million and $36.3 million, or 2.2% and 8.1%, respectively, over the same periods last year. These increases are primarily due to increased usage of NEUPOGEN(R) and to price increases. Current quarter results were influenced by accelerated wholesaler purchasing just before the extended July 4 holiday period, which created artificially high inventory levels at the end of the second quarter, suppressing the increase in third quarter sales of NEUPOGEN(R). Current quarter results also reflect the ongoing and intensifying cost reduction pressure in the health care marketplace, including the growing influence of managed care organizations and the use of guidelines in patient care. This pressure has contributed to the slowing of growth in domestic NEUPOGEN(R) usage over the past several years and is expected to continue to influence such growth for the forseeable future. International sales of NEUPOGEN(R), primarily in Europe, were $66.6 million and $202.8 million for the three and nine months ended September 30, 1995, respectively. These amounts represent increases of $12.0 million and $44.8 million, or 22.0% and 28.4%, respectively, over the same periods last year. Three factors account for these increases: (1) the inclusion of sales from three additional countries as the result of Austria, Sweden, and Finland joining the EU on January 1, 1995, (2) increased market penetration, and (3) the favorable effects of strengthened foreign currencies. Prior to the entry of these countries into the EU, F. Hoffmann La Roche paid the Company royalties on sales in these countries under a license agreement. The Company's overall share of the colony-stimulating factor market in the EU has decreased slightly 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, seasonality of cancer chemotherapy administration and wholesaler inventory management practices. Wholesaler inventory reductions tend to reduce domestic NEUPOGEN(R) sales in the first quarter each year. In prior years, NEUPOGEN(R) sales in the EU have experienced a decline to varying degrees in the third quarter due to seasonality. EPOGEN(R) (Epoetin alfa) EPOGEN(R) sales were $230.3 million and $644.8 million for the three and nine months ended September 30, 1995, respectively. These amounts represent increases of $43.3 million or 23.2% and $117.3 million or 22.2% over the same periods last year. These increases were primarily due to an increase in the U.S. dialysis patient population, the administration of higher doses of EPOGEN(R) per patient, and, to a lesser extent, increased penetration of the dialysis market. Cost of sales Cost of sales as a percentage of product sales was 13.9% and 15.5% for the three and nine months ended September 30, 1995, respectively, compared with 14.7% and 15.6% for the same periods last year. Cost of sales as a percentage of product sales declined slightly in the current quarter as benefits of the Puerto Rico fill- and-finish facility were realized. The fourth quarter margin is expected to be similar to the third quarter margin. In 1996, cost of sales as a percentage of product sales is expected to range from 14% to 16%. Research and development Research and development expenses increased $23.8 million or 29.1% and $92.1 million or 39.1% for the three and nine months ended September 30, 1995, respectively, compared with the same periods last year. These increases are primarily due to an expansion of the Company's internal research and development staff, partially as a result of the acquisition of Synergen in December 1994. In addition, the current year nine month period includes a $20.0 million signing payment made in the first quarter to The Rockefeller University for an exclusive license to certain technologies. Annual research and development expenses in 1996 are expected to increase at an annual rate exceeding the anticipated 1996 product sales growth rate. Marketing and selling Marketing and selling expenses increased $7.2 million or 11.6% and $23.1 million or 13.2%, for the three and nine months ended September 30, 1995, respectively, compared with the same periods last year. These increases primarily reflect 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 1996 annual growth in product sales. General and administrative General and administrative expenses increased $5.7 million or 17.9% and $16.4 million or 18.1%, for the three and nine months ended September 30, 1995, respectively, compared with the same periods last year. These increases are primarily due to 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 1996 annual growth in product sales. Interest and other income Interest and other income increased $8.6 million or 126.5% and $30.7 million or 191.9% during the three and nine months ended September 30, 1995, respectively, compared with the same periods last year. These increases are primarily due to: (1) higher current year cash balances, (2) capital gains realized in the Company's investment portfolio during the current year periods while capital losses were incurred in the prior year periods, (3) higher interest rates earned by the Company's investment portfolio during the current year periods, and (4) gains on foreign currency transactions. Interest and other income is expected to fluctuate from period to period primarily due to changes in interest rates and cash balances. Income taxes The Company's effective tax rate for the three and nine months ended September 30, 1995 was 31.7% and 32.5% compared to 38.5% and 38.2%, respectively, for the same periods last year. These decreases in the tax rate were due to tax benefits from the sale of products manufactured in the Puerto Rico fill-and-finish facility which began in the first quarter of 1995. These tax benefits are expected to result in an annualized effective tax rate of 31-33% in 1995. Financial Outlook Worldwide NEUPOGEN(R) sales for 1995 are expected to grow at a double digit rate but lower than the 1994 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, which are intensifying because of managed care and guidelines. In addition, international NEUPOGEN(R) sales will continue to be subject to changes in foreign currency exchange rates and increased competition. EPOGEN(R) sales for 1995 are anticipated to grow at an annual rate of more than 20%. The Company anticipates that increases in both the U.S. dialysis patient population and dosing will continue to drive EPOGEN(R) sales. EPOGEN(R) sales may also be affected by
future changes in reimbursement rates or the basis for reimbursement by the federal government. The Company expects double digit earnings growth in 1995 primarily as a result of the anticipated increases in product sales, increases realized in interest and other income, and the decrease in the 1995 tax rate. The Company currently 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. 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. 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 - "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, 1994, with material developments since that report described below except to the extent otherwise reported in the Company's Form 10-Qs for the periods ended March 31, 1995 and June 30, 1995. 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. Synergen litigation Acquisition litigation In Livergood v. Synergen, Inc., et al., Weld, et al. v. Amgen Inc., et al., and Reineke v. Synergen, Inc., et al., purported class action suits previously filed on behalf of former Synergen stockholders challenging the acquisition price, all three suits were consolidated in United States District Court, County of Boulder, State of Colorado, and the court has stayed the proceedings pending the outcome of the Stanley, et al. v. Soll, et al. suit involving similar claims previously filed in the Delaware Chancery Court. In Glick v. Synergen, Inc., et al., a lawsuit previously brought by a class of Synergen warrant holders who claim to have been deprived of the benefit of their warrants, the court has dismissed the third amended complaint but granted leave to amend the complaint. The
plaintiffs have amended the complaint to seek declaratory relief and an injunction. ANTRIL(TM) litigation In Temple, et al. v. Synergen, Inc., et al., a suit previously filed in the District Court for the City and County of Denver, State of Colorado, alleging misrepresentations in connection with Synergen's research and development of ANTRIL(TM) for the treatment of sepsis, the court has stayed the proceedings pending an appeal filed by the plaintiffs in the United States District Court for the Tenth Circuit. The appeal seeks to reverse a Federal court ruling which denied the plaintiffs' exclusion from a prior class action settlement. If the Tenth Circuit affirms the ruling, the plaintiffs will be foreclosed from proceeding in the above mentioned state court action. Erythropoietin patent litigation This lawsuit was terminated on October 2, 1995 when the United States Supreme Court denied Johnson & Johnson's petition for certiorari which sought review of an April 5, 1995 decision by the United States Court of Appeals for the Federal Circuit. 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 report on Form 8-K dated August 31, 1995 reporting a demand filed in an arbitration proceeding with Johnson & Johnson seeking: (1) termination of the product license agreement between the Company and Johnson & Johnson, (2) an accounting of Johnson & Johnson's spillover sales and (3) damages.
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: 11/13/95 By:/s/ Robert S. Attiyeh - ------------------ ------------------------------------ Robert S. Attiyeh Senior Vice President Finance and Corporate Development, and Chief Financial Officer Date: 11/13/95 By:/s/ Larry A. May - ------------------ ------------------------------------ Larry A. May Vice President, Corporate Controller and Chief Accounting Officer
AMGEN INC. INDEX TO EXHIBITS Exhibit No. Description 3.1 Restated Certificate of Incorporation. (7) 3.2 Certificate of Amendment to Restated Certificate of Incorporation, effective as of July 24, 1991. (14) 3.3 Bylaws, as amended to date. (19) 4.1 Indenture dated January 1, 1992 between the Company and Citibank N.A., as trustee. (15) 4.2 Forms of Commercial Paper Master Note Certificates. (18) 10.1* Company's Amended and Restated 1991 Equity Incentive Plan. 10.2* Company's Amended and Restated 1984 Stock Option Plan. 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 Employee Stock Purchase Plan, amended April 1, 1992. (16) 10.8 Agreement, dated February 12, 1986, between the Company and Sloan-Kettering Institute for Cancer Research (with certain confidential information deleted therefrom). (4) 10.9 Amendment No. 2, dated November 13, 1990, to Agreement, dated February 12, 1986, between the Company and Sloan- Kettering Institute for Cancer Research (with certain confidential information deleted therefrom). (13) 10.10 Research, Development Technology Disclosure and License Agreement PPO, dated January 20, 1986, by and between the Company and Kirin Brewery Co., Ltd. (4) 10.11 Research Collaboration Agreement, dated August 31, 1990, between Amgen Inc. and Regeneron Pharmaceuticals, Inc. (with certain confidential information deleted therefrom). (13)
10.12 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) 10.13 Assignment and License Agreement, dated October 16, 1986, between the Company and Kirin-Amgen, Inc. (with certain confidential information deleted therefrom). (5) 10.14 G-CSF European License Agreement, dated December 30, 1986, between Kirin-Amgen, Inc. and the Company (with certain confidential information deleted therefrom). (5) 10.15 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) 10.16* Company's Amended and Restated 1987 Directors' Stock Option Plan. 10.17 Cross License Agreement, dated June 1, 1987, between Amgen Inc. and Amgen Clinical Partners, L.P. (6) 10.18 Development Agreement, dated June 1, 1987, between Amgen Inc. and Amgen Clinical Partners, L.P. (6) 10.19 Joint Venture Agreement, dated June 1, 1987, between Amgen Inc. and Amgen Clinical Partners, L.P. (6) 10.20 Partnership Purchase Option Agreement, dated June 1, 1987, between Amgen Inc. and Amgen Clinical Partners, L.P. (6) 10.21* Company's Amended and Restated 1988 Stock Option Plan. 10.22* Company's Retirement and Savings Plan, amended and restated as of January 1, 1993. (16) 10.23 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. (7) 10.24 Amending Agreement, dated June 30, 1988, to Development Agreement, Partner Purchase Option Agreement, Cross License Agreement and Joint Venture Agreement, dated June 1, 1987, between the Company and Amgen Clinical Partners, L.P. (7) 10.25 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). (9) 10.26 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). (9) 10.27 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). (9) 10.28 Rights Agreement, dated January 24, 1989, between Amgen Inc. and American Stock Transfer and Trust Company, Rights Agent. (8)
10.29 First Amendment to Rights Agreement, dated January 22, 1991, between Amgen Inc. and American Stock Transfer and Trust Company, Rights Agent. (11) 10.30 Second Amendment to Rights Agreement, dated April 2, 1991, between Amgen Inc. and American Stock Transfer and Trust Company, Rights Agent. (12) 10.31 Deed of Trust and Security Agreement, dated June 1, 1989, between the Company and UNUM Life Insurance Company of America. (10) 10.32 Note, dated June 1, 1989, between the Company and UNUM Life Insurance Company of America. (10) 10.33 Agency Agreement, dated November 21, 1991, between Amgen Manufacturing, Inc. and Citicorp Financial Services Corporation. (16) 10.34 Agency Agreement, dated May 21, 1992, between Amgen Manufacturing, Inc. and Citicorp Financial Services Corporation. (16) 10.35 Guaranty, dated July 29, 1992, by the Company in favor of Merck Sharp & Dohme Quimica de Puerto Rico, Inc. (17) 10.36 936 Promissory Note No. 01, dated December 11, 1991, issued by Amgen Manufacturing, Inc. (16) 10.37 936 Promissory Note No. 02, dated December 11, 1991, issued by Amgen Manufacturing, Inc. (16) 10.38 936 Promissory Note No. 001, dated July 29, 1992, issued by Amgen Manufacturing, Inc. (16) 10.39 936 Promissory Note No. 002, dated July 29, 1992, issued by Amgen Manufacturing, Inc. (16) 10.40 Guaranty, dated November 21, 1991, by the Company in favor of Citicorp Financial Services Corporation. (16) 10.41 Lease and Agreement relating to Lease, dated March 27, 1986 and April 1, 1986, respectively, for 2003 Oak Terrace Lane between 2001 Hillcrest Partnership and the Company. (19) 10.42 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. (17) 10.43* Amgen Supplemental Retirement Plan dated June 1, 1993. (20) 10.44 Promissory Note of Mr. Kevin W. Sharer, dated June 4, 1993. (20) 10.45 Promissory Note of Mr. Larry A. May, dated February 24, 1993. (21) 10.46* First Amendment dated October 26, 1993 to the Company's Retirement and Savings Plan. (21) 10.47* Amgen Performance Based Management Incentive Plan. (21) 10.48 Agreement and Plan of Merger, dated as of November 17, 1994, among Amgen Inc., Amgen Acquisition Subsidiary, Inc. and Synergen, Inc. (22) 10.49 Third Amendment to Rights Agreement, dated as of February 21, 1995, between Amgen Inc. and American Stock Transfer Trust and Trust Company (23)
10.50 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.(24) 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. (6) Filed as an exhibit to the Quarterly Report on Form 10-Q for the quarter ended June 30, 1987 on August 12, 1987 and incorporated herein by reference. (7) 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. (8) Filed as an exhibit to the Form 8-K Current Report dated January 24, 1989 and incorporated herein by reference. (9) 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. (10) Filed as an exhibit to the Quarterly Report on Form 10-Q for the quarter ended June 30, 1989 on August 14, 1989 and incorporated herein by reference. (11) Filed as an exhibit to the Form 8-K Current Report dated January 22, 1991 and incorporated herein by reference. (12) Filed as an exhibit to the Form 8-K Current Report dated April 12, 1991 and incorporated herein by reference. (13) Filed as an exhibit to the Annual Report on Form 10-K for the year ended March 31, 1991 on July 1, 1991 and incorporated herein by reference. (14) Filed as an exhibit to the Form 8-K Current Report dated July 24, 1991 and incorporated herein by reference. (15) Filed as an exhibit to Form S-3 Registration Statement dated December 19, 1991 and incorporated herein by reference. (16) 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.
(17) Filed as an exhibit to the Form 8-A dated March 31, 1993 and incorporated herein by reference. (18) 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. (19) 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. (20) 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. (21) 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. (22) Filed as an exhibit to the Form 8-K Current Report dated November 18, 1994 on December 2, 1994 and incorporated herein by reference. (23) Filed as an exhibit to the Form 8-K Current Report dated February 21, 1995 on March 7, 1995 and incorporated herein by reference. (24) 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.