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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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
Securities registered pursuant to Section 12(g) of the Act:
Common stock, $.0001 par value, Common shares purchase rights,
Contractual contingent payment rights
(Title of class)
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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. [ ]
The approximate aggregate market value of voting stock held by non-
affiliates of the registrant was $15,624,694,000 as of February 29,
1996 (A)
261,501,157 (B)
(Number of shares of common stock outstanding as of February 29, 1996)
Documents incorporated by reference:
Document Form 10-K Parts
Definitive Proxy Statement, to be filed within 120 days of
December 31, 1995 (specified portions) III
(A) Excludes 4,508,450 shares of common stock held by directors and
officers, and stockholders whose ownership exceeds five percent of
the shares outstanding, at February 29, 1996. Exclusion of shares
held by any person should not be construed to indicate that such
person possesses the power, directly or indirectly, to direct or
cause the direction of the management or policies of the registrant,
or that such person is controlled by or under common control with the
registrant.
(B) All share numbers have been retroactively adjusted to reflect a
two-for-one split of the common stock effected in the form of a 100%
stock dividend.
PART I
Item 1. BUSINESS
Overview
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.
The Company manufactures and markets two human therapeutic
products, NEUPOGEN(R) (Filgrastim) and EPOGEN(R) (Epoetin alfa).
NEUPOGEN(R) selectively stimulates the production of neutrophils, one
type of white blood cell. The Company markets NEUPOGEN(R) in the
United States, countries of the European Union ("EU"), Canada and
Australia for use in decreasing the incidence of infection in
patients undergoing myelosuppressive chemotherapy. In addition,
NEUPOGEN(R) is marketed in most of these countries for use in
reducing the duration of neutropenia for patients undergoing
myeloablative therapy followed by bone marrow transplantation, for
treating patients with severe chronic neutropenia, and to support
peripheral blood progenitor cell ("PBPC") transplantations.
EPOGEN(R) stimulates the production of red blood cells and is
marketed by Amgen in the United States for the treatment of anemia
associated with chronic renal failure in patients on dialysis.
The Company focuses its research on biological cell/tissue
events and its development efforts on human therapeutics in the areas
of hematopoiesis, neurobiology, inflammation, endocrinology, and soft
tissue repair and regeneration. The Company has research facilities
in the United States and Canada and has clinical development staff in
the United States, the EU, Canada, Australia, Japan and Hong Kong.
To augment internal research and development efforts the Company has
established external research collaborations and has acquired certain
product and technology rights.
Amgen operates commercial manufacturing facilities located in
the United States and Puerto Rico. A sales and marketing force is
maintained in the United States, the EU, Canada, and Australia. In
addition, Amgen has entered into licensing and co-promotion
agreements to market NEUPOGEN(R) and EPOGEN(R) in certain geographic
areas.
The Company was incorporated in California in 1980 and was
merged into a Delaware corporation in 1987. Amgen's principal
executive offices are located at 1840 Dehavilland Drive, Thousand
Oaks, California 91320-1789.
Products
Recombinant human granulocyte colony-stimulating factor
NEUPOGEN(R) (proper name - Filgrastim) is Amgen's trademark for
its recombinant human granulocyte colony-stimulating factor ("G-
CSF"), a protein that selectively stimulates production of certain
white blood cells known as neutrophils. Neutrophils are the body's
first defense against infection. Treatments for various diseases and
diseases themselves can result in extremely low numbers of
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neutrophils, or neutropenia. Myelosuppressive chemotherapy, one
treatment option for individuals with cancer, targets cell types
which grow rapidly, such as tumor cells, neutrophils and other blood
cells. Providing NEUPOGEN(R) as an adjunct to myelosuppressive
chemotherapy can reduce the duration of neutropenia and thereby
reduce the potential for infection.
Congenital neutropenia is an example of disease-related
neutropenia. In congenital neutropenia, the body fails to
manufacture sufficient neutrophils. Chronic administration of
NEUPOGEN(R) has been shown to reduce the incidence and duration of
neutropenia-related consequences such as fever and infections in
patients with congenital neutropenia.
Patients undergoing bone marrow transplantation are treated with
NEUPOGEN(R) to accelerate recovery of neutrophils following
chemotherapy and bone marrow infusion. NEUPOGEN(R) also has been
shown to induce immature blood cells (progenitor cells) to migrate
(mobilize) from the bone marrow into the blood circulatory system.
When these progenitor cells are collected from the blood, stored and
re-infused after chemotherapy (transplanted), recovery of platelets,
red blood cells and neutrophils is accelerated. PBPC transplantation
is becoming an alternative to autologous bone marrow transplantation
in some patients.
The Company began selling NEUPOGEN(R) in the United States in
February 1991 (see "Joint Venture and Business Relationships - Kirin
Brewery Company, Limited"). NEUPOGEN(R) was initially indicated to
decrease the incidence of infection as manifested by febrile
neutropenia for patients with non-myeloid malignancies undergoing
myelosuppressive chemotherapy. The U.S. Food and Drug Administration
("FDA") subsequently cleared supplements to the Filgrastim product
license which include claims to reduce the duration of neutropenia
for patients with non-myeloid malignancies undergoing myeloablative
therapy followed by bone marrow transplantation and to reduce the
incidence and duration of neutropenia-related consequences in
symptomatic patients with congenital neutropenia, cyclic neutropenia
or idiopathic neutropenia. In December 1995, NEUPOGEN(R) received
FDA clearance for use in mobilization of PBPC for stem cell
transplantation.
In the EU, Canada and Australia, NEUPOGEN(R) is marketed as an
adjunct to chemotherapy and a treatment for patients with severe
chronic neutropenia. In the EU and Australia, NEUPOGEN(R) is also
marketed for use in reducing the duration of neutropenia for patients
undergoing myeloablative therapy followed by bone marrow
transplantation and to support PBPC transplantations. In March 1996,
NEUPOGEN(R) was approved for use in the United Kingdom as a
supportive therapy to treat neutropenia in people with advanced HIV
infection.
In Japan, Taiwan and Korea, Kirin Brewery Company, Limited
("Kirin"), was granted rights to market G-CSF under licensing
agreements with Kirin-Amgen, Inc. ("Kirin-Amgen"). Kirin-Amgen is a
joint venture between the Company and Kirin (see "Joint Ventures and
Business Relationships - Kirin Brewery Company, Limited"). Kirin
PAGE 3
markets its G-CSF product in these countries under the trademark
GRAN(R).
The Company is conducting numerous clinical trials with
NEUPOGEN(R). Later stage trials are examining NEUPOGEN(R) as an
adjunct to dose-intensified chemotherapy in patients with various
tumor types and for the treatment of neutropenia in HIV-infected
patients. In 1995, the Company completed a Phase 3 clinical trial in
patients with severe community-acquired pneumonia. Although the
primary endpoint was not met, NEUPOGEN(R) was found to have
statistically significant clinical benefits relating to two serious
complications of pneumonia: reducing the incidence of end organ
failures and reducing the incidence of adult respiratory distress
syndrome. The Company is continuing the clinical development of
NEUPOGEN(R) for severe pneumonia. The Company also completed
clinical trials examining NEUPOGEN(R) as an adjunct to chemotherapy
in patients with acute myelogenous leukemia. A licensing application
for approval of this supplemental indication will be submitted to the
U.S., European, Canadian and Australian regulatory authorities.
For the years ended December 31, 1995, 1994 and 1993, sales of
NEUPOGEN(R) accounted for approximately 48%, 50% and 52%,
respectively, of total revenues.
Recombinant human erythropoietin
EPOGEN(R) (proper name - Epoetin alfa) is Amgen's trademark for
its recombinant human erythropoietin product, a protein that
stimulates red blood cell production. EPOGEN(R) is effective in the
treatment of anemia associated with chronic renal failure for
patients on dialysis and is indicated to elevate or maintain the red
blood cell level (as manifested by hematocrit or hemoglobin
determinations) and to decrease the need for blood transfusions in
these patients.
In the United States, Amgen was granted rights to market
recombinant human erythropoietin under a licensing agreement with
Kirin-Amgen (see "Joint Ventures and Business Relationships - Kirin
Brewery Company, Limited"). The Company began selling EPOGEN(R) in
1989 when the FDA gave clearance for its use in the treatment of
anemia associated with chronic renal failure. The FDA designated
EPOGEN(R) as an orphan drug, and such designation will expire in
1996. In July 1994, the FDA cleared a supplement to the Epoetin alfa
product license which included an expanded target hematocrit range
for patients with chronic renal failure. The target hematocrit, or
percentage of red blood cells, was expanded to a range of 30 to 36
percent from the previously indicated range of 30 to 33 percent.
Ongoing clinical trials are investigating whether there are
additional benefits for dialysis patients in maintaining a higher,
even more normal, hematocrit range. The Company markets EPOGEN(R) in
the United States for dialysis patients, a market to which Amgen
has maintained exclusive rights.
Amgen has granted Ortho Pharmaceutical Corporation, a subsidiary
of Johnson & Johnson, hereafter referred to as "Johnson & Johnson", a
license to pursue commercialization of recombinant human
PAGE 4
erythropoietin as a human therapeutic in the United States in all
markets other than dialysis and diagnostics. See Note 1 to the
Consolidated Financial Statements - "Product sales" and Note 5 to
the Consolidated Financial Statements - "Johnson & Johnson arbitrations".
In August 1995, the U.S. Patent and Trademark Office issued to
the Company a patent on the process for the manufacture of
recombinant human erythropoietin. The patent provides protection
against the making, importation, use or sale of recombinant human
erythropoietin in the United States.
In Japan, Kirin was granted rights to market recombinant human
erythropoietin under a licensing agreement with Kirin-Amgen (see
"Joint Ventures and Business Relationships - Kirin Brewery Company,
Limited"). Kirin markets its recombinant human erythropoietin
product under the trademark ESPO(R).
In countries other than the United States, the People's Republic
of China and Japan, Johnson & Johnson was granted rights to pursue
the commercialization of erythropoietin as a human therapeutic under
a licensing agreement with Kirin-Amgen. Affiliates of Johnson &
Johnson market erythropoietin for treatment of anemia associated with
chronic renal failure under the trademark EPREX(R) in several
countries.
For the years ended December 31, 1995, 1994 and 1993, sales of
EPOGEN(R) accounted for approximately 45%, 44% and 42%, respectively,
of total revenues.
Product Candidates
Consensus interferon
Interferons are a class of naturally occurring proteins with
anti-viral and anti-tumor activity that also modulate the immune
system. INFERGEN(R), Amgen's consensus interferon, is a non-
naturally occurring protein that combines structural features of many
interferon sub-types. A Phase 3 clinical trial for treatment of
chronic hepatitis C with INFERGEN(R), completed in 1995, indicated
that INFERGEN(R) is safe and effective in treating this disease.
Hepatitis C viral infection is a potentially deadly disease that, if
not treated, may lead to cirrhosis and liver cancer. The Company is
preparing a biologics license application for submission to the FDA.
Amgen is exploring out-licensing opportunities for INFERGEN(R) with
several companies as a potential alternative to marketing this
product candidate through the Company's sales force. A decision will
be made in 1996.
Hematopoietic growth factors
Hematopoietic growth factors are proteins which influence
growth, migration, and maturation of certain types of blood cells.
Stem cell factor ("SCF"), one of the Company's hematopoietic growth
factors in development, may influence the production, mobilization,
and maturation of progenitor cells. Human clinical trials are
underway to investigate the utility of SCF in combination with
PAGE 5
NEUPOGEN(R) for improved mobilization of progenitor cells prior to
PBPC transplantation. A Phase 3 study of SCF in this indication is
underway.
The Company's novel platelet growth factor, MGDF, another
hematopoietic growth factor, has been shown in pre-clinical and early
clinical research to be a promising agent for ameliorating the
thrombocytopenia caused by intensive chemotherapy or irradiation.
Thrombocytopenia, or severely depressed platelet numbers, can result
in severe internal bleeding. The Company is collaborating in the
development of MGDF with Kirin (see "Joint Ventures and Business
Relationships - Kirin Brewery Company, Limited"), and human clinical
testing is underway. In 1995, Amgen, Kirin, and Kirin-Amgen signed
agreements with Novo Nordisk A/S and certain of its subsidiaries
(including ZymoGenetics, Inc.) for rights to thrombopoietin, a
protein hormone that stimulates the production of platelets in the
blood. The acquisition of these rights complements the development
of MGDF.
Cell therapy
Cell selection technology complements the Company's research and
development efforts in hematopoiesis. Amgen's hematopoietic growth
factors, together with selected hematopoietic cells, enable the
Company to pursue the investigation of new and potentially more
effective cancer therapy protocols. In 1994, Amgen acquired an
equity interest in AmCell Inc. ("AmCell"), a U.S. company which will
develop and manufacture cell selection and characterization devices
based on the technology of Miltenyi Biotec GmbH. Amgen and AmCell
entered into an agreement whereby AmCell will manufacture certain
cell selection devices for Amgen, and Amgen will clinically develop
and commercialize these devices (see "Joint Ventures and Business
Relationships - AmCell Inc."). Amgen has initiated clinical trials
in cell selection.
Neurobiology
The Company has extensive discovery programs in neurological and
neuroendocrine disorders. Neurotrophic factors are proteins which
play a role in nerve cell protection and regeneration and which may
therefore be useful in treating a variety of neurological disorders,
including neurodegenerative diseases of the central and peripheral
nervous systems, and also nerve injury or trauma. Human clinical
testing of two neurotrophic factors, brain-derived neurotrophic
factor ("BDNF") and neurotrophin-3 ("NT-3"), is currently being
conducted in collaboration with Regeneron Pharmaceuticals, Inc.
("Regeneron") (see "Joint Ventures and Business Relationships -
Regeneron Pharmaceuticals, Inc."). BDNF is being investigated to
treat amyotrophic lateral sclerosis ("ALS" or Lou Gehrig's disease),
a fatal disorder which causes rapid degeneration of motor neurons
that innervate skeletal muscles. In 1995, Phase 1/2 trials with BDNF
were completed showing that BDNF appears to be safe and well
tolerated in treating people with ALS, and a Phase 3 trial was
initiated to confirm the therapeutic benefits and safety of BDNF in
slowing the progression of ALS. NT-3 is being investigated in
treating peripheral neuropathies.
PAGE 6
Glial cell line derived neurotrophic factor ("GDNF") was added
to the Company's neurobiology research program through the
acquisition of Synergen, Inc. ("Synergen") (see Note 2 to the
Consolidated Financial Statements). GDNF is in preclinical studies
for possible use in the treatment of Parkinson's disease and other
motor neuron diseases.
Inflammation
The inflammatory response is essential for defense against
harmful micro-organisms and for the repair of damaged tissues. The
failure of the body's control mechanisms regulating inflammatory
response occurs in conditions such as rheumatoid arthritis, acute
respiratory distress syndrome and asthma. Tumor necrosis factor
binding protein ("TNFbp") and interleukin-1 receptor antagonist ("IL-
1ra") are two product candidates added to the Company's inflammation
research program through the acquisition of Synergen. TNFbp is
currently in preclinical studies for possible use in the treatment of
rheumatoid arthritis, inflammatory bowel disease, pancreatitis and
multiple sclerosis. IL-1ra is in clinical studies for rheumatoid
arthritis. The Company is also conducting research to discover and
develop other molecules for the treatment of inflammatory diseases.
Endocrinology
Leptin is the protein produced by the obesity gene which is made
in fat cells and is believed to help regulate the amount of fat
stored by the body. This protein has been shown in some early pre-
clinical animal models to produce a reduction in body weight and body
fat. In 1995, The Rockefeller University granted to the Company an
exclusive license which allows the Company to develop products based
on the obesity gene (see "Joint Venture and Business Relationships -
Other business relationships"). The Company anticipates beginning
human clinical trials of Leptin in 1996.
Primary hyperparathyroidism ("HPT") is a disorder that causes
excessive secretion of parathyroid hormone from the parathyroid
gland, leading to elevated serum calcium, called hypercalcemia.
Symptoms may include bone loss, gastrointestinal distress, muscle
weakness, depression and forgetfulness. This disorder currently
lacks effective treatment other than surgery. Secondary HPT is
commonly seen as a result of kidney failure, affecting as many as 80
percent of dialysis patients. The Company has entered into an
agreement with NPS Pharmaceuticals, Inc. ("NPS") for Amgen to develop
and commercialize NPS's NORCALCIN(TM) and other compounds based on
NPS's proprietary calcium receptor technology for the treatment of
HPT and certain other indications (see "Joint Venture and Business
Relationships - Other business relationships"). NORCALCIN(TM) is
being investigated as a treatment for primary and secondary HPT.
Soft tissue repair and regeneration
Soft tissue growth factors are believed to play a role in
accelerating or improving tissue regeneration and wound healing. In
some cases, these agents may also protect tissues from injuries such
PAGE 7
as irradiation, chemotherapy, and hyperoxia. These growth factors
likely regulate a broad range of cellular activities. Amgen
currently is conducting research on certain tissue growth factors
including keratinocyte growth factor ("KGF"). Human clinical trials
have been initiated for KGF.
Joint Ventures and Business Relationships
The Company intends to self-market its products where possible.
From time to time it may supplement this effort by using joint
ventures and other business relationships to provide additional
marketing and product development capabilities. The Company also
supplements its internal research and development efforts with
acquisitions of product and technology rights and external research
collaborations. Amgen has established the relationships described
below and may establish others in the future.
F. Hoffmann-La Roche Ltd.
Amgen and F. Hoffmann - La Roche Ltd. ("Roche") entered into a
co-promotion agreement in September 1988 for the sale of NEUPOGEN(R)
(Filgrastim) in the EU. Under this agreement, Amgen and Roche share
the clinical development, regulatory and commercialization
responsibilities for the product. Amgen manufactures NEUPOGEN(R),
and the two companies share in the profits from sales of NEUPOGEN(R)
in the EU. This agreement allows Amgen the option to regain complete
control for marketing the product in the future.
In 1989, Amgen and Roche entered into another agreement to
commercialize NEUPOGEN(R) in certain European countries not located
within the EU. Under this agreement, Roche markets NEUPOGEN(R) in
these countries and pays a royalty to Amgen on these sales.
Johnson & Johnson
Amgen granted Johnson & Johnson a license to pursue
commercialization of recombinant human erythropoietin as a human
therapeutic in the United States in all markets other than dialysis and
diagnostics. The Company is engaged in arbitration proceedings
regarding this agreement. For a complete discussion of this matter,
see Note 5 to the Consolidated Financial Statements - "Johnson & Johnson
arbitrations".
Kirin Brewery Company, Limited
The Company has a 50-50 joint venture (Kirin-Amgen) with Kirin.
Kirin-Amgen was formed in 1984 to develop and commercialize certain
of the Company's technologies. Amgen and Kirin have been exclusively
licensed by Kirin-Amgen to manufacture and market recombinant human
erythropoietin in the United States and Japan, respectively. Kirin-
Amgen has also granted Amgen an exclusive license to manufacture and
market G-CSF in the United States, Europe, Canada, Australia and New
Zealand. Kirin has been licensed by Kirin-Amgen with similar rights
for G-CSF in Japan, Taiwan and Korea. Kirin markets recombinant
human erythropoietin in the Peoples Republic of China under a
PAGE 8
separate agreement. In 1994, Kirin-Amgen licensed to Amgen and Kirin
the rights to develop and market MGDF.
Pursuant to the terms of agreements entered into with Kirin-
Amgen, the Company conducts certain research and development
activities on behalf of Kirin-Amgen and is paid for such services at
a negotiated rate. Included in revenues from corporate partners in
the Company's Consolidated Financial Statements for the years ended
December 31, 1995, 1994 and 1993, are $72.6 million, $58.6 million
and $41.2 million, respectively, related to these agreements.
In connection with its various agreements with Kirin-Amgen, the
Company has been granted sole and exclusive licenses for the
manufacture and sale of certain products in specified geographic
areas of the world. In return for such licenses, the Company paid
Kirin-Amgen stated amounts upon the receipt of the licenses and/or
pays Kirin-Amgen royalties based on sales. During the years ended
December 31, 1995, 1994 and 1993, Kirin-Amgen earned royalties from
Amgen of $74.2 million, $67.5 million and $53.1 million,
respectively, under such agreements.
Regeneron Pharmaceuticals, Inc.
In 1990, the Company entered into a collaboration agreement with
Regeneron to co-develop and commercialize BDNF and NT-3 in the United
States. In addition, Regeneron licensed these potential products to
Amgen for development in certain other countries. To facilitate this
collaboration, the Company and Regeneron formed Amgen-Regeneron
Partners, a 50-50 partnership. Amgen-Regeneron Partners commenced
operations with respect to BDNF in June 1993. Operations with
respect to NT-3 began in January 1994.
AmCell Inc.
During 1994, Amgen acquired an equity interest in AmCell Inc., a
company which will manufacture cell selection and characterization
devices based on the technology of Miltenyi Biotec GmbH ("Miltenyi").
Amgen has an exclusive license to clinically develop and
commercialize selected products of AmCell incorporating Miltenyi
technology in exchange for development funding and milestone
payments.
PAGE 9
Synergen Clinical Partners
Synergen Clinical Partners, L.P. ("SCP"), a limited partnership,
was formed to fund development and commercialization of IL-1ra in
certain geographic areas. The general partner of SCP was a wholly-
owned subsidiary of Synergen and is now a wholly-owned subsidiary of
the Company. This wholly-owned subsidiary would be obligated to pay
SCP royalties on sales of such products and a milestone payment upon
receiving the first FDA marketing approval of an IL-1ra product. In
connection with the formation of SCP, Synergen was granted options to
purchase all of the limited partners' interests in SCP upon the
occurrence of certain future events for a specified amount of
consideration.
Other business relationships
In 1995, the Company obtained an exclusive license from The
Rockefeller University which allows the Company to develop products
based on the obesity gene. Amgen made a $20 million payment upon
signing the agreement and will make payments for milestones and
royalties on sales of any resulting products. The Company also
entered into an agreement with NPS Pharmaceuticals, Inc. for Amgen to
develop and commercialize NORCALCIN(TM) and other compounds based on
NPS's proprietary technology. Under this agreement, Amgen made a $10
million signing payment and will make milestone payments and royalty
payments on sales of any resulting products. In addition to these
agreements, the Company has an extensive number of other corporate
and academic research collaborations.
Marketing
In the United States, the Company's sales force markets its
products to physicians and pharmacists primarily in hospitals and
clinics. The Company has chosen to use major wholesale distributors
of pharmaceutical products as the principal means of distributing
EPOGEN(R) (Epoetin alfa) and NEUPOGEN(R) (Filgrastim) to clinics,
hospitals and pharmacies. Sales to Bergen Brunswig Corporation and
Cardinal Distribution, two major distributors of these products,
accounted for 21% and 15%, and 22% and 16%, respectively, of total
revenues for the years ended December 31, 1995 and 1994,
respectively. Sales to Bergen Brunswig Corporation and McKesson Drug
Company accounted for 23% and 10% of total revenues for the year
ended December 31, 1993.
NEUPOGEN(R) is reimbursed by both public and private payors, and
changes in coverage and reimbursement policies of these payors could
have a material effect on sales of NEUPOGEN(R). EPOGEN(R) is
primarily reimbursed by the Federal Government through the End Stage
Renal Disease Program ("ESRD") of Medicare. The ESRD Program
reimburses approved providers for 80% of allowed dialysis costs; the
remainder is paid by other sources, including Medicaid, state kidney
patient programs and private insurance. The reimbursement rate is
established by Congress and is monitored by the Health Care Financing
Administration. The reimbursement rate for EPOGEN(R) is subject to
yearly review. Changes in coverage and reimbursement policies could
have a material effect on the sales of EPOGEN(R).
PAGE 10
Except for purchases by Veterans Administration hospitals, the
Company does not receive any payments directly from the Federal
Government, nor does it have any significant supply contracts with
the Federal Government. However, the use of NEUPOGEN(R) and
EPOGEN(R) by hospitals, clinics, and physicians may be impacted by
the amount and methods of reimbursement that they receive from the
Federal Government.
In the EU, Amgen and Roche share clinical development,
regulatory and commercialization responsibilities for NEUPOGEN(R)
under a co-promotion agreement. In addition, Amgen manufactures
NEUPOGEN(R) for sale in the EU, and the two companies share in the
profits from sales of the product. NEUPOGEN(R) is distributed to
wholesalers and/or hospitals in all EU countries depending upon the
distribution practice of hospital products in each country. Patients
receiving NEUPOGEN(R) for approved indications are covered by
government health care programs. The consumption of NEUPOGEN(R) is
affected by budgetary constraints imposed by certain EU countries.
NEUPOGEN(R) sales volumes in both the United States and Europe
are influenced by a number of factors including underlying demand,
government financial constraints, private sector financial
constraints, seasonal changes in cancer chemotherapy administration,
and wholesaler management practices.
In Canada and Australia, NEUPOGEN(R) is marketed by the Company
directly to hospitals, pharmacies and medical practitioners.
Distribution is handled by third party contractors.
Competition
Competition is intense among companies that develop and market
products based on advanced cellular and molecular biology. Amgen has
a number of competitors, including Chiron Corp., Chugai
Pharmaceutical Co., Ltd., Genetics Institute and Immunex Corp.
(subsidiaries of American Home Products Corp.), Genentech, Inc.,
Rhone-Poulenc Rorer Inc., Sandoz Ltd. and Schering-Plough Corp. For
products which the Company manufactures and markets, it faces
significant competition from these and other biotechnology and
pharmaceutical firms in the United States, Europe and elsewhere, some
of whom have greater resources than the Company. Certain specialized
biotechnology firms have also entered into cooperative arrangements
with major companies for development and commercialization of
products, creating an additional source of competition.
Any products or technologies that successfully address anemias
could negatively impact the market for recombinant human
erythropoietin. Similarly, any products or technologies that
successfully address the causes or incidence of low levels of
neutrophils could negatively impact the market for G-CSF. These
include products that could receive approval for indications similar
to those for which NEUPOGEN(R) (Filgrastim) has been approved,
development of chemotherapy treatments that are less myelosuppressive
than existing treatments and the development of anti-cancer
modalities that reduce the need for myelosuppressive chemotherapy.
PAGE 11
NEUPOGEN(R) currently faces market competition from a competing
CSF product, granulocyte macrophage colony-stimulating factor ("GM-
CSF") and from the chemoprotectant, amifostine (WR-2721). Potential
future sources of competition include other GM-CSF products, PIXY
321, PGG-glucan, FLT-3 ligand and IL-11, among others.
Chugai Pharmaceuticals Co., Ltd. ("Chugai") markets a G-CSF
product in Japan as an adjunct to chemotherapy and as a treatment for
bone marrow transplant patients. In June 1993, Chugai and Rhone-
Poulenc Rorer Inc. received a favorable opinion from the Committee
for Proprietary Medicinal Products for this G-CSF product as an
adjunct to chemotherapy and as a treatment in bone marrow transplant
settings and began market launches in certain EU countries in early
1994. Chugai, through its licensee, AMRAD, markets this G-CSF
product in Australia as an adjunct to chemotherapy and as a treatment
for patients receiving bone marrow transplants. Under an agreement
with Amgen, Chugai is precluded from selling its G-CSF product in the
United States, Canada and Mexico.
Immunex Corp. markets GM-CSF in the United States for bone
marrow transplant and PBPC transplant patients and as an adjunct to
chemotherapy treatments for acute non-lymphocytic leukemia ("ANLL").
Immunex Corp. is also pursuing other indications for its GM-CSF
product including use in treating HIV-infected patients, other
infectious diseases and as an adjunct to chemotherapy outside the
limited setting of ANLL. Behringwerke AG markets this GM-CSF product
in Europe in similar settings. Sandoz Ltd. markets another GM-CSF
product for use in bone marrow transplant patients, as an adjunct to
chemotherapy and as an adjunct to gancyclovir treatment of HIV-
infected patients in the EU and certain other countries. This GM-CSF
product is currently being developed for similar indications in the
United States and Canada.
In 1995, amifostine received clearance from the FDA as a
cytoprotective agent for the combination regimen cyclophosphamide and
cisplatinum in patients with advanced ovarian carcinoma. It is used
to limit renal toxicity associated with this treatment. Amifostine
is also being pursued as a treatment to reduce fever, infection and
neutropenia during chemotherapy. U.S. Bioscience, in collaboration
with Alza Corp., markets amifostine in the United States. Schering
Plough markets amifostine in the EU.
Immunex Corp. is developing PIXY 321 in the United States as an
adjunct to chemotherapy and for treating patients receiving bone
marrow transplants. PIXY 321 is being developed for use outside
North America by American Home Products Corp. Alpha Beta
Technologies is developing PGG-glucan for the treatment of certain
infectious diseases, as an adjunct to chemotherapy and for use in
PBPC transplantation.
PAGE 12
Other products which address potential markets for G-CSF may be
identified and developed by competitors in the future. Such products
could also present competition in potential markets for SCF.
Research and development of other hematopoietic growth factors,
including those that may compete with MGDF, is being conducted by
several companies including Genentech, Inc., Immunex Corp., Sandoz
Ltd. and Genetics Institute, Inc.
INFERGEN(R) would face competition from interferons and other
related products, several of which are in development or on the
market. Schering-Plough Corp. and Roche are major suppliers of
interferons.
Several companies are developing neurotrophic factors including
Cephalon Inc., Genentech, Inc. and Regeneron. Many companies are
believed to be conducting research in the area of inflammation
including Celltech, Ltd., ICOS Corporation, Rhone-Poulenc Rorer Inc.
and AutoImmune.
Many companies have obesity research programs and are believed
to be developing obesity treatments including Millennium
Pharmaceuticals, Inc. (in collaboration with Roche), Progenitor Inc.
(a subsidiary of Interneuron Pharmaceuticals Inc.), Neurogen Inc. (in
collaboration with Pfizer), Bristol Myers Squibb, CIBA Geigy, Eli
Lilly and Merck. NORCALCIN(TM) would face competition from a product
currently marketed by Abbott Laboratories which treats secondary HPT.
In addition, other products to treat primary and secondary HPT are
currently being developed by Abbott Laboratories, Lunar and Chugai.
The Company faces competition from several companies in the
development and utilization of cell selection and characterization
devices. Companies involved in the development of these devices and
ex-vivo cell expansion with growth factors are Baxter, Cellpro, Rhone
Poulenc Rorer Inc. in collaboration with Applied Immune Sciences and
Systemix in collaboration with Sandoz Ltd.
Companies believed to be developing certain tissue growth
factors include Creative Biomolecules, Inc., Chiron Corp. (in
collaboration with Johnson & Johnson), Genentech, Inc., Immunex
Corp., Scios Nova Inc. and ZymoGenetics, Inc.
Research and Development
The Company's two primary sources of new product candidates are
internal research and development and acquisition and licensing from
third parties. Research and development expense, which includes
technology license fees paid to third parties, for the years ended
December 31, 1995, 1994 and 1993 were $451.7 million, $323.6 million
and $255.3 million, respectively. The amount for the year ended
December 31, 1994 excludes a $116.4 million write-off of in-process
technology purchased in connection with the acquisition of Synergen
(see Note 2 to the Consolidated Financial Statements).
PAGE 13
Government Regulation
Regulation by governmental authorities in the United States and
other countries is a significant factor in the production and
marketing of the Company's products and its ongoing research and
development activities. In order to clinically test, manufacture and
market products for therapeutic use, Amgen must satisfy mandatory
procedures and safety standards established by various regulatory
bodies.
In the United States, the Company's products and product
candidates are regulated primarily on a product by product basis
under federal law and are subject to rigorous FDA approval
procedures. After purification, laboratory analysis and testing in
animals, an investigational new drug application is filed with the
FDA to begin human testing. A three-phase human clinical testing
program must then be undertaken. In Phase 1, studies are conducted
to determine the safety and optimal dosage for administration of the
product. In Phase 2, studies are conducted to gain preliminary
evidence of the efficacy of the product. In Phase 3, studies are
conducted to provide sufficient data for the statistical proof of
safety and efficacy. The time and expense required to perform this
clinical testing can far exceed the time and expense of the research
and development initially required to create the product. No action
can be taken to market any therapeutic product in the United States
until an appropriate license application has been cleared by the FDA.
Even after initial FDA clearance has been obtained, further studies
are required to provide additional data on safety and would be
required to gain clearance for the use of a product as a treatment
for clinical indications other than those initially approved. In
addition, use of products during testing and after initial marketing
could reveal side effects that could delay, impede or prevent
marketing approval, limit uses or expose the Company to product
liability claims.
In addition to human clinical testing, the FDA inspects
equipment and facilities prior to providing clearance to market a
product. If, after receiving clearance from the FDA, a material
change is made in manufacturing equipment, location or process,
additional regulatory review may be needed.
In the EU countries, Canada and Australia, regulatory
requirements and approval processes are similar in principle to those
in the United States.
Amgen's research and manufacturing activities are conducted in
voluntary compliance with the National Institutes of Health
Guidelines for Recombinant DNA Research. The Company's present and
future business has been and will continue to be subject to various
other laws and regulations, including environmental laws and
regulations.
Patents and Trademarks
Patents are very important to the Company in establishing
proprietary rights to the products it has developed. The Company has
PAGE 14
filed applications for a number of patents and it has been granted
patents relating to recombinant human erythropoietin, G-CSF,
consensus interferon and various potential products. The Company has
obtained licenses from and pays royalties to third parties. Other
companies have filed patent applications or have been granted patents
in areas of interest to the Company. There can be no assurance any
licenses required under such patents would be available for license
on reasonable terms or at all. The Company is engaged in arbitration
proceedings with Johnson & Johnson and various patent litigation.
For a discussion of these matters see Note 5 to the Consolidated
Financial Statements - "Johnson & Johnson arbitrations" and Item 3,
"Legal Proceedings".
The Company has obtained U.S. registration of its EPOGEN(R),
NEUPOGEN(R) and INFERGEN(R) trademarks. In addition, these
trademarks have been registered in several other countries.
Human Resources
As of December 31, 1995, the Company had 4,046 employees of
which 1,965 were engaged in research and development, 629 were
engaged in manufacturing and associated support, 824 were engaged in
sales and marketing and 628 were engaged in finance and general
administration. There can be no assurance that the Company will be
able to continue attracting and retaining qualified personnel in
sufficient numbers to meet its needs. None of the Company's
employees are covered by a collective bargaining agreement, and the
Company has experienced no work stoppages. The Company considers its
employee relations to be excellent.
Geographic Area Financial Information
For financial information concerning the geographic areas in
which the Company operates see Note 12 to the Consolidated Financial
Statements.
Item 2. PROPERTIES
Amgen's principal executive offices and a majority of its
administrative, manufacturing and research and development facilities
are located in 34 buildings in Thousand Oaks, California. Twenty-
nine of the buildings are owned and five are leased. Adjacent to
these facilities are four buildings that are under construction and
other property acquired in anticipation of future expansion. The
Thousand Oaks, California facilities include manufacturing plants
licensed by various regulatory bodies that produce commercial
quantities of Epoetin alfa and NEUPOGEN(R) (Filgrastim).
Elsewhere in North America, Amgen owns nine buildings in
Boulder, Colorado housing research facilities and a pilot plant. The
Company has purchased land in Longmont, Colorado on which it plans to
build a new EPOGEN(R) manufacturing plant, and it owns a distribution
center in Louisville, Kentucky. The Company leases a research
facility and administrative offices in Toronto, Canada, an
administrative office in Washington, D.C. and five regional sales offices.
PAGE 15
Outside North America, the Company has a formulation, fill and
finish facility in Juncos, Puerto Rico which has been licensed by
various regulatory bodies. The Company leases facilities in thirteen
European countries, Australia, Japan, Hong Kong and the People's
Republic of China for administration, marketing and research and
development. In addition, the Company has started construction of a
European distribution center in the Netherlands.
Amgen believes that its current facilities plus anticipated
additions are sufficient to meet its needs for the next several
years.
Item 3. LEGAL PROCEEDINGS
The Company is engaged in arbitration proceedings with one of
its licensees. For a complete discussion of this matter see Note 5
to the Consolidated Financial Statements - "Johnson & Johnson
arbitrations". Other legal proceedings are discussed below. While
it is impossible to predict accurately or to determine the eventual
outcome of these matters, the Company believes that the outcome of
these proceedings will not have a material adverse effect on the
financial statements of the Company.
Synergen ANTRIL (TM) litigation
Lawsuits have been filed against Synergen (now Amgen Boulder
Inc.) alleging misrepresentations in connection with its research and
development of ANTRIL(TM) for the treatment of sepsis.
In Johnson v. Amgen Boulder Inc., et al., suits filed on
February 14, 1995 in the Superior Court for the State of Washington,
King County and in the United States District Court for the Western
District of Washington, plaintiff seeks rescission of certain
payments made to one of the defendants (or unspecified compensatory
damages not less than $50.0 million) and treble damages. The
Superior Court action has been removed to federal court and
consolidated with the suit filed in the United States District Court
for the Western District of Washington. Plaintiff, a limited partner
of defendant Synergen Clinical Partners, L.P., represents a class of
other limited partners. The complaints allege violations of federal
and state securities laws, violations of other federal and state
statutes, fraud, misrepresentation and breach of fiduciary duty. The
defendants include Synergen, Synergen Clinical Partners, L.P.,
Synergen Development Corporation and former officers and directors of
Synergen. The Company has answered the complaint, denying
plaintiffs' claims and asserting various affirmative defenses.
Susquehanna Investment Group, et al. v. Amgen Boulder, Inc., et
al., was filed in the United States District Court in Denver,
Colorado against Synergen and certain of its former officers and
directors. The suit, filed on May 19, 1995, is brought by broker-
dealers who acted as market makers in Synergen options. The
plaintiffs claim in excess of $3.2 million in trading losses on
option positions as the result of alleged misrepresentations.
PAGE 16
Elanex Pharmaceuticals litigation
In October 1993, the Company filed a complaint for patent
infringement against defendants Elanex Pharmaceuticals, Inc.
("Elanex"), Laboratorios Elanex De Costa Rica, S. A., Bio Sidus S.A.,
Merckle GmbH, Biosintetica S. A. and other unknown defendants. The
complaint, filed in the United States District Court for the Western
District of Washington in Seattle, seeks injunctive relief and
damages for Elanex's infringement of the Company's patent for DNA
sequences and host cells useful in producing recombinant
erythropoietin. The complaint also alleges that the foreign
defendants entered into agreements with Elanex relating to the
production or sale of recombinant erythropoietin and thereby have
induced Elanex's infringement.
In December 1993, Elanex responded to the complaint denying the
material allegations thereof, and filed a counterclaim seeking a
declaratory judgment that the Company's patent is invalid and that
Elanex's recombinant erythropoietin technology does not infringe any
valid claims of the Company's patent. The counterclaim also seeks an
award of reasonable attorneys' fees and other costs of defense but
does not seek damages against the Company. The case is currently in
discovery.
Genetics Institute litigation
On June 21, 1994, Genetics Institute filed suit in the United
States District Court for the District of Delaware in Wilmington,
against Johnson & Johnson, a licensee and distributor of the Company,
seeking damages for the alleged infringement of a recently issued
U.S. Patent 5,322,837 relating to Johnson & Johnson's manufacture,
use, and sale of erythropoietin.
On September 12, 1994, the Company filed suit in the United
States District Court for the District of Massachusetts in Boston,
against Genetics Institute, seeking declaratory judgment of patent
non-infringement, invalidity and unenforceability against Genetics
Institute in respect to U.S. Patent 5,322,837 issued to Genetics
Institute, which relates to homogeneous erythropoietin. Genetics
Institute answered the complaint and filed a counterclaim against the
Company alleging infringement of the same patent. On February 14,
1995, the United States District Court for the District of
Massachusetts granted Amgen's motion for a summary judgment enforcing
a prior judgment against Genetics Institute and barring Genetics
Institute from asserting its U.S. Patent 5,322,837 against Amgen's
recombinant erythropoietin. On March 13, 1995, Genetics Institute
filed notice of appeal with the United States Court of Appeals for
the Federal Circuit. On December 6, 1995, the Federal Circuit Court
heard oral argument on the appeal and reserved decision.
Biogen litigation
On June 15, 1994, Biogen, Inc. ("Biogen") filed suit in the
Tokyo District Court in Japan, against Amgen K.K., a subsidiary of
PAGE 17
the Company, seeking injunctive relief for the alleged infringement
of two Japanese patents relating to alpha-interferon.
On March 10, 1995, Biogen filed suit in the United States
District Court for the District of Massachusetts alleging
infringement by the Company of certain claims of U.S. Patent
4,874,702 relating to vectors for expressing cloned genes. Biogen
alleges that Amgen has infringed its patent by manufacturing and
selling NEUPOGEN(R). On March 28, 1995, Biogen filed an amended
complaint further alleging that the Company is also infringing the
claims of two additional patents allegedly assigned to Biogen, U.S.
Patent 5,401,642 and U.S. Patent No. 5,401,658, relating to vectors,
methods for making vectors and expressing closed genes. The amended
complaint seeks injunctive relief, unspecified compensatory damages
and treble damages. On April 24, 1995, the Company answered Biogen's
amended complaint, denying its material allegations and pleading
counterclaims for declaratory judgment of non-infringement, patent
invalidity and unenforceability.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security
holders during the last quarter of its fiscal year ended
December 31, 1995.
PAGE 18
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Price Range of Common Stock
The Company's common stock trades on The Nasdaq Stock Market
under the symbol AMGN. As of March 5, 1996, there were approximately
13,000 holders of record of the Company's common stock. No cash
dividends have been paid on the common stock to date, and the Company
currently intends to retain any earnings for development of the
Company's business and for repurchases of its common stock.
The following table sets forth, for the fiscal periods
indicated, the range of high and low closing sales prices of the
common stock as quoted on The Nasdaq Stock Market for the years 1995
and 1994 (as adjusted retroactively for the August 1995 stock split
effected in the form of a dividend of one share of common stock for
each share of outstanding common stock):
High Low
1995 ------- -------
4th Quarter................... $59-3/8 $43-1/2
3rd Quarter................... 52 39-1/4
2nd Quarter................... 40-7/32 33-1/16
1st Quarter................... 35-3/8 28-1/4
1994
4th Quarter................... $29-11/16 $25-7/16
3rd Quarter................... 28-7/16 21-5/8
2nd Quarter................... 23-19/32 17-11/16
1st Quarter................... 25-7/8 18-7/8
PAGE 19
Item 6. SELECTED FINANCIAL DATA (in millions)
Years Ended December 31,
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
Consolidated Statement of
Operations Data:
Revenues:
Product sales............... $645.3 $1,050.7 $1,306.3 $1,549.6 $1,818.6
Other revenues.............. 36.7 42.3 67.5 98.3 121.3
Total revenues............... 682.0 1,093.0 1,373.8 1,647.9 1,939.9
Research and development
expenses................... 120.9 182.3 255.3 323.6 451.7
Write-off of in-process
technology purchased....... - - - 116.4 -
Marketing and selling
expenses................... 122.2 184.5 214.1 236.9 272.9
General and administrative
expenses................... 80.4 107.7 114.3 122.9 145.5
Legal assessment (award)..... 129.1 (77.1) (13.9) - -
Net income(1)................ 97.9 357.6 383.3 319.7 537.7
Primary earnings per
share(1)................... .34 1.21 1.33 1.14 1.92
Cash dividends declared per
share...................... - - - - -
At December 31,
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
Consolidated Balance Sheet
Data:
Total assets................. $865.5 $1,374.3 $1,765.5 $1,994.1 $2,432.8
Long-term debt............... 39.7 129.9 181.2 183.4 177.2
Stockholders' equity......... 531.1 933.7 1,172.0 1,274.3 1,671.8
(1) Includes an increase to net income of $8.7 million, or $.03 per
share, to reflect the cumulative effect of a change in
accounting principle to adopt Statement of Financial Accounting
Standard No. 109 in 1993 (see Note 1 to Consolidated Financial
Statements). Also includes the write-off of in-process
technology purchased of $116.4 million, or $.42 per share,
associated with the acquisition of Synergen in 1994 (see Note 2
to Consolidated Financial Statements).
PAGE 20
Item 7. 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. In 1995,
operations provided $773.2 million of cash compared with
$531.9 million in 1994. The Company had cash, cash equivalents, and
marketable securities of $1,050.3 million at December 31, 1995,
compared with $696.7 million at December 31, 1994.
Capital expenditures totaled $162.7 million in 1995 compared
with $130.8 million in 1994. Over the next few years, the Company
expects to spend approximately $250 million to $350 million per year
on capital projects and equipment to expand the Company's global
operations.
The Company receives cash from the exercise of employee stock
options. In 1995, stock options and their related tax benefits
provided $145.4 million of cash compared with $67.5 million in 1994.
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. In 1994, the
exercise of warrants associated with Amgen Clinical Partners, L.P.
provided $15.3 million of cash. The right to exercise these
warrants expired on June 30, 1994.
The Company has a stock repurchase program (see Note 7 to the
Consolidated Financial Statements) to offset the dilutive effect of
its employee benefit stock option and stock purchase plans. During
the year ended December 31, 1995, the Company purchased 7.3 million
shares of common stock at a cost of $285.7 million compared with
12.9 million shares purchased at a cost of $300.5 million in 1994.
The Company expects to repurchase $350 million to $450 million 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 can issue up to
$200 million of Medium Term Notes. At December 31, 1995,
$109.0 million of Medium Term Notes were outstanding which mature in
approximately two to eight years. The Company also has a commercial
paper program which provides for short-term borrowings up to an
aggregate face amount of $200 million. At December 31, 1995,
$69.7 million of commercial paper was outstanding, with maturities of
less than three months. The Company also has a $150 million
revolving line of credit, which primarily supports the Company's
commercial paper program. No borrowings on this line of credit were
outstanding at December 31, 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
PAGE 21
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 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. 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 December 31, 1995, outstanding foreign currency option and
forward contracts totaled $13.2 million and $70.1 million,
respectively.
The Company believes that existing funds, cash generated from
operations, and existing sources of debt financing are adequate to
satisfy its working capital and capital expenditure requirements and
to support its stock repurchase program for the foreseeable future.
However, the Company may raise additional capital from time to time
to take advantage of favorable conditions in the markets or in
connection with the Company's corporate development activities.
Results of Operations
Product sales
In 1995 product sales increased $269.0 million or 17% over the
prior year. In 1994, product sales increased $243.3 million or 19%
over the prior year.
NEUPOGEN(R) (Filgrastim)
The Company's worldwide NEUPOGEN(R) sales were $936.0 million in
1995, an increase of $107.0 million or 13% over the prior year. In
1994, sales were $829.0 million, an increase of $109.6 million or 15%
over the prior year.
Domestic sales of NEUPOGEN(R) were $661.8 million in 1995, an
increase of $44.6 million or 7% over the prior year due primarily to
increased usage of NEUPOGEN(R) and price increases. In 1994,
domestic sales were $617.2 million, an increase of $71.7 million or
13% over the prior year due primarily to the increased usage of
NEUPOGEN(R). These results reflect the ongoing and intensifying cost
containment pressures in the health care marketplace, including 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
foreseeable future. During 1995, NEUPOGEN(R) was approved in the
United States to support peripheral blood progenitor cell
transplants, the product's fourth indication.
PAGE 22
International sales of NEUPOGEN(R), primarily in Europe, were
$274.2 million in 1995, an increase of $62.4 million or 29% over the
prior year. Three factors, each contributing approximately one
third, account for this increase: (1) strong unit demand growth, (2)
the inclusion of sales from three additional countries as the result
of Austria, Sweden, and Finland joining the European Union ("EU") on
January 1, 1995 and (3) the favorable effects of strengthened foreign
currencies. Prior to the entry of the three additional countries
into the EU, F. Hoffmann La Roche paid the Company royalties on sales
in these countries under a license agreement. In 1994, international
sales were $211.8 million, an increase of $37.9 million or 22% over
the prior year. This increase was primarily due to increased demand.
The Company's overall share of the colony stimulating factor market
in the EU has decreased since the introduction in 1994 of competing
colony stimulating factor products.
Quarterly NEUPOGEN(R) sales volume in the United States is
influenced by a number of factors including underlying demand,
seasonal changes in 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 seasonal decline to varying degrees in the third
quarter.
EPOGEN(R) (Epoetin alfa)
EPOGEN(R) sales were $882.6 million in 1995, an increase of
$162.0 million or 22% over the prior year. In 1994, EPOGEN(R) sales
were $720.6 million, an increase of $133.7 million or 23% over the
prior year. These increases were primarily due to an increase in the
U.S. dialysis patient population, the administration of higher doses,
and to a lesser extent, increased penetration of the dialysis market.
Cost of sales
Cost of sales as a percentage of product sales was 15.0%, 15.4%
and 16.8% for the years ended December 31, 1995, 1994 and 1993,
respectively. In 1996, cost of sales as a percentage of product
sales is expected to range from 14% to 15%.
Research and development
In 1995 and 1994, research and development expenses increased
$128.1 million or 40% and $68.3 million or 27%, respectively,
compared with the prior years primarily due to expansion of the
Company's internal research and development staff and increases in
external research collaborations. The current year amount includes a
charge for a $20 million signing payment to The Rockefeller
University and a $10 million charge related to a license fee to NPS
Pharmaceuticals for exclusive licenses to certain technologies.
Annual research and development expenses are expected to increase at
a rate exceeding the anticipated annual product sales growth rate due
to planned increases in internal efforts on new product discovery and
PAGE 23
development and increases in external research collaboration costs,
including acquisitions of product and technology rights.
Write-off of in-process technology purchased
In December 1994, the Company acquired Synergen, a biotechnology
company engaged in the discovery and development of protein-based
pharmaceuticals. Synergen was acquired for $254.5 million in cash,
including related acquisition costs. The purchase price was assigned
to the acquired tangible and intangible assets based on their
estimated fair values at the date of acquisition. The value assigned
to in-process technology of $116.4 million was expensed during the
quarter ended December 31, 1994.
Marketing and selling
In 1995 and 1994, marketing and selling expenses increased
$36.0 million or 15% and $22.8 million or 11%, respectively, compared
with the prior years. 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
In 1995 and 1994, general and administrative expenses increased
$22.6 million or 18% and $8.6 million or 8%, respectively, compared
with the prior years. These increases are primarily due to 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 1996 annual
growth in product sales.
Interest and other income
Interest and other income increased $44.6 million or 207% in
1995 compared with the prior year. This increase is primarily due
to: (1) capital gains realized in the Company's investment portfolio
during 1995 while capital losses were incurred in 1994, (2) higher
interest rates earned by the Company's investment portfolio during
1995 and (3) higher current year cash balances. Interest and other
income decreased $5.7 million or 21% in 1994 compared with the prior
year. Due to significant increases in interest rates during 1994,
the Company elected to reposition its fixed income investment
portfolio which resulted in capital losses of $16.1 million for the
year. In 1993, there were no significant capital gains or losses in
the investment portfolio. Interest and other income is expected to
fluctuate from period to period primarily due to changes in interest
rates and cash balances.
PAGE 24
Income taxes
In 1995, the Company's effective tax rate was 32.3%. This tax
rate reflects tax benefits from the sale of products manufactured in
the Puerto Rico fill-and-finish facility which began in the first
quarter of 1995. In 1994, the Company's effective tax rate was
45.7%, which is higher than the Company's statutory rate. This is
primarily due to the write-off of in-process technology purchased in
connection with the Synergen acquisition, which is not deductible for
income tax purposes. In 1993, the Company's effective tax rate was
36.8%. The Company expects to maintain tax benefits from its Puerto
Rico operations in 1996.
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 and increased
competition.
EPOGEN(R) sales for 1996 are expected to grow at a rate lower
than the 1995 growth rate. The Company anticipates that increases in
both the U.S. dialysis patient population and dosing will continue to
drive EPOGEN(R) sales. The Company believes that as more dialysis
patients' hematocrits reach target levels, the contribution of dosing
to sales increases will diminish. Patients receiving treatment for
end stage renal disease are covered primarily under medical programs
provided by the federal government. Therefore, EPOGEN(R) sales may
also be affected by future changes in reimbursement rates or the
basis for reimbursement by the federal government.
The Company anticipates that total product sales and earnings
will grow at double digit rates in 1996, but these growth rates are
expected to be lower than 1995 growth rates. Estimates of future
product sales and earnings, however, are necessarily speculative in
nature and are difficult to predict with accuracy.
Except for the historical information contained herein, the
matters discussed in this Annual Report on Form 10-K are by their
nature forward-looking. For the reasons stated in this Annual Report
or in the Company's other Securities and Exchange Commission filings,
or for various unanticipated reasons, actual results may differ
materially.
Legal Matters
The Company is engaged in arbitration proceedings with one of
its licensees and various legal proceedings relating to Synergen.
For a complete discussion of these matters see Note 5 to the
Consolidated Financial Statements.
PAGE 25
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated herein by
reference to the financial statements listed in Item 14(a) of Part IV
of this Form 10-K Annual Report.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the directors of the Company is
incorporated by reference to the section entitled "Election of
Directors" in the Company's definitive Proxy Statement with respect
to the Company's 1996 Annual Meeting to be filed with the Securities
and Exchange Commission within 120 days of December 31, 1995 (the
"Proxy Statement").
The executive officers of the Company, their ages as of
February 29, 1996 and positions are as follows:
Mr. Gordon M. Binder, age 60, has served as a director of the
Company since October 1988. He joined the Company in 1982 as Vice
President-Finance and was named Senior Vice President-Finance in
February 1986. In October 1988, Mr. Binder was elected Chief
Executive Officer. In July 1990, Mr. Binder became Chairman of the
Board.
Dr. N. Kirby Alton, age 45, became Senior Vice President,
Development, in August 1993, having served as Senior Vice President,
Therapeutic Product Development, since August 1992. Dr. Alton
previously served as Vice President, Therapeutic Product Development,
Responsible Head, from October 1988 to August 1992, and as Director,
Therapeutic Product Development, from February 1986 to October 1988.
Mr. Robert S. Attiyeh, age 61, has served as Senior Vice
President, Finance and Corporate Development, since joining the
Company in July 1994. Prior to joining the Company, Mr. Attiyeh
served as a director of McKinsey & Company, a consulting firm, in its
Los Angeles, Japan and Scandinavian offices from 1967 to 1994.
Mr. Stanley M. Benson. age 44, has served as Senior Vice
President, Sales and Marketing, since joining the Company in June
1995. Prior to joining the Company, Mr. Benson held a number of
executive management positions at Pfizer Inc., a pharmaceutical
company, from 1987 to 1995.
PAGE 26
Dr. Dennis M. Fenton, age 44, became Senior Vice President,
Operations, in January 1995, having served as Senior Vice President,
Sales and Marketing, since August 1992, and having served as Vice
President, Process Development, Facilities and Manufacturing
Services, from July 1991 to August 1992. Dr. Fenton previously had
served as Vice President, Pilot Plant Operations and Clinical
Manufacturing, from October 1988 to July 1991, and as Director, Pilot
Plant Operations, from 1985 to October 1988.
Mr. Daryl D. Hill, age 50, became Senior Vice President, Asia
Pacific, in January 1994, having served as Vice President, Quality
Assurance, from October 1988 to January 1994, and as Director of
Quality Assurance from January 1984 to October 1988.
Mr. Larry A. May, age 46, became Vice President, Corporate
Controller and Chief Accounting Officer in October 1991, having
served as Corporate Controller and Chief Accounting Officer from
October 1988 to October 1991, and as Controller from January 1983 to
October 1988.
Mr. Kevin W. Sharer, age 47, has served as a director of the
Company since November 1992. He has served as President and Chief
Operating Officer since October 1992. Prior to joining the Company,
Mr. Sharer served as President of the Business Markets Division of
MCI Communications Corporation, a telecommunications company, from
April 1989 to October 1992, and served in numerous executive
capacities at General Electric Company from February 1984 to March
1989. Mr. Sharer also serves as a director of Geotek Communications,
Inc.
Mr. George A. Vandeman, age 56, has served as Senior Vice
President, General Counsel and Secretary since joining the Company in
July 1995. Prior to joining the Company, Mr. Vandeman was a partner
of Latham & Watkins, an international law firm, from June 1966 to
July 1995.
Dr. Daniel Vapnek, age 57, became Senior Vice President,
Research, in October 1988, having served as Vice President, Research,
since January 1986.
Dr. Linda R. Wudl, age 50, became Vice President, Quality
Assurance, in January 1994, having served as Director of Quality
Control from April 1991 to January 1994, and as Manager of Quality
Control from April 1987 to April 1991.
Item 11. EXECUTIVE COMPENSATION
The section labeled "Executive Compensation" appearing in the
Company's Proxy Statement is incorporated herein by reference, except
for such information as need not be incorporated by reference under
rules promulgated by the Securities Exchange Commission.
PAGE 27
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The section labeled "Security Ownership of Directors and
Executive Officers and Certain Beneficial Owners" appearing in the
Company's Proxy Statement is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section labeled "Certain Transactions" appearing in the
Company's Proxy Statement is incorporated herein by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
(a) 1. Index to Financial Statements
The following Financial Statements are included herein:
Page
Number
Report of Ernst & Young LLP, Independent Auditors .................F-1
Consolidated Statements of Operations for each of the three
years in the period ended December 31, 1995...............F-2 - F-3
Consolidated Balance Sheets at December 31, 1995 and 1994 .........F-4
Consolidated Statements of Stockholders' Equity for each of
the three years in the period ended December 31, 1995.....F-5 - F-6
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 1995...............F-7 - F-8
Notes to Consolidated Financial Statements .................F-9 - F-25
(a) 2. Index to Financial Statement Schedules
The following Schedules are filed as part of this Form 10-K
Annual Report:
Page
Number
II Valuation Accounts ......................................F-26
All other schedules are omitted because they are not applicable,
or not required, or because the required information is included in
the consolidated statements or notes thereto.
(a) 3. 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)
PAGE 28
3.3 Bylaws, as amended to date. (16)
4.1 Indenture dated January 1, 1992 between the Company and
Citibank N.A., as trustee. (12)
4.2 Forms of Commercial Paper Master Note Certificates. (15)
10.1* Company's Amended and Restated 1991 Equity Incentive
Plan. (22)
10.2* Company's Amended and Restated 1984 Stock Option Plan.
(22)
10.3 Shareholder's Agreement of Kirin-Amgen, Inc., dated May
11, 1984, between the Company and Kirin Brewery Company,
Limited (with certain confidential information deleted
therefrom). (1)
10.4 Amendment Nos. 1, 2, and 3, dated March 19, 1985, July
29, 1985 and December 19, 1985, respectively, to the
Shareholder's Agreement of Kirin-Amgen, Inc., dated May
11, 1984 (with certain confidential information deleted
therefrom). (3)
10.5 Product License Agreement, dated September 30, 1985, and
Technology License Agreement, dated, September 30, 1985
between the Company and Ortho Pharmaceutical Corporation
(with certain confidential information deleted
therefrom). (2)
10.6 Product License Agreement, dated September 30, 1985, and
Technology License Agreement, dated September 30, 1985
between Kirin-Amgen, Inc. and Ortho Pharmaceutical
Corporation (with certain confidential information
deleted therefrom). (3)
10.7* Company's Amended and Restated Employee Stock Purchase
Plan.
10.8 Research, Development Technology Disclosure and License
Agreement PPO, dated January 20, 1986, by and between
the Company and Kirin Brewery Co., Ltd. (4)
10.9 Amendment Nos. 4 and 5, dated October 16, 1986
(effective July 1, 1986) and December 6, 1986 (effective
July 1, 1986), respectively, to the Shareholders
Agreement of Kirin-Amgen, Inc. dated May 11, 1984 (with
certain confidential information deleted therefrom). (5)
10.10 Assignment and License Agreement, dated October 16,
1986, between the Company and Kirin-Amgen, Inc. (with
certain confidential information deleted therefrom). (5)
10.11 G-CSF European License Agreement, dated December 30,
1986, between Kirin-Amgen, Inc. and the Company (with
certain confidential information deleted therefrom). (5)
10.12 Research and Development Technology Disclosure and
License Agreement: GM-CSF, dated March 31, 1987, between
Kirin Brewery Company, Limited and the Company (with
certain confidential information deleted therefrom). (5)
10.13* Company's Amended and Restated 1987 Directors' Stock
Option Plan. (22)
10.14* Company's Amended and Restated 1988 Stock Option Plan.
(22)
10.15* Company's Retirement and Savings Plan, amended and
restated as of January 1, 1993. (13)
10.16 Amendment, dated June 30, 1988, to Research,
Development, Technology Disclosure and License
Agreement: GM-CSF dated March 31, 1987, between Kirin
Brewery Company, Limited and the Company. (6)
PAGE 29
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)
10.32* Amgen Supplemental Retirement Plan dated June 1, 1993.
(17)
10.33 Promissory Note of Mr. Kevin W. Sharer, dated June 4,
1993. (17)
10.34 Promissory Note of Mr. Larry A. May, dated February 24,
1993. (18)
10.35* First Amendment dated October 26, 1993 to the Company's
Retirement and Savings Plan. (18)
10.36* Amgen Performance Based Management Incentive Plan. (18)
10.37 Agreement and Plan of Merger, dated as of November 17,
1994, among Amgen Inc., Amgen Acquisition Subsidiary,
Inc. and Synergen, Inc. (19)
PAGE 30
10.38 Third Amendment to Rights Agreement, dated as of
February 21, 1995, between Amgen Inc. and American Stock
Transfer Trust and Trust Company (20)
10.39 Credit Agreement, dated as of June 23, 1995, among Amgen
Inc., the Borrowing Subsidiaries named therein, the
Banks named therein, Swiss Bank Corporation and ABN AMRO
Bank N.V., as Issuing Banks, and Swiss Bank Corporation,
as Administrative Agent.(21)
10.40* Conforming Amendments to the Amgen Retirement and
Savings Plan.
10.41* Second Amendment to the Amgen Retirement and Savings
Plan.
10.42* Third Amendment to the Amgen Retirement and Savings
Plan.
10.43* Fourth Amendment to the Amgen Retirement and Savings
Plan.
10.44 Promissory Note of Mr. George A. Vandeman, dated
December 15, 1995.
10.45 Promissory Note of Mr. George A. Vandeman, dated
December 15, 1995.
10.46 Promissory Note of Mr. Stan Benson, dated March 19,
1996.
11 Computation of per share earnings.
21 Subsidiaries of the Company.
23 Consent of Ernst & Young LLP, independent auditors. The
consent set forth on page 35 is incorporated herein by
reference.
24 Power of Attorney. The Power of Attorney set forth on
page 34 is incorporated herein by reference.
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 Form 8 amending the Quarterly Report on
Form 10-Q for the quarter ended June 30, 1988 on August 25, 1988
and incorporated herein by reference.
(7) Filed as an exhibit to the Form 8-K Current Report dated January
24, 1989 and incorporated herein by reference.
(8) Filed as an exhibit to the Annual Report on Form 10-K for the
year ended March 31, 1989 on June 28, 1989 and incorporated
herein by reference.
PAGE 31
(9) Filed as an exhibit to the Form 8-K Current Report dated January
22, 1991 and incorporated herein by reference.
(10) Filed as an exhibit to the Form 8-K Current Report dated April
12, 1991 and incorporated herein by reference.
(11) Filed as an exhibit to the Form 8-K Current Report dated July
24, 1991 and incorporated herein by reference.
(12) Filed as an exhibit to Form S-3 Registration Statement dated
December 19, 1991 and incorporated herein by reference.
(13) Filed as an exhibit to the Annual Report on Form 10-K for the
year ended December 31, 1992 on March 30, 1993 and incorporated
herein by reference.
(14) Filed as an exhibit to the Form 8-A dated March 31, 1993 and
incorporated herein by reference.
(15) Filed as an exhibit to the Form 10-Q for the quarter ended March
31, 1993 on May 17, 1993 and incorporated herein by reference.
(16) Filed as an exhibit to the Form 10-Q for the quarter ended June
30, 1993 on August 16, 1993 and incorporated herein by
reference.
(17) Filed as an exhibit to the Form 10-Q for the quarter ended
September 30, 1993 on November 12, 1993 and incorporated herein
by reference.
(18) Filed as an exhibit to the Annual Report on Form 10-K for the
year ended December 31, 1993 on March 25, 1994 and incorporated
herein by reference.
(19) Filed as an exhibit to the Form 8-K Current Report dated
November 18, 1994 on December 2, 1994 and incorporated herein by
reference.
(20) Filed as an exhibit to the Form 8-K Current Report dated
February 21, 1995 on March 7, 1995 and incorporated herein by
reference.
(21) Filed as an exhibit to the Form 10-Q for the quarter ended
June 30, 1995 on August 11, 1995 and incorporated herein by
reference.
(22) Filed as an exhibit to the Form 10-Q for the quarter ended
September 30, 1995 on November 13, 1995 and incorporated herein
by reference.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
three months ended December 31, 1995.
PAGE 32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this Annual Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Amgen Inc.
(Registrant)
Date: 3/27/96 By: /s/ ROBERT S. ATTIYEH
------------------------
Robert S. Attiyeh
Senior Vice President,
Finance and Corporate
Development, and
Chief Financial Officer
PAGE 33
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Robert S. Attiyeh and Larry A.
May, or either of them, his attorney-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any
amendments to this Report, and to file the same, with exhibits
thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming
all that each of said attorneys-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated:
/s/GORDON M. BINDER 3/27/96 /s/WILLIAM K. BOWES, JR. 3/27/96
Gordon M. Binder William K. Bowes, Jr.
Chairman of the Board Director
Chief Executive Officer and
Director
(Principal Executive /s/FRANKLIN P. JOHNSON, 3/27/96
Officer) JR.
Franklin P. Johnson, Jr.
Director
/s/KEVIN W. SHARER 3/27/96
Kevin W. Sharer
President, Chief Operating /s/STEVEN LAZARUS 3/27/96
Officer and Director Steven Lazarus
Director
/s/ROBERT S. ATTIYEH 3/27/96
Robert S. Attiyeh /s/EDWARD J. LEDDER 3/27/96
Senior Vice President, Edward J. Ledder
Finance and Corporate Director
Development, and
Chief Financial Officer
/s/GILBERT S. OMENN 3/27/96
Gilbert S. Omenn
/s/LARRY A. MAY 3/27/96 Director
Larry A. May
Vice President,
Corporate Controller and /s/JUDITH C. PELHAM 3/27/96
Chief Accounting Officer Judith C. Pelham
Director
/s/RAYMOND F. BADDOUR 3/27/96
Raymond F. Baddour /s/BERNARD H. SEMLER 3/27/96
Director Bernard H. Semler
Director
PAGE 34
EXHIBIT 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 33-5111) pertaining to the 1984 Stock Option
Plan, 1981 Incentive Stock Option Plan and Nonqualified Stock Option
Plan of Amgen Inc., in the Registration Statement (Form S-8 No. 33-
24013) pertaining to the Amended and Restated 1988 Stock Option Plan
of Amgen Inc., in the Registration Statement (Form S-8 No. 33-39183)
pertaining to the Amended and Restated Employee Stock Purchase Plan,
in the Registration Statement (Form S-8 No. 33-39104) pertaining to
the Amgen Retirement and Savings Plan, in the Registration Statement
(Form S-8 No. 33-42501) pertaining to the Amended and Restated 1987
Directors' Stock Option Plan, in the Registration Statement (Form S-8
No. 33-42072) pertaining to the Amgen Inc. Amended and Restated 1991
Equity Incentive Plan, in the Registration Statement (Form S-8 No.
33-47605) pertaining to the Retirement and Savings Plan for Amgen
Puerto Rico, Inc. and in the Registration Statements (Form S-3 No.
33-22544 and Form S-3 No. 33-44454) of Amgen Inc. and in the related
Prospectuses of our report dated January 29, 1996 with respect to the
consolidated financial statements and financial statement schedule
of Amgen Inc. included in this Annual Report (Form 10-K) for the year
ended December 31, 1995.
/s/ ERNST & YOUNG LLP
Los Angeles, California
March 22, 1996
PAGE 35
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders of
Amgen Inc.
We have audited the accompanying consolidated balance sheets of Amgen
Inc. as of December 31, 1995 and 1994, and the related consolidated
statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1995. Our
audits also included the financial statement schedule listed in the
Index at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based
on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Amgen Inc. at December 31, 1995 and 1994, and
the consolidated results of its operations and its cash flows for
each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles. Also, in
our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set
forth therein.
/s/ ERNST & YOUNG LLP
Los Angeles, California
January 29, 1996
F-1
AMGEN INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1995, 1994 and 1993
(In millions, except per share data)
1995 1994 1993
-------- -------- --------
Revenues:
Product sales.................... $1,818.6 $1,549.6 $1,306.3
Corporate partner revenues....... 85.2 70.4 48.6
Royalty income................... 36.1 27.9 18.9
-------- -------- --------
Total revenues................ 1,939.9 1,647.9 1,373.8
-------- -------- --------
Operating expenses:
Cost of sales.................... 272.9 238.1 220.0
Research and development......... 451.7 323.6 255.3
Write-off of in-process
technology purchased.......... - 116.4 -
Marketing and selling............ 272.9 236.9 214.1
General and administrative....... 145.5 122.9 114.3
Loss of affiliates, net.......... 53.3 31.2 12.6
Legal award...................... - - (13.9)
-------- -------- --------
Total operating expenses...... 1,196.3 1,069.1 802.4
-------- -------- --------
Operating income.................. 743.6 578.8 571.4
Other income (expense):
Interest and other income........ 66.1 21.5 27.2
Interest expense, net............ (15.3) (12.0) (6.2)
-------- -------- --------
Total other income (expense).. 50.8 9.5 21.0
-------- -------- --------
Income before income taxes and
cumulative effect of a change
in accounting principle.......... 794.4 588.3 592.4
Provision for income taxes........ 256.7 268.6 217.8
-------- -------- --------
Income before cumulative effect
of a change in accounting
principle........................ 537.7 319.7 374.6
Cumulative effect of a change
in accounting principle.......... - - 8.7
-------- -------- --------
Net income........................ $ 537.7 $ 319.7 $ 383.3
======== ======== ========
See accompanying notes.
(Continued on next page)
F-2
AMGEN INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
Years ended December 31, 1995, 1994 and 1993
(In millions, except per share data)
1995 1994 1993
----- ----- -----
Earnings per share:
Primary:
Income before cumulative
effect of a change in
accounting principle........ $1.92 $1.14 $1.30
Cumulative effect of a
change in accounting
principle................... - - .03
----- ----- -----
Net income.................... $1.92 $1.14 $1.33
===== ===== =====
Fully diluted:
Income before cumulative
effect of a change in
accounting principle........ $1.88 $1.13 $1.30
Cumulative effect of a
change in accounting
principle................... - - .03
----- ----- -----
Net income.................... $1.88 $1.13 $1.33
===== ===== =====
Shares used in calculation of:
Primary earnings per share....... 280.7 279.6 287.2
Fully diluted earnings per
share......................... 285.3 282.2 288.6
See accompanying notes.
F-3
AMGEN INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
(In millions, except per share data)
1995 1994
-------- --------
ASSETS
Current assets:
Cash and cash equivalents............ $ 66.7 $ 211.3
Marketable securities................ 983.6 485.4
Trade receivables, net of allowance
for doubtful accounts
of $13.8 in 1995 and $13.3 in
1994............................... 199.3 194.7
Inventories.......................... 88.8 98.0
Deferred tax assets, net............. 51.7 70.2
Other current assets................. 64.0 56.0
-------- --------
Total current assets 1,454.1 1,115.6
Property, plant and equipment at cost,
net.................................. 743.8 665.3
Investments in affiliated companies..... 95.7 82.3
Other assets............................ 139.2 130.9
-------- --------
$2,432.8 $1,994.1
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................... $ 54.4 $ 30.5
Commercial paper..................... 69.7 99.7
Accrued liabilities.................. 459.7 406.2
-------- --------
Total current liabilities.......... 583.8 536.4
Long-term debt.......................... 177.2 183.4
Contingencies
Stockholders' equity:
Common stock and additional
paid-in capital; $.0001 par
value; 750.0 shares authorized;
outstanding - 265.7 shares in
1995 and 264.7 shares in 1994..... 864.8 719.3
Retained earnings................... 807.0 555.0
-------- --------
Total stockholders' equity........ 1,671.8 1,274.3
-------- --------
$2,432.8 $1,994.1
======== ========
See accompanying notes.
F-4
AMGEN INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1995, 1994 and 1993
(In millions)
Common
stock
and
Number additional
of paid-in Retained
shares capital earnings
------ --------- --------
Balance at December 31, 1992........ 272.6 $573.8 $359.9
Issuance of common stock upon the
exercise of stock options and in
connection with an employee stock
purchase plan..................... 4.6 21.7 -
Issuance of common stock upon the
exercise of warrants.............. 1.3 5.9 -
Tax benefits related to stock
options........................... - 34.8 -
Repurchases of common stock......... (10.1) - (207.4)
Net income.......................... - - 383.3
------ ------ ------
Balance at December 31, 1993........ 268.4 636.2 535.8
Issuance of common stock upon the
exercise of stock options and in
connection with an employee stock
purchase plan..................... 5.7 44.8 -
Issuance of common stock upon the
exercise of warrants.............. 3.5 15.3 -
Tax benefits related to stock
options........................... - 23.0 -
Repurchases of common stock......... (12.9) - (300.5)
Net income.......................... - - 319.7
------ ------ ------
Balance at December 31, 1994........ 264.7 $719.3 $555.0
See accompanying notes.
(Continued next page)
F-5
AMGEN INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Continued)
Years ended December 31, 1995, 1994 and 1993
(In millions)
Common
stock
and
Number additional
of paid-in Retained
shares capital earnings
------ --------- --------
Balance at December 31, 1994........ 264.7 $719.3 $555.0
Issuance of common stock upon the
exercise of stock options and in
connection with an employee stock
purchase plan..................... 8.3 102.7 -
Tax benefits related to stock
options........................... - 42.8 -
Repurchases of common stock......... (7.3) - (285.7)
Net income.......................... - - 537.7
----- ------ ------
Balance at December 31, 1995........ 265.7 $864.8 $807.0
===== ====== ======
See accompanying notes.
F-6
AMGEN INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1995, 1994 and 1993
(In millions)
1995 1994 1993
-------- -------- --------
Cash flows from operating activities:
Net income........................ $ 537.7 $ 319.7 $ 383.3
Write-off of in-process
technology purchased ........... - 116.4 -
Depreciation and amortization..... 84.2 74.5 50.7
Other non-cash expenses........... 0.1 2.8 7.9
Deferred income taxes............. 23.9 2.4 17.4
Loss of affiliates, net........... 53.3 31.2 12.6
Cash provided by (used in):
Trade receivables, net.......... (4.6) (30.4) (8.3)
Inventories..................... 9.2 (23.3) (17.9)
Other current assets............ (8.0) 1.8 (4.8)
Accounts payable................ 23.9 4.6 (14.9)
Accrued liabilities............. 53.5 32.2 7.0
------- ------- -------
Net cash provided by
operating activities....... 773.2 531.9 433.0
------- ------- -------
Cash flows from investing activities:
Purchases of property, plant and
equipment....................... (162.7) (130.8) (209.9)
Increase in marketable securities. - - (131.3)
Proceeds from maturities of
marketable securities........... 129.6 87.7 -
Proceeds from sales of marketable
securities...................... 1,018.8 1,505.8 -
Purchases of marketable
securities...................... (1,646.6) (1,395.1) -
Cost to acquire company, net of
cash acquired................... - (240.8) -
Increase in investments in
affiliated companies............ (19.5) (21.8) (21.7)
(Increase) decrease in other
assets.......................... (13.7) 4.0 (27.0)
-------- -------- --------
Net cash used in investing
activities................. $ (694.1) $ (191.0) $ (389.9)
-------- -------- --------
See accompanying notes.
(Continued on next page)
F-7
AMGEN INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years ended December 31, 1995, 1994 and 1993
(In millions)
1995 1994 1993
-------- -------- --------
Cash flows from financing activities:
(Decrease) increase in commercial
paper........................... $(30.0) $(10.1) $109.8
Repayment of long-term debt....... (6.2) (12.0) (2.0)
Proceeds from issuance of long-
term debt....................... - 12.5 53.0
Net proceeds from issuance of
common stock upon the exercise
of stock options and in
connection with an employee
stock purchase plan............. 102.6 44.5 21.5
Tax benefit related to stock
options......................... 42.8 23.0 34.8
Net proceeds from issuance of
common stock upon the exercise
of warrants..................... - 15.3 5.9
Repurchases of common stock....... (285.7) (300.5) (207.4)
Other............................. (47.2) (30.8) (22.2)
-------- -------- --------
Net cash used in financing
activities................. (223.7) (258.1) (6.6)
-------- -------- --------
(Decrease) increase in cash and cash
equivalents....................... (144.6) 82.8 36.5
Cash and cash equivalents at
beginning of period............... 211.3 128.5 92.0
-------- -------- --------
Cash and cash equivalents at end of
period............................ $ 66.7 $211.3 $128.5
======== ======== ========
See accompanying notes.
F-8
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 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% 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.
Cash equivalents and marketable securities
The Company considers cash equivalents to be only those
investments which are highly liquid, readily convertible to cash and
which mature within three months from date of purchase.
The Company considers its investment portfolio available-for-
sale as defined in Statement of Financial Accounting Standards
("SFAS") No. 115. There were no material unrealized gains or losses
nor any material differences between the estimated fair values and
costs of securities in the investment portfolio at December 31, 1995
and 1994. For the year ended December 31, 1995, realized gains and
losses totaled $8.0 million and $3.1 million, respectively. For the
year ended December 31, 1994, realized gains and losses totaled
$5.0 million and $21.1 million, respectively. The cost of securities
sold is based on the specific identification method. The cost of the
investment portfolio by type of security, contractual maturity and
its classification in the balance sheet is as follows (in millions):
F-9
December 31,
1995 1994
-------- --------
Type of security:
Corporate debt securities.................. $ 486.8 $365.0
U.S. Treasury securities and obligations of
U.S. government agencies................ 459.3 170.9
Other interest bearing securities.......... 81.3 151.6
-------- ------
$1,027.4 $687.5
======== ======
Contractual maturity:
Maturing in one year or less............... $ 219.4 $411.0
Maturing after one year through three years 569.4 132.8
Maturing after three years................. 238.6 143.7
-------- ------
$1,027.4 $687.5
======== ======
Classification in balance sheet:
Cash and cash equivalents.................. $ 66.7 $211.3
Marketable securities...................... 983.6 485.4
-------- ------
1,050.3 696.7
Less cash.................................. (22.9) (9.2)
-------- ------
$1,027.4 $687.5
======== ======
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.
F-10
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):
December 31,
1995 1994
----- -----
Raw materials...................... $11.8 $11.0
Work in process.................... 45.9 54.0
Finished goods..................... 31.1 33.0
----- -----
$88.8 $98.0
===== =====
Depreciation and amortization
Depreciation of buildings and equipment is provided over their
estimated useful lives on a straight-line basis. Leasehold
improvements are amortized on a straight-line basis over the shorter
of their estimated useful lives or lease terms, including periods
covered by options which are expected to be exercised.
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,
seasonal changes in 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 European
Union ("EU") have experienced a seasonal decline to varying degrees
in the third quarter.
The Company has the exclusive right to sell Epoetin alfa for
dialysis, diagnostics and all non-human uses in the United States.
The Company sells Epoetin alfa under the brand name EPOGEN(R). Amgen
has granted to Ortho Pharmaceutical Corporation, a subsidiary of
Johnson & Johnson ("Johnson & Johnson"), a license relating to
Epoetin alfa for sales in the United States for all human uses except
dialysis and diagnostics. Pursuant to this license, Amgen does not
recognize product sales it makes into the exclusive market of Johnson
& Johnson and does recognize the product sales made by Johnson &
Johnson into Amgen's exclusive market. These sales amounts, and
adjustments thereto, are derived from third-party data on shipments
to end users and their usage (see Note 5, "Contingencies - Johnson &
Johnson arbitrations").
Research and development costs
Research and development costs are expensed as incurred.
Payments related to the acquisition of technology rights, for which
F-11
development work is in-process, are expensed and considered a
component of research and development costs (Note 2).
Foreign currency transactions
The Company has a program to manage foreign currency risk. As
part of this program, it has purchased foreign currency option and
forward contracts to hedge against possible reductions in values of
anticipated foreign currency cash flows over the next 12 months,
primarily resulting from its sales in Europe. At December 31, 1995,
the Company had net option and forward contracts to exchange foreign
currencies for U.S. dollars of $13.2 million and $16.2 million,
respectively, all having maturities of one year or less. The option
contracts are designated and effective as hedges of anticipated
foreign currency transactions for financial reporting purposes, and
accordingly, the net gains on such contracts are deferred and will be
recognized in the same period as the hedged transactions. The
forward contracts do not qualify as hedges for financial reporting
purposes, and accordingly, are marked-to-market with changes in
market values reflected directly in income.
The Company has additional foreign currency forward contracts to
hedge certain exposures to foreign currency fluctuations of certain
receivables and payables denominated in foreign currencies. At
December 31, 1995, the Company had forward contracts to exchange
foreign currencies, primarily Swiss francs, for U.S. dollars of
$53.9 million, all having maturities of six months or less. These
contracts are designated and effective as hedges, and accordingly,
gains and losses on these forward contracts are recognized in the
same period the offsetting gains and losses of hedged assets and
liabilities are realized and recognized.
Interest rate swaps
The Company has two interest rate swap agreements that change
the nature of the fixed rate interest paid on $50.0 million of its
medium term debt securities ("Medium Term Notes") outstanding (Note
4). Under the first agreement, the Company pays a variable rate
(LIBOR) of interest in exchange for the receipt of fixed rate
interest payments of approximately 6.1%. Under the second agreement,
the Company makes fixed rate interest payments of approximately 4.7%
and receives variable rate (LIBOR) interest payments at the same time
payments are exchanged under the first agreement. These agreements
both have notional amounts of $50.0 million, terminate in 1997, and
involve the same counterparty. The differential in the fixed rate
interest payments is recognized as a reduction of interest expense
related to the debt. The related amounts payable to and receivable
from the counterparty are recorded in accrued liabilities. The fair
values of the swap agreements are not recognized in the financial
statements.
Interest
Interest costs are expensed as incurred except to the extent
such interest is related to construction in progress, in which case
interest is capitalized. Interest costs capitalized for the years
ended December 31, 1995, 1994 and 1993, were $4.7 million,
$3.7 million and $4.0 million, respectively.
F-12
Income taxes
Effective January 1, 1993, the Company adopted SFAS No. 109,
"Accounting for Income Taxes," which supersedes SFAS No. 96. As
permitted under this new accounting standard, prior years' financial
statements have not been restated. Net income for the year ended
December 31, 1993, was increased by $8.7 million, or $.03 per share
on a primary and fully diluted basis, to reflect the cumulative
effect of a change in accounting principle to adopt SFAS No. 109
(Note 6).
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" (Note 8).
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 outstanding warrants to purchase
shares of the Company's common stock.
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.
Reclassification
Certain prior year amounts have been reclassified to conform to
the current year presentation.
2. Business combination
In December 1994, the Company acquired the outstanding stock of
Synergen, Inc. ("Synergen"), a publicly held biotechnology company
engaged in the discovery and development of protein-based
pharmaceuticals. Synergen was acquired for $254.5 million, including
related acquisition costs. The assignment of the purchase price
among identifiable tangible and intangible assets was based on an
analysis of the fair values of those assets. Specifically, purchased
in-process technology was evaluated through analysis of data
concerning each of Synergen's product candidates. The fair values of
the identifiable tangible and intangible assets acquired, net of
liabilities assumed, exceeded the purchase price, and accordingly,
the values of the noncurrent assets (including in-process technology)
F-13
were reduced pro rata. The value assigned to in-process technology
of $116.4 million was expensed on the acquisition date.
This business combination has been accounted for using the
purchase method. Therefore, the operating results of Synergen are
included in the accompanying consolidated financial statements
beginning in December 1994.
3. Related party transactions
The Company owns a 50% interest in Kirin-Amgen, Inc. ("Kirin-
Amgen"), a corporation formed in 1984 for the development and
commercialization of certain products based on advanced
biotechnology. Pursuant to the terms of agreements entered into with
Kirin-Amgen, the Company conducts certain research and development
activities on behalf of Kirin-Amgen and is paid for such services at
negotiated rates. Included in revenues from corporate partners for
the years ended December 31, 1995, 1994 and 1993, are $72.6 million,
$58.6 million and $41.2 million, respectively, related to these
agreements.
In connection with its various agreements with Kirin-Amgen, the
Company has been granted sole and exclusive licenses for the
manufacture and sale of certain products in specified geographic
areas of the world. In return for such licenses, the Company paid
Kirin-Amgen stated amounts upon the receipt of the licenses and/or
pays Kirin-Amgen royalties based on sales. During the years ended
December 31, 1995, 1994 and 1993, Kirin-Amgen earned royalties from
Amgen of $74.2 million, $67.5 million and $53.1 million,
respectively, under such agreements, which are included in cost of
sales in the accompanying consolidated statements of operations.
At December 31, 1995, Amgen's share of Kirin-Amgen's
undistributed retained earnings was approximately $50.4 million.
4. Debt
The Company has a commercial paper program which provides for
unsecured short-term borrowings up to an aggregate of $200 million.
Commercial paper issued under this program is supported by the
Company's credit facility (discussed below). At December 31, 1995,
$69.7 million of commercial paper was outstanding at effective
interest rates averaging 5.8% and maturities of less than three months.
At December 31, 1994, $99.7 million of commercial paper was
outstanding at effective interest rates averaging 6.0% and maturities
of less than four months.
Long-term debt consisted of the following (in millions):
December 31,
1995 1994
------- -------
Medium Term Notes.................. $109.0 $113.0
Promissory notes................... 68.2 68.2
Other long-term obligations........ - 2.2
------ ------
$177.2 $183.4
====== ======
F-14
The Company has registered $200 million of unsecured Medium Term
Notes of which $109.0 million were outstanding at December 31, 1995.
These Medium Term Notes mature in approximately two to eight years
and bear interest at fixed rates averaging 5.8%. The Company may
offer and issue these securities from time to time with terms
determined by market conditions. Under the terms of these
securities, the Company is required to meet certain debt to tangible
net worth ratios. In addition, these securities place limitations on
liens and sale/leaseback transactions.
The Company's promissory notes, which mature in 1997, were
issued to assist in financing the acquisition and related
construction of a manufacturing facility in Puerto Rico. These notes
bear interest, which is payable quarterly, at a floating rate equal
to 81% of a Eurodollar base rate, not to exceed 12%. At
December 31, 1995, the effective interest rate on these notes was
approximately 4.7%.
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 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 million of
letters of credit. As of December 31, 1995, $150 million was
available under the revolving line commitment for borrowing and to
support the Company's commercial paper program. Also, as of
December 31, 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.
The aggregate stated maturities of all long-term obligations due
subsequent to December 31, 1995, are as follows: none - 1996;
$118.2 million - 1997; $30.0 million - 1998; $6.0 million - 1999;
none - 2000 and $23.0 million thereafter.
5. 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 &
F-15
Johnson as to their respective rights and obligations under the
various agreements between them, including the agreement granting the
license (the "License Agreement"). These disputes have been the
subject of arbitration proceedings before Judicial Arbitration and
Mediation Services, Inc. in Chicago, Illinois commencing in January
1989. A dispute that has not yet been resolved and is the subject of
the current arbitration proceeding relates to the audit methodology
currently employed by the Company for Epoetin alfa sales. The
Company and Johnson & Johnson are required to compensate each other
for Epoetin alfa sales which either party makes into the other
party's exclusive market. The Company has established and is
employing an audit methodology to assign the proceeds of sales of
EPOGEN(R) and PROCRIT(R) in Amgen's and Johnson & Johnson's
respective exclusive markets. Based upon this audit methodology, the
Company is seeking payment of approximately $10 million from Johnson
& Johnson for the period 1989 through 1994. Johnson & Johnson has
disputed this methodology and is proposing an alternative methodology
for adoption by the arbitrator pursuant to which it is seeking
payment of approximately $419 million for the period 1989 through
1994. If, as a result of the arbitration proceeding, a methodology
different from that currently employed by the Company is instituted
to assign the proceeds of sales between the parties, it may yield
results that are different from the results of the audit methodology
currently employed by the Company. As a result of the arbitration,
it is possible that the Company would recognize a different level of
EPOGEN(R) sales than are currently being recognized. As a result of
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 is scheduled to commence 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. Discovery as to these issues is in
progress.
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
F-16
American Arbitration Association ("AAA") in Chicago, Illinois.
Johnson & Johnson alleges in this demand that the Company has
breached the License Agreement. The demand also includes allegations
of various antitrust violations. In this demand, Johnson & Johnson
seeks an injunction, declaratory relief, unspecified compensatory
damages, punitive damages and costs. The Company has filed a motion
to stay the arbitration pending the outcome of the existing
arbitration proceedings before Judicial Arbitration and Mediation
Services, Inc. discussed above. The Company has also filed an answer
and counterclaim denying that AAA has jurisdiction to hear or decide
the claims stated in the demand, denying the allegations in the
demand and counterclaiming for certain unpaid invoices.
Synergen ANTRIL(TM) litigation
Several lawsuits have been filed against the Company's wholly
owned subsidiary, Amgen Boulder Inc. (formerly Synergen, Inc.),
alleging misrepresentations in connection with Synergen's research
and development of ANTRIL(TM) for the treatment of sepsis. One suit
brought by three Synergen stockholders alleges violations of state
securities laws, fraud and misrepresentation and seeks an unspecified
amount of compensatory damages and punitive damages. Another suit,
proposed as a class action, filed by a limited partner of a
partnership with which Synergen is affiliated, seeks rescission of
certain payments made to one of the defendants (or unspecified
damages not less than $50 million) and treble damages based on a
variety of allegations. Broker-dealers who acted as market makers in
Synergen options have also filed a suit claiming in excess of
$3.2 million in trading losses.
While it is not possible to predict accurately or determine the
eventual outcome of the Johnson & Johnson arbitration proceedings,
the Synergen litigation or various other legal proceedings (including
patent disputes) involving Amgen, the Company believes that the
outcome of these proceedings will not have a material adverse effect
on its financial statements.
F-17
6. Income taxes
The provision for income taxes includes the following (in
millions):
Years ended December 31,
1995 1994 1993
-------- -------- --------
Current provision:
Federal (including U.S.
possessions).............. $211.5 $231.3 $165.8
State....................... 21.3 34.9 25.9
------ ------ ------
Total current provision... 232.8 266.2 191.7
------ ------ ------
Deferred provision (benefit):
Federal (including U.S.
possessions).............. 25.1 0.5 19.7
State....................... (1.2) 1.9 6.4
------ ------ ------
Total deferred provision.. 23.9 2.4 26.1
------ ------ ------
$256.7 $268.6 $217.8
====== ====== ======
Deferred income taxes reflect the net tax effects of net
operating loss carryforwards and temporary differences between the
carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax assets and liabilities are
as follows (in millions):
December 31,
1995 1994
-------- --------
Deferred tax assets:
Net operating loss carryforwards..... $ 81.1 $ 89.5
Expense accruals..................... 61.0 78.5
Fixed assets......................... 23.2 17.0
Research collaboration expenses...... 17.4 8.0
Royalty obligation buyouts........... 11.2 11.8
Other................................ 12.4 16.7
------ ------
Total deferred tax assets......... 206.3 221.5
Valuation allowance.................... (86.2) (79.5)
------ ------
Net deferred tax assets........... 120.1 142.0
------ ------
Deferred tax liabilities:
Purchase of technology rights........ (29.7) (25.7)
Other................................ (3.7) (5.7)
------ ------
Total deferred tax liabilities.... (33.4) (31.4)
------ ------
$86.7 $110.6
====== ======
F-18
The net change in the valuation allowance for deferred tax
assets during the year ended December 31, 1995 was $6.7 million.
At December 31, 1995, the Company had operating loss
carryforwards available to reduce future federal taxable income which
expire as follows (in millions):
1997 - 2002.......... $ 0.9
2003 - 2006.......... 19.9
2007................. 26.7
2008................. 81.2
2009................. 81.9
------
$210.6
======
These operating loss carryforwards relate to the acquisition of
Synergen (Note 2). Utilization of these operating loss carryforwards
is limited to approximately $16.0 million per year.
The provision for income taxes varies from income taxes provided
based on the federal statutory rate of 35% as follows (in millions):
Years ended December 31,
1995 1994 1993
-------- -------- --------
Statutory rate applied to income
before income taxes.............. $278.0 $205.9 $207.3
State income taxes, net of federal
income tax benefit............... 13.1 23.9 21.0
Benefit of Puerto Rico operations,
net of Puerto Rico income taxes.. (27.8) - -
Write-off of purchased in-process
technology not deductible........ - 40.7 -
Retroactive effects of enacted tax
law changes...................... - - (9.6)
Other, net......................... (6.6) (1.9) (.9)
------ ------ ------
$256.7 $268.6 $217.8
====== ====== ======
The tax provision for the year ended December 31, 1993 was
reduced by $9.6 million due to changes in federal tax laws enacted in
August 1993. This amount principally relates to the retroactive
reinstatement of research and experimentation and orphan drug tax
credits to July 1, 1992.
Income taxes paid during the years ended December 31, 1995, 1994
and 1993, totaled $100.8 million, $234.2 million and $146.3 million,
respectively.
F-19
7. Stockholders' equity
On January 24, 1989, the Company's Board of Directors declared a
dividend of one common share purchase right ("Right") for each
outstanding share of common stock. The Rights will become
exercisable 10 days after a person acquires 10% or more of the common
stock, or 10 days after a person announces a tender offer which would
result in such person acquiring 10% or more of the common stock.
Subject to certain conditions, the Rights may be redeemed by the
Board of Directors. The current redemption price is $.0008 per
Right, subject to adjustment. The Rights will expire on
January 24, 1999.
Under certain circumstances, if an acquirer purchases 10% or
more of the Company's outstanding common stock, each Rightholder
(other than the acquirer) is entitled for a specified period to buy
shares of common stock of the Company at 50% of the then current
market price. The number of shares which a holder may purchase upon
exercise will be determined by a formula which includes a current
exercise price of $80 per share, subject to adjustment. If an
acquirer purchases at least 10% of the Company's common stock, but
has not achieved a 50% stake, the Board may exchange the Rights
(other than the acquirer's Rights) for one share of common stock per
Right. In addition, under certain circumstances, if the Company is
involved in a merger or other business combination where it is not
the surviving corporation, a Rightholder may buy shares of common
stock of the acquiring company at 50% of the then current market
value.
In connection with the sale of limited partnership interests in
Amgen Clinical Partners, L.P. (the "Limited Partnership"), Amgen
issued warrants to the limited partners to purchase 36.3 million
shares of its common stock in exchange for the options to purchase
the limited partners' interests in the Limited Partnership.
Substantially all warrants were exercised prior to their expiration
on June 30, 1994.
In addition to common stock, the Company's authorized capital
also includes 5.0 million shares of preferred stock, $.0001 par
value. At December 31, 1995, no shares of preferred stock were
issued or outstanding.
At December 31, 1995, the Company had reserved 394.4 million
shares of its common stock which may be issued through its stock
option and stock purchase plans and in connection with the
stockholder Rights agreement.
The Company has a stock repurchase program to offset the
dilutive effect of its employee benefit stock option and stock
purchase plans. Stock repurchased under the program is retired. As
of December 31, 1995, the Company was authorized to repurchase up to
$450 million of its stock during 1996.
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, all share information in the accompanying consolidated
F-20
financial statements and notes thereto have been retroactively adjusted
to give recognition to this stock split.
8. Stock option and purchase plans
The Company's stock option plans provide for option grants
designated as either nonqualified or incentive stock options. The
options generally vest over a three to five year period and generally
expire seven years from the date of grant. In general, stock option
grants are set at the closing price of the Company's common stock on
the date of grant. As of December 31, 1995, the Company had
26.3 million shares of common stock available for future grant under
its stock option plans.
Most U.S. employees and certain employees outside the U.S. are
eligible to receive a grant of stock options periodically with the
number of shares generally determined by the employee's salary grade,
performance level and the stock price. In addition, certain
management and professional level employees normally receive a stock
option grant upon hire. Non-employee directors of the Company
receive a grant of stock options annually.
Stock option information with respect to all of the Company's
stock option plans follows (in millions, except price information):
Exercise Price
------------------------
Weighted
Shares Low High Average
------ --- ---- --------
Balance December 31, 1992,
unexercised............... 30.2 $ 1.76 $38.88 $11.09
Granted................ 8.0 $16.06 $35.31 $18.93
Exercised.............. (4.5) $ 1.76 $30.50 $ 4.62
Cancelled.............. (0.6) $ 2.25 $38.38 $15.21
----
Balance December 31, 1993,
unexercised............... 33.1 $ 1.76 $38.88 $13.72
Granted................ 8.5 $17.68 $29.50 $22.07
Exercised.............. (5.6) $ 1.93 $28.00 $ 6.95
Cancelled.............. (1.0) $ 3.69 $37.38 $21.92
----
Balance December 31, 1994,
unexercised............... 35.0 $ 1.76 $38.88 $16.58
Granted................ 7.1 $28.94 $58.88 $39.62
Exercised.............. (8.1) $ 1.93 $38.88 $12.87
Cancelled.............. (1.0) $ 2.25 $39.88 $19.86
----
Balance December 31, 1995,
unexercised............... 33.0 $ 1.76 $58.88 $22.35
====
At December 31, 1995, stock options to purchase 15.7 million
shares were exercisable.
F-21
The Company has an employee stock purchase plan whereby, in
accordance with Section 423 of the Internal Revenue Code, eligible
employees may authorize payroll deductions of up to 10% of their
salary to purchase shares of the Company's common stock at the lower
of 85% of the fair market value of common stock on the first or last
day of the offering period. During each of the years ended
December 31, 1995, 1994 and 1993, approximately 0.2 million shares
were purchased by employees at prices of approximately $24.76, $20.88
and $21.04 per share, respectively. At December 31, 1995, the
Company had 5.1 million shares available for future issuance under
this plan.
9. Balance sheet accounts
Property, plant and equipment consist of the following (in millions):
December 31,
1995 1994
-------- --------
Land................................. $ 59.1 $ 58.4
Buildings............................ 404.5 330.2
Manufacturing equipment.............. 59.2 53.2
Laboratory equipment................. 148.9 123.6
Furniture and office equipment....... 200.4 137.6
Leasehold improvements............... 55.7 53.7
Construction in progress............. 105.6 116.7
-------- ------
1,033.4 873.4
Less accumulated depreciation and
amortization...................... (289.6) (208.1)
-------- ------
$ 743.8 $665.3
======== ======
Other accrued liabilities consist of the following (in millions):
December 31,
1995 1994
-------- --------
Income taxes......................... $124.4 $ 35.0
Employee compensation and benefits... 70.8 63.4
Sales incentives, royalties and
allowances......................... 65.5 60.0
Due to affiliated companies and
corporate partners................ 54.9 51.8
Legal costs.......................... 33.4 60.7
Clinical costs....................... 18.3 29.9
Other................................ 92.4 105.4
------ ------
$459.7 $406.2
====== ======
F-22
10. Fair values of financial instruments
The following is information concerning the fair values of each
class of financial instruments at December 31, 1995:
Cash, cash equivalents and marketable securities
The carrying amounts of cash, cash equivalents and marketable
securities approximate their fair values. Fair values of cash
equivalents and marketable securities are based on quoted market
prices.
Debt
The carrying value of commercial paper approximates its fair
value due to the short maturity of these liabilities. The fair value
of Medium Term Notes was approximately $110 million. This amount was
estimated based on quoted market rates for instruments with similar
terms and remaining maturities. The carrying value of the promissory
notes approximates its fair value since the interest rate on the
notes is reset quarterly.
Interest rate swap agreements
The fair values of interest rate swap agreements were not
significant based on estimated amounts that the counterparty would
receive or pay to terminate the swap agreements taking into account
current interest rates.
Foreign currency contracts
The fair values of the foreign currency forward contracts and
purchased foreign currency option contracts were not significant
based on quoted market rates.
11. Major customers
Amgen has chosen to use major wholesale distributors of
pharmaceutical products as the principal means of distributing the
Company's products to clinics, hospitals and pharmacies. The Company
performs periodic credit evaluations of its large customers'
financial condition and generally requires no collateral. For the
years ended December 31, 1995, 1994 and 1993, sales to two large
wholesale distributors as a percentage of total revenues were 21% and
15%, 22% and 16%, and 23% and 10%, respectively.
F-23
12. Geographic information
Information about the Company's operations in the United States
and its possessions, Europe, and other international markets, which
include Canada, Australia and Japan is as follows (in millions):
Years ended December 31,
1995 1994 1993
---------- ---------- ----------
Sales to unaffiliated customers:
United States and possessions... $1,546.1 $1,333.8 $1,130.0
Europe.......................... 254.7 193.0 165.7
Other........................... 17.8 22.8 10.6
Transfers between geographic areas:
United States and possessions... 12.6 15.7 5.4
Other revenue................... 121.3 98.3 67.5
Adjustments and eliminations.... (12.6) (15.7) (5.4)
-------- -------- --------
$1,939.9 $1,647.9 $1,373.8
======== ======== ========
Years ended December 31,
1995 1994 1993
-------- -------- --------
Operating profit (loss):
United States and possessions... $801.7 $624.0 $592.9
Europe.......................... 75.7 50.3 35.8
Other........................... (33.1) (25.6) (14.9)
Adjustments and eliminations...... (1.7) (2.8) 1.0
------ ------ ------
Total operating profit............ 842.6 645.9 614.8
Interest and other income......... 50.8 9.5 21.0
Loss of affiliates, net........... (53.3) (31.2) (12.6)
General corporate expenses........ (45.7) (35.9) (30.8)
------ ------ ------
Income before income taxes and
cumulative effect of a change
in accounting principle......... $794.4 $588.3 $592.4
====== ====== ======
Operating profit (loss) represents revenue less operating
expenses directly related to each geographic area. Operating profit
(loss) excludes interest and other income, loss of affiliates, net
and other expenses attributable to general corporate operations.
Included in the operating profit for the United States and its
possessions is a write-off of in-process technology purchased of
$116.4 million for the year ended December 31, 1994 and a legal award
of $13.9 million for the year ended December 31, 1993. Loss of
affiliates, net includes the minority interest in earnings of
majority controlled European affiliates of $50.7 million,
$30.9 million and $22.2 million for the years ended
December 31, 1995, 1994 and 1993, respectively.
F-24
Information about the Company's identifiable assets in each
geographic area is as follows (in millions):
December 31,
1995 1994
---------- ----------
Identifiable assets:
United States and possessions...... $ 964.0 $ 906.4
Europe............................. 70.5 50.7
Other.............................. 16.3 22.3
Adjustments and eliminations.......... 1.7 (2.8)
-------- --------
Total identifiable assets............. 1,052.5 976.6
Corporate assets including equity
method investments................. 1,380.3 1,017.5
-------- --------
Total assets.......................... $2,432.8 $1,994.1
======== ========
Identifiable assets are those assets of the Company that are
identified with the operations in each geographic area. Europe's
identifiable assets include accounts receivable of approximately
$54.7 million and $34.4 million as of December 31, 1995 and 1994,
respectively, denominated in foreign currencies. Corporate assets,
which are excluded from identifiable assets, are principally
comprised of cash, cash equivalents and marketable securities. At
December 31, 1995 and 1994, total international assets approximated
$124.6 million and $93.8 million, respectively, and total
international liabilities approximated $22.2 million and $16.6
million, respectively.
13. Quarterly financial data (unaudited, in millions, except per
share data):
1995 Quarter Ended Dec. 31 Sept. 30 June 30 Mar. 31
- ------------------ ------- ------- ------- -------
Product sales...... $484.2 $460.6 $462.6 $411.2
Gross margin from
product sales.... 418.4 396.5 386.2 344.6
Net income......... 145.6 145.8 137.7 108.6
Earnings per
share:
Primary.......... .52 .52 .49 .39
Fully diluted.... .51 .51 .49 .39
1994 Quarter Ended Dec. 31 Sept. 30 June 30 Mar. 31
- ------------------ ------- ------- ------- -------
Product sales...... $413.6 $401.7 $388.6 $345.7
Gross margin from
product sales.... 352.3 342.6 324.2 292.4
Net income......... 4.8 (1) 114.0 107.4 93.5
Earnings per
share:
Primary.......... .02 .41 .38 .33
Fully diluted.... .02 .41 .38 .33
(1) During the fourth quarter of 1994, net income was reduced
by $116.4 million due to the write-off of in-process technology
purchased in connection with the acquisition of Synergen (Note 2).
F-25
SCHEDULE II
AMGEN INC.
VALUATION ACCOUNTS
Years ended December 31, 1995, 1994 and 1993
(In millions)
Additions
Balance Charged Balance
at to Costs at End
Beginning and of
of Period Expenses Deductions Period
-------- -------- ---------- -------
Allowance for doubtful
accounts.................... $13.3 $5.4 $4.9 $13.8
Allowance for doubtful
accounts.................... $12.2 $1.5 $0.4 $13.3
Allowance for doubtful
accounts.................... $11.8 $0.9 $0.5 $12.2
F-26