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 June 30, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-12477 AMGEN INC. (Exact name of registrant as specified in its charter) Delaware 95-3540776 - ------------------------------- ----------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1840 DeHavilland Drive, Thousand Oaks, California 91320-1789 - ---------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (805) 447-1000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No As of June 30, 1996, the registrant had 264,668,720 shares of Common Stock, $.0001 par value, outstanding.
AMGEN INC. INDEX Page No. PART I FINANCIAL INFORMATION Item 1.Financial Statements .......................3 Condensed Consolidated Statements of Operations - three and six months ended June 30, 1996 and 1995 ....................4 Condensed Consolidated Balance Sheets - June 30, 1996 and December 31, 1995 .............5 Condensed Consolidated Statements of Cash Flows - six months ended June 30, 1996 and 1995 ......................6 - 7 Notes to Condensed Consolidated Financial Statements ......................................8 Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations ................................13 PART II OTHER INFORMATION Item 1.Legal Proceedings .........................18 Item 4.Submission of Matters to a Vote of Security Holders .......................18 Item 6.Exhibits and Reports on Form 8-K ..........19 Signatures........................................20 Index to Exhibits.................................21 PAGE 2
PART I - FINANCIAL INFORMATION Item 1. Financial Statements The information in this report for the three and six months ended June 30, 1996 and 1995 is unaudited but includes all adjustments (consisting only of normal recurring accruals) which Amgen Inc. ("Amgen" or the "Company") considers necessary for a fair presentation of the results of operations for those periods. The condensed consolidated financial statements should be read in conjunction with the Company's financial statements and the notes thereto contained in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. Interim results are not necessarily indicative of results for the full fiscal year. PAGE 3
AMGEN INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In millions, except per share data) (Unaudited) Three Months Ended Six Months Ended June 30, June 30, 1996 1995 1996 1995 ------ ------ -------- ------ Revenues: Product sales $518.9 $462.6 $ 995.8 $873.8 Corporate partner revenues 42.0 21.5 63.8 41.3 Royalty income 10.5 9.6 19.7 18.0 ------ ------ -------- ------ Total revenues 571.4 493.7 1,079.3 933.1 ------ ------ -------- ------ Operating expenses: Cost of sales 68.3 76.4 135.2 143.0 Research and development 123.6 108.3 254.2 222.2 Marketing and selling 78.5 69.9 146.1 128.7 General and administrative 37.8 34.6 77.0 69.2 Loss of affiliates, net 14.9 13.3 28.2 26.0 ------ ------ -------- ------ Total operating expenses 323.1 302.5 640.7 589.1 ------ ------ -------- ------ Operating income 248.3 191.2 438.6 344.0 ------ ------ -------- ------ Other income (expense): Interest and other income 12.2 18.4 31.2 31.3 Interest expense, net (1.7) (3.8) (4.0) (7.6) ------ ------ -------- ------ Total other income (expense) 10.5 14.6 27.2 23.7 ------ ------ -------- ------ Income before income taxes 258.8 205.8 465.8 367.7 Provision for income taxes 80.1 68.1 143.5 121.4 ------ ------ -------- ------ Net income $178.7 $137.7 $ 322.3 $246.3 ====== ====== ======== ====== Earnings per share: Primary $ .64 $ .49 $ 1.14 $ .88 Fully diluted $ .64 $ .49 $ 1.14 $ .87 Shares used in calculation of: Primary earnings per share 280.9 278.8 282.2 279.2 Fully diluted earnings per share 280.9 280.3 282.2 281.5 See accompanying notes. PAGE 4
AMGEN INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In millions, except per share data) (Unaudited) June 30, December 31, 1996 1995 ---------- ----------- ASSETS Current assets: Cash and cash equivalents $ 214.2 $ 66.7 Marketable securities 797.8 983.6 Trade receivables, net 198.8 199.3 Inventories 91.8 88.8 Other current assets 107.5 115.7 -------- -------- Total current assets 1,410.1 1,454.1 Property, plant and equipment at cost, net 781.6 743.8 Investments in affiliated companies 99.7 95.7 Other assets 204.9 139.2 -------- -------- $2,496.3 $2,432.8 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 53.0 $ 54.4 Commercial paper - 69.7 Accrued liabilities 445.3 459.7 Current portion of long-term debt 78.2 - -------- -------- Total current liabilities 576.5 583.8 Long-term debt 99.0 177.2 Commitments and contingencies Stockholders' equity: Common stock, and additional paid-in capital; $.0001 par value; 750.0 shares authorized; outstanding - 264.7 shares in 1996 and 265.7 shares in 1995 926.3 864.8 Retained earnings 894.5 807.0 -------- -------- Total stockholders' equity 1,820.8 1,671.8 -------- -------- $2,496.3 $2,432.8 ======== ======== See accompanying notes. PAGE 5
AMGEN INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) (Unaudited) Six Months Ende June 30, 1996 1995 ------- ------- Cash flows from operating activities: Net income $322.3 $246.3 Depreciation and amortization 54.9 42.4 Loss of affiliates, net 28.2 26.0 Cash provided by (used in): Trade receivables, net 0.5 (23.6) Inventories (3.0) 17.7 Other current assets 8.2 3.5 Accounts payable (1.4) 7.6 Accrued liabilities (14.4) 38.7 ------ ------ Net cash provided by operating activities 395.3 358.6 ------ ------ Cash flows from investing activities: Purchases of property, plant and equipment (92.7) (55.1) Proceeds from maturities of marketable securities 129.9 48.4 Proceeds from sales of marketable securities 449.6 604.1 Purchases of marketable securities (393.7) (822.9) (Increase) decrease in investments in affiliated companies (5.5) 5.4 Increase in other assets (65.7) (5.0) ------ ------ Net cash provided by (used in) investing activities 21.9 (225.1) ------ ------ See accompanying notes. (Continued on next page) PAGE 6
AMGEN INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (In millions) (Unaudited) Six Months Ended June 30, 1996 1995 ------- ------- Cash flows from financing activities: Decrease in commercial paper $(69.7) $ (0.5) Repayment of long-term debt - (2.2) Net proceeds from issuance of common stock upon the exercise of stock options 45.7 40.9 Tax benefit related to stock options 15.8 8.9 Repurchases of common stock (234.8) (173.5) Other (26.7) (23.5) ------ ------ Net cash used in financing activities (269.7) (149.9) ------ ------ Increase (decrease) in cash and cash equivalents 147.5 (16.4) Cash and cash equivalents at beginning of period 66.7 211.3 ------ ------ Cash and cash equivalents at end of period $214.2 $194.9 ====== ====== See accompanying notes. PAGE 7
AMGEN INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 1996 1. Summary of significant accounting policies Business Amgen Inc. ("Amgen" or the "Company") is a global biotechnology company that develops, manufactures and markets human therapeutics based on advanced cellular and molecular biology. Principles of consolidation The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries as well as affiliated companies for which the Company has a controlling financial interest and exercises control over their operations ("majority controlled affiliates"). All material intercompany transactions and balances have been eliminated in consolidation. Investments in affiliated companies which are 50% or less owned and where the Company exercises significant influence over operations are accounted for using the equity method. All other equity investments are accounted for under the cost method. The caption "Loss of affiliates, net" includes Amgen's equity in the operating results of affiliated companies and the minority interest others hold in the operating results of Amgen's majority controlled affiliates. Inventories Inventories are stated at the lower of cost or market. Cost is determined in a manner which approximates the first-in, first-out (FIFO) method. Inventories are shown net of applicable reserves and allowances. Inventories consist of the following (in millions): June 30, December 31, 1996 1995 ------- ------- Raw materials $13.3 $11.8 Work in process 48.4 45.9 Finished goods 30.1 31.1 ----- ----- $91.8 $88.8 ===== ===== Product sales Product sales consist of two products, EPOGEN(R) (Epoetin alfa) and NEUPOGEN(R) (Filgrastim). PAGE 8
Quarterly NEUPOGEN(R) sales volume in the United States is influenced by a number of factors including underlying demand, seasonal changes in cancer chemotherapy administration, and wholesaler inventory management practices. Wholesaler inventory reductions have tended to reduce domestic NEUPOGEN(R) sales in the first quarter of each year. In prior years, NEUPOGEN(R) sales in the European Union have experienced a seasonal decline to varying degrees in the third quarter. The Company has the exclusive right to sell Epoetin alfa for dialysis, diagnostics and all non-human uses in the United States. The Company sells Epoetin alfa under the brand name EPOGEN(R). Amgen has granted to Ortho Pharmaceutical Corporation, a subsidiary of Johnson & Johnson ("Johnson & Johnson"), a license relating to Epoetin alfa for sales in the United States for all human uses except dialysis and diagnostics. Pursuant to this license, Amgen does not recognize product sales it makes into the exclusive market of Johnson & Johnson and does recognize the product sales made by Johnson & Johnson into Amgen's exclusive market. These sales amounts, and adjustments thereto, are derived from third-party data on shipments to end users and their usage (see Note 4, "Contingencies - Johnson & Johnson arbitrations"). Income taxes Income taxes are accounted for in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109 (Note 3). Stock option and purchase plans The Company's stock options and purchase plans are accounted for under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees". Earnings per share Earnings per share are computed in accordance with the treasury stock method. Primary and fully diluted earnings per share are based upon the weighted average number of common shares and dilutive common stock equivalents during the period in which they were outstanding. Common stock equivalents are outstanding options under the Company's stock option plans. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. Basis of presentation The financial information for the three and six months ended June 30, 1996 and 1995 is unaudited but includes all adjustments (consisting only of normal recurring accruals) which the Company PAGE 9
considers necessary for a fair presentation of the results of operations for these periods. Interim results are not necessarily indicative of results for the full fiscal year. Reclassification Certain prior period amounts have been reclassified to conform to the current period presentation. 2. Debt During the first quarter of 1996, the Company paid off all outstanding commercial paper. As of June 30, 1996, $150 million was available under the Company's line of credit for borrowing and to support the Company's commercial paper program. No borrowings on this line of credit were outstanding at June 30, 1996. Long-term debt consists of the following (in millions): June 30, December 31, 1996 1995 -------- -------- Medium Term Notes $109.0 $109.0 Promissory notes 68.2 68.2 ------ ------ 177.2 177.2 Less current portion (78.2) - ------ ------ $ 99.0 $177.2 ====== ====== The Company has registered $200 million of unsecured medium term debt securities ("Medium Term Notes") of which $109.0 million were outstanding at June 30, 1996. These Medium Term Notes bear interest at fixed rates averaging 5.8% and mature in one to seven years. 3. Income taxes The provision for income taxes consists of the following (in millions): Three Months Ended Six Months Ended June 30, June 30, 1996 1995 1996 1995 ------ ------ ------ ------ Federal (including U.S. possessions) $72.8 $61.6 $130.1 $110.2 State 7.3 6.5 13.4 11.2 ----- ----- ------ ------ $80.1 $68.1 $143.5 $121.4 ===== ===== ====== ====== PAGE 10
4. Contingencies Johnson & Johnson arbitrations In September 1985, the Company granted Johnson & Johnson a license relating to certain patented technology and know-how of the Company to sell a genetically engineered form of recombinant human erythropoietin, called Epoetin alfa, throughout the United States for all human uses except dialysis and diagnostics. Johnson & Johnson sells Epoetin alfa under the brand name PROCRIT(R). A number of disputes have arisen between Amgen and Johnson & Johnson as to their respective rights and obligations under the various agreements between them, including the agreement granting the license (the "License Agreement"). These disputes have been the subject of arbitration proceedings before Judicial Arbitration and Mediation Services, Inc. in Chicago, Illinois commencing in January 1989. A dispute that has not yet been resolved and is the subject of the current arbitration proceeding relates to the audit methodology currently employed by the Company for Epoetin alfa sales. The Company and Johnson & Johnson are required to compensate each other for Epoetin alfa sales which either party makes into the other party's exclusive market. The Company has established and is employing an audit methodology to assign the proceeds of sales of EPOGEN(R) and PROCRIT(R) in Amgen's and Johnson & Johnson's respective exclusive markets. Based upon this audit methodology, the Company is seeking payment of approximately $15 million (excluding interest) from Johnson & Johnson for the period 1991 through 1994. Johnson & Johnson has disputed this methodology and is proposing an alternative methodology for adoption by the arbitrator pursuant to which it is seeking payment of approximately $450 million (including interest through June 1996) for the period 1989 through 1994. If, as a result of the arbitration proceeding, a methodology different from that currently employed by the Company is instituted to assign the proceeds of sales between the parties, it may yield results that are different from the results of the audit methodology currently employed by the Company. As a result of the arbitration, it is possible that the Company would recognize a different level of EPOGEN(R) sales than are currently being recognized. As a result of the arbitration, the Company may be required to pay additional compensation to Johnson & Johnson for sales during prior periods, or Johnson & Johnson may be required to pay compensation to the Company for such prior period sales. While it is impossible to predict accurately or determine the outcome of these proceedings, based primarily upon the merits of its claims and based upon certain liabilities established due to the inherent uncertainty of any arbitrated result, the Company believes that the outcome of these proceedings will not have a material adverse effect on its financial statements. The trial commenced in March 1996 regarding the audit methodologies and compensation for sales by Johnson & Johnson into Amgen's exclusive market and sales by Amgen into Johnson & Johnson's exclusive market. PAGE 11
The Company has filed a demand in the arbitration to terminate Johnson & Johnson's rights under the License Agreement and to recover damages for breach of the License Agreement. A hearing on this demand will be scheduled following the adjudication of the audit methodologies for Epoetin alfa sales. On October 27, 1995, the Company filed a complaint in the Circuit Court of Cook County, Illinois, which is now pending in the United States District Court for the Northern District of Illinois, seeking an order compelling Johnson & Johnson to arbitrate the Company's claim for termination before the arbitrator. The Company is unable to predict at this time the outcome of the demand for termination or when it will be resolved. On October 2, 1995, Johnson & Johnson filed a demand for a separate arbitration proceeding against the Company before the American Arbitration Association ("AAA") in Chicago, Illinois. Johnson & Johnson alleges in this demand that the Company has breached the License Agreement. The demand also includes allegations of various antitrust violations. In this demand, Johnson & Johnson seeks an injunction, declaratory relief, unspecified compensatory damages, punitive damages and costs. The Company has filed a motion to stay the arbitration pending the outcome of the existing arbitration proceedings before Judicial Arbitration and Mediation Services, Inc. discussed above. The Company has also filed an answer and counterclaim denying that AAA has jurisdiction to hear or decide the claims stated in the demand, denying the allegations in the demand and counterclaiming for certain unpaid invoices. Synergen ANTRIL(TM) litigation Several lawsuits have been filed against the Company's wholly owned subsidiary, Amgen Boulder Inc. (formerly Synergen, Inc.), alleging misrepresentations in connection with Synergen's research and development of ANTRIL(TM) for the treatment of sepsis. One suit, filed by a limited partner of a partnership with which Amgen Boulder Inc. is affiliated, has been certified as a class action. That suit seeks rescission of certain payments made by the limited partners to the partnership (or unspecified damages not less than $52 million) and treble damages based on a variety of allegations relating to state and federal law claims. The plaintiffs in that suit also have filed a second amended complaint alleging violations of federal securities laws. Two broker-dealers who acted as market makers in Synergen options have also filed a suit claiming in excess of $3.2 million in trading losses. While it is not possible to predict accurately or determine the eventual outcome of the Johnson & Johnson arbitration proceedings, the Synergen litigation or various other legal proceedings (including patent disputes) involving Amgen, the Company believes that the outcome of these proceedings will not have a material adverse effect on its financial statements. 5. Stockholders' equity During the six months ended June 30, 1996, the Company repurchased 4.0 million shares of its common stock at a total cost of PAGE 12
$234.8 million under its common stock repurchase program. The Board of Directors has authorized the Company to repurchase up to $450 million of shares during the 1996 calendar year. Stock repurchased under the program is retired. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources Cash provided by operating activities has been and is expected to continue to be the Company's primary source of funds. During the six months ended June 30, 1996, operations provided $395.3 million of cash compared with $358.6 million during the same period last year. The Company had cash, cash equivalents and marketable securities of $1,012 million at June 30, 1996, compared with $1,050.3 million at December 31, 1995. Capital expenditures totaled $92.7 million for the six months ended June 30, 1996, compared with $55.1 million for the same period a year ago. Over the next few years, the Company expects to spend approximately $200 million to $300 million per year on capital projects and equipment to expand the Company's global operations. In April 1996, the Company invested $48 million in Regeneron Pharmaceuticals, Inc. and acquired 3.0 million shares of common stock along with warrants to purchase an additional 0.7 million shares. The Company receives cash from the exercise of employee stock options. During the six months ended June 30, 1996, stock options and their related tax benefits provided $61.5 million of cash compared with $49.8 million for the period last year. Proceeds from the exercise of stock options and their related tax benefits will vary from period to period based upon, among other factors, fluctuations in the market value of the Company's stock relative to the exercise price of such options. The Company has a stock repurchase program to offset the dilutive effect of its employee benefit stock option and stock purchase plans. During the six months ended June 30, 1996, the Company purchased 4.0 million shares of its common stock at a cost of $234.8 million compared with 5.0 million shares purchased at a cost of $173.5 million during the same period last year. The Company expects to repurchase $400 million to $450 million of its stock under the program in 1996. To provide for financial flexibility and increased liquidity, the Company has established several sources of debt financing. The Company has a shelf registration under which it could issue up to $200 million of Medium Term Notes. At June 30, 1996, $109.0 million of Medium Term Notes were outstanding which mature in one to seven years. The Company has a commercial paper program which provides for short-term borrowings up to an aggregate face amount of $200 million. As of June 30, 1996, the Company had no outstanding commercial paper. PAGE 13
The Company also has a $150 million revolving line of credit. No borrowings on this line of credit were outstanding at June 30, 1996. The Company invests its cash in accordance with a policy that seeks to maximize returns while ensuring both liquidity and minimal risk of principal loss. The policy limits investments to certain types of instruments issued by institutions with investment grade credit ratings, and places restrictions on maturities and concentration by type and issuer. The majority of the Company's portfolio is composed of fixed income investments which are subject to the risk of market interest rate fluctuations, and all the Company's investments are subject to risks associated with the ability of the issuers to perform their obligations under the instruments. The Company has a program to manage certain portions of its exposure to fluctuations in foreign currency exchange rates. These exposures primarily result from European sales. The Company generally hedges the related receivables with foreign currency forward contracts, which typically mature within six months. The Company uses foreign currency option and forward contracts which generally expire within 12 months to hedge certain anticipated future sales. At June 30, 1996, outstanding option and forward contracts totaled $8.1 million and $41.4 million, respectively. The Company believes that existing funds, cash generated from operations, and existing sources of debt financing are adequate to support its stock repurchase program, as well as to satisfy its working capital and capital expenditure requirements 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 12% and 14% for the three and six months ended June 30, 1996, respectively, compared with the same periods last year. NEUPOGEN(R) (Filgrastim) Worldwide NEUPOGEN(R) sales were $254.7 million and $487.5 million for the three and six months ended June 30, 1996, respectively. These amounts represent increases of 3.1% and 6.1%, respectively, over the same periods last year. Domestic sales of NEUPOGEN(R) were $184.2 million and $346.9 million for the three and six months ended June 30, 1996, respectively. These amounts represent increases of $8.4 million and $23.8 million, or 4.8% and 7.4%, respectively, over the same periods last year. These increases were primarily due to demand growth and a price increase. In 1995, wholesalers accelerated their purchasing PAGE 14
because of the timing of the July 4 holiday. As a result, approximately $7 million of sales were shifted from the third quarter of 1995 into the second quarter. Such accelerated wholesaler purchasing did not occur in the second quarter of 1996. The ongoing and intensifying cost containment pressures in the health care marketplace, including use of guidelines in patient care, have contributed to the slowing of growth in domestic NEUPOGEN(R) usage over the past several years. These pressures are expected to continue to influence such growth for the foreseeable future. International sales of NEUPOGEN(R), primarily in Europe, were $70.5 million and $140.6 million for the three and six months ended June 30, 1996, respectively. These amounts represent a decrease of $0.7 million or 1% for the three month period and an increase of $4.4 million, or 3.2% for the six month period. The current year periods reflect slower demand growth due to competitive and cost containment pressures as well as unfavorable foreign currency effects. The decrease in the second quarter of 1996, compared to the same period a year ago, was due to unfavorable foreign currency effects exceeding underlying demand growth. The Company's overall share of the colony stimulating factor market in the European Union ("EU") has continued to decrease since the introduction in 1994 of a competing granulocyte colony stimulating factor product. The Company does not expect the competitive intensity to subside in the near future. In addition, increasing government cost control measures have slowed the growth of the colony stimulating factor market in the EU. Quarterly NEUPOGEN(R) sales volume in the United States is influenced by a number of factors including underlying demand, seasonal change in cancer chemotherapy administration, and wholesaler inventory management practices. Wholesaler inventory reductions have tended to reduce domestic NEUPOGEN(R) sales in the first quarter of each year. In prior years, NEUPOGEN sales in the EU have experienced a seasonal decline to varying degrees in the third quarter. EPOGEN(R) (Epoetin alfa) EPOGEN(R) sales were $264.2 million and $508.3 million for the three and six months ended June 30, 1996, respectively. The amounts represent increases of $48.6 million and $93.8 million or 22.5% and 22.6%, respectively, over the same periods last year. These increases were primarily due to a continued increase in the U.S. dialysis patient population and the administration of higher doses. Corporate partner revenues Corporate partner revenues increased $20.5 million and $22.5 million, or 95.3% and 54.5%, during the three and six months ended June 30, 1996, respectively, compared to the same periods last year. These increases were primarily due to a $15 million payment received from Yamanouchi Pharmaceutical Co., Ltd. under a licensing agreement. In connection with this agreement, the Company has licensed the rights to develop, manufacture and commercialize the PAGE 15
Company's proprietary Consensus Interferon in specified geographic areas of the world. The Company will receive milestone payments as well as royalties on future product sales. Cost of sales Cost of sales as a percentage of product sales was 13.2% and 13.6% for the three and six months ended June 30, 1996, respectively, compared with 16.5% and 16.4% for the same periods last year. These improvements reflect efficiencies from the fill-and-finish facility in Puerto Rico. As a result of continued efficiencies in Puerto Rico in 1996, cost of sales as a percentage of product sales is expected to range from 13%-14%. Research and development During the three and six months ended June 30, 1996, research and development expenses increased $15.3 million and $32.0 million, or 14.1% and 14.4%, respectively, compared with the same periods last year. These increases were primarily due to clinical and preclinical activities necessary to initiate new programs and to further advance existing product development activities. Annual research and development expenses are expected to increase at a rate exceeding the Company's product sales growth rate due to planned increases in internal efforts on development of product candidates and discovery efforts. Marketing and selling Marketing and selling expenses increased $8.6 million and $17.4 million, or 12.3% and 13.5%, respectively, during the three and six months ended June 30, 1996 compared with the same periods last year. These increases primarily reflect market research activities and efforts to increase the number of patients receiving NEUPOGEN(R) and to bring more patients receiving EPOGEN(R) within the target hematocrit range. In 1996, marketing and selling expenses combined with general and administrative expenses are expected to have an aggregate annual growth rate lower than the anticipated annual product sales growth rate. General and administrative General and administrative expenses increased $3.2 million and $7.8 million, or 9.2% and 11.3%, respectively, during the three and six months ended June 30, 1996 compared with the same periods last year. These increases were primarily due to higher staff-related expenses. In 1996, general and administrative expenses combined with marketing and selling expenses are expected to have an aggregate annual growth rate lower than the anticipated annual product sales growth rate. Interest and other income Interest and other income decreased $6.2 million and $0.1 million, or 33.7% or 0.3%, respectively, during the three and six months ended June 30, 1996 compared with the same periods last year. These decreases resulted from fluctuations in interest rates and the absence of any capital gains in the second quarter of 1996 compared to the same period a year ago. These decreases offset interest income from higher cash balances in the current year period. PAGE 16
Interest and other income is expected to continue to vary from period to period primarily due to changes in cash balances, timing of capital gains/losses, and fluctuations in interest rates. Income taxes The Company's effective tax rate for the three and six months ended June 30, 1996 was 31.0% and 30.8% compared with 33.1% and 33.0%, respectively, for the same periods last year. These decreases in the tax rate were due to increased realization of net operating losses of an acquired company and continued tax benefits from the sale of products manufactured in the Puerto Rico fill-and-finish facility. Financial Outlook Worldwide NEUPOGEN(R) sales for 1996 are expected to grow at a rate lower than the 1995 growth rate. Future NEUPOGEN(R) sales increases are dependent primarily upon further penetration of existing markets, the timing and nature of additional indications for which the product may be approved and the effects of competitive products. NEUPOGEN(R) usage is expected to continue to be affected by cost containment pressures on health care providers worldwide. In addition, international NEUPOGEN(R) sales will continue to be subject to changes in foreign currency exchange rates, competition, and government cost containment measures. EPOGEN(R) sales for 1996 are also expected to grow at a rate lower than the 1995 growth rate. The Company anticipates that increases in both the U.S. dialysis patient population and dosing will continue to drive EPOGEN(R) sales. The Company believes that as more dialysis patients' hematocrits reach target levels, the contribution of dosing to sales increases will diminish. Patients receiving treatment for end stage renal disease are covered primarily under medical programs provided by the federal government. Therefore, EPOGEN(R) sales may also be affected by future changes in reimbursement rates or the basis for reimbursement by the federal government. The Company anticipates that total product sales and earnings will grow at double digit rates in 1996, but these growth rates are expected to be lower than 1995 growth rates. Estimates of future product sales and earnings, however, are necessarily speculative in nature and are difficult to predict with accuracy. Except for the historical information contained herein, the matters discussed herein are by their nature forward-looking. For reasons stated, or for various unanticipated reasons, actual results may differ materially. 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 matters which may affect the Company's stock price may be affected by a number of factors, certain of which are discussed elsewhere herein and are discussed in the sections appearing under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations--Factors That May Affect Future Results" in the Company's PAGE 17
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, which sections are incorporated herein by reference. 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 - "Contingencies - Johnson & Johnson arbitrations." Other legal proceedings are also reported in Note 4 to the Condensed Consolidated Financial Statements and in the Company's Form 10-K for the year ended December 31, 1995, with material developments or new proceedings since that report described in the Company's Form 10-Q for the quarter ended March 31, 1996 and below. While it is not possible to predict accurately or to determine the eventual outcome of these matters, the Company believes that the outcome of these legal proceedings will not have a material adverse effect on the financial statements of the Company. Synergen ANTRIL(TM) litigation Johnson v. Amgen Boulder Inc., et al., a suit filed by a limited partner of a partnership with which Amgen Boulder Inc. is affiliated, was certified as a class action on June 12, 1996. That suit seeks rescission of certain payments made by the limited partners to the partnership (or unspecified damages not less than $52 million) and treble damages based on a variety of allegations relating to state and federal law claims. On June 25, 1996, the plaintiffs in that suit also filed a second amended complaint alleging violations of federal securities laws. F. Hoffman-La Roche On December 20, 1995, Roche Holding A.G., parent corporation of F. Hoffman-La Roche and Company, filed suit in the Tokyo District Court in Japan, against Amgen K.K., a subsidiary of the Company, seeking injunctive relief for the alleged infringement of a patent relating to alpha-interferon by the Company's Consensus Interferon. The Company subsequently answered the complaint, denying allegations of infringement. Item 4. Submission of Matters to a Vote of Security Holders (a) The Company held its Annual Meeting of Stockholders on May 2, 1996. (b) Omitted pursuant to Instruction 3 to Item 4 of Form 10-Q. PAGE 18
(c) The two matters voted upon at the meeting were to elect three directors to hold office until the 1999 Annual Meeting of Stockholders and to ratify the selection of Ernst & Young LLP as the independent auditors of the Company for the year ending December 31, 1996. (i) The following votes were cast for or were withheld with respect to each of the nominees for director: Mr. William K. Bowes, Jr.: 203,050,432 votes for and 706,907 votes withheld; Ms. Judith C. Pelham: 201,541,898 votes for and 2,215,441 votes withheld; and Mr. Kevin W. Sharer: 202,998,903 votes for and 758,436 votes withheld. All nominees were declared to have been elected as directors to hold office until the 1999 Annual Meeting of Stockholders. No abstentions or broker non-votes were cast for the election of directors. (ii) With respect to the proposal to ratify the selection of Ernst & Young LLP as the Company's independent auditors, 203,059,851 votes were cast for the proposal, 255,197 votes were cast against the proposal and 442,291 votes abstained. No broker non-votes were cast in connection with the proposal. The selection of Ernst & Young LLP as the Company's independent auditors for the year ending December 31, 1996 was declared to have been ratified. (d) Not applicable. Item 6. Exhibits and Reports on Form 8-K (a) Reference is made to the Index to Exhibits included herein. (b) No reports on Form 8-K were filed during the three months ended June 30, 1996. PAGE 19
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: 8/9/96 By:/s/ Robert S. Attiyeh - ------------------ ------------------------------------ Robert S. Attiyeh Senior Vice President, Finance and Corporate Development, and Chief Financial Officer Date: 8/9/96 By:/s/ Larry A. May - ------------------ ------------------------------------ Larry A. May Vice President, Corporate Controller and Chief Accounting Officer PAGE 20
AMGEN INC. INDEX TO EXHIBITS Exhibit No. Description 3.1 Restated Certificate of Incorporation. (6) 3.2 Certificate of Amendment to Restated Certificate of Incorporation, effective as of July 24, 1991. (11) 3.3* Amended and Restated Bylaws. 4.1 Indenture dated January 1, 1992 between the Company and Citibank N.A., as trustee. (12) 4.2 Forms of Commercial Paper Master Note Certificates. (15) 10.1* Company's Amended and Restated 1991 Equity Incentive Plan. 10.2 Company's Amended and Restated 1984 Stock Option Plan. (21) 10.3 Shareholder's Agreement of Kirin-Amgen, Inc., dated May 11, 1984, between the Company and Kirin Brewery Company, Limited (with certain confidential information deleted therefrom). (1) 10.4 Amendment Nos. 1, 2, and 3, dated March 19, 1985, July 29, 1985 and December 19, 1985, respectively, to the Shareholder's Agreement of Kirin-Amgen, Inc., dated May 11, 1984 (with certain confidential information deleted therefrom). (3) 10.5 Product License Agreement, dated September 30, 1985, and Technology License Agreement, dated, September 30, 1985 between the Company and Ortho Pharmaceutical Corporation (with certain confidential information deleted therefrom). (2) 10.6 Product License Agreement, dated September 30, 1985, and Technology License Agreement, dated September 30, 1985 between Kirin-Amgen, Inc. and Ortho Pharmaceutical Corporation (with certain confidential information deleted therefrom). (3) 10.7 Company's Amended and Restated Employee Stock Purchase Plan. (22) 10.8 Research, Development Technology Disclosure and License Agreement PPO, dated January 20, 1986, by and between the Company and Kirin Brewery Co., Ltd. (4) 10.9 Amendment Nos. 4 and 5, dated October 16, 1986 (effective July 1, 1986) and December 6, 1986 (effective July 1, 1986), respectively, to the Shareholders Agreement of Kirin-Amgen, Inc. dated May 11, 1984 (with certain confidential information deleted therefrom). (5) 10.10 Assignment and License Agreement, dated October 16, 1986, between the Company and Kirin-Amgen, Inc. (with certain confidential information deleted therefrom). (5) 10.11 G-CSF European License Agreement, dated December 30, 1986, between Kirin-Amgen, Inc. and the Company (with certain confidential information deleted therefrom). (5) 10.12 Research and Development Technology Disclosure and License Agreement: GM-CSF, dated March 31, 1987, between PAGE 21
Kirin Brewery Company, Limited and the Company (with certain confidential information deleted therefrom). (5) 10.13 Company's Amended and Restated 1987 Directors' Stock Option Plan. (21) 10.14* Company's Amended and Restated 1988 Stock Option Plan. 10.15* Company's Amended and Restated Retirement and Savings Plan. 10.16 Amendment, dated June 30, 1988, to Research, Development, Technology Disclosure and License Agreement: GM-CSF dated March 31, 1987, between Kirin Brewery Company, Limited and the Company. (6) 10.17 Agreement on G-CSF in the EU, dated September 26, 1988, between Amgen Inc. and F. Hoffmann-La Roche & Co. Limited Company (with certain confidential information deleted therefrom). (8) 10.18 Supplementary Agreement to Agreement dated January 4, 1989 to Agreement on G-CSF in the EU, dated September 26, 1988, between the Company and F. Hoffmann-La Roche & Co. Limited Company, (with certain confidential information deleted therefrom). (8) 10.19 Agreement on G-CSF in Certain European Countries, dated January 1, 1989, between Amgen Inc. and F. Hoffmann-La Roche & Co. Limited Company (with certain confidential information deleted therefrom). (8) 10.20 Rights Agreement, dated January 24, 1989, between Amgen Inc. and American Stock Transfer and Trust Company, Rights Agent. (7) 10.21 First Amendment to Rights Agreement, dated January 22, 1991, between Amgen Inc. and American Stock Transfer and Trust Company, Rights Agent. (9) 10.22 Second Amendment to Rights Agreement, dated April 2, 1991, between Amgen Inc. and American Stock Transfer and Trust Company, Rights Agent. (10) 10.23 Agency Agreement, dated November 21, 1991, between Amgen Manufacturing, Inc. and Citicorp Financial Services Corporation. (13) 10.24 Agency Agreement, dated May 21, 1992, between Amgen Manufacturing, Inc. and Citicorp Financial Services Corporation. (13) 10.25 Guaranty, dated July 29, 1992, by the Company in favor of Merck Sharp & Dohme Quimica de Puerto Rico, Inc. (14) 10.26 936 Promissory Note No. 01, dated December 11, 1991, issued by Amgen Manufacturing, Inc. (13) 10.27 936 Promissory Note No. 02, dated December 11, 1991, issued by Amgen Manufacturing, Inc. (13) 10.28 936 Promissory Note No. 001, dated July 29, 1992, issued by Amgen Manufacturing, Inc. (13) 10.29 936 Promissory Note No. 002, dated July 29, 1992, issued by Amgen Manufacturing, Inc. (13) 10.30 Guaranty, dated November 21, 1991, by the Company in favor of Citicorp Financial Services Corporation. (13) 10.31 Partnership Purchase Agreement, dated March 12, 1993, between the Company, Amgen Clinical Partners, L.P., Amgen Development Corporation, the Class A limited partners and the Class B limited partner. (14) PAGE 22
10.32 Amgen Supplemental Retirement Plan dated June 1, 1993. (16) 10.33 Promissory Note of Mr. Kevin W. Sharer, dated June 4, 1993. (16) 10.34 Promissory Note of Mr. Larry A. May, dated February 24, 1993. (17) 10.35 Amgen Performance Based Management Incentive Plan. (17) 10.36 Agreement and Plan of Merger, dated as of November 17, 1994, among Amgen Inc., Amgen Acquisition Subsidiary, Inc. and Synergen, Inc. (18) 10.37 Third Amendment to Rights Agreement, dated as of February 21, 1995, between Amgen Inc. and American Stock Transfer Trust and Trust Company (19) 10.38 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. (20) 10.39 Promissory Note of Mr. George A. Vandeman, dated December 15, 1995. (22) 10.40 Promissory Note of Mr. George A. Vandeman, dated December 15, 1995. (22) 10.41 Promissory Note of Mr. Stan Benson, dated March 19, 1996. (22) 11* Computation of per share earnings. 27* Financial Data Schedule. 99* Sections appearing under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations--Factors That May Affect Future Results" in the Company's quarterly report on Form 10-Q for the quarter ended March 31, 1996. - ---------------- * 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. (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-K Current Report dated January 24, 1989 and incorporated herein by reference. PAGE 23
(8) Filed as an exhibit to the Annual Report on Form 10-K for the year ended March 31, 1989 on June 28, 1989 and incorporated herein by reference. (9) Filed as an exhibit to the Form 8-K Current Report dated January 22, 1991 and incorporated herein by reference. (10) Filed as an exhibit to the Form 8-K Current Report dated April 12, 1991 and incorporated herein by reference. (11) Filed as an exhibit to the Form 8-K Current Report dated July 24, 1991 and incorporated herein by reference. (12) Filed as an exhibit to Form S-3 Registration Statement dated December 19, 1991 and incorporated herein by reference. (13) Filed as an exhibit to the Annual Report on Form 10-K for the year ended December 31, 1992 on March 30, 1993 and incorporated herein by reference. (14) Filed as an exhibit to the Form 8-A dated March 31, 1993 and incorporated herein by reference. (15) Filed as an exhibit to the Form 10-Q for the quarter ended March 31, 1993 on May 17, 1993 and incorporated herein by reference. (16) Filed as an exhibit to the Form 10-Q for the quarter ended September 30, 1993 on November 12, 1993 and incorporated herein by reference. (17) 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. (18) Filed as an exhibit to the Form 8-K Current Report dated November 18, 1994 on December 2, 1994 and incorporated herein by reference. (19) Filed as an exhibit to the Form 8-K Current Report dated February 21, 1995 on March 7, 1995 and incorporated herein by reference. (20) 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. (21) Filed as an exhibit to the Form 10-Q for the quarter ended September 30, 1995 on November 13, 1995 and incorporated herein by reference. (22) Filed as an exhibit to the Annual Report on Form 10-K for the year ended December 31, 1995 on March 29, 1996 and incorporated herein by reference. PAGE 24