Back to GetFilings.com
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED STATES
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
For the fiscal year ended December 31, 2000
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 000-12477
AMGEN INC.
(Exact name of registrant as specified in its charter)
Delaware 95-3540776
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Amgen Center Drive, Thousand Oaks, California 91320-1799
(Address of principal executive offices) (Zip Code)
805-447-1000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(g) of the Act:
Common stock, $0.0001 par value; preferred share 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 and non-voting stock held
by non-affiliates of the registrant was $74,135,056,000 as of February 15,
2001 (A)
1,041,537,659
(Number of shares of common stock outstanding as of February 15, 2001)
Documents incorporated by reference:
Form 10-K
Document Parts
-------- ---------
Definitive 2001 Proxy Statement, to be filed within
120 days of December 31, 2000 (specified portions).............. III
- -------
(A) Excludes 12,777,130 shares of common stock held by directors and officers,
and any stockholders whose ownership exceeds five percent of the shares
outstanding, at February 15, 2001. 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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PART I
Item 1. BUSINESS
Overview
Amgen Inc. ("Amgen" or the "Company") is a global biotechnology company that
discovers, develops, manufactures and markets human therapeutics based on
advances in cellular and molecular biology.
The Company manufactures and markets four human therapeutic products,
EPOGEN(R) (Epoetin alfa), NEUPOGEN(R) (Filgrastim), INFERGEN(R) (Interferon
alfacon-1) and STEMGEN(R) (Ancestim). 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.
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 reducing
symptoms in patients with severe chronic neutropenia, for supporting peripheral
blood progenitor cell ("PBPC") transplants and for reducing the recovery time
of neutrophils and the duration of fever following chemotherapy treatment in
patients being treated for acute myelogenous leukemia ("AML"). NEUPOGEN(R) is
also marketed in the EU, Canada and Australia for use in treating neutropenia
in patients infected with the human immunodeficiency virus ("HIV") receiving
antiviral and/or other myelosuppressive medications. INFERGEN(R) is a non-
naturally occurring type-1 interferon which stimulates the immune system to
fight viral infections and is indicated for the treatment of chronic hepatitis
C viral infection. The Company sells INFERGEN(R) in the United States and
Canada. STEMGEN(R) stimulates the production, mobilization and maturation of
progenitor cells and is indicated for use in support of stem cell
transplantation. The Company markets STEMGEN(R) in Canada and Australia.
The Company focuses its research and development efforts on human
therapeutics delivered in the form of proteins, monoclonal antibodies and small
molecules in the therapeutic areas of nephrology, cancer, inflammation and
neurology and metabolism. 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 the People's Republic of China. In addition to
internal research and development efforts, the Company has acquired certain
product and technology rights and has established research and development
collaborations.
Amgen operates commercial manufacturing facilities located in the United
States, Puerto Rico and The Netherlands. A sales and marketing force is
maintained in the United States, EU, Canada, Australia, New Zealand and the
People's Republic of China. In addition, Amgen has entered into licensing
and/or co-promotion agreements to market EPOGEN(R), NEUPOGEN(R) and INFERGEN(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 One Amgen Center Drive, Thousand Oaks, California 91320-1799.
Products
Recombinant human erythropoietin
EPOGEN(R) (proper name--Epoetin alfa) is Amgen's registered trademark for
its recombinant human erythropoietin product, a protein that stimulates red
blood cell production. Red blood cells transport oxygen to all cells of the
body. Without adequate amounts of erythropoietin, the red blood cell count is
reduced, thereby diminishing the ability of the blood to deliver sufficient
amounts of oxygen to the body, resulting in anemia. People with chronic renal
failure suffer from anemia because they do not produce sufficient amounts of
erythropoietin, which is normally produced in healthy kidneys. Amgen promotes
EPOGEN(R) for the treatment
2
of anemia associated with chronic renal failure for patients who are on
dialysis and is indicated to elevate or maintain the red blood cell level (as
determined by hematocrit or hemoglobin measurements) 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, Inc. ("Kirin-
Amgen"), a joint venture between Kirin Brewery Company, Limited ("Kirin") and
Amgen (see "Joint Ventures and Business Relationships--Kirin Brewery Company,
Limited"). The Company began selling EPOGEN(R) in 1989 when the U.S. Food and
Drug Administration ("FDA") approved its use in the treatment of anemia
associated with chronic renal failure. In November 1999, the FDA approved
EPOGEN(R) for the treatment of anemia in children with chronic renal failure
who are on dialysis.
The Company has retained exclusive rights to market EPOGEN(R) in the United
States for dialysis patients. Amgen has granted Ortho Pharmaceutical
Corporation (which has assigned its rights under the Product License Agreement
to Ortho Biotech Products, L.P.), a subsidiary of Johnson & Johnson, hereafter
referred to as "Johnson & Johnson", a license to commercialize recombinant
human erythropoietin as a human therapeutic in the United States in all markets
other than dialysis. Johnson & Johnson markets recombinant human erythropoietin
under the trademark PROCRIT(R) in the United States. See Note 1 to the
Consolidated Financial Statements, "Summary of significant accounting
policies--Product sales". In countries other than the United States, the
People's Republic of China and Japan, Johnson & Johnson was granted rights to
commercialize erythropoietin as a human therapeutic under a licensing agreement
with Kirin-Amgen. Affiliates of Johnson & Johnson manufacture and market
erythropoietin under the trademark EPREX(R) in various countries. See "Joint
Ventures and Business Relationships--Johnson & Johnson".
In Japan and the People's Republic of China, Kirin was granted rights to
market recombinant human erythropoietin under licensing agreements with Kirin-
Amgen (see "Joint Ventures and Business Relationships-- Kirin Brewery Company,
Limited"). Kirin manufactures and markets its recombinant human erythropoietin
product under the trademark ESPO(R).
For EPOGEN(R) sales information for the years ended December 31, 2000, 1999
and 1998, see Note 10 to the Consolidated Financial Statements.
Recombinant-methionyl human granulocyte colony-stimulating factor
NEUPOGEN(R) (proper name--Filgrastim) is Amgen's registered trademark for
its recombinant-methionyl 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 neutrophils, a condition called neutropenia.
Myelosuppressive chemotherapy, one treatment option for individuals with
cancer, targets cell types which grow rapidly, such as tumor cells, neutrophils
and other types of blood cells. Myelosuppressive chemotherapy can be
administered with the intent to cure cancer (curative setting) or with the
intent to reduce pain and other complications of cancer by shrinking the tumor
(palliative setting). NEUPOGEN(R) is prescribed more frequently in the curative
setting. Providing NEUPOGEN(R) as an adjunct to myelosuppressive chemotherapy
can reduce the duration of neutropenia and thereby reduce the potential for
infection.
Severe chronic neutropenia is an example of disease-related neutropenia. In
severe chronic 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 severe chronic 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
3
immature blood cells (progenitor cells, sometimes referred to as stem cells) to
migrate (mobilize) from the bone marrow into the blood circulatory system. When
these peripheral blood progenitor cells (PBPC) are collected from the blood,
stored and re-infused (transplanted) after high dose chemotherapy, recovery of
platelets, red blood cells and neutrophils is accelerated. PBPC transplantation
may be an alternative to autologous bone marrow transplantation for some
patients.
In the United States, 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.
Subsequently, the FDA approved NEUPOGEN(R) for additional indications: to
reduce the duration of neutropenia for patients with non-myeloid malignancies
undergoing myeloablative therapy followed by bone marrow transplantation; to
reduce the incidence and duration of neutropenia-related consequences in
symptomatic patients with congenital neutropenia, cyclic neutropenia or
idiopathic neutropenia (collectively, severe chronic neutropenia); for use in
mobilization of PBPC for stem cell transplantation; and to reduce the recovery
time of neutrophils and the duration of fever following chemotherapy treatment
in patients being treated for AML. In the EU, Canada and Australia, NEUPOGEN(R)
is marketed for the same indications.
The Company also markets NEUPOGEN(R) in the EU, Canada and Australia for the
treatment of neutropenia in HIV patients receiving antiviral and/or other
myelosuppressive medications. A trial for the treatment of neutropenia in HIV
infected patients was completed and a supplemental licensing application for
approval of this indication was submitted to the FDA in 1996. The FDA has
raised concerns about whether this submission is approvable, and the Company
cannot predict the outcome of discussions with the FDA.
The Company began selling NEUPOGEN(R) in the United States in February 1991
pursuant to a licensing agreement with Kirin-Amgen. Kirin markets GRAN(R), its
G-CSF product, in Japan, the People's Republic of China, Taiwan and Korea under
licensing agreements with Kirin-Amgen (see "Joint Ventures and Business
Relationships--Kirin Brewery Company, Limited"). In the EU, NEUPOGEN(R) is
commercialized by Amgen and F. Hoffmann-La Roche Ltd ("Roche") under a co-
promotion agreement (see "Joint Ventures and Business Relationships--F.
Hoffmann-La Roche Ltd"). In geographic areas of the world other than those
above, Roche markets NEUPOGEN(R) under licenses from Amgen and Kirin-Amgen (see
"Joint Ventures and Business Relationships--Kirin Brewery Company, Limited" and
"Joint Ventures and Business Relationships--F. Hoffmann-La Roche Ltd").
For NEUPOGEN(R) sales information for the years ended December 31, 2000,
1999 and 1998, see Note 10 to the Consolidated Financial Statements.
Other products
INFERGEN(R) (proper name--Interferon alfacon-1) is Amgen's registered
trademark for its recombinant consensus interferon, a non-naturally occurring
protein that combines structural features of many interferon sub-types.
Interferons are natural proteins produced by the body which stimulate the
immune system to fight viral infections. Hepatitis C viral infection ("HCV") is
a potentially deadly disease that, if not treated, may lead to cirrhosis and
hepatocellular carcinoma, or liver cancer. The Company began selling
INFERGEN(R) in the United States in October 1997. Amgen sells INFERGEN(R) for
the treatment of adults with chronic HCV. INFERGEN(R) is approved for the
treatment of newly diagnosed or previously untreated HCV patients for 24 weeks
and for 48 weeks at a higher dose in patients who relapsed or failed to respond
to initial interferon treatment. Amgen also sells INFERGEN(R) for the treatment
of chronic HCV in Canada.
In 1996, Amgen licensed to Yamanouchi Pharmaceutical Co., Ltd. of Japan
("Yamanouchi") the rights to develop, manufacture and commercialize Interferon
alfacon-1 for all indications around the world except in the United States and
Canada. Yamanouchi granted rights to the Company to co-develop and market
Interferon alfacon-1 in Japan, the People's Republic of China and Taiwan (see
"Joint Ventures and Business Relationships--Yamanouchi Pharmaceutical Co.,
Ltd.").
4
STEMGEN(R) (proper name--Ancestim) is Amgen's registered trademark for its
recombinant-methionyl human stem cell factor. STEMGEN(R), when used in
combination with NEUPOGEN(R), has been shown to induce immature blood cells
(progenitor cells, sometimes referred to as stem cells) to migrate (mobilize)
from the bone marrow into the blood circulatory system. When these peripheral
blood progenitor cells (PBPC) are collected from the blood, stored and re-
infused (transplanted) after high dose chemotherapy, recovery of platelets, red
blood cells and neutrophils is accelerated. PBPC transplantation may be an
alternative to autologous bone marrow transplantation for some patients. In
1999, STEMGEN(R) was approved for use in support of stem cell transplantation
by the regulatory authorities in Canada, Australia and New Zealand. In 2000,
the Company withdrew its application to market STEMGEN(R) in the United States.
Discussions with other regulatory agencies are continuing. The Company is also
investigating the potential benefits of STEMGEN(R) for patients with aplastic
anemia in a phase 1/2 clinical trial.
Product Candidates
The Company focuses its research and development efforts on human
therapeutics delivered in the form of proteins, monoclonal antibodies and small
molecules in the therapeutic areas of nephrology, cancer, inflammation and
neurology and metabolism (see "Factors That May Affect Amgen--Results of our
product development are uncertain.").
Nephrology
ARANESP(TM) (proper name--darbepoetin alfa) is Amgen's registered trademark
for its novel erythropoiesis stimulating protein, a protein that stimulates red
blood cell production. In December 1999 and early 2000, the Company filed
regulatory submissions for the use of ARANESP(TM) in patients with chronic
renal insufficiency and chronic renal failure in the U.S., EU, Canada,
Australia and New Zealand. Data from phase 3 clinical trials indicate that
ARANESP(TM) permits less frequent dosing than Epoetin alfa in the treatment of
anemia in patients with chronic renal insufficiency and chronic renal failure.
In April 1999, the Company announced that phase 2 clinical trials of
darbepoetin alfa for the treatment of anemia resulting from chemotherapy had
been initiated. Preliminary data from these clinical trials were presented in
December 2000 and suggest that treatment of anemia with darbepoetin alfa in
cancer patients receiving myelosuppressive chemotherapy may be effective given
once weekly or once every three weeks. Phase 3 clinical trials of darbepoetin
alfa for the treatment of anemia resulting from chemotherapy are ongoing.
The Company has entered into an agreement with Kirin to jointly develop
darbepoetin alfa through its joint venture, Kirin-Amgen (see "Joint Ventures
and Business Relationships--Kirin Brewery Company, Limited"). Amgen has been
granted an exclusive license by Kirin-Amgen to manufacture and market
darbepoetin alfa in the United States, all European countries, Canada,
Australia, New Zealand, Mexico and all Central and South American countries.
Kirin has been granted similar rights by Kirin-Amgen for Japan, the People's
Republic of China, Taiwan, Korea and certain other countries in Southeast Asia.
A focus of the Company's effort in nephrology is in the area of
hyperparathyroidism ("HPT"). HPT is a disorder that causes excessive secretion
of parathyroid hormone ("PTH") from the parathyroid gland, leading to elevated
serum calcium, called hypercalcemia. Symptoms of HPT include bone loss, muscle
weakness, depression and forgetfulness. Secondary HPT is commonly seen as a
result of kidney failure, affecting a majority of dialysis patients. Primary
HPT primarily afflicts post-menopausal women. The Company has entered into a
license agreement with NPS Pharmaceuticals, Inc. ("NPS") for Amgen to develop
and commercialize NPS's calcimimetic small molecules based on NPS's proprietary
calcium receptor technology for the treatment of HPT. The Company is in
separate phase 2 clinical trials for primary and secondary HPT with a second
generation calcimimetic compound. In 2000, data from phase 2 studies were
presented suggesting that treatment with small-molecule calcimimetics results
in dose-dependent decreases in PTH levels and may provide effective reduction
of calcium levels.
5
Cancer
In March 1999, Amgen acquired the rights from PRAECIS PHARMACEUTICALS
INCORPORATED ("Praecis") to develop and commercialize abarelix-depot (see
"Joint Ventures and Business Relationships--PRAECIS PHARMACEUTICALS
INCORPORATED"). Data from clinical trials suggest that abarelix-depot, a
gonadotropin releasing hormone ("GnRH") antagonist, may inhibit the action of
endogenous GnRH on the pituitary gland, thereby reducing the production of
testosterone in men and estrogen in women. The reduction of testosterone or
estrogen through the use of pharmaceuticals, a practice known as hormonal
therapy, may confer a therapeutic benefit to patients with a number of diseases
and medical conditions including prostate cancer and endometriosis. Abarelix-
depot has completed phase 3 clinical trials in patients with hormonally-
responsive prostate cancer and a regulatory file was submitted to the FDA in
December 2000. In January 2001, this filing was accepted and granted priority
review by the FDA. Abarelix-depot is also in a phase 2 clinical trial in
patients with endometriosis, a painful gynecologic condition resulting from
abnormal growth of uterine tissue, usually in the pelvic or abdominal area.
Amgen is developing a sustained duration version of G-CSF called SD/01.
NEUPOGEN(R) is indicated to reduce the incidence of infections by reducing the
duration and severity of neutropenia. Appropriate NEUPOGEN(R) doses are
administered daily to be most effective. SD/01 is being developed to provide
for less frequent dosing, possibly only once-per-cycle of chemotherapy, and
thereby potentially improve compliance and patient satisfaction. In November
2000, the Company announced that phase 3 clinical trials of SD/01 to support
breast cancer patients receiving multiple cycles of chemotherapy were
successful.
In December 2000, Amgen acquired the rights from Immunomedics, Inc. to
develop and commercialize epratuzumab. Epratuzumab is currently being evaluated
for the treatment of non-Hodgkin's lymphoma ("NHL"). Epratuzumab is a humanized
monoclonal antibody which apparently binds to the cell surface of many normal
and most malignant B-cells, a type of white blood cell. Preliminary research
and early-stage clinical trials suggest that epratuzumab may exert an anti-
tumor activity. In the fourth quarter of 2000, a phase 3 clinical trial
commenced to evaluate epratuzumab for the treatment of low-grade NHL in
patients who failed to respond, or who responded for less than 6 months, to
Rituximab, a monoclonal antibody (see "Competition--Cancer"). A phase 1/2
clinical trial of epratuzumab in combination with Rituximab to treat low-grade
and aggressive NHL also is ongoing. A phase 1/2 clinical trial in patients with
low-grade or aggressive NHL was completed in the fourth quarter of 2000.
Certain tissue growth factors are believed to play a role in tissue
protection, regeneration and/or repair processes. Mucositis is a side effect
often experienced by patients undergoing radiation therapy and chemotherapy and
is characterized as the irritation or ulceration of the lining of the
gastrointestinal tract. Amgen currently is conducting research with
Keratinocyte Growth Factor ("KGF") as a prevention and treatment for mucositis.
Phase 2 and 3 clinical trials of KGF in cancer patients suffering from
mucositis are ongoing.
Osteoprotegerin ("OPG") is implicated in the regulation of bone mass. Bone
mass is maintained in the body by the regulation of the competing activities of
bone forming cells (osteoblasts) and bone resorbing cells (osteoclasts). Cancer
metastases (cancers which have spread from their original tumor site) to bone
cause bone destruction, leading to fractures and bone pain. In preclinical
studies, OPG has been shown to inhibit the osteoclast mediated bone destruction
induced by invading cancer cells. The Company's OPG program is in a phase 1
clinical trial in patients with bone metastases.
Inflammation
The inflammatory response is essential for defense against harmful
microorganisms 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. Interleukin-1 receptor antagonist (proper name--
anakinra) and tumor necrosis factor binding protein were two product candidates
added to the Company's inflammation research
6
program through the acquisition of Synergen, Inc. ("Synergen") (see "Joint
Ventures and Business Relationships--Other business relationships").
In July 1999, the Company announced that a large, controlled phase 2
clinical trial of anakinra in combination with methotrexate demonstrated
benefit over methotrexate alone for patients with rheumatoid arthritis. In
December 1999, the Company filed a licensing application with the FDA for
anakinra for the treatment of rheumatoid arthritis. Amgen plans to supplement
this application with data from two additional clinical studies in the first
quarter of 2001.
In April 1999, the Company announced that a phase 2 clinical trial of a
second generation inhibitor of tumor necrosis factor, soluble tumor necrosis
factor-receptor type I ("sTNF-RI"), was initiated in patients with rheumatoid
arthritis.
In July 2000, the Company announced that a phase 1 clinical trial of
anakinra in combination with sTNF-RI was initiated in patients with rheumatoid
arthritis.
Neurology and Metabolism
In 1997, Amgen acquired the rights from Guilford Pharmaceuticals Inc.
("Guilford") for a novel class of small molecule, orally-active, neurotrophic
agents called neuroimmunophilin compounds (see "Joint Ventures and Business
Relationships--Other business relationships"). The neuroimmunophilin compounds
are initially being developed to promote nerve regeneration and repair in
neurodegenerative disorders. In July 2000, the Company initiated a phase 2
clinical trial with neuroimmunophilins in patients with Parkinson's disease.
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, nerve injury and trauma. In January 2001, all
clinical development of brain-derived neurotrophic factor ("BDNF") that was
being developed in collaboration with Regeneron Pharmaceuticals, Inc.
("Regeneron") (see "Joint Ventures and Business Relationships--Other business
relationships") for the potential treatment of amyotrophic lateral sclerosis
("ALS") was discontinued following notification that BDNF did not provide a
therapeutic advantage to ALS patients in clinical trials. On behalf of the
collaboration with the Company, Regeneron is conducting clinical trials with
Neurotrophin-3 ("NT-3") for the treatment of chronic constipation.
The Company is currently developing leptin, a protein encoded by the obesity
gene. Leptin is made in fat cells and is believed to help regulate the amount
of fat stored by the body. In 1995, the Rockefeller University granted to the
Company an exclusive license which allows the Company to develop products based
on the obesity gene. In October 1998, the Company announced the results of an
interim analysis of preliminary three-month clinical data from two phase 2
clinical trials. This analysis revealed that there was no statistically
significant difference in weight loss between native leptin and placebo for the
study population as a whole. In April 1999, the Company announced that
development of native leptin for both obesity and diabetes was being
discontinued. The Company's leptin program now focuses on the development of
second generation forms of leptin. The leptin program is in phase 2 clinical
trials in obese subjects. Amgen has entered into a license agreement with
Interneuron Pharmaceuticals, Inc. pursuant to which Amgen has been granted
exclusive rights for the development and commercialization of products using
leptin receptor technology.
Joint Ventures and Business Relationships
The Company generally intends to self-market its products. From time to
time, the Company may enter into joint ventures and other business
relationships to provide additional marketing and product development
capabilities in certain countries. In addition to internal research and
development efforts, the Company has acquired certain product and technology
rights and has established research and development collaborations. Amgen has
established the relationships described below and may establish others in the
future.
7
F. Hoffmann-La Roche Ltd
Amgen and Roche have entered into an agreement providing for the
commercialization of NEUPOGEN(R) (Filgrastim) in the EU. Under this agreement,
the companies collaborate in the EU on the commercialization and further
clinical development of the product, and Amgen has a majority share in the
related costs and profits from sales. Amgen has most of the responsibilities
for marketing, promotion, distribution and other key functions relating to
product sales, and the Company distributes the product to EU countries from its
European Logistics Center in Breda, The Netherlands. Amgen and Roche have also
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.
Amgen and Roche are also collaborating on the development of a second
generation G-CSF product, SD/01, for the EU.
Johnson & Johnson
Amgen granted Johnson & Johnson a license to commercialize recombinant human
erythropoietin as a human therapeutic in the United States in all markets other
than dialysis. In countries other than the United States, the People's Republic
of China and Japan, Johnson & Johnson was granted rights to commercialize
recombinant human erythropoietin as a human therapeutic for all uses under a
licensing agreement with Kirin-Amgen.
Kirin Brewery Company, Limited
The Company has a 50-50 joint venture (Kirin-Amgen) with Kirin. Kirin-Amgen,
which was formed in 1984, develops and commercializes certain of the Company's
and Kirin's technologies which have been transferred to this joint venture.
Kirin-Amgen has given exclusive licenses to Amgen and Kirin to manufacture and
market erythropoietin in the United States and Japan, respectively. Kirin-Amgen
has licensed to Johnson & Johnson rights to erythropoietin in certain
geographic areas of the world (see "--Johnson & Johnson"). 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-Amgen has
licensed to Kirin similar rights with respect to G-CSF in Japan, Taiwan and
Korea. Kirin markets recombinant human erythropoietin and recombinant-methionyl
human granulocyte colony-stimulating factor in the People's Republic of China
under a separate agreement. Kirin-Amgen and Roche have entered into an
agreement to commercialize NEUPOGEN(R) in certain territories not covered by
the various Amgen/Roche agreements (see "--F. Hoffmann-La Roche Ltd"). Under
this agreement, Roche markets NEUPOGEN(R) in these countries and pays a royalty
to Kirin-Amgen on these sales.
In 1996, Kirin-Amgen licensed to Amgen and Kirin the rights to develop and
market darbepoetin alfa. Amgen has been granted an exclusive license by Kirin-
Amgen to manufacture and market darbepoetin alfa in the United States, all
European countries, Canada, Australia, New Zealand, Mexico and all Central and
South American countries. Kirin has been licensed by Kirin-Amgen with similar
rights for darbepoetin alfa in Japan, the People's Republic of China, Taiwan,
Korea and certain other countries in Southeast Asia.
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
"Corporate partner revenues" in the Company's Consolidated Financial Statements
for the years ended December 31, 2000, 1999 and 1998, are $221.0 million,
$138.5 million and $121.0 million, respectively, related to these agreements.
In connection with its various license agreements with Kirin-Amgen, the
Company pays Kirin-Amgen royalties based on sales. During the years ended
December 31, 2000, 1999 and 1998, Kirin-Amgen earned royalties from Amgen of
$140.8 million, $128.1 million and $105.0 million, respectively, under such
agreements, which are included in "Cost of sales" in the Company's Consolidated
Financial Statements.
8
Yamanouchi Pharmaceutical Co., Ltd.
In 1996, Amgen licensed to Yamanouchi the rights to develop, manufacture and
commercialize Interferon alfacon-1 for the treatment of hepatitis C viral
infection and any additional indications around the world except in the United
States and Canada. Amgen sells Interferon alfacon-1 under the trademark
INFERGEN(R) in the United States and Canada. Amgen has earned and will earn
additional amounts if certain milestones are achieved by Yamanouchi and will
receive royalties on sales. Yamanouchi has granted to Amgen K.K., the Company's
Japanese subsidiary, certain co-development and co-promotion/co-marketing
rights in Japan and has granted to Amgen Greater China, Ltd., Amgen's
subsidiary in Hong Kong, certain co-development and co-promotion rights in the
People's Republic of China and Taiwan.
PRAECIS PHARMACEUTICALS INCORPORATED
In March 1999, Amgen entered into a collaboration with Praecis relating to
the development and commercialization of abarelix-depot. Amgen has been granted
the exclusive right to commercialize abarelix-depot for all indications,
including prostate cancer and endometriosis in the United States, Canada,
Australia, Japan and several secondary markets. Amgen will conduct and pay for
certain research, development and commercialization activities. In general,
Praecis will receive a transfer price and royalty based on a sharing of the
resulting profits on sales of abarelix products in the United States; Praecis
will receive a royalty on net sales of abarelix products in Amgen's territories
outside of the United States.
Other business relationships
In 1990, the Company entered into a collaboration agreement with Regeneron
to co-develop and commercialize BDNF and NT-3 in the United States. To
facilitate this collaboration, the Company and Regeneron formed Amgen-Regeneron
Partners, a 50-50 partnership. In addition, Regeneron licensed these potential
products to Amgen for development in certain other countries.
In 1994, the Company acquired Synergen, a biotechnology company. The
acquisition of Synergen principally added its inflammation program to Amgen's
product candidate pipeline. Synergen Clinical Partners, L.P. ("SCP"), the
general partner of which was a subsidiary of Synergen, was formed to fund
development and commercialization of anakinra in certain geographic areas. As a
result of the acquisition of Synergen, the general partner of SCP became a
subsidiary of Amgen. In connection with the settlement of certain litigation
relating to Synergen and SCP, Amgen acquired all of the limited partnership
units of SCP. Amgen may be required to pay future amounts to the former limited
partners that were members of the plaintiff class, other members of the
plaintiff class and their counsel if the FDA should grant approval to market
anakinra (as more specifically defined in the related settlement agreement) and
additional amounts if certain product revenues are realized.
In 1997, Amgen and Guilford entered into an agreement granting Amgen
worldwide rights for Guilford's neuroimmunophilin compounds, a novel class of
small molecule, orally-active, neurotrophic agents that may represent a new
approach in the treatment of neurodegenerative disorders. Under the terms of
the agreement, Amgen will receive worldwide rights to neuroimmunophilin
compounds for all human therapeutic and diagnostic applications. Amgen will
conduct and pay for all clinical development and manufacturing of products,
market products worldwide and pay royalties to Guilford on such sales. In
connection with this agreement, Amgen made an equity investment in Guilford.
Marketing
Amgen uses wholesale distributors of pharmaceutical products as the
principal means of distributing the Company's products to clinics, hospitals
and pharmacies. The Company monitors the financial condition of its larger
distributors and seeks to limit its credit exposure by setting appropriate
credit limits and requiring collateral from certain customers. Sales to two
large wholesalers accounted for more than 10% of total revenues
9
for the years ended December 31, 2000, 1999 and 1998. Sales to one of these
wholesalers, Bergen Brunswig Corporation, were $1,233.4 million, $1,078.0
million and $856.2 million for the years ended December 31, 2000, 1999 and
1998, respectively. Sales to the other wholesaler, Cardinal Distribution, were
$445.2 million, $438.2 million and $366.5 million for the years ended December
31, 2000, 1999 and 1998, respectively.
Dialysis providers are primarily reimbursed for EPOGEN(R) by the federal
government through the End Stage Renal Disease Program ("ESRD Program") of
Medicare. The ESRD Program reimburses approved providers for 80% of allowed
dialysis costs; the remainder is paid by other sources, including Medicaid,
private insurance, and to a lesser extent, state kidney patient programs. The
ESRD Program reimbursement rate is established by Congress and is monitored by
the Health Care Financing Administration ("HCFA"). Changes in coverage and
reimbursement policies could have a material adverse effect on EPOGEN(R) sales
(see "Factors That May Affect Amgen--Our sales depend on reimbursement and
third party payors.").
NEUPOGEN(R) is reimbursed by both private and public payors, and changes in
coverage and reimbursement policies of these payors could have a material
adverse effect on sales of NEUPOGEN(R) (see "Factors That May Affect Amgen--Our
sales depend on reimbursement and third party payors.").
In the EU, Amgen and Roche share commercialization responsibilities for
NEUPOGEN(R) under a co-promotion agreement (see "Joint Ventures and Business
Relationships--F. Hoffmann-La Roche Ltd"). NEUPOGEN(R) is principally
distributed to wholesalers and/or hospitals in all EU countries depending upon
the distribution practice for products in each country. Most patients receiving
NEUPOGEN(R) for approved indications are covered by government health care
programs. Generally, the use of NEUPOGEN(R) is affected by EU government
pressures on physician prescribing practices in response to ongoing government
initiatives to reduce health care expenditures, and to a lesser extent,
competition.
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.
INFERGEN(R) is sold by the Company in the United States and Canada.
INFERGEN(R) is reimbursed through both private and public sources, with primary
reimbursement through private payors.
STEMGEN(R) is marketed by the Company directly to hospitals, pharmacies and
medical practitioners in Canada and Australia. Distribution is handled by third
party contractors.
Competition
Competition among biotechnology, pharmaceutical and other companies that
research, develop, manufacture or market pharmaceuticals is intense and is
expected to increase. See "Factors That May Affect Amgen--We face competition".
Some competitors, principally large pharmaceutical companies, have greater
clinical, research, regulatory and marketing resources and experience than the
Company, particularly in the area of small molecule therapeutics. In addition,
certain specialized biotechnology firms have entered into cooperative
arrangements with major companies for development and commercialization of
products, creating an additional source of competition. The Company faces
product competition from firms in the United States, countries of the EU,
Canada, Australia and elsewhere. Additionally, some of the Company's
competitors, including biotechnology and pharmaceutical companies, are actively
engaged in the research and development in areas where the Company is also
developing product candidates, as more fully discussed below.
The introduction of new products or the development of new processes by
competitors or new information about existing products may result in product
replacements or price reductions, even for products protected by patents. In
addition, the timing of entry of a new product into the market can be an
important factor in determining the product's eventual success and
profitability. Early entry may have important advantages in gaining product
acceptance and market share. Accordingly, in some cases, the relative speed
with which the Company can develop products, complete the testing and approval
process and supply commercial quantities of
10
the product to the market is expected to be important to Amgen's competitive
position. Competition among pharmaceutical products approved for sale also may
be based on, among other things, patent position, product efficacy, safety,
reliability, availability and price.
A significant amount of research and development in the biotechnology
industry is conducted by small companies, academic institutions, governmental
agencies and other public and private research organizations. These entities
may seek patent protection and enter into licensing arrangements to collect
royalties for use of technology or for the sale of products they have
discovered or developed. Amgen also may face competition in its licensing or
acquisition activities from pharmaceutical companies and large biotechnology
companies that also seek to acquire technologies or product candidates from
these entities. Accordingly, the Company may have difficulty acquiring
technologies or product candidates on acceptable terms. Additionally, the
Company competes with these entities and with pharmaceutical and biotechnology
companies to attract and retain qualified scientific and technical personnel.
Nephrology
Any products or technologies that are directly or indirectly successful in
addressing anemia could negatively impact the market for EPOGEN(R) or for
ARANESP(TM). ARANESP(TM) will directly compete with other currently marketed
products which treat anemia, including EPOGEN(R) and the recombinant human
erythropoietin product marketed by Johnson & Johnson (see "Products--
Recombinant human erythropoietin"). Aventis S.A. ("Aventis") is developing
gene-activated erythropoietin for the treatment of anemia (see "Item 3. Legal
Proceedings--Transkaryotic Therapies and Aventis S.A. litigation").
The calcimimetic program could face competition from products currently
marketed by Abbott Laboratories, Bone Care International, Inc., Genzyme
Corporation and Roche which treat secondary HPT. In addition, another product
to treat HPT is currently being developed by Chugai Pharmaceuticals Co., Ltd.
("Chugai").
Cancer
Any products or technologies that are directly or indirectly successful in
addressing 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) has
been approved, development of chemotherapy treatments that are less
myelosuppressive than existing treatments and the availability of anti-cancer
modalities that reduce the need for myelosuppressive chemotherapy. NEUPOGEN(R)
currently faces market competition from a competing CSF product, granulocyte
macrophage colony stimulating factor ("GM-CSF") and from the chemoprotectant,
amifostine. Potential future sources of competition include other G-CSF
products, GM-CSF products, FLT-3 ligand, myelopoietin, PGG-glucan,
promegapoietin, and progenipoietin, among others.
Chugai markets a G-CSF product in Japan as an adjunct to chemotherapy and as
a treatment for BMT patients. Chugai and Aventis market a G-CSF product in
certain EU countries as an adjunct to chemotherapy and as a treatment in BMT
settings. Chugai, through its licensee, AMRAD, markets this G-CSF product in
Australia as an adjunct to chemotherapy and as a treatment for BMT patients.
Under an agreement with Amgen, Chugai is precluded from selling its G-CSF
product in the United States, Canada and Mexico.
Immunex Corporation ("Immunex") markets GM-CSF in the United States for BMT
and PBPC transplant patients and as an adjunct to chemotherapy treatments for
acute non-lymphocytic leukemia ("ANLL") and AML. Immunex is also pursuing other
indications for its GM-CSF product including as an adjunct to chemotherapy
outside the limited settings of ANLL and AML. Novartis AG markets another GM-
CSF product for use in BMT patients and as an adjunct to chemotherapy in the EU
and certain other countries. This GM-CSF product is currently being developed
for similar indications in the United States and Canada. Nartograstim, a
modified G-CSF protein, is sold by Kyowa Hakko Kogyo Co., Ltd. in Japan.
11
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 markets for STEMGEN(R) and potential markets for SD/01.
Abarelix-depot could face competition from products currently marketed by
TAP Pharmaceuticals, Inc. and AstraZeneca PLC which treat prostate cancer
and/or endometriosis. In addition, other products to treat prostate cancer are
currently approved, but not yet marketed, by Pharmacia Corporation and Bayer
Corporation. Other products to treat prostate cancer are being developed by
ASTA Medica AG, Atrix Laboratories, Inc. and Sanofi-Synthelabo.
NHL is primarily treated with standard chemotherapy agents, monoclonal
antibodies, or a combination of the two modalities. Epratuzumab could face
competition from Rituximab, another monoclonal antibody marketed jointly by
Genentech, Inc. and Idec Pharmaceuticals Corporation. However, it is also
possible that Epratuzumab may be used in combination with Rituximab (see
"Product candidates--Cancer"). In addition, other monoclonal antibodies are
being investigated for the treatment of NHL including those in development by
GlaxoSmithKline plc (in collaboration with Beckman Coulter, Inc.) and Idec
Pharmaceuticals Corporation.
Many companies are developing products that promote wound healing, soft
tissue regeneration and chemoprotection. Companies such as Human Genome
Sciences, Inc., Genetics Institute, Inc., U.S. Bioscience, Inc./MedImmune,
Inc., IntraBiotics Pharmaceuticals, Inc. and ALZA Corporation are currently
among many companies that are developing products which could be potential
competitors for KGF.
The OPG program could face competition from a product currently marketed by
Novartis AG for the treatment of cancer metastases to the bone.
Inflammation
Anakinra and sTNF-RI could face competition from a number of companies
developing or marketing rheumatoid arthritis treatments. Current anti-arthritic
treatments include generic methotrexate and other products marketed by
Centocor, Inc./Johnson & Johnson, Immunex/American Home Products Corporation,
Merck & Co., Inc., Pharmacia Corporation, Novartis AG and Sanofi-Synthelabo. In
addition, a number of companies have cytokine inhibitors in development
including Abbott Laboratories, GlaxoSmithKline plc and Taisho Pharmaceutical
Co., Ltd.
Neurology and Metabolism
Several companies are developing neurotrophic factors that could compete
with the neuroimmunophilin program or NT-3. These companies include Abbott
Laboratories, Astra AB, Cephalon Inc., Kosan Biosciences Inc., Regeneron,
Schering AG, SIBIA Neurosciences, Inc./Merck & Co., Inc. and Vertex
Pharmaceuticals Incorporated.
Many companies currently market or are believed to be developing obesity
treatments that could compete with the leptin program. Potential future
competitors include Millennium Pharmaceuticals, Inc. (in collaboration with
Roche), Neurogen Corporation (in collaboration with Pfizer Inc.), Bristol Myers
Squibb Company, Novartis AG, Eli Lilly and Company and Merck & Co., Inc. Knoll
AG and Roche currently market obesity treatments in various countries.
Other
INFERGEN(R) competes with other interferons and related products, several of
which are in development or on the market. Schering-Plough Corporation and
Roche are major suppliers of interferons. The Company cannot predict the extent
to which it will maintain its share or further penetrate this market.
Interferon Sciences, Inc. could be a potential competitor in this arena.
12
Research and Development
The Company's primary sources of new product candidates are internal
research and acquisition and licensing from third parties. Amgen's internal
research capabilities include an expertise in secreted protein therapeutics.
The Company's discovery program may yield targets that lead to the development
of therapeutics delivered as proteins, small molecules or monoclonal
antibodies. Amgen has only recently entered the small molecule field. To
supplement its small molecule discovery program, in December 2000, Amgen
acquired Kinetix Pharmaceuticals, Inc. ("Kinetix"), a privately held company
that focused on the discovery of small molecule drugs that inhibit protein
kinases, a key class of biological regulators (see Note 11 to the Consolidated
Financial Statements). Research and development expenses for the years ended
December 31, 2000, 1999 and 1998 were $845.0 million, $822.8 million and $663.3
million, respectively. Additionally, the Company recorded a $30.1 million
write-off of acquired in-process research and development during the year ended
December 31, 2000 arising from the acquisition of Kinetix (see Note 4 to the
Consolidated Financial Statements).
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 (see
"Factors That May Affect Amgen--Our operations are significantly regulated.").
In order to clinically test, manufacture and market products for therapeutic
use, Amgen must satisfy mandatory procedures and safety and effectiveness
standards established by various regulatory bodies. In the United States, the
Federal Food, Drug, and Cosmetic Act, as amended, and the regulations
promulgated thereunder, and other federal and state statutes and regulations
govern, among other things, the testing, manufacture, labeling, storage, record
keeping, approval, advertising and promotion of the Company's products on a
product-by-product basis. Product development and approval within this
regulatory framework take a number of years and involve the expenditure of
substantial resources. After laboratory analysis and preclinical testing in
animals, an investigational new drug application is filed with the FDA to begin
human testing. Typically, a three-phase human clinical testing program is then
undertaken. In phase 1, small clinical trials are conducted to determine the
safety of the product. In phase 2, clinical trials are conducted to assess
safety, acceptable dose and gain preliminary evidence of the efficacy of the
product. In phase 3, clinical trials are conducted to provide sufficient data
for the statistically valid proof of safety and efficacy. The time and expense
required to perform this clinical testing can vary and is substantial. No
action can be taken to market any new drug or biologic product in the United
States until an appropriate marketing application has been approved by the FDA.
Even after initial FDA approval has been obtained, further clinical trials may
be required to provide additional data on safety and effectiveness and are
required to gain clearance for the use of a product as a treatment for
indications other than those initially approved. In addition, side effects or
adverse events that are reported during clinical trials can delay, impede, or
prevent marketing approval. Similarly, adverse events that are reported after
marketing approval can result in additional limitations being placed on the
product's use and, potentially, withdrawal of the product from the market. Any
adverse event, either before or after marketing approval, can result in product
liability claims against the Company.
In addition to regulating and auditing human clinical trials, the FDA
regulates and inspects equipment, facilities and processes used in the
manufacturing of such products prior to providing approval 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 required. The Company also must adhere to current Good Manufacturing
Practice and product-specific regulations enforced by the FDA through its
facilities inspection program. The FDA also conducts regular, periodic visits
to re-inspect equipment, facilities and processes following the initial
approval. If, as a result of these inspections, the FDA determines that the
Company's equipment, facilities or processes do not comply with applicable FDA
regulations and conditions of product approval, the FDA may seek civil,
criminal, or administrative sanctions and/or remedies against Amgen, including
the suspension of the Company's manufacturing operations.
13
In the EU countries, Canada and Australia, regulatory requirements and
approval processes are similar in principle to those in the United States.
Additionally, depending on the type of drug for which approval is sought, there
are currently two potential tracks for marketing approval in the EU countries:
mutual recognition and the centralized procedure. These review mechanisms may
ultimately lead to approval in all EU countries, but each method grants all
participating countries some decision making authority in product approval.
The Company is also subject to various federal and state laws pertaining to
health care "fraud and abuse", including anti-kickback laws and false claims
laws. Anti-kickback laws make it illegal for a prescription drug manufacturer
to solicit, offer, receive or pay any remuneration in exchange for, or to
induce, the referral of business, including the purchase or prescription of a
particular drug. The federal government has published regulations that identify
"safe harbors" or exemptions for certain payment arrangements that do not
violate the anti-kickback statutes. The Company seeks to comply with the safe
harbors where possible. Due to the breadth of the statutory provisions and the
absence of guidance in the form of regulations or court decisions addressing
some of the Company's practices, it is possible that the Company's practices
might be challenged under anti-kickback or similar laws. False claims laws
prohibit anyone from knowingly and willingly presenting, or causing to be
presented for payment to third party payors (including Medicare and Medicaid)
claims for reimbursed drugs or services that are false or fraudulent, claims
for items or services not provided as claimed, or claims for medically
unnecessary items or services. Amgen's activities relating to the sale and
marketing of its products may be subject to scrutiny under these laws.
Violations of fraud and abuse laws may be punishable by criminal and/or civil
sanctions, including fines and civil monetary penalties, as well as the
possibility of exclusion from federal health care programs (including Medicare
and Medicaid). If the government were to allege against or convict the Company
of violating these laws, there could be a material adverse effect on the
Company, including its stock price. The Company's activities could be subject
to challenge for the reasons discussed above and due to the broad scope of
these laws and the increasing attention being given to them by law enforcement
authorities.
Since 1991, the Company has participated in the Medicaid rebate program
established by the Omnibus Budget Reconciliation Act of 1990, and under
amendments of that law that became effective in 1993, participation has
included extending comparable discounts under the Public Health Service ("PHS")
pharmaceutical pricing program. Under the Medicaid rebate program, the Company
pays a rebate for each unit of its product reimbursed by Medicaid. The amount
of the rebate for each product is set by law as a minimum 15.1% of the average
manufacturer price ("AMP") of that product, or if it is greater, the difference
between AMP and the best price available from the Company to any customer. The
rebate amount also includes an inflation adjustment if AMP increases faster
than inflation. The PHS pricing program extends discounts comparable to the
Medicaid rebate to a variety of community health clinics and other entities
that receive health services grants from the PHS, as well as hospitals that
serve a disproportionate share of poor Medicare and Medicaid beneficiaries. The
rebate amount is recomputed each quarter based on the Company's reports of its
current average manufacturer price and best price for each of its products to
HCFA. The terms of the Company's participation in the program impose an
obligation to correct the prices reported in previous quarters, as may be
necessary. Any such corrections could result in an overage or underage in the
Company's rebate liability for past quarters, depending on the direction of the
correction. In addition to retroactive rebates (and interest, if any), if the
Company were found to have knowingly submitted false information to the
government, in addition to other penalties available to the government, the
statute provides for civil monetary penalties in the amount of $100,000 per
item of false information.
The Company also makes its products available to authorized users of the
Federal Supply Schedule ("FSS") of the General Services Administration. Since
1993, as a result of the Veterans Health Care Act of 1992 (the "VHC Act"),
federal law has required that product prices for purchases by the Veterans
Administration, the Department of Defense, Coast Guard and the PHS (including
the Indian Health Service) be discounted by a minimum of 24 percent off the AMP
to non-federal customers (the non-federal average manufacturer price, "non-
FAMP"). The Company's computation and report of non-FAMP is used in
establishing the price, and the accuracy of the reported non-FAMP may be
audited by the government under
14
applicable federal procurement laws. Among the remedies available to the
government for infractions of these laws is recoupment of any overages paid by
FSS users during the audited years. In addition, if the Company were found to
have knowingly reported a false non-FAMP, the VHC Act provides for civil
monetary penalties of $100,000 per item that is incorrect.
Amgen is also subject to regulation under the Occupational Safety and Health
Act, the Toxic Substances Control Act, the Resource Conservation and Recovery
Act and other current and potential future federal, state or local regulations.
The Company's research and development activities involve the controlled use of
hazardous materials, chemicals, biological materials and various radioactive
compounds. The Company believes that its procedures comply with the standards
prescribed by state and federal regulations; however, the risk of injury or
accidental contamination cannot be completely eliminated. Amgen's research and
manufacturing activities also are conducted in voluntary compliance with the
National Institutes of Health Guidelines for Recombinant DNA Research.
Additionally, the U.S. Foreign Corrupt Practices Act, to which the Company
is subject, prohibits corporations and individuals from engaging in certain
activities to obtain or retain business or to influence a person working in an
official capacity. It is illegal to pay, offer to pay, or authorize the payment
of anything of value to any foreign government official, government staff
member, political party or political candidate in an attempt to obtain or
retain business or to otherwise influence a person working in an official
capacity. The Company's present and future business has been and will continue
to be subject to various other laws and regulations.
Patents and Trademarks
Patents are very important to the Company in establishing proprietary rights
to the products it has developed or licensed. The patent positions of
pharmaceutical and biotechnology companies, including the Company, can be
uncertain and involve complex legal, scientific and factual questions. See
"Factors That May Affect Amgen--Intellectual property and legal matters can
affect our business.".
The Company has filed applications for a number of patents and has been
granted patents relating to its erythropoietin, G-CSF, darbepoetin alfa,
consensus interferon and various potential products. In the United States, the
U.S. Patent and Trademark Office (the "USPTO") has issued to the Company
patents relating to erythropoietin that generally cover DNA and host cells
(issued in 1987); processes for making erythropoietin (issued in 1995 and
1997); certain product claims to erythropoietin (issued in 1996 and 1997);
cells that make certain levels of erythropoietin (issued in 1998); and
pharmaceutical compositions of erythropoietin (issued in 1999). These patents
have varying expiration dates, with the latest erythropoietin related patents
expiring in 2015; all other patents expire earlier. The USPTO has also issued
to the Company patents relating to aspects of DNAs, vectors, cells and
processes relating to recombinant G-CSF (issued in 1989); other aspects of
DNAs, vectors, cells and processes relating to recombinant G-CSF (issued in
1991); G-CSF polypeptides (issued in 1996); methods of treatment using G-CSF
polypeptides (issued in 1996); methods of enhancing bone marrow transplantation
and treating burn wounds (issued in 1997); methods for recombinant production
of G-CSF (issued in 1998); and analogs of G-CSF (issued in 1999). The last to
issue G-CSF patents expire in 2014; all other patents expire earlier.
Additionally, U.S. patents pertaining to pegylated G-CSF (SD/01) expire in
2015. The patent relating to erythropoietin for the EU expires in 2004. The
patent relating to G-CSF for the EU expires in 2006. The Company has two
patents in the EU relating to darbepoetin alfa and hyperglycosylated
erythropoietic proteins which expire in 2010 and 2014, respectively.
There can be no assurance that Amgen's patents or licensed patents will
afford legal protection against competitors or provide significant proprietary
protection or competitive advantage. In addition, Amgen's patents or licensed
patents could be held invalid or unenforceable by a court, or infringed or
circumvented by others, or others could obtain patents that the Company would
need to license or circumvent. Competitors or potential competitors may have
filed patent applications or received patents, and may obtain additional
patents and proprietary rights relating to proteins, small molecules, compounds
or processes competitive with those of the
15
Company. Additionally, for certain of the Company's product candidates,
competitors or potential competitors may claim that their existing or pending
patents prevent the Company from commercializing such product candidates in
certain territories.
In general, the Company has obtained licenses from various parties which it
deems to be necessary or desirable for the manufacture, use or sale of its
products. These licenses generally require Amgen to pay royalties to the
parties on product sales. In addition, 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 will be
available for license on acceptable terms or at all. The Company is engaged in
various legal proceedings relating to certain of its patents. See "Item 3.
Legal Proceedings".
Trade secret protection for its unpatented confidential and proprietary
information is important to Amgen. To protect its trade secrets, the Company
generally requires its employees, material consultants, scientific advisors and
parties to collaboration and licensing agreements to execute confidentiality
agreements upon the commencement of employment, the consulting relationship or
the collaboration or licensing arrangement with the Company. However, others
could either develop independently the same or similar information or obtain
access to Amgen's proprietary information.
The Company has obtained U.S. registration of its EPOGEN(R), NEUPOGEN(R),
INFERGEN(R) and STEMGEN(R) trademarks. In addition, these trademarks have been
registered in other countries.
Manufacturing and Raw Materials
Amgen has manufacturing facilities which produce commercial quantities of
Epoetin alfa, NEUPOGEN(R) (Filgrastim), INFERGEN(R) (Interferon alfacon-1) and
STEMGEN(R) (Ancestim) (see "Item 2. Properties"). The Company additionally
supplies Epoetin alfa to Johnson & Johnson under a supply agreement. There can
be no assurance that the Company will be able to accurately anticipate future
demand for Epoetin alfa, NEUPOGEN(R), INFERGEN(R) and STEMGEN(R) or maintain
adequate manufacturing capacity (see "Factors That May Affect Amgen--We plan to
grow rapidly.").
Certain raw materials necessary for the Company's commercial manufacturing
of its products are proprietary products of other companies, and in some cases,
such proprietary products are specifically cited in the Company's drug
application with the FDA such that they must be obtained from that specific,
sole source. The Company currently attempts to manage the risk associated with
such sole sourced raw materials by active inventory management and alternate
source development, where feasible. Amgen attempts to remain apprised of the
financial condition of its suppliers, their ability to supply the Company's
needs and the market conditions for these raw materials. Also, certain of the
raw materials required in the commercial manufacturing of the Company's
products are derived from biological sources. The Company is investigating
screening procedures with respect to certain biological sources and
alternatives to them. Raw materials may be subject to contamination and/or
recall. A material shortage, contamination and/or recall could adversely impact
or disrupt Amgen's commercial manufacturing of its products.
Human Resources
As of December 31, 2000, the Company had approximately 7,300 employees, of
which approximately 3,800 were engaged in research and development,
approximately 1,500 were engaged in sales and marketing and approximately 2,000
were engaged in other activities. 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 good.
16
Executive Officers of the Registrant
The executive officers of the Company, their ages as of March 1, 2001 and
positions are as follows:
Mr. Kevin W. Sharer, age 52, has served as a director of the Company since
November 1992. He became Chief Executive Officer and President in May 2000 and
Chairman of the Board in December 2000, having 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 Unocal
Corporation.
Mr. Stan M. Benson, age 49, 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 June 1976 to June 1995.
Dr. Fabrizio Bonanni, age 54, has served as Senior Vice President, Quality
and Compliance, since joining the Company in April 1999. Prior to joining the
Company, Dr. Bonanni had been the Corporate Vice President for
Regulatory/Clinical Affairs for Baxter International Inc. ("Baxter"), a
pharmaceutical company, from December 1997 to April 1999, Corporate Vice
President, Quality System from November 1994 to December 1997, and has held a
variety of quality, regulatory and manufacturing positions with Baxter in
Europe and in the U.S. since 1974.
Ms. Kathryn E. Falberg, age 40, became Senior Vice President, Finance and
Corporate Development, and Chief Financial Officer in August 2000, having
served as Senior Vice President, Finance and Chief Financial Officer since
December 1998, as Vice President, Finance, Chief Financial Officer and Chief
Accounting Officer since May 1998 and as Vice President, Corporate Controller
and Chief Accounting Officer from June 1997 to May 1998. Previously, Ms.
Falberg had served as Vice President and Treasurer from December 1996 to June
1997, and as Treasurer since joining the Company in January 1995.
Dr. Dennis M. Fenton, age 49, became Executive Vice President, in March
2000, having served as Senior Vice President, Operations, since January 1995,
having served as Senior Vice President, Sales and Marketing, from August 1992
to January 1995, 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. George J. Morrow, age 48, became Executive Vice President of Worldwide
Sales and Marketing, in January 2001. Prior to joining the Company, from
January 1999 until December 2000, Mr. Morrow was President and Chief Executive
Officer of Glaxo Wellcome Inc. ("Glaxo"), a subsidiary of GlaxoSmithKline plc.
From January 1997 until December 1998, Mr. Morrow was Managing Director of
Glaxo Wellcome U.K., also a subsidiary GlaxoSmithKline plc. From May 1993 until
December 1996, Mr. Morrow was Group Vice President for Commercial Operations of
Glaxo.
Dr. George Morstyn, age 50, became Senior Vice President, Development and
Chief Medical Officer in October 1999, having served as Vice President, Product
Development and Chief Medical Officer since June 1998 and as Vice President,
Clinical Development and Chief Medical Officer from September 1993 to June
1998. Dr. Morstyn previously served as Vice President, Clinical and Medical
Affairs from July 1991 to September 1993.
Mr. Steven M. Odre, age 51, became Senior Vice President, General Counsel
and Secretary in March 2000, having served as Vice President, Intellectual
Property, and Associate General Counsel since October 1988, and having served
as Associate General Counsel from March 1988 to October 1988. From May 1986 to
March 1988, he served as Director of Intellectual Property.
17
Dr. Roger M. Perlmutter, age 48, became Executive Vice President of Research
and Development in January 2001. Prior to joining the Company, from July 1999
until December 2000, Dr. Perlmutter was Executive Vice President, Worldwide
Basic Research and Preclinical Development of Merck Research Laboratories
("Merck"). From February 1999 until July 1999, Dr. Perlmutter was Executive
Vice President of Merck. From February 1997 until January 1999, Dr. Perlmutter
was Senior Vice President of Merck. Prior to February 1997, Dr. Perlmutter was
Chairman of the Department of Immunology, University of Washington from May
1989 until January 1997, Professor in the Departments of Immunology,
Biochemistry and Medicine, University of Washington from January 1991 until
January 1997 and Investigator, the Howard Hughes Medical Institute at the
University of Washington from October 1991 until January 1997.
Mr. Barry D. Schehr, age 45, became Vice President, Financial Operations and
Chief Accounting Officer in May 2000, having served as Vice President,
Accounting and Financial Operations since March 2000 and as Director of
Internal Audit from February 1997 to February 2000. Prior to joining the
Company, Mr. Schehr had been a partner with Ernst & Young LLP, an accounting
firm, from October 1989 to January 1997.
Geographic Area Financial Information
For financial information concerning the geographic areas in which the
Company operates, see Note 10 to the Consolidated Financial Statements.
Factors That May Affect Amgen
Amgen operates in a rapidly changing environment that involves a number of
risks, some of which are beyond our control. The following discussion
highlights some of these risks and others are discussed elsewhere in this Form
10-K.
Results of our product development are uncertain.
We intend to continue an aggressive product development program. Successful
product development in the biotechnology industry is highly uncertain, and very
few research and development projects produce a commercial product. Product
candidates that appear promising in the early phases of development, such as in
early human clinical trials, may fail to reach the market for a number of
reasons, such as:
-- the product candidate did not demonstrate acceptable clinical trial
results even though it demonstrated positive preclinical trial results
-- the product candidate was not effective in treating a specified
condition or illness
-- the product candidate had harmful side effects on humans
-- the necessary regulatory bodies (such as the FDA) did not approve our
product candidate for an indicated use
-- the product candidate was not economical for us to manufacture it
-- other companies or people have or may have proprietary rights to our
product candidate (e.g. patent rights) and will not let us sell it on
reasonable terms, or at all
-- the product candidate is not cost effective in light of existing
therapeutics
Several of our product candidates have failed at various stages in the
product development process, including BDNF, Megakaryocyte Growth and
Development Factor (MGDF) and glial cell-line derived neurotrophic factor
(GDNF). For example, in 1997, we announced the failure of BDNF (for the
treatment of ALS by subcutaneous injection administration route), because the
product candidate, as administered, did not produce acceptable clinical results
in a specific indication after a phase 3 trial, even though BDNF had progressed
successfully through preclinical and earlier clinical trials. In addition, some
of our other product
18
candidates have failed in clinical trials. Of course, there may be other
factors that prevent us from marketing a product. We cannot guarantee we will
be able to produce commercially successful products. Further, clinical trial
results are frequently susceptible to varying interpretations by scientists,
medical personnel, regulatory personnel, statisticians and others which may
delay, limit or prevent further clinical development or regulatory approvals of
a product candidate. Also, the length of time that it takes for us to complete
clinical trials and obtain regulatory approval for product marketing has in the
past varied by product and by the indicated use of a product. We expect that
this will likely be the case with future product candidates and we cannot
predict the length of time to complete necessary clinical trials and obtain
regulatory approval. See "--Our operations are significantly regulated."
Our operations are significantly regulated.
Our research, preclinical testing, clinical trials, facilities,
manufacturing, pricing and sales and marketing are subject to extensive
regulation by numerous state and federal governmental authorities in the U.S.,
such as the FDA and the Health Care Financing Administration ("HCFA"), as well
as by foreign countries and the European Union (the "EU"). Currently, we are
required in the U.S. and in foreign countries to obtain approval from those
countries' regulatory authorities before we can market and sell our products in
those countries. The success of our current and future products will depend in
part upon obtaining and maintaining regulatory approval to market products in
approved indications in the U.S. and foreign markets. In our experience, the
regulatory approval process is a lengthy and complex process, both in the U.S.
and in foreign countries, including countries in the EU. Even if we obtain
regulatory approval, both our manufacturing processes and our marketed products
are subject to continued review. Later discovery of previously unknown problems
with our products or manufacturing processes may result in restrictions on such
products or manufacturing processes, including withdrawal of the products from
the market. If we fail to obtain necessary approvals, or if any prior approvals
are restricted, suspended or revoked, or if we fail to comply with regulatory
requirements, then regulatory authorities could prevent us from manufacturing
or selling our products which could have a material adverse effect on us and
our results of operations.
Our sales depend on reimbursement and third party payors.
In both domestic and foreign markets, sales of our products are dependent,
in part, on the availability of reimbursement from third party payors such as
state and federal governments (for example, under Medicare and Medicaid
programs in the U.S.) and private insurance plans. In certain foreign markets,
the pricing and profitability of our products generally are subject to
government controls. In the U.S., there have been, and we expect there will
continue to be, a number of state and federal proposals that limit the amount
that state or federal governments will pay to reimburse the cost of drugs. In
addition, we believe the increasing emphasis on managed care in the U.S. has
and will continue to put pressure on the price and usage of our products, which
may impact product sales. Further, when a new therapeutic is approved, the
reimbursement status and rate of such a product is uncertain. For example, we
believe that sales of ARANESP(TM) will be affected by government and private
payor reimbursement policies. In addition, current reimbursement policies for
existing products may change at any time. Changes in reimbursement or our
failure to obtain reimbursement for our products may reduce the demand for, or
the price of, our products, which could result in lower product sales or
revenues which could have a material adverse effect on us and our results of
operations. For example, in the U.S. the use of EPOGEN(R) in connection with
treatment for end stage renal disease is funded primarily by the U.S. federal
government. Therefore, as in the past, EPOGEN(R) sales could be affected by
future changes in reimbursement rates or the basis for reimbursement by the
federal government. For example, in early 1997, HCFA instituted a reimbursement
change for EPOGEN(R) which adversely affected the Company's EPOGEN(R) sales,
until the policies were revised.
Guidelines and recommendations can affect the use of our products.
Government agencies promulgate regulations and guidelines directly
applicable to us and to our products. However, professional societies, practice
management groups, private health/science foundations and
19
organizations involved in various diseases from time to time may also publish
guidelines or recommendations to the health care and patient communities.
Recommendations of government agencies or these other groups/organizations may
relate to such matters as usage, dosage, route of administration and use of
concomitant therapies. Organizations like these have in the past made
recommendations about our products. Recommendations or guidelines that are
followed by patients and health care providers could result in decreased use of
our products. In addition, the perception by the investment community or
stockholders that such recommendations or guidelines will be followed could
adversely affect prevailing market prices for our common stock.
Intellectual property and legal matters can affect our business.
The patent positions of pharmaceutical and biotechnology companies can be
highly uncertain and often involve complex legal, scientific and factual
questions. To date, there has emerged no consistent policy regarding breadth of
claims allowed in such companies' patents. Accordingly, the patents and patent
applications relating to our products, product candidates and technologies may
be challenged, invalidated or circumvented by third parties and might not
protect us against competitors with similar products or technology. For certain
of our product candidates, there are third parties who have patents or pending
patents that they may claim prevent us from commercializing these product
candidates in certain territories. Patent disputes are frequent and can
preclude commercialization of products. We are currently, and in the future may
be, involved in patent litigation. For example, we are involved in ongoing
patent infringement lawsuits against Transkaryotic Therapies, Inc. and Aventis
with respect to our erythropoietin patents. If we ultimately lose these
litigations, we could be subject to competition and/or significant liabilities,
we could be required to enter into third party licenses or we could be required
to cease using the technology or product in dispute. In addition, we cannot
guarantee that such licenses will be available on terms acceptable to us.
We face competition.
We operate in a highly competitive environment. Our principal competitors
are pharmaceutical and biotechnology companies. Some of our competitors, mainly
large pharmaceutical corporations, have greater clinical, research, regulatory
and marketing resources than we do. In addition, some of our competitors may
have technical or competitive advantages over us for the development of
technologies and processes and may acquire technology from academic
institutions, government agencies and other private and public research
organizations. We cannot guarantee that we will be able to produce or acquire
rights to products that have commercial potential. In addition, even if we
achieve successful product commercialization, it is possible that one or more
of our competitors will achieve product commercialization earlier than we do,
obtain patent protection that dominates or adversely affects our activities, or
have significantly greater marketing capabilities.
Our operating results may fluctuate.
Our operating results may fluctuate from period to period for a number of
reasons. In budgeting our operating expenses, we assume that revenues will
continue to grow; however, some of our operating expenses are fixed in the
short term. Because of this, even a relatively small revenue shortfall may
cause a period's results to be below our expectations or projections. A revenue
shortfall could arise from any number of factors, such as:
-- lower than expected demand for our products
-- changes in the government's or private payors' reimbursement policies
for our products
-- changes in wholesaler buying patterns
-- increased competition from new or existing products
-- fluctuations in foreign currency exchange rates
-- changes in our product pricing strategies
Of course, there may be other factors that affect the Company's revenues in any
given period.
20
We plan to grow rapidly.
We have an aggressive growth plan that includes substantial and increasing
investments in research and development, sales and marketing and facilities.
Our plan has a number of risks, for example:
-- we may need to generate higher revenues to cover a higher level of
operating expenses
-- we may need to attract and assimilate a large number of new employees
-- we may need to manage complexities associated with a larger and faster
growing organization
-- we may need to accurately anticipate demand for the products we
manufacture and maintain adequate manufacturing capacity
Of course, there may be other risks and we cannot guarantee that we will be
able to successfully manage these or other risks.
Our stock price is volatile.
Our stock price, like that of other biotechnology companies, is highly
volatile. Our stock price may be affected by such factors as:
-- clinical trial results
-- product-development announcements by us or our competitors
-- regulatory matters
-- announcements in the scientific and research community
-- intellectual property and legal matters
-- changes in reimbursement policies or medical practices
-- broader industry and market trends unrelated to our performance
In addition, if our revenues or earnings in any period fail to meet the
investment community's expectations, there could be an immediate adverse impact
on our stock price.
Item 2. PROPERTIES
Amgen's principal executive offices and a majority of its administrative,
manufacturing and research and development facilities are located in thirty-
nine buildings in Thousand Oaks, California. Thirty-five of the buildings are
owned and four are leased. Adjacent to these buildings are facilities that are
under construction and additional property for future expansion. The Thousand
Oaks, California properties include manufacturing facilities licensed by
various regulatory bodies that produce commercial quantities of Epoetin alfa,
NEUPOGEN(R) (Filgrastim), INFERGEN(R) (Interferon alfacon-1) and STEMGEN(R)
(Ancestim). These properties also include a manufacturing facility capable of
producing commercial quantities of ARANESP(TM) (darbepoetin alfa).
Amgen owns two buildings and leases four buildings in Boulder, Colorado,
housing research facilities and a manufacturing facility capable of producing
commercial quantities of anakinra. The Company has a manufacturing complex in
Longmont, Colorado, that is licensed to produce commercial quantities of
Epoetin alfa. Amgen also plans on using the Longmont facility to produce
commercial quantities of ARANESP(TM) (darbepoetin alfa). The Company has
acquired approximately 159 acres of undeveloped land adjacent to the Longmont
site to accommodate future expansion.
Elsewhere in North America, the Company owns a distribution center in
Louisville, Kentucky, and leases a research facility and administrative offices
in Canada, a research facility in Medford Massachusetts, an
21
administrative office in Washington, D.C. and five regional sales offices in
the U.S. The Company also owns land in Cambridge, Massachusetts, where a
research facility is currently being constructed.
Outside North America, the Company has a manufacturing facility in Juncos,
Puerto Rico, and a European packaging and distribution center in Breda, The
Netherlands, which have been licensed by various regulatory bodies. The Company
leases facilities in fourteen European countries, Australia, Japan, Taiwan and
the People's Republic of China for administration, marketing and/or research
and development.
Amgen believes that its current facilities plus anticipated additions are
sufficient to meet its needs for the next several years.
Item 3. LEGAL PROCEEDINGS
Certain of the Company's 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 annual financial statements of the
Company.
Biogen litigation
On March 10, 1995, Biogen, Inc. ("Biogen") filed suit in the United States
District Court for the District of Massachusetts (the "Massachusetts District
Court") alleging infringement by the Company of certain claims of U.S. Patent
No. 4,874,702 (the "'702 Patent"), relating to vectors for expressing cloned
genes. Biogen alleged that Amgen infringed its patent by manufacturing and
selling NEUPOGEN(R). On March 28, 1995, Biogen filed an amended complaint
further alleging that the Company also infringed the claims of two additional
patents allegedly assigned to Biogen, U.S. Patent No. 5,401,642 (the "'642
Patent") and U.S. Patent No. 5,401,658 (the "'658 Patent"), relating to
vectors, methods for making vectors and expressing cloned genes, and host
cells. The amended complaint sought 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. The Massachusetts District Court exerted jurisdiction over
claims 9 and 17 of the '702 Patent, and dismissed all claims and counterclaims
relating to any other claims of the '702 Patent. On August 6, 1998, the
Massachusetts District Court issued a final claim construction order ruling
that, to be covered by claim 1 of the '702 Patent (the claim that forms the
crux of the asserted claims), a plasmid vector must contain the entire lambda
DNA sequence as represented in Figure 6 of the '702 Patent, as well as at least
one endonuclease recognition site inserted at the converted HaeIII site at
73.1% of bacteriophage lambda or at another site downstream of HaeIII, said
endonuclease recognition site being within 300 base pairs of the HincII site at
- -33, and prior to any sequences of lambda DNA downstream of the HaeIII site. On
November 17, 1999, a hearing was held on Amgen's motion for summary judgment of
non-infringement. At the hearing, the Massachusetts District Court orally ruled
that Amgen does not literally infringe. On September 25, 2000, the
Massachusetts District Court issued a Memorandum and Order finding no
infringement, literally or under the doctrine of equivalents regarding the
Company's manufacture and sale of NEUPOGEN(R). On October 12, 2000, the
Massachusetts District Court entered judgment in Amgen's favor. Biogen disputed
the finality of the Judgment and the correctness of the Massachusetts District
Court's Memorandum and Order. On December 19, 2000, Amgen filed a Motion to
Amend the Massachusetts District Court's September 25, 2000 Memorandum and
Order. On March 1, 2001, the Massachusetts District Court allowed in part
Amgen's Motion to Amend and ruled that the September 25, 2000 Order will be
amended to reflect the Massachusetts District Court's reliance on prosecution
history estoppel as a distinct and separate ground upon which to enter a
judgment of non-infringement for Amgen regarding the '702 Patent. Regarding
Amgen's Motion for Summary Judgment of Issue Preclusion, the Massachusetts
District Court ruled that its clerk will schedule a hearing on Amgen's Motion
for Summary Judgment of Issue Preclusion relating to Amgen's contention that
prosecution history estoppel and issue preclusion compel findings of non-
infringement of the '642 and '658 Patents and the dismissal of the Infergen
matter described below. It also allowed Biogen's Motion to Alter or Amend
Judgment
22
to the extent that the October 12, 2000 Judgment was not final in that it did
not formally dispose of Amgen's pending counterclaims nor did it contain a
certification under Rule 54(b) of the Federal Rules of Civil Procedure. The
Massachusetts District Court ruled that it will vacate the October 12, 2000
Judgment and instructed its clerk to issue a substitute Judgment in favor of
Amgen as to any alleged infringement of the claims of the '702 Patent. The
Massachusetts District Court further ruled that Amgen's counterclaims are
dismissed without prejudice as moot. The remaining calendar of scheduled items
that were pending before the Massachusetts District Court, including trial, has
been eliminated and the Company's motions for lack of ownership and for
abandonment were dismissed as moot. The Company's motion for summary judgment
of invalidity on the basis of prior public use was denied on procedural
grounds.
In a separate matter, on July 30, 1997, Biogen filed a complaint in the
Massachusetts District Court alleging that Amgen infringes claims 9 and 17 of
the '702 Patent and the claims of the '642 and '658 Patents, identified above,
by making and using the claimed subject matter in the United States in the
manufacture of INFERGEN(R), the Company's consensus interferon product. On
September 17, 1997, Amgen responded to the complaint by filing a motion to
dismiss the case in its entirety due to Biogen's lack of standing to bring the
lawsuit in view of Biogen's lack of ownership of the patents-in-suit. Amgen
also filed a motion for summary judgment of patent invalidity of particular
claims of the patents-in-suit due to abandonment of the invention. The
Massachusetts District Court ordered Amgen to file an answer to Biogen's
complaint and Amgen complied. All discovery in this case has been stayed. As
noted above, the Massachusetts District Court will be setting a date for a
hearing on Amgen's Motion for Summary Judgment of Issue Preclusion and for the
dismissal of this case.
INFERGEN(R) litigation
On December 3, 1996, Schering-Plough Corporation ("Schering") filed suit in
the U.S. District Court for the District of Delaware (the "Delaware Court")
against the Company alleging infringement of U.S. Patent No. 4,530,901 (the
"'901 Patent") by the manufacture and use of INFERGEN(R). The complaint sought
unspecified damages and injunctive relief. Biogen was added as a plaintiff in
the Delaware action. On July 30, 1998, the Delaware Court entered an order
construing the meaning of the claims of the '901 Patent. The Delaware Court
limited the scope of the claims to include DNAs that encode only "an immature,
fused, and/or incomplete form" of Interferon-alpha-1. On February 3, 1999, the
Delaware Court entered judgment of noninfringement in favor of Amgen that
INFERGEN(R) does not infringe the '901 Patent. Schering and Biogen appealed and
the appeal was argued in December 1999. The U.S. Court of Appeals affirmed the
Delaware Court's judgment of noninfringement in favor of Amgen in a decision
dated August 1, 2000.
Genentech litigation
On October 16, 1996, Genentech, Inc. ("Genentech") filed suit in the United
States District Court for the Northern District of California (the "California
Court") seeking an unspecified amount of compensatory damages, treble damages
and injunctive relief on its U.S. Patent Nos. 4,704,362, 5,221,619 and
4,342,832 (the "'362, '619 and '832 Patents"), relating to vectors for
expressing cloned genes and the methods for such expression. Genentech alleged
that Amgen infringed its patents by manufacturing and selling NEUPOGEN(R). On
December 2, 1996, Amgen was served with this lawsuit. On January 21, 1997, the
Company answered the complaint and asserted counterclaims relating to
invalidity and non-infringement of the patents-in-suit. On February 10, 1997,
Genentech served Amgen with a reply to the counterclaim and an additional
counterclaim asserting U.S. Patent No. 5,583,013 (the "'013 Patent"), issued
December 10, 1996, seeking relief similar to that sought for the '362, '619 and
'832 Patents. On March 31, 1997, Amgen answered this pleading and asserted
counterclaims relating to invalidity and non-infringement of the '013 Patent.
At a hearing held on May 29, 1998, the parties stipulated to: (i) the dismissal
with prejudice of Genentech's first claim for patent infringement against Amgen
with respect to the '832 Patent, as alleged in Genentech's complaint filed
October 16, 1996 and (ii) dismissal with prejudice of Amgen's first, second,
third and fourth claims for relief with respect to the '832 Patents as alleged
in Amgen's answer to complaint and counterclaims filed on January 21, 1997. The
judge issued a final claim construction ruling interpreting the '362, '619 and
'013 Patent
23
claims which, among other things, essentially limited the claim term "control
region" to DNA taken from a single operon and not constructed from control
elements derived from various operons. It may not be constructed portion-by-
portion from multiple operons. On February 18, 2000, Amgen filed a motion to
amend its answer to allege inequitable conduct. On October 12, 2000, the
California Court entered Final Judgment in the Company's favor on the basis of
no infringement. Genentech has filed a notice of appeal. The parties are
currently briefing these issues before the Federal Circuit Court of Appeals.
Transkaryotic Therapies and Aventis S.A. litigation
On April 15, 1997, Amgen filed suit in the Massachusetts District Court
against Transkaryotic Therapies, Inc. ("TKT") and Hoechst Marion Roussel, Inc.
("HMR"--now Aventis S.A., together with TKT, the "Defendants") alleging
infringement of several U.S. patents owned by Amgen that claim an
erythropoietin product and processes for making erythropoietin. The suit sought
an injunction preventing the Defendants from making, importing, using or
selling erythropoietin in the U.S. On July 9, 1997, the Massachusetts District
Court denied TKT's motion to dismiss the lawsuit on the pleadings. On April 15,
1998, the Massachusetts District Court issued an order granting the Defendants'
motion for summary judgment of non-infringement on the grounds that Defendants'
activities to date were protected by the clinical trial exemption. The
Massachusetts District Court also ruled that the action would be
administratively closed to be re-opened upon motion of either party for good
cause shown. In June 1999, the Defendants filed a motion to reopen the case
with which Amgen concurred. On October 7, 1999, Amgen filed an amended
complaint which added two additional patents to the litigation. Defendants'
amended answer asserted that all five of the patents-in-suit were not
infringed, were invalid or were unenforceable due to inequitable conduct.
Discovery by both sides was completed in 1999. The Defendant's motion for
summary judgment of invalidity of three of the patents was denied on January
18, 2000. Amgen's motion for summary judgment of literal infringement was
granted by the Massachusetts District Court on April 26, 2000 with respect to
claim 1 of U.S. Patent No. 5,955,422 (the "'422 Patent"). Also on April 26,
2000, the Massachusetts District Court denied Amgen's motion for summary
judgment with respect to claims 1 and 4 of U.S. Patent No. 5,756,349 (the "'349
Patent") and deferred decision on the infringement of that patent until trial.
On May 15, 2000, trial began in the Massachusetts District Court. On June 9,
2000, the Massachusetts District Court granted motion for non-infringement of
U.S. Patent No. 5,618,698 (the "'698 Patent"), removing the '698 Patent from
this action. The Massachusetts District Court also held that, although the
Defendants' erythropoietin product does not literally fall within the scope of
U.S. Patent No. 5,621,080 (the "'080 Patent"), such product may infringe if it
is found to be equivalent to the product claimed by the '080 Patent.
Additionally, the Massachusetts District Court denied the Defendants' motion
for non-infringement of U.S. Patent No. 5,547,933 (the "'933 Patent"). On July
21, 2000, the Massachusetts District Court granted Amgen's motion for judgment
on the Defendants' defenses of invalidity based upon anticipation and
obviousness. On January 19, 2001, the Massachusetts District Court ruled that
claims 2-4 of the '080 Patent, claims 1-6 of the '349 Patent and claim 1 of the
'422 Patent were valid, enforceable and infringed by TKT's GA-EPO product and
the cells used to make such product. The Massachusetts District Court also held
that claim 7 of the '349 patent and claims 1, 2 and 9 of the '933 Patent were
not infringed, and that if infringed the claims of the '933 patent would be
invalid. On January 26, 2001, TKT and HMR filed a Notice of Appeal and on
February 14, 2001, Amgen filed a Notice of Cross-Appeal, to the U.S. Court of
Appeals for the Federal Circuit.
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, 2000.
24
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock trades on The Nasdaq Stock Market under the
symbol AMGN. As of February 28, 2001, there were approximately 17,000 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 utilize 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 2000 and 1999:
High Low
------ ------
2000
4th Quarter................................................ $71.38 $54.13
3rd Quarter................................................ 78.00 64.94
2nd Quarter................................................ 70.38 51.31
1st Quarter................................................ 74.69 52.25
1999
4th Quarter................................................ $64.88 $37.84
3rd Quarter................................................ 43.78 29.50
2nd Quarter................................................ 40.00 26.16
1st Quarter................................................ 39.53 26.14
25
Item 6. SELECTED FINANCIAL DATA
(in millions, except per share data)
Years ended December 31,
-----------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
Consolidated Statement of
Operations Data:
Revenues:
Product sales(1)............ $3,202.2 $3,042.8 $2,514.4 $2,219.8 $2,088.2
Other revenues.............. 427.2 297.3 203.8 181.2 151.6
Total revenues............ 3,629.4 3,340.1 2,718.2 2,401.0 2,239.8
Research and development
expenses..................... 845.0 822.8 663.3 630.8 528.3
Selling, general and
administrative expenses...... 826.9 654.3 515.4 483.8 470.6
Other items, net(2)........... (18.8) (49.0) (23.0) 157.0 --
Net income.................... 1,138.5 1,096.4 863.2 644.3 679.8
Diluted earnings per share.... 1.05 1.02 0.82 0.59 0.61
Cash dividends declared per
share........................ -- -- -- -- --
At December 31,
-----------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
Consolidated Balance Sheet
Data:
Total assets.................. $5,399.6 $4,077.6 $3,672.2 $3,110.2 $2,765.6
Long-term debt................ 223.0 223.0 223.0 229.0 59.0
Stockholders' equity.......... 4,314.5 3,023.5 2,562.2 2,139.3 1,906.3
- --------
(1) Due to Year 2000 contingency planning in the fourth quarter of 1999, the
Company offered extended payment terms on limited shipments of EPOGEN(R)
and NEUPOGEN(R) to certain wholesalers. These Year 2000 related sales
totaled $45 million, or $0.02 per share, in 1999.
(2) Amounts primarily comprised of benefits and expenses related to various
legal proceedings. The amount in 2000 also includes a write-off of acquired
in-process research and development of $30.1 million and a charitable
contribution of $25 million to the Amgen Foundation. See Notes 4 and 11 to
the Consolidated Financial Statements for a discussion of the amounts in
2000, 1999 and 1998. Other items, net increased/(decreased) earnings per
share by $0.00 in 2000, $0.03 in 1999, $0.01 in 1998 and ($0.09) in 1997.
26
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Liquidity and Capital Resources
The Company had cash, cash equivalents and marketable securities of $2,028.1
million at December 31, 2000, compared with $1,333.0 million at December 31,
1999. Cash provided by operating activities has been and is expected to
continue to be the Company's primary source of funds. In 2000, operations
provided $1,634.6 million of cash compared with $1,226.9 million in 1999.
Capital expenditures totaled $437.7 million in 2000 compared with $304.2
million in 1999. The Company anticipates spending approximately $450 million to
$550 million in 2001 on capital projects and equipment to expand the Company's
operations.
The Company receives cash from the exercise of employee stock options and
proceeds from the sale of stock by Amgen pursuant to the employee stock
purchase plan. In 2000, employee stock option exercises and proceeds from the
sale of stock by Amgen pursuant to the employee stock purchase plan provided
$333.7 million of cash compared with $248.8 million in 1999. Proceeds from the
exercise of employee stock options will vary from period to period based upon,
among other factors, fluctuations in the market value of the Company's stock
relative to the exercise price of such options.
The Company has a stock repurchase program primarily to reduce the dilutive
effect of its employee stock option and stock purchase plans. In 2000, the
Company repurchased 12.2 million shares of its common stock at a total cost of
$799.9 million, and in 1999, the Company repurchased 27.1 million shares of
common stock at a cost of $1,024.7 million. In December 2000, the Board of
Directors authorized the Company to repurchase up to $2 billion of common stock
between January 1, 2001 and December 31, 2002. The amount the Company spends on
and the number of shares repurchased each quarter varies based on a variety of
factors, including the stock price and blackout periods in which the Company is
restricted from repurchasing shares.
To provide for financial flexibility and increased liquidity, the Company
has established several sources of debt financing. As of December 31, 2000, the
Company had $223 million of unsecured long-term debt securities outstanding.
These unsecured long-term debt securities consisted of: 1) $100 million of debt
securities that bear interest at a fixed rate of 6.5% and mature in 2007 under
a $500 million debt shelf registration (the "Shelf"), 2) $100 million of debt
securities that bear interest at a fixed rate of 8.1% and mature in 2097 and 3)
$23 million of debt securities that bear interest at a fixed rate of 6.2% and
mature in 2003. Under the Shelf, all of the remaining $400 million of debt
securities available for issuance may be offered under the Company's medium-
term note program with terms to be determined by market conditions.
The Company's sources of debt financing also include a commercial paper
program which provides for unsecured short-term borrowings up to an aggregate
face amount of $200 million. As of December 31, 2000, commercial paper with a
face amount of $100 million was outstanding. These borrowings had maturities of
less than two months and had effective interest rates averaging 6.7%. In
addition, the Company has an unsecured $150 million credit facility that
expires on May 28, 2003. This credit facility supports the Company's commercial
paper program. As of December 31, 2000, no amounts were outstanding under this
line of credit.
The primary objectives for the Company's investment portfolio are liquidity
and safety of principal. Investments are made to achieve the highest rate of
return to the Company, consistent with these two objectives. The Company's
investment policy limits investments to certain types of instruments issued by
institutions with investment grade credit ratings and places restrictions on
maturities and concentration by type and issuer.
The Company believes that existing funds, cash generated from operations and
existing sources of debt financing are adequate to satisfy its working capital
and capital expenditure requirements for the foreseeable future, as well as to
support its stock repurchase program. However, the Company may raise additional
capital from time to time.
27
Results of Operations
Product sales
Product sales were $3,202.2 million in 2000, an increase of $159.4 million
or 5% over the prior year. In 1999, product sales were $3,042.8 million, an
increase of $528.4 million or 21% over the prior year. Quarterly product sales
are influenced by a number of factors, including underlying demand, wholesaler
inventory management practices and foreign exchange effects.
EPOGEN(R) (Epoetin alfa)
EPOGEN(R) sales were $1,962.9 million in 2000, an increase of $203.8 million
or 12% over the prior year. This increase was primarily due to higher demand,
which was principally driven by growth in the U.S. dialysis patient population
and to a lesser extent, the effect of higher prices. Sales in 2000 were
adversely impacted by Year 2000-related sales to wholesalers in the fourth
quarter of 1999 for which the Company provided extended payment terms and, the
Company believes, by dialysis provider inventory drawdowns in 2000 of
additional 1999 year-end stockpiling. The Company believes that some of this
dialysis provider stockpiling may have been due to Year 2000 concerns and year-
end contract expirations. In 1999, EPOGEN(R) sales were $1,759.1 million, an
increase of $377.1 million or 27% over the prior year. This increase was
primarily due to higher demand, principally driven by the administration of
higher doses and growth in the U.S. dialysis patient population. The
administration of higher doses of EPOGEN(R) was principally due to dialysis
providers managing more patients into the hematocrit range of 33 to 36 percent
as recommended by the Dialysis Outcomes Quality Initiative, as well as the use
of hemoglobin instead of hematocrit to measure red blood cell volume.
NEUPOGEN(R) (Filgrastim)
Worldwide NEUPOGEN(R) sales were $1,223.7 million in 2000, a decrease of
$32.9 million or 3% from the prior year. This decrease was primarily due to the
adverse impact of wholesaler buying patterns, including Year 2000-related sales
to wholesalers in the fourth quarter of 1999 for which the Company provided
extended payment terms, as well as adverse foreign exchange effects. The
Company believes these factors were partially offset by a mid-single digit rate
increase in demand, which includes the effect of higher prices in the U.S. In
1999, worldwide NEUPOGEN(R) sales were $1,256.6 million, an increase of $140.0
million or 13% over the prior year. This increase was primarily due to higher
demand, which includes the effect of higher prices in the U.S., and the impact
of approximately $29 million of Year 2000-related sales to wholesalers in the
fourth quarter of 1999 for which the Company provided extended payment terms.
Other product sales
Other product sales primarily consist of INFERGEN(R) (Interferon alfacon-1).
INFERGEN(R) sales were $14.5 million in 2000, a decrease of $11.7 million or
45% from the prior year. In 1999, INFERGEN(R) sales were $26.2 million, an
increase of $10.4 million or 66% over the prior year. INFERGEN(R) was launched
in October 1997 for the treatment of chronic hepatitis C virus infection. There
are other treatments, including combination therapy, for this infection against
which INFERGEN(R) competes. The Company cannot predict the extent to which it
will maintain its share or further penetrate this market.
Corporate partner revenues
In 2000, corporate partner revenues increased $84.8 million or 53% over the
prior year. In 1999, corporate partner revenues increased $33.5 million or 26%
over the prior year. These increases were primarily due to amounts earned from
Kirin-Amgen, Inc. related to the development program for
ARANESP(TM)(darbepoetin alfa), the Company's novel erythropoiesis stimulating
protein.
28
Cost of sales
Cost of sales as a percentage of product sales was 12.8%, 13.2% and 13.7%
for 2000, 1999 and 1998, respectively. The decreases in these percentages were
primarily due to increased manufacturing efficiencies.
Research and development
In 2000, research and development expenses increased $22.2 million or 3%
over the prior year. This increase was primarily due to higher staff-related
costs necessary to support ongoing research and product development activities
and higher clinical trial costs. These increases were substantially offset by a
reduction in clinical manufacturing and product licensing costs. In 1999,
research and development expenses increased $159.5 million or 24% over the
prior year. This increase was primarily due to product licensing and
development costs related to the collaboration with PRAECIS PHARMACEUTICALS
INCORPORATED and higher staff-related costs necessary to support ongoing
research and product development activities.
Selling, general and administrative
In 2000, selling, general and administrative ("SG&A") expenses increased
$172.6 million or 26% over the prior year. This increase was primarily due to
higher staff-related costs and outside marketing expenses as the Company
continues to support its existing products and prepares for anticipated new
product launches. In 1999, SG&A expenses increased $138.9 million or 27% over
the prior year primarily due to higher staff-related costs and outside
marketing expenses as the Company prepared for anticipated new product
launches.
Other items, net
Other items, net consisted of three non-recurring items: 1) legal awards
associated with the spillover arbitration with Johnson & Johnson, 2) a write-
off of acquired in-process research and development associated with the
acquisition of Kinetix Pharmaceuticals, Inc. and 3) a charitable contribution
to the Amgen Foundation. See Note 4 to the Consolidated Financial Statements.
Interest and other income
In 2000, interest and other income increased $57.9 million or 66% over the
prior year. This increase was primarily due to gains realized on the sale of
certain equity securities in the Company's portfolio and higher interest income
generated from the Company's investment portfolio as a result of higher average
cash balances and higher interest rates. In 1999, interest and other income
increased $42.6 million or 93% over the prior year. This increase was
principally due to the absence of write-downs recorded in 1998 of certain non-
current assets, primarily marketable equity securities.
Income taxes
The Company's effective tax rate was 32.0%, 30.0% and 29.5% for 2000, 1999
and 1998, respectively. The tax rate in all three years reflected the tax
benefits from the sale of products manufactured in the Company's Puerto Rico
manufacturing facility. The Company's tax rate has increased as a result of
increased taxable income combined with a provision in the federal tax law that
caps tax benefits associated with the Company's Puerto Rico operations at the
1995 income level. In addition, the 2000 tax rate increased as a result of the
write-off of acquired in-process research and development, which is not
deductible for tax purposes.
Financial Outlook
In December 1999 and early 2000, the Company filed regulatory submissions
for the use of ARANESP(TM) in patients with chronic renal insufficiency and
chronic renal failure in the U.S., the European Union, Canada, Australia and
New Zealand. The Company anticipates selling ARANESP(TM) if approved, in most
of these markets beginning in 2001. Because the Company is unable to predict
the timing and the extent
29
to which health care providers in the U.S. may transition from administering
EPOGEN(R) to ARANESP(TM), 2001 sales guidance for EPOGEN(R) and ARANESP(TM)
will be provided on a combined basis. The Company expects the percentage
increase of 2001 sales of EPOGEN(R) and ARANESP(TM) combined over 2000
EPOGEN(R) sales to be in the range of high teens to low twenties. Patients
receiving treatment for end stage renal disease are covered primarily under
medical programs provided by the federal government. Therefore, EPOGEN(R) sales
may also be affected by future changes in reimbursement rates or a change in
the basis for reimbursement by the federal government. In addition, ARANESP(TM)
will be affected by government and private payor reimbursement policies.
In 2001, the Company expects the NEUPOGEN(R) sales growth rate to be in the
high single digits. The Company believes that there is a trend in some cancer
settings towards the use of chemotherapy treatments that are less
myelosuppressive. Chemotherapy treatments that are less myelosuppressive may
require less NEUPOGEN(R). Future NEUPOGEN(R) demand is dependent primarily upon
penetration of existing markets and the effects of competitive products.
NEUPOGEN(R) usage is expected to continue to be affected by cost containment
pressures from governments and private insurers on health care providers
worldwide. In addition, reported NEUPOGEN(R) sales will continue to be affected
by changes in foreign currency exchange rates. In both domestic and foreign
markets, sales of NEUPOGEN(R) are dependent, in part, on the availability of
reimbursement from third party payors such as governments (for example,
Medicare and Medicaid programs in the U.S.) and private insurance plans.
Therefore, NEUPOGEN(R) sales may also be affected by future changes in
reimbursement rates or changes in the bases for reimbursement.
INFERGEN(R) (Interferon alfacon-1) was launched in October 1997 for the
treatment of chronic hepatitis C virus infection. There are other treatments,
including combination therapy, for this infection against which INFERGEN(R)
competes. The Company cannot predict the extent to which it will maintain its
share or further penetrate this market.
For 2001, total product sales are expected to grow in the mid to high teens,
cost of sales is expected to be in the range of 11.5% to 12.5% of total product
sales, corporate partner revenues are expected to be approximately the same as
in 2000, research and development expenses and SG&A expenses are each estimated
to be in the range of 25% to 27% of total product sales, the effective tax rate
is expected to be approximately 34%, and earnings per share is expected to grow
in the mid teens.
Estimates of future product sales, operating expenses and earnings per share
are necessarily speculative in nature and are difficult to predict with
accuracy.
Except for the historical information contained herein, the matters
discussed herein are by their nature forward-looking. Investors are cautioned
that forward-looking statements or projections made by the Company, including
those made in this document, are subject to risks and uncertainties that may
cause actual results to differ materially from those projected. Reference is
made in particular to forward-looking statements regarding product sales,
earnings per share and expenses. Amgen operates in a rapidly changing
environment that involves a number of risks, some of which are beyond the
Company's control. Future operating results and the Company's stock price may
be affected by a number of factors, including, without limitation: (i) the
results of preclinical and clinical trials; (ii) regulatory approvals of
product candidates, new indications and manufacturing facilities; (iii)
reimbursement for Amgen's products by governments and private payors; (iv)
health care guidelines and policies relating to Amgen's products; (v)
intellectual property matters (patents) and the results of litigation; (vi)
competition; (vii) fluctuations in operating results and (viii) rapid growth of
the Company. These factors and others are discussed herein and in the sections
appearing under the heading "Business--Factors That May Affect Amgen" in the
Company's Annual Report on Form 10-K for the year ended December 31, 2000,
which sections are incorporated herein by reference.
30
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest income earned on the Company's investment portfolio is affected by
changes in the general level of U.S. interest rates. The Company's short-term
borrowings effectively bear interest at variable rates and therefore, changes
in U.S. interest rates affect interest expense incurred thereon. The Company
had reduced this exposure to interest rate changes by entering into an interest
rate swap agreement, which expired during 2000, that effectively changed the
interest expense incurred on a portion of its short-term borrowings to a fixed
rate. Changes in interest rates do not affect interest expense incurred on the
Company's long-term borrowings because they all bear interest at fixed rates.
The following tables provide information about the Company's financial
instruments that are sensitive to changes in interest rates. For the Company's
investment portfolio and debt obligations, the tables present principal cash
flows and related weighted-average interest rates by expected maturity dates.
Additionally, the Company has assumed its available-for-sale debt securities,
comprised primarily of corporate debt instruments and treasury securities, are
similar enough to aggregate those securities for presentation purposes. For the
interest rate swap, the tables present the notional amount and weighted-average
interest rates by contractual maturity date. The notional amount is used to
calculate the contractual cash flows to be exchanged under the contract.
Interest Rate Sensitivity
Principal Amount by Expected Maturity as of 12/31/99
Average Interest Rate
(Dollars in millions)
Fair Value
2000 2001 2002 2003 2004 Thereafter Total 12/31/99
------ ------ ------ ----- ---- ---------- -------- ----------
Available-for-sale debt
securities............. $376.8 $721.8 $177.7 $17.0 $5.0 -- $1,298.3 $1,293.6
Interest rate........... 6.3% 6.4% 6.5% 6.0% 5.6% --
Commercial paper........ $100.0 -- -- -- -- -- $ 100.0 $ 100.0
Interest rate........... 6.4% -- -- -- -- --
Long-term debt.......... -- -- -- $23.0 -- $200.0 $ 223.0 $ 216.6
Interest rate........... -- -- -- 6.2% -- 7.3%
Interest rate swap
related to commercial
paper issuances:
Pay fixed/receive
variable............... $ 50.0 -- -- -- -- -- $ 50.0 $ 0.3
Avg. pay rate........... 5.3% -- -- -- -- --
Avg. receive rate....... 6.0% -- -- -- -- --
Interest Rate Sensitivity
Principal Amount by Expected Maturity as of 12/31/00
Average Interest Rate
(Dollars in millions)
Fair Value
2001 2002 2003 2004 2005 Thereafter Total 12/31/00
------ ------ ------ ------ ----- ---------- -------- ----------
Available-for-sale debt
securities............. $780.4 $740.6 $232.3 $118.5 $60.0 -- $1,931.8 $1,950.2
Interest rate........... 6.6% 6.7% 7.0% 6.5% 7.0% --
Commercial paper........ $100.0 -- -- -- -- -- $ 100.0 $ 100.0
Interest rate........... 6.7% -- -- -- -- --
Long-term debt.......... -- -- $ 23.0 -- -- $200.0 $ 223.0 $ 222.0
Interest rate........... -- -- 6.2% -- -- 7.3%
The Company is exposed to equity price risks on the marketable portion of
equity securities included in its portfolio of investments entered into for the
promotion of business and strategic objectives. These investments
31
are generally in small capitalization stocks in the biotechnology industry
sector. The Company typically does not attempt to reduce or eliminate its
market exposure on these securities. An 80% adverse change in equity prices
would result in a decrease of approximately $178 million and $72 million in the
fair value of the Company's available-for-sale marketable equity securities at
December 31, 2000 and 1999, respectively.
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 DISCLOSURES
None.
32
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 2001 Annual Meeting to
be filed with the Securities and Exchange Commission within 120 days of
December 31, 2000 (the "Proxy Statement"). For information concerning the
executive officers of the Company, see "Item 1. Business--Executive Officers of
the Registrant".
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 and Exchange Commission.
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.
33
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, 2000............................. F-2
Consolidated Balance Sheets at December 31, 2000 and 1999.......... F-3
Consolidated Statements of Stockholders' Equity for each of the
three years in the period ended December 31, 2000................. F-4
Consolidated Statements of Cash Flows for each of the three years
in the period ended December 31, 2000............................. F-5
Notes to Consolidated Financial Statements......................... F-6 - F-22
(a)2. Index to Financial Statement Schedules
The following Schedule is filed as part of this Form 10-K Annual Report:
Page
Number
------
II Valuation Accounts................................................... F-23
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 as amended.(10)
3.2 Amended and Restated Bylaws of Amgen Inc. (as amended October 24,
2000).(20)
3.3 Certificate of Amendment of Restated Certificate of Incorporation.(19)
3.4* Certificate of Designations of Series A Junior Participating Preferred
Stock.
4.1 Indenture dated January 1, 1992 between the Company and Citibank N.A.,
as trustee.(4)
4.2 First Supplement to Indenture, dated February 26, 1997 between the
Company and Citibank N.A., as trustee.(7)
4.3 Officer's Certificate pursuant to Sections 2.1 and 2.3 of the
Indenture, as supplemented, establishing a series of securities "8
1/8% Debentures due April 1, 2097."(9)
4.4 8 1/8% Debentures due April 1, 2097.(9)
4.5 Form of stock certificate for the common stock, par value $.0001 of
the Company.(10)
4.6 Officer's Certificate pursuant to Sections 2.1 and 2.3 of the
Indenture, dated as of January 1, 1992, as supplemented by the First
supplemental Indenture, dated as of February 26, 1997, each between
the Company and Citibank, N.A., as Trustee, establishing a series of
securities entitled "6.50% Notes Due December 1, 2007".(12)
4.7 6.50% Notes Due December 1, 2007 described in Exhibit 4.6.(12)
34
Exhibit
No. Description
------- -----------
4.8 Corporate Commercial Paper--Master Note between and among Amgen Inc.,
as Issuer, Cede & Co., as nominee of The Depository Trust Company and
Citibank, N.A. as Paying Agent.(14)
10.1*+ Company's Amended and Restated 1991 Equity Incentive Plan.
10.2*+ Company's Amended and Restated 1997 Special Non-Officer Equity
Incentive Plan.
10.3* Shareholder's Agreement of Kirin-Amgen, Inc., dated May 11, 1984,
between the Company and Kirin Brewery Company, Limited.
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.(19)
10.5 Product License Agreement, dated September 30, 1985, and Technology
License Agreement, dated, September 30, 1985 between the Company and
Ortho Pharmaceutical Corporation.(19)
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.(19)
10.7+ Company's Amended and Restated Employee Stock Purchase Plan.(19)
10.8 Research, Development Technology Disclosure and License Agreement PPO,
dated January 20, 1986, by and between the Company and Kirin Brewery
Co., Ltd.(1)
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.
10.10* Assignment and License Agreement, dated October 16, 1986, between the
Company and Kirin-Amgen, Inc.
10.11* G-CSF European License Agreement, dated December 30, 1986, between
Kirin-Amgen, Inc. and the Company.
10.12*+ Company's Retirement and Savings Plan (as amended and restated
effective October 23, 2000).
10.13+ Company's Amended and Restated 1988 Stock Option Plan.(6)
10.14*+ First Amendment to the Company's Retirement and Savings Plan (as
amended and restated effective October 23, 2000).
10.15 Amendment, dated June 30, 1988, to Research, Development, Technology
Disclosure and License Agreement: GM-CSF dated March 31, 1987,
between Kirin Brewery Company, Limited and the Company.(2)
10.16 Agreement on G-CSF in Certain European Countries, dated January 1,
1989, between Amgen Inc. and F. Hoffmann-La Roche & Co. Limited
Company (with certain confidential information deleted therefrom).(3)
10.17 Partnership Purchase Agreement, dated March 12, 1993, between the
Company, Amgen Clinical Partners, L.P., Amgen Development
Corporation, the Class A limited partners and the Class B limited
partner.(5)
10.18+ Amgen Inc. Supplemental Retirement Plan (As Amended and Restated
Effective November 1, 1999).(18)
10.19+ First Amendment to Amgen Inc. Change of Control Severance Plan.(19)
10.20+ Amended and Restated Amgen Performance Based Management Incentive
Plan.(17)
10.21 Credit Agreement, dated as of May 28, 1998, among Amgen Inc., the
Borrowing Subsidiaries named therein, the Banks named therein,
Citibank, N.A., as Issuing Bank, and Citicorp USA, Inc., as
Administrative Agent.(15)
35
Exhibit
No. Description
------- -----------
10.22* G-CSF United States License Agreement dated June 1, 1987 (effective
July 1, 1986) between Kirin-Amgen, Inc. and the Company.
10.23* Amendment No. 1 dated October 20, 1988 to Kirin-Amgen, Inc./Amgen G-
CSF United States License Agreement dated June 1, 1987 (effective
July 1, 1986).
10.24* Amendment No. 2 dated October 17, 1991 (effective November 13, 1990)
to Kirin-Amgen, Inc./Amgen G-CSF United States License Agreement
dated June 1, 1987 (effective July 1, 1986).
10.25* Amendment No. 10 dated March 1, 1996 to the Shareholders' Agreement of
Kirin-Amgen, Inc. dated May 11, 1984.
10.26+ Amgen Inc. Change of Control Severance Plan effective as of October
20, 1998.(16)
10.27 Preferred Share Rights Agreement, dated as of December 12, 2000,
between Amgen Inc. and American Stock Transfer and Trust Company, as
Rights Agent.(21)
10.28+ First Amendment, effective January 1, 1998, to the Company's Amended
and Restated Employee Stock Purchase Plan.(11)
10.29* Amendment No. 11 dated March 20, 2000 to the Shareholders' Agreement
of Kirin-Amgen, Inc. dated May 11, 1984.
10.30+ Agreement between Amgen Inc. and Dr. Fabrizio Bonanni, dated March 3,
1999.(18)
10.31* Amendment No. 1 dated June 1, 1987 to Kirin-Amgen, Inc./Amgen G-CSF
European License Agreement dated December 30, 1986.
10.32* Amendment No. 2 dated March 15, 1988 to Kirin-Amgen, Inc./Amgen G-CSF
European License Agreement dated December 30, 1986.
10.33* Amendment No. 3 dated October 20, 1988 to Kirin-Amgen, Inc./Amgen G-
CSF European License Agreement dated December 30, 1986.
10.34* Amendment No. 4 dated December 29, 1989 to Kirin-Amgen, Inc./Amgen G-
CSF European License Agreement dated December 30, 1986.
10.35+ Company's Amended and Restated 1987 Directors' Stock Option Plan.(8)
10.36 Amended and Restated Agreement on G-CSF in the EU between Amgen Inc.
and F. Hoffmann-La Roche Ltd (with certain confidential information
deleted therefrom).(14)
10.37 Collaboration and License Agreement, dated December 15, 1997, between
the Company, GPI NIL Holdings, Inc. and Guilford Pharmaceuticals Inc.
(with certain confidential information deleted therefrom).(13)
10.38+ Promissory Note of Dr. Fabrizio Bonanni, dated August 7, 1999.(18)
10.39 Promissory Note of Dr. Fabrizio Bonanni, dated October 29, 1999.(18)
10.40*+ Company's Amended and Restated 1997 Equity Incentive Plan.
10.41+ Agreement between Amgen Inc. and Mr. Gordon M. Binder, dated May 10,
2000.(19)
10.42* Amendment No. 6 dated May 11, 1984 to the Shareholders' Agreement of
Kirin-Amgen, Inc. dated May 11, 1984.
10.43* Amendment No. 7 dated July 17, 1987 (effective April 1, 1987) to the
Shareholders' Agreement of Kirin-Amgen, Inc. dated May 11, 1984.
10.44* Amendment No. 8 dated May 28, 1993 (effective November 13, 1990) to
the Shareholders' Agreement of Kirin-Amgen, Inc. dated May 11, 1984.
10.45* Amendment No. 9 dated December 9, 1994 (effective June 14, 1994) to
the Shareholders' Agreement of Kirin-Amgen, Inc. dated May 11, 1984.
36
Exhibit
No. Description
------- -----------
21* Subsidiaries of the Company.
23 Consent of Ernst & Young LLP, Independent Auditors. The consent set
forth as page 41 is incorporated herein by reference.
24 Power of Attorney. The Power of Attorney set forth on page 40 is
incorporated herein by reference.
- --------
* Filed herewith.
+ Management contract or compensatory plan or arrangement.
(1) 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.
(2) 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.
(3) Filed as an exhibit to the Form 8 dated November 8, 1989, amending the
Annual Report on Form 10-K for the year ended March 31, 1989 on June 28,
1989 and incorporated herein by reference.
(4) Filed as an exhibit to Form S-3 Registration Statement dated December 19,
1991 and incorporated herein by reference.
(5) Filed as an exhibit to the Form 8-A dated March 31, 1993 and incorporated
herein by reference.
(6) Filed as an exhibit to the Form 10-Q for the quarter ended September 30,
1996 on November 5, 1996 and incorporated herein by reference.
(7) Filed as an exhibit to the Form 8-K Current Report dated March 14, 1997 on
March 14, 1997 and incorporated herein by reference.
(8) Filed as an exhibit to the Annual Report on Form 10-K for the year ended
December 31, 1996 on March 24, 1997 and incorporated herein by reference.
(9) Filed as an exhibit to the Form 8-K Current Report dated April 8, 1997 on
April 8, 1997 and incorporated herein by reference.
(10) Filed as an exhibit to the Form 10-Q for the quarter ended March 31, 1997
on May 13, 1997 and incorporated herein by reference.
(11) Filed as an exhibit to the Form 10-Q for the quarter ended June 30, 1997
on August 12, 1997 and incorporated herein by reference.
(12) Filed as an exhibit to the Form 8-K Current Report dated and filed on
December 5, 1997 and incorporated herein by reference.
(13) Filed as Exhibit 10.40 to the Guilford Pharmaceuticals Inc. Form 10-K for
the year ended December 31, 1997 on March 27, 1998 and incorporated herein
by reference.
(14) Filed as an exhibit to the Form 10-Q for the quarter ended March 31, 1998
on May 13, 1998 and incorporated herein by reference.
(15) Filed as an exhibit to the Form 10-Q for the quarter ended June 30, 1998
on August 14, 1998 and incorporated herein by reference.
(16) Filed as an exhibit to the Annual Report on Form 10-K for the year ended
December 31, 1998 on March 16, 1999 and incorporated herein by reference.
(17) Filed as an exhibit to the Form 10-Q for the quarter ended June 30, 1999
on August 3, 1999 and incorporated herein by reference.
(18) Filed as an exhibit to the Annual Report on Form 10-K for the year ended
December 31, 1999 on March 7, 2000 and incorporated herein by reference.
(19) Filed as an exhibit to the Form 10-Q for the quarter ended June 30, 2000
on August 1, 2000 and incorporated herein by reference.
(20) Filed as an exhibit to the Form 10-Q for the quarter ended September 30,
2000 on November 14, 2000 and incorporated herein by reference.
(21) Filed as an exhibit to the Form 8-K Current Report dated December 13, 2000
on December 18, 2000 and incorporated herein by reference.
37
(b) Reports on Form 8-K
The Company filed three Current Reports on Form 8-K during the three months
ended December 31, 2000. The report filed on November 3, 2000 reported under
Item 5 that on October 26, 2000, the Company publicly disseminated a press
release announcing its third quarter of 2000 financial results. The report
filed on November 13, 2000 reported under Item 5 that on November 8, 2000, the
Company publicly disseminated a press release updating the investment community
on the Company's business and providing certain financial guidance. The report
filed on December 18, 2000 reported under Item 5 that on December 12, 2000, the
Company's Board of Directors amended and restated its stockholder rights
agreement and approved the Amended and Restated Rights Agreement, dated as of
December 12, 2000, between the Company and American Stock Transfer & Trust
Company.
38
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)
/s/ Kathryn E. Falberg
Date: 3/6/01 By: _________________________________
Kathryn E. Falberg
Senior Vice President, Finance
and Chief Financial Officer
39
POWER OF ATTORNEY
KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Kathryn E. Falberg and Barry D. Schehr,
or either of them, his or her attorney-in-fact, each with the power of
substitution, for him or her 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 or her
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:
Signature Title Date
--------- ----- ----
/s/ Kevin W. Sharer Chairman of the Board, Chief 3/6/01
____________________________________ Executive Officer and
Kevin W. Sharer Director (Principal
Executive Officer)
/s/ Kathryn E. Falberg Senior Vice President, 3/6/01
____________________________________ Finance and Chief Financial
Kathryn E. Falberg Officer
/s/ Barry D. Schehr Vice President, Financial 3/6/01
____________________________________ Operations, and Chief
Barry D. Schehr Accounting Officer
/s/ David Baltimore Director 3/6/01
____________________________________
David Baltimore
/s/ William K. Bowes, Jr. Director 3/6/01
____________________________________
William K. Bowes, Jr.
/s/ Jerry D. Choate Director 3/6/01
____________________________________
Jerry D. Choate
/s/ Frederick W. Gluck Director 3/6/01
____________________________________
Frederick W. Gluck
/s/ Franklin P. Johnson, Jr. Director 3/6/01
____________________________________
Franklin P. Johnson, Jr.
/s/ Steven Lazarus Director 3/6/01
____________________________________
Steven Lazarus
/s/ Gilbert S. Omenn Director 3/6/01
____________________________________
Gilbert S. Omenn
/s/ Judith C. Pelham Director 3/6/01
____________________________________
Judith C. Pelham
/s/ J. Paul Reason Director 3/6/01
____________________________________
J. Paul Reason
/s/ Donald B. Rice Director 3/6/01
____________________________________
Donald B. Rice
40
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 Amended and Restated Amgen Retirement and Savings Plan, in the
Registration Statements (Form S-3/S-8 No. 33-29791 and 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., in the Registration Statement (Form S-8 No. 333-44727)
pertaining to the Amgen Inc. 1997 Special Non-Officer Equity Incentive Plan, in
the Registration Statement (Form S-3 No. 333-19931) of Amgen Inc., in the
Registration Statement (Form S-3 No. 333-40405) of Amgen Inc., in the
Registration Statement (Form S-8 No. 333-62735) pertaining to the Amgen Inc.
Amended and Restated 1997 Special Non-Officer Equity Incentive Plan, in the
Registration Statement (Form S-3 No. 333-53929) pertaining to the Amgen Inc.
1997 Special Non-Officer Equity Incentive Plan, the Amgen Inc. Amended and
Restated 1991 Equity Incentive Plan, the Amended and Restated 1988 Stock Option
Plan of Amgen Inc. and the Amended and Restated 1987 Directors' Stock Option
Plan and in the Registration Statement (Form S-8 No. 333-74585) pertaining to
the Amgen Limited Sharesave Plan and in the related Prospectuses of our report
dated January 23, 2001, 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, 2000.
/s/ ERNST & YOUNG LLP
Los Angeles, California
March 6, 2001
41
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, 2000 and 1999, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 2000. 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 based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Amgen Inc. as
of December 31, 2000 and 1999, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December 31,
2000, in accordance with accounting principles generally accepted in the United
States. 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 23, 2001
F-1
AMGEN INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 2000, 1999 and 1998
(In millions, except per share data)
2000 1999 1998
-------- -------- --------
Revenues:
Product sales............. $3,202.2 $3,042.8 $2,514.4
Corporate partner
revenues................. 246.2 161.4 127.9
Royalty income............ 181.0 135.9 75.9
-------- -------- --------
Total revenues.......... 3,629.4 3,340.1 2,718.2
-------- -------- --------
Operating expenses:
Cost of sales............. 408.4 402.1 345.2
Research and development.. 845.0 822.8 663.3
Selling, general and
administrative........... 826.9 654.3 515.4
Loss of affiliates, net... 23.9 16.8 28.6
Other items, net.......... (18.8) (49.0) (23.0)
-------- -------- --------
Total operating
expenses............... 2,085.4 1,847.0 1,529.5
-------- -------- --------
Operating income............ 1,544.0 1,493.1 1,188.7
Other income (expense):
Interest and other income,
net...................... 146.2 88.3 45.7
Interest expense, net..... (15.9) (15.2) (10.0)
-------- -------- --------
Total other income...... 130.3 73.1 35.7
-------- -------- --------
Income before income taxes.. 1,674.3 1,566.2 1,224.4
Provision for income taxes.. 535.8 469.8 361.2
-------- -------- --------
Net income.................. $1,138.5 $1,096.4 $ 863.2
======== ======== ========
Earnings per share:
Basic..................... $ 1.11 $ 1.07 $ 0.85
Diluted................... $ 1.05 $ 1.02 $ 0.82
Shares used in calculation
of earnings per share:
Basic..................... 1,029.6 1,021.7 1,020.2
Diluted................... 1,084.7 1,078.3 1,057.3
See accompanying notes.
F-2
AMGEN INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2000 and 1999
(In millions, except per share data)
2000 1999
-------- --------
ASSETS
------
Current assets:
Cash and cash equivalents................................. $ 226.5 $ 130.9
Marketable securities..................................... 1,801.6 1,202.1
Trade receivables, net of allowance for doubtful accounts
of $21.2 in 2000 and $26.0 in 1999....................... 389.2 412.2
Inventories............................................... 305.2 184.3
Other current assets...................................... 214.6 135.8
-------- --------
Total current assets.................................... 2,937.1 2,065.3
Property, plant and equipment at cost, net.................. 1,781.5 1,553.6
Other assets................................................ 681.0 458.7
-------- --------
$5,399.6 $4,077.6
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable.......................................... $ 143.2 $ 83.4
Commercial paper.......................................... 99.7 99.5
Accrued liabilities....................................... 619.2 648.2
-------- --------
Total current liabilities............................... 862.1 831.1
Long-term debt.............................................. 223.0 223.0
Stockholders' equity:
Preferred stock; $0.0001 par value; 5.0 shares authorized;
none issued or outstanding............................... -- --
Common stock and additional paid-in capital; $0.0001 par
value; 2,750.0 shares authorized; outstanding--1,037.4
shares in 2000 and 1,017.9 shares in 1999................ 2,947.3 2,072.3
Retained earnings......................................... 1,304.6 966.0
Accumulated other comprehensive income (loss)............. 62.6 (14.8)
-------- --------
Total stockholders' equity.............................. 4,314.5 3,023.5
-------- --------
$5,399.6 $4,077.6
======== ========
See accompanying notes.
F-3
AMGEN INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 2000, 1999 and 1998
(In millions)
Common
stock and Accumulated
Number additional other
of paid-in Retained comprehensive
shares capital earnings income (loss) Total
------- ---------- --------- ------------- ---------
Balance at December 31,
1997.................. 1,033.1 $1,218.2 $ 943.2 $(22.1) $ 2,139.3
---------
Comprehensive Income:
Net income........... -- -- 863.2 -- 863.2
Other comprehensive
income, net of tax:
Unrealized gains on
securities,
net of
reclassification
adjustments........ -- -- -- 9.1 9.1
Foreign currency
translation
adjustments........ -- -- -- 9.0 9.0
---------
Total other
comprehensive
income........... -- -- -- -- 18.1
---------
Comprehensive income... -- -- -- -- 881.3
Issuance of common
stock upon the
exercise of employee
stock options and in
connection with an
employee stock
purchase plan......... 42.8 345.5 -- -- 345.5
Tax benefits related to
employee stock
options............... -- 108.2 -- -- 108.2
Repurchases of common
stock................. (57.4) -- (912.1) -- (912.1)
------- -------- --------- ------ ---------
Balance at December 31,
1998.................. 1,018.5 1,671.9 894.3 (4.0) 2,562.2
---------
Comprehensive Income:
Net income........... -- -- 1,096.4 -- 1,096.4
Other comprehensive
loss, net of tax:
Unrealized gains on
securities, net of
reclassification
adjustments........ -- -- -- 7.3 7.3
Foreign currency
translation
adjustments........ -- -- -- (18.1) (18.1)
---------
Total other
comprehensive
loss............. -- -- -- -- (10.8)
---------
Comprehensive income... -- -- -- -- 1,085.6
Issuance of common
stock upon the
exercise of employee
stock options......... 26.5 248.8 -- -- 248.8
Tax benefits related to
employee stock
options............... -- 151.6 -- -- 151.6
Repurchases of common
stock................. (27.1) -- (1,024.7) -- (1,024.7)
------- -------- --------- ------ ---------
Balance at December 31,
1999.................. 1,017.9 2,072.3 966.0 (14.8) 3,023.5
---------
Comprehensive Income:
Net income........... -- -- 1,138.5 -- 1,138.5
Other comprehensive
income, net of tax:
Unrealized gains on
securities, net of
reclassification
adjustments........ -- -- -- 99.0 99.0
Foreign currency
translation
adjustments........ -- -- -- (21.6) (21.6)
---------
Total other
comprehensive
income........... -- -- -- -- 77.4
---------
Comprehensive income... -- -- -- -- 1,215.9
Issuance of common
stock upon the
exercise of employee
stock options and in
connection with an
employee stock
purchase plan......... 29.1 333.7 -- -- 333.7
Tax benefits related to
employee stock
options............... -- 376.6 -- -- 376.6
Issuance of common
stock for the
acquisition of Kinetix
Pharmaceuticals,
Inc. ................. 2.6 164.7 -- -- 164.7
Repurchases of common
stock................. (12.2) -- (799.9) -- (799.9)
------- -------- --------- ------ ---------
Balance at December 31,
2000.................. 1,037.4 $2,947.3 $ 1,304.6 $ 62.6 $ 4,314.5
======= ======== ========= ====== =========
See accompanying notes.
F-4
AMGEN INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2000, 1999 and 1998
(In millions)
2000 1999 1998
--------- --------- --------
Cash flows from operating activities:
Net income................................... $ 1,138.5 $ 1,096.4 $ 863.2
Write-off of acquired in-process research and
development................................. 30.1 -- --
Depreciation and amortization................ 211.8 176.8 143.8
Tax benefits related to employee stock
options..................................... 376.6 151.6 108.2
Gain on equity investments................... (31.8) -- (17.3)
Other non-cash expenses...................... 6.2 9.8 27.5
Loss of affiliates, net...................... 23.9 16.8 28.6
Cash provided by (used in):
Trade receivables, net..................... 23.0 (92.3) (50.9)
Inventories................................ (120.9) (73.5) (1.6)
Other current assets....................... (51.4) (9.0) (21.2)
Accounts payable........................... 59.8 (38.2) 17.7
Accrued liabilities........................ (31.2) (11.5) 51.7
--------- --------- --------
Net cash provided by operating
activities.............................. 1,634.6 1,226.9 1,149.7
--------- --------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment... (437.7) (304.2) (407.8)
Proceeds from maturities of marketable
securities.................................. -- 40.0 20.1
Proceeds from sales of marketable
securities.................................. 1,067.8 843.5 466.2
Purchases of marketable securities........... (1,638.7) (1,032.7) (766.3)
Other........................................ (27.7) (10.1) 14.1
--------- --------- --------
Net cash used in investing activities.... (1,036.3) (463.5) (673.7)
--------- --------- --------
Cash flows from financing activities:
Increase (decrease) in commercial paper...... 0.2 (0.2) 99.7
Net proceeds from issuance of common stock
upon the exercise of employee stock options
and in connection with an employee stock
purchase plan............................... 333.7 248.8 345.5
Repurchases of common stock.................. (799.9) (1,024.7) (912.1)
Other........................................ (36.7) (57.5) (47.1)
--------- --------- --------
Net cash used in financing activities.... (502.7) (833.6) (514.0)
--------- --------- --------
Increase (decrease) in cash and cash
equivalents................................... 95.6 (70.2) (38.0)
Cash and cash equivalents at beginning of
period........................................ 130.9 201.1 239.1
--------- --------- --------
Cash and cash equivalents at end of period..... $ 226.5 $ 130.9 $ 201.1
========= ========= ========
See accompanying notes.
F-5
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
1. Summary of significant accounting policies
Business
Amgen Inc. ("Amgen" or the "Company") is a global biotechnology company that
discovers, develops, manufactures and markets human therapeutics based on
advances in cellular and molecular biology.
Principles of consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries as well as affiliated companies in 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 and cash equivalents
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. Under the Company's cash management system, the
bank notifies the Company daily of checks presented for payment against its
primary disbursement accounts. The Company transfers funds from short-term
investments to cover the checks presented for payment. This system results in a
book cash overdraft in the primary disbursement accounts as a result of checks
outstanding. The book overdraft, which was reclassified to accounts payable,
was $101.2 million and $43.9 million at December 31, 2000 and 1999,
respectively.
Available-for-sale securities
The Company considers its investment portfolio and marketable equity
investments available-for-sale as defined in Statement of Financial Accounting
Standards ("SFAS") No. 115 and, accordingly, these investments are recorded at
fair value (see Note 9, "Fair values of financial instruments"). Realized gains
totaled $32.4 million, $2.8 million and $17.3 million for the years ended
December 31, 2000, 1999 and 1998, respectively. Realized losses totaled $2.5
million, $6.6 million and $33.1 million for the years ended December 31, 2000,
1999 and 1998, respectively. The cost of securities sold is based on the
specific identification method. The fair value of available-for-sale
investments by type of security, contractual maturity and classification in the
balance sheets are as follows (in millions):
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
December 31, 2000 Cost Gains Losses Value
- ----------------- --------- ---------- ---------- ---------
Type of security:
Corporate debt securities........... $1,054.7 $ 11.3 ($1.4) $1,064.6
U.S. Treasury securities and
obligations of U.S. government
agencies........................... 663.6 5.9 -- 669.5
Other interest bearing securities... 215.8 0.4 (0.1) 216.1
-------- ------ ----- --------
Total debt securities............. 1,934.1 17.6 (1.5) 1,950.2
Equity securities................... 73.1 179.2 (7.0) 245.3
-------- ------ ----- --------
$2,007.2 $196.8 ($8.5) $2,195.5
======== ====== ===== ========
F-6
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
December 31, 1999 Cost Gains Losses Value
- ----------------- --------- ---------- ---------- ---------
Type of security:
Corporate debt securities........... $ 963.8 $ 0.4 $(10.8) $ 953.4
U.S. Treasury securities and
obligations of U.S. government
agencies........................... 209.9 -- (1.6) 208.3
Other interest bearing securities... 132.4 -- (0.5) 131.9
-------- ----- ------ --------
Total debt securities............. 1,306.1 0.4 (12.9) 1,293.6
Equity securities................... 66.8 46.7 (8.9) 104.6
-------- ----- ------ --------
$1,372.9 $47.1 $(21.8) $1,398.2
======== ===== ====== ========
December 31,
------------------
2000 1999
-------- --------
Contractual maturity:
Maturing in one year or less........................... $ 783.6 $ 376.4
Maturing after one year through three years............ 986.1 896.0
Maturing after three years............................. 180.5 21.2
-------- --------
Total debt securities................................ 1,950.2 1,293.6
Equity securities...................................... 245.3 104.6
-------- --------
$2,195.5 $1,398.2
======== ========
Classification in balance sheets:
Cash and cash equivalents.............................. $ 226.5 $ 130.9
Marketable securities.................................. 1,801.6 1,202.1
Other assets--noncurrent............................... 285.3 144.6
-------- --------
2,313.4 1,477.6
Less cash.............................................. (117.9) (79.4)
-------- --------
$2,195.5 $1,398.2
======== ========
The primary objectives for the Company's investment portfolio are liquidity
and safety of principal. Investments are made to achieve the highest rate of
return to the Company, consistent with these two objectives. The Company's
investment policy limits investments to certain types of instruments issued by
institutions with investment grade credit ratings and places restrictions on
maturities and concentration by type and issuer.
F-7
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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
consist of currently marketed products and product candidates which the Company
expects to commercialize. The inventory balance of such product candidates
totaled $112.7 million and $20.3 million as of December 31, 2000 and 1999,
respectively. Inventories are shown net of applicable reserves and allowances.
Inventories consisted of the following (in millions):
December 31,
-------------
2000 1999
------ ------
Raw materials.................................................. $ 29.4 $ 37.5
Work in process................................................ 238.7 96.6
Finished goods................................................. 37.1 50.2
------ ------
$305.2 $184.3
====== ======
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.
Useful lives by asset category are as follows:
Asset category Years
-------------- -----
Buildings and building improvements.................................. 10-30
Manufacturing equipment.............................................. 5-10
Laboratory equipment................................................. 5-10
Furniture and office equipment....................................... 3-10
Long-lived assets
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable.
Product sales
Product sales primarily consist of sales of EPOGEN(R) (Epoetin alfa) and
NEUPOGEN(R) (Filgrastim) (see Note 10, "Segment information").
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 (which has assigned its rights under the product
license agreement to Ortho Biotech Products, L.P.), a subsidiary of Johnson &
Johnson ("Johnson & Johnson"), a license relating to Epoetin alfa for sales in
the United States for all human uses except dialysis and diagnostics. Pursuant
to this license, Amgen does not recognize product sales it makes into the
exclusive market of Johnson & Johnson and does recognize the product sales made
by Johnson & Johnson into Amgen's exclusive market. Sales in Amgen's exclusive
market and adjustments thereto are derived from Company shipments and from
third-party data on shipments to end users and their usage (see Note 4, "Other
items, net--Legal award"). Sales of the Company's other products are recognized
when shipped and title has passed.
F-8
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Research and development costs
Research and development costs are expensed as incurred, including the cost
to acquire in-process research and development (see Note 11, "Business
combination").
Foreign currency transactions
The Company has a program to manage foreign currency risk. As part of this
program, it has purchased foreign currency option and forward contracts to
hedge against possible reductions in values of certain anticipated foreign
currency cash flows generally over the next 12 months. At December 31, 2000,
the Company had option contracts and forward contracts to exchange foreign
currencies for U.S. dollars of $10.0 million and $150.6 million, respectively,
all having maturities of eleven months or less. The option contracts, which
have only nominal intrinsic value at the time of purchase, are designated as
effective hedges of anticipated foreign currency transactions for financial
reporting purposes and, accordingly, the net gains on such contracts are
deferred and recognized in the same period as the hedged transactions. The
forward contracts do not qualify as hedges for financial reporting purposes
and, accordingly, are marked-to-market. Net gains realized on option contracts
and changes in market values of forward contracts are reflected in "Interest
and other income, net" in the accompanying consolidated statements of
operations. The deferred premiums on option contracts and fair values of
forward contracts are included in "Other current assets" in the accompanying
consolidated balance sheets.
The Company has additional foreign currency forward contracts to hedge
exposures to foreign currency fluctuations of certain assets and liabilities
denominated in foreign currencies. At December 31, 2000, the Company had
forward contracts to exchange foreign currencies for U.S. dollars of $37.8
million, all having maturities of less than one month. These contracts are
designated as effective hedges and, accordingly, gains and losses on these
forward contracts are recognized in the same period the offsetting gains and
losses of hedged assets and liabilities are realized and recognized. The fair
values of the forward contracts are included in the corresponding captions of
the hedged assets and liabilities. Gains and losses on forward contracts and
the related hedged assets and liabilities are included in "Interest and other
income, net" in the accompanying consolidated statements of operations.
Recent accounting pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133
establishes accounting and reporting standards requiring that all derivatives
be recorded in the balance sheet as either an asset or liability measured at
fair value and that changes in fair value be recognized currently in earnings,
unless specific hedge accounting criteria are met. Certain provisions of SFAS
No. 133, including its required implementation date, were subsequently amended.
The Company will adopt SFAS No. 133, as amended, in the first quarter of 2001
and its adoption will not have a material effect on the Company's results of
operations or financial position.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"). SAB 101 provides guidance on applying generally accepted
accounting principles to revenue recognition issues in financial statements.
The Company adopted SAB 101 in the fourth quarter of 2000 and its adoption has
not had a material effect on the Company's results of operations or financial
position.
In July 2000, the Emerging Issues Task Force ("EITF") issued EITF 00-15,
"Classification in the Statement of Cash Flows of the Income Tax Benefit
Realized by a Company upon Employee Exercise of a Nonqualified Stock Option",
which requires companies to classify the income tax benefits related to
employee
F-9
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
exercises of nonqualified stock options as an operating activity in the
statement of cash flows for both current and prior periods. Prior to the
adoption of EITF 00-15 in the third quarter of 2000, Amgen had classified these
amounts in financing activities in the consolidated statements of cash flows.
In addition, the Company has included the income tax benefits related to
disqualifying dispositions of incentive stock options within this
reclassification.
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, 2000, 1999 and
1998, were $12.3 million, $11.6 million and $19.2 million, respectively.
Employee stock option and stock purchase plans
The Company's employee stock option and stock purchase plans are accounted
for under Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25"). See Note 7, "Employee stock option, stock
purchase and defined contribution plans".
Earnings per share
Basic earnings per share is based upon the weighted-average number of common
shares outstanding. Diluted earnings per share is based upon the weighted-
average number of common shares and dilutive potential common shares
outstanding. Potential common shares are outstanding options under the
Company's employee stock option plans, restricted stock and potential issuances
of stock under the employee stock purchase plan which are included under the
treasury stock method.
The following table sets forth the computation for basic and diluted
earnings per share (in millions, except per share information):
Years ended December 31,
--------------------------
2000 1999 1998
-------- -------- --------
Numerator for basic and diluted earnings per share--
net income.......................................... $1,138.5 $1,096.4 $ 863.2
======== ======== ========
Denominator:
Denominator for basic earnings per share--weighted-
average shares.................................... 1,029.6 1,021.7 1,020.2
Effect of dilutive securities--employee stock
options, restricted stock and potential stock
issuances under the employee stock purchase plan.. 55.1 56.6 37.1
-------- -------- --------
Denominator for diluted earnings per share--
adjusted weighted-average shares.................. 1,084.7 1,078.3 1,057.3
======== ======== ========
Basic earnings per share............................. $ 1.11 $ 1.07 $ 0.85
======== ======== ========
Diluted earnings per share........................... $ 1.05 $ 1.02 $ 0.82
======== ======== ========
Options to purchase 10.6 million, 1.6 million and 3.0 million shares with
exercise prices greater than the average market prices of common stock were
outstanding at December 31, 2000, 1999 and 1998, respectively. These options
were excluded from the respective computations of diluted earnings per share
because their effect would be anti-dilutive.
F-10
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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. 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. During the years ended December 31, 2000, 1999 and 1998,
Amgen earned revenues from Kirin-Amgen of $221.0 million, $138.5 million and
$121.0 million, respectively, under such agreements, which are included in
"Corporate partner revenues" in the accompanying consolidated statements of
operations.
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 pays Kirin-Amgen royalties based on sales. During the
years ended December 31, 2000, 1999 and 1998, Kirin-Amgen earned royalties from
Amgen of $140.8 million, $128.1 million and $105.0 million, respectively, under
such agreements, which are included in "Cost of sales" in the accompanying
consolidated statements of operations.
At December 31, 2000, Amgen's share of Kirin-Amgen's undistributed retained
earnings was approximately $75.9 million.
3. Debt
The Company has a commercial paper program which provides for unsecured
short-term borrowings up to an aggregate of $200 million. As of December 31,
2000, commercial paper with a face amount of $100 million was outstanding.
These borrowings had maturities of less than two months and had effective
interest rates averaging 6.7%. Commercial paper with a face amount of $100
million and with effective interest rates averaging 6.0% was outstanding at
December 31, 1999.
The Company has established a $500 million debt shelf registration
statement. In December 1997, pursuant to this registration statement, the
Company issued $100 million of debt securities that bear interest at a fixed
rate of 6.5% and mature in 2007 (the "Notes") and established a $400 million
medium-term note program. The Company may offer and issue medium-term notes
from time to time with terms to be determined by market conditions.
The Company had $100 million of debt securities outstanding at December 31,
2000 and 1999 that bear interest at a fixed rate of 8.1% and mature in 2097
(the "Century Notes"). These securities may be redeemed in whole or in part at
the Company's option at any time for a redemption price equal to the greater of
the principal amount to be redeemed or the sum of the present values of the
principal and remaining interest payments discounted at a determined rate plus,
in each case, accrued interest.
F-11
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In addition to the Notes and the Century Notes, debt securities outstanding
at December 31, 2000 and 1999 include $23 million of debt securities that bear
interest at a fixed rate of 6.2% and mature in 2003. The terms of the debt
securities require the Company to meet certain debt to tangible net asset
ratios and places limitations on liens and sale/leaseback transactions and,
except with respect to the Notes and the Century Notes, places limitations on
subsidiary indebtedness.
The Company has an unsecured credit facility (the "credit facility") that
includes a commitment expiring on May 28, 2003 for up to $150 million of
borrowings under a revolving line of credit (the "revolving line commitment").
This credit facility supports the Company's commercial paper program. As of
December 31, 2000, $150 million was available under the revolving line
commitment for borrowing. 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, 2000, are as follows: none in 2001 and 2002; $23 million in
2003; none in 2004 and 2005; and $200 million after 2005.
4. Other items, net
Other items, net in the accompanying consolidated statements of operations
consists of the following (income) and expense items (in millions):
Years ended December
31,
----------------------
2000 1999 1998
------ ------ ------
Legal award, net................................... $(73.9) $(49.0) $(23.0)
Write-off of acquired in-process research and
development (see Note 11)......................... 30.1 -- --
Amgen Foundation contribution...................... 25.0 -- --
------ ------ ------
Other items, net................................... $(18.8) $(49.0) $(23.0)
====== ====== ======
Legal award
In September 1985, the Company granted Johnson & Johnson's affiliate, Ortho
Pharmaceutical Corporation, a license relating to certain patented technology
and know-how of the Company to sell a genetically engineered form of
recombinant human erythropoietin, called Epoetin alfa, throughout the United
States for all human uses except dialysis and diagnostics. A number of disputes
have arisen between Amgen and Johnson & Johnson as to their respective rights
and obligations under the various agreements between them, including the
agreement granting the license (the "License Agreement").
A dispute between Amgen and Johnson & Johnson that had been the subject of
an arbitration proceeding related to the audit methodology currently employed
by the Company to account for Epoetin alfa sales. Under the License Agreement,
the Company and Johnson & Johnson are required to compensate each other for
Epoetin alfa sales that either party makes into the other party's exclusive
market, sometimes described as "spillover" sales. The Company has established
and is employing an audit methodology to measure each party's spillover sales
and to allocate the net profits from those sales to the appropriate party. The
arbitrator in this dispute (the "Arbitrator") issued a final order adopting the
Company's audit methodology with certain adjustments and also found that the
Company was the successful party in the arbitration. Pursuant to the final
order in the arbitration, an independent panel was formed principally (i) to
address ongoing challenges to the
F-12
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
survey results for the years 1995 through 1999 and (ii) to refine the
procedures for measuring the erythropoietin market as may be necessary. As a
result of decisions made by this independent panel regarding certain challenges
by Johnson & Johnson as well as other reduced uncertainties, the Company
reduced amounts previously provided for potential spillover liabilities by $49
million in the third quarter of 1999 and $23 million in the fourth quarter of
1998.
Because the Arbitrator ruled that the Company was the successful party in
the arbitration, Johnson & Johnson was ordered to pay to the Company all costs
and expenses, including reasonable attorneys' fees, that the Company incurred
in the arbitration as well as one-half of the audit costs. On July 17, 2000,
the Arbitrator issued a final order awarding the Company approximately $78
million in costs and expenses, including reasonable attorneys' fees, that the
Company incurred in the arbitration as well as one-half of the audit costs (the
"Fee Award"). As a result, the Company recorded a net $73.9 million legal
award, which represents the Fee Award reduced by minor amounts related to other
miscellaneous disputes with Johnson & Johnson, in the third quarter of 2000.
Amgen Foundation contribution
During the fourth quarter of 2000, the Company contributed $25.0 million to
the Amgen Foundation. This contribution will allow the Amgen Foundation to
increase its support of non-profit organizations that focus on issues in health
and medicine, science education and other activities that strengthen local
communities over the next several years.
5. Income taxes
The provision for income taxes includes the following (in millions):
Years ended December
31,
---------------------
2000 1999 1998
------ ------ ------
Current provision:
Federal (including U.S. possessions)................ $481.7 $422.8 $339.6
State............................................... 47.5 37.2 27.2
------ ------ ------
Total current provision........................... 529.2 460.0 366.8
------ ------ ------
Deferred provision (benefit):
Federal (including U.S. possessions)................ 9.6 5.3 (4.7)
State............................................... (3.0) 4.5 (0.9)
------ ------ ------
Total deferred provision (benefit)................ 6.6 9.8 (5.6)
------ ------ ------
$535.8 $469.8 $361.2
====== ====== ======
F-13
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Deferred income taxes reflect the net tax effects of net operating loss and
credit 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,
----------------
2000 1999
------- -------
Deferred tax assets:
Acquired net operating loss and credit carryforwards.... $ 66.0 $ 64.3
Expenses capitalized for tax purposes................... 58.9 27.9
Fixed assets............................................ 46.0 22.9
Expense accruals........................................ 32.9 84.0
Other................................................... 20.0 27.4
------- -------
Total deferred tax assets............................. 223.8 226.5
Valuation allowance..................................... (25.4) (46.0)
------- -------
Net deferred tax assets............................... 198.4 180.5
------- -------
Deferred tax liabilities:
Purchase of technology rights........................... (95.9) (78.1)
Marketable securities and investments................... (62.6) (10.0)
Other................................................... (39.3) (13.9)
------- -------
Total deferred tax liabilities........................ (197.8) (102.0)
------- -------
$ 0.6 $ 78.5
======= =======
At December 31, 2000, the Company had operating loss carryforwards available
to reduce future federal taxable income of which $29.3 million expire in 2008,
$84.0 million expire in 2009 and $16.8 million expire thereafter. These
operating loss carryforwards relate to the acquisition of companies.
Utilization of these operating loss carryforwards is limited to approximately
$26 million in 2001, $23 million in 2002 and $16 million per year thereafter.
The provision for income taxes varies from income taxes provided based on
the federal statutory rate as follows:
Years ended
December 31,
------------------
2000 1999 1998
---- ---- ----
Statutory rate applied to income before income taxes.. 35.0 % 35.0 % 35.0 %
Benefit of Puerto Rico operations, net of Puerto Rico
income taxes......................................... (2.0)% (2.3)% (3.2)%
Utilization of tax credits, primarily research and
experimentation...................................... (1.4)% (2.1)% (2.4)%
Other, net............................................ 0.4 % (0.6)% 0.1 %
---- ---- ----
32.0 % 30.0 % 29.5 %
==== ==== ====
Income taxes paid during the years ended December 31, 2000, 1999 and 1998,
totaled $141.3 million, $318.7 million and $251.3 million, respectively.
F-14
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Stockholders' equity
Stockholder Rights Agreement
On February 18, 1997, the Board of Directors of the Company redeemed the
rights under the Company's former common stock rights plan and declared a
dividend of one preferred share purchase right (a "Right") for each then
outstanding share of common stock of the Company and authorized the
distribution of one Right with respect to each subsequently issued share of
common stock. The Rights were distributed to stockholders of record on March
21, 1997. On December 12, 2000, the Board of Directors of the Company amended
and restated the preferred stock rights plan governing the Rights (the "Amended
and Restated Rights Plan") to, among other things: (i) provide that, as a
result of two-for-one splits of the Company's common stock effected in February
and November 1999 (the "Stock Splits"), each Right shall represent the right to
purchase one four-thousandth of a share of Series A Junior Participating
Preferred Stock ("Series A Preferred Stock") of the Company (which one four-
thousandth gives effect to the Stock Splits); (ii) increase the exercise price
of each Right to $350.00 from $56.25 (as adjusted for the Stock Splits); (iii)
extend the term of the rights agreement to December 12, 2010 from March 21,
2007 and (iv) amend the definition of "Outside Director".
Pursuant to the Amended and Restated Rights Plan, each share of common stock
outstanding has attached to it one whole Right. One Right represents the right
to purchase one four-thousandth (1/4000) of a share of Series A Preferred Stock
of the Company at $350.00. The Rights will expire on December 12, 2010.
Under certain circumstances, if an acquiring person or group acquires 10% or
more of the Company's outstanding common stock, an exercisable Right will
entitle its holder (other than the acquirer) to buy shares of common stock of
the Company having a market value of two times the exercise price of one Right.
However, in limited circumstances approved by the outside directors of the
Board of Directors, a stockholder who enters into an acceptable standstill
agreement may acquire up to 20% of the outstanding shares without triggering
the Rights. If an acquirer acquires at least 10%, but less than 50%, of the
Company's common stock, the Board of Directors may exchange each Right (other
than those of the acquirer) 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, an
exercisable Right will entitle its holder to buy shares of common stock of the
acquiring company having a market value of two times the exercise price of one
Right. The Company may redeem the Rights at $0.00025 per Right at any time
prior to the public announcement that a 10% position has been acquired.
Stock repurchase program
The Company has a stock repurchase program primarily to reduce the dilutive
effect of its employee stock option and stock purchase plans. Stock repurchased
under the program is intended to be retired. The amount the Company spends on
and the number of shares repurchased varies based on a variety of factors,
including the stock price and blackout periods in which the Company is
restricted from repurchasing shares. In December 2000, the Board of Directors
authorized the Company to repurchase up to $2 billion of common stock between
January 1, 2001 and December 31, 2002.
Other comprehensive income/(loss)
SFAS No. 130, "Reporting Comprehensive Income", requires unrealized gains
and losses on the Company's available-for-sale securities and foreign currency
translation adjustments to be included in other comprehensive income/(loss).
F-15
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information regarding the components of accumulated other comprehensive
income/(loss) are as follows (in millions):
Accumulated
Unrealized Foreign Other
Gains on Currency Comprehensive
Securities Translation Income/(Loss)
---------- ----------- -------------
Balance at December 31, 1999.......... $ 15.3 $(30.1) $(14.8)
Current year other comprehensive
income/(loss)........................ 99.0 (21.6) 77.4
------ ------ ------
Balance at December 31, 2000.......... $114.3 $(51.7) $ 62.6
====== ====== ======
Information regarding the income tax effects for items of other
comprehensive income/(loss) are as follows (in millions):
Tax
Before-Tax Benefit/ After-Tax
Amount (Expense) Amount
---------- -------- ---------
For the year ended December 31, 1998:
Unrealized losses on available-for-sale
securities................................. $ (1.8) $ 0.7 $ (1.1)
Less: Reclassification adjustments for
losses realized in net income.............. (15.8) 5.6 (10.2)
------ ------ ------
Net unrealized gains on available-for-sale
securities................................. 14.0 (4.9) 9.1
Foreign currency translation adjustments.... 9.0 -- 9.0
------ ------ ------
Other comprehensive income.................. $ 23.0 $ (4.9) $ 18.1
====== ====== ======
For the year ended December 31, 1999:
Unrealized gains on available-for-sale
securities................................. $ 12.0 $ (5.3) $ 6.7
Less: Reclassification adjustments for
losses realized in net income.............. (1.0) 0.4 (0.6)
------ ------ ------
Net unrealized gains on available-for-sale
securities................................. 13.0 (5.7) 7.3
Foreign currency translation adjustments.... (18.1) -- (18.1)
------ ------ ------
Other comprehensive loss.................... $ (5.1) $ (5.7) $(10.8)
====== ====== ======
For the year ended December 31, 2000:
Unrealized gains on available-for-sale
securities................................. $193.0 $(75.8) $117.2
Less: Reclassification adjustments for gains
realized in net income..................... 30.0 (11.8) 18.2
------ ------ ------
Net unrealized gains on available-for-sale
securities................................. 163.0 (64.0) 99.0
Foreign currency translation adjustments.... (21.6) -- (21.6)
------ ------ ------
Other comprehensive income.................. $141.4 $(64.0) $ 77.4
====== ====== ======
Other
In addition to common stock, the Company's authorized capital includes 5.0
million shares of preferred stock, $0.0001 par value, of which 0.7 million
shares have been designated Series A Preferred Stock. At December 31, 2000 and
1999, no shares of preferred stock were issued or outstanding.
At December 31, 2000, the Company had reserved 183.1 million shares of its
common stock which may be issued through its employee stock option and stock
purchase plans and had reserved 0.7 million shares of Series A Preferred Stock.
F-16
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. Employee stock option, stock purchase and defined contribution plans
Employee stock option plans
The Company's employee stock option plans provide for option grants
designated as either nonqualified or incentive stock options. Option grants to
employees generally vest over a three to five year period and expire seven
years from the date of grant. Most employees 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. As of December 31, 2000, the Company had 67.8
million shares of common stock available for future grant under its employee
stock option plans.
Stock option information with respect to all of the Company's employee stock
option plans follows (shares in millions):
Exercise Price
-----------------------
Weighted-
Shares Low High Average
------ ------ ------ ---------
Balance unexercised at December 31, 1997....... 141.9 $ 0.58 $16.97 $10.02
Granted...................................... 33.5 $11.78 $26.22 $16.53
Exercised.................................... (42.4) $ 0.58 $20.77 $ 8.14
Forfeited.................................... (6.8) $ 4.48 $18.52 $13.57
-----
Balance unexercised at December 31, 1998....... 126.2 $ 0.66 $26.22 $12.18
Granted...................................... 19.0 $26.25 $57.69 $31.48
Exercised.................................... (26.9) $ 0.66 $39.44 $ 9.45
Forfeited.................................... (2.5) $ 5.48 $44.97 $17.76
-----
Balance unexercised at December 31, 1999....... 115.8 $ 0.92 $57.69 $15.88
Granted...................................... 13.1 $51.31 $78.00 $67.40
Exercised.................................... (28.2) $ 0.92 $72.75 $11.03
Forfeited.................................... (2.0) $ 4.48 $74.86 $26.02
-----
Balance unexercised at December 31, 2000....... 98.7 $ 2.55 $78.00 $23.89
=====
At December 31, 2000, 1999 and 1998, employee stock options to purchase 55.5
million, 61.7 million and 66.1 million shares were exercisable at weighted-
average prices of $15.35, $11.80 and $9.76, respectively.
Fair value disclosures of employee stock options
Employee stock option grants are set at the closing price of the Company's
common stock on the date of grant and the related number of shares granted are
fixed at that point in time. Therefore, under the principles of APB 25, the
Company does not recognize compensation expense associated with the grant of
employee stock options. SFAS No. 123, "Accounting for Stock-Based
Compensation," requires the use of option valuation models to provide
supplemental information regarding options granted after 1994. Pro forma
information regarding net income and earnings per share shown below was
determined as if the Company had accounted for its employee stock options and
shares sold under its employee stock purchase plan under the fair value method
of that statement.
The fair value of the options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 2000, 1999 and 1998, respectively: risk-free interest rates of
5.9%, 5.8% and 5.4%; dividend yields of 0%, 0% and 0%; volatility factors of
the expected
F-17
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
market price of the Company's common stock of 45%, 38% and 34%; and expected
life of the options of 3.4 years, 3.4 years and 3.4 years. These assumptions
resulted in weighted-average fair values of $25.87, $10.55 and $5.11 per share
for employee stock options granted in 2000, 1999 and 1998, respectively.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options. The Company's employee stock options have
characteristics significantly different from those of traded options such as
vesting restrictions and extremely limited transferability. In addition, the
assumptions used in option valuation models (see above) are highly subjective,
particularly the expected stock price volatility of the underlying stock.
Because changes in these subjective input assumptions can materially affect the
fair value estimate, in management's opinion, existing valuation models do not
provide a reliable single measure of the fair value of its employee stock
options.
For purposes of pro forma disclosures, the estimated fair values of the
options are amortized over the options' vesting periods. The Company's pro
forma information is as follows (in millions, except per share information):
Years ended December 31,
------------------------
2000 1999 1998
-------- -------- ------
Pro forma net income............................... $1,035.4 $1,030.0 $735.9
Pro forma earnings per share:
Basic............................................ $ 1.01 $ 1.01 $ 0.72
Diluted.......................................... $ 0.95 $ 0.95 $ 0.70
Information regarding employee stock options outstanding as of December 31,
2000 is as follows (shares in millions):
Options Outstanding Options Exercisable
---------------------------- --------------------
Weighted-
Weighted- Average Weighted-
Average Remaining Average
Exercise Contractual Exercise
Price Range Shares Price Life Shares Price
----------- ------ --------- ----------- ------ ---------
$10.00 and under........... 11.4 $ 7.83 1.1 years 11.4 $ 7.83
Over $10.00 to $15.00...... 32.4 $13.77 3.4 years 26.7 $13.72
Over $15.00 to $30.00...... 25.2 $16.94 4.5 years 12.0 $17.22
Over $30.00 to $60.00...... 18.2 $33.59 5.5 years 4.9 $32.44
Over $60.00................ 11.5 $68.38 6.5 years 0.5 $66.48
Employee stock purchase plan
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 the years ended
December 31, 2000 and 1998, employees purchased 1.3 million and 1.0 million
shares at weighted-average prices of approximately $30.33 and $11.46 per share,
respectively. No shares were purchased under the employee stock purchase plan
during 1999 because the Company had a 15 month offering period which extended
from January 1, 1999 to March 31, 2000. At December 31, 2000, the Company had
16.2 million shares available for future issuance under this plan.
F-18
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Defined contribution plans
The Company has defined contribution plans covering substantially all
employees in the United States and its possessions. Under these plans, the
Company makes certain amounts of matching contributions for those employees who
elect to contribute to the plans and makes additional contributions based upon
the compensation of eligible employees regardless of whether or not the
employees contribute to the plans. In addition, the Company has other defined
contribution plans covering certain employees of the Company and employees of
its foreign affiliates. The Company's expense for its defined contribution
plans totaled $42.6 million, $34.3 million and $26.7 million for the years
ended December 31, 2000, 1999 and 1998, respectively.
8. Balance sheet accounts
Property, plant and equipment consisted of the following (in millions):
December 31,
------------------
2000 1999
-------- --------
Land..................................................... $ 120.0 $ 110.1
Buildings and building improvements...................... 901.7 841.4
Manufacturing equipment.................................. 287.6 251.8
Laboratory equipment..................................... 338.1 306.3
Furniture and office equipment........................... 672.6 577.8
Leasehold improvements................................... 53.7 50.8
Construction in progress................................. 345.5 177.0
-------- --------
2,719.2 2,315.2
Less accumulated depreciation and amortization........... (937.7) (761.6)
-------- --------
$1,781.5 $1,553.6
======== ========
Accrued liabilities consisted of the following (in millions):
December 31,
-------------
2000 1999
------ ------
Employee compensation and benefits............................ $151.9 $149.1
Income taxes.................................................. 116.7 87.5
Sales incentives, royalties and allowances.................... 107.6 135.7
Due to affiliated companies and corporate partners............ 92.8 160.8
Clinical development costs.................................... 50.5 35.4
Other......................................................... 99.7 79.7
------ ------
$619.2 $648.2
====== ======
9. Fair values of financial instruments
The carrying amounts of cash, cash equivalents, marketable securities and
marketable equity investments approximated their fair values. Fair values of
cash equivalents, marketable securities and marketable equity investments are
based on quoted market prices.
The carrying amount of commercial paper approximated its fair value as of
December 31, 2000 and 1999. The fair values of long-term debt at December 31,
2000 and 1999 totaled approximately $222.0 million and $216.6 million,
respectively. The fair values of commercial paper and long-term debt were
estimated based on quoted market rates for instruments with similar terms and
remaining maturities.
F-19
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The fair values of the foreign currency forward contracts and purchased
foreign currency option contracts were not significant based on the estimated
amounts at which the contracts could be settled taking into account current
market exchange rates.
10. Segment information
Enterprise-wide disclosures about revenues by product, revenues and long-
lived assets by geographic area and revenues from major customers are presented
below.
Revenues
Revenues consisted of the following (in millions):
Years ended December 31,
--------------------------
2000 1999 1998
-------- -------- --------
EPOGEN(R)......................................... $1,962.9 $1,759.1 $1,382.0
NEUPOGEN(R)....................................... 1,223.7 1,256.6 1,116.6
Other product sales............................... 15.6 27.1 15.8
-------- -------- --------
Total product sales............................... 3,202.2 3,042.8 2,514.4
Other revenues.................................... 427.2 297.3 203.8
-------- -------- --------
Total revenues.................................... $3,629.4 $3,340.1 $2,718.2
======== ======== ========
Geographic information
The Company sells NEUPOGEN(R) through its foreign affiliates in countries of
the European Union, Canada and Australia. Information regarding revenues and
long-lived assets (consisting of property, plant and equipment) attributable to
the United States and to all foreign countries collectively is stated below.
The geographic classification of product sales was based upon the location of
the customer. The geographic classification of all other revenues was based
upon the domicile of the entity from which the revenues were earned.
Information is as follows (in millions):
Years ended December 31,
--------------------------
2000 1999 1998
-------- -------- --------
Revenues:
United States and possessions.................. $3,343.0 $3,024.5 $2,441.6
Foreign countries.............................. 286.4 315.6 276.6
-------- -------- --------
Total revenues............................... $3,629.4 $3,340.1 $2,718.2
======== ======== ========
December 31,
--------------------------
2000 1999 1998
-------- -------- --------
Long-lived assets:
United States and possessions.................. $1,706.5 $1,475.7 $1,360.8
Foreign countries.............................. 75.0 77.9 89.4
-------- -------- --------
Total long-lived assets...................... $1,781.5 $1,553.6 $1,450.2
======== ======== ========
F-20
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Major customers
Amgen uses wholesale distributors of pharmaceutical products as the
principal means of distributing the Company's products to clinics, hospitals
and pharmacies. The Company monitors the financial condition of its larger
distributors and limits its credit exposure by setting appropriate credit
limits and requiring collateral from certain customers. Sales to two large
wholesalers accounted for more than 10% of the total revenues for the years
ended December 31, 2000, 1999 and 1998. Sales to one wholesaler were $1,233.4
million, $1,078.0 million and $856.2 million for the years ended December 31,
2000, 1999 and 1998, respectively. Sales to another wholesaler were $445.2
million, $438.2 million and $366.5 million for the years ended December 31,
2000, 1999 and 1998, respectively. At December 31, 2000 and 1999, amounts due
from four large wholesalers accounted for 51% and 59%, respectively, of gross
trade receivables.
11. Business combination
On December 14, 2000, Amgen acquired Kinetix Pharmaceuticals, Inc.
("Kinetix"), a privately held company with expertise in the discovery of small
molecules in the field of protein kinase inhibition. Amgen acquired all the
outstanding shares of Kinetix common stock in a tax-free exchange for 2.6
million shares of Amgen common stock. The acquisition has been accounted for
under the purchase method of accounting, and accordingly, the operating results
of Kinetix are included in the accompanying consolidated financial statements
starting from December 14, 2000. The acquisition was valued at $172.2 million,
including $1.0 million of related acquisition costs and $6.5 million of Amgen
restricted common stock issued in exchange for Kinetix restricted common stock
held by employees retained from Kinetix. The $6.5 million will be recognized as
compensation expense over the vesting period of the restricted common stock.
The preliminary assignment of the purchase price among identifiable tangible
and intangible assets and liabilities of Kinetix was based upon an analysis of
their fair values. The excess of the purchase price over the fair values of
assets and liabilities acquired of $103.3 million was allocated to goodwill and
will be amortized on a straight-line basis over a 15 year period.
The assets acquired included in-process research and development. The value
assigned to this asset was determined by an analysis of data concerning four
substantive in-process research projects. The values of these research projects
were determined based on analyses of cash flows to be generated by the products
that are expected to result from the in-process projects. These cash flows were
estimated by forecasting total revenues expected from these products and then
deducting appropriate operating expenses, cash flow adjustments and
contributory asset returns to establish a forecast of net returns on the in-
process technology. These net returns were substantially reduced to take into
account the time value of money and the risks associated with the inherent
difficulties and uncertainties in developing specific molecules into viable
human therapeutics given the stage of development of these projects at the date
of the acquisition. Finally, these net returns were multiplied by the estimated
percentage completed of each project, based upon analysis of three factors--
time, cost and complexity. The above analysis resulted in $30.1 million of
value assigned to acquired in-process research and development, which was
expensed on the acquisition date in accordance with generally accepted
accounting principles. A discounted, risk-adjusted cash flow analysis was also
performed to value the technology platform of Kinetix that is expected to
generate future molecules that may be developed into human therapeutics. This
analysis resulted in valuing the acquired base technology at $36.6 million,
which was capitalized and will be amortized on a straight-line basis over a 15
year period. Amgen management believes the assumptions used in valuing these
acquired technologies are reasonable, but are inherently uncertain, and no
assurance can be given that the assumptions made will occur.
This business combination would not have had a material impact on Amgen's
revenues, net income or earnings per share in either 2000 or 1999.
F-21
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
12. Quarterly financial data (unaudited)
(in millions, except per share data)
June
2000 Quarter Ended Dec. 31(1) Sept. 30(2) 30 Mar. 31(3)
- ------------------ ---------- ----------- ------ ----------
Product sales......................... $846.8 $851.0 $806.8 $697.6
Gross margin from product sales....... 735.3 741.5 705.1 611.9
Net income............................ 210.8 358.9 302.6 266.2
Earnings per share:
Basic............................... 0.20 0.35 0.29 0.26
Diluted............................. 0.19 0.33 0.28 0.25
June
1999 Quarter Ended Dec. 31(4) Sept. 30(5) 30 Mar. 31
- ------------------ ---------- ----------- ------ ----------
Product sales......................... $847.4 $769.2 $737.9 $688.3
Gross margin from product sales....... 735.4 670.3 639.1 595.9
Net income............................ 281.6 300.0 267.6 247.2
Earnings per share:
Basic............................... 0.28 0.29 0.26 0.24
Diluted............................. 0.26 0.28 0.25 0.23
- --------
(1) During the fourth quarter of 2000, the Company recorded an after-tax charge
of $30.1 million to write off acquired in-process research and development
related to the acquisition of Kinetix Pharmaceuticals, Inc. (see Note 11,
"Business combination"). In addition, the Company made a contribution of
$25 million to the Amgen Foundation (see Note 4, "Other items, net--Amgen
Foundation contribution"). After applicable tax effects, these amounts
combined with the legal award discussed in item 2 below had no impact on
net income for the year ended December 31, 2000.
(2) During the third quarter of 2000, the Company recorded a net legal award of
$73.9 million, which primarily represents an award for certain costs and
expenses, including attorney's fees, associated with the spillover
arbitration with Johnson & Johnson (see Note 4, "Other items, net--Legal
award").
(3) During the first quarter of 2000, sales were adversely impacted by Year
2000-related sales totaling $45 million (see item 4 below). In addition,
the Company believes sales were adversely impacted by additional 1999 year-
end stockpiling of EPOGEN(R) by dialysis providers and by wholesalers
reducing their inventories of NEUPOGEN(R).
(4) Due to Year 2000 contingency planning in the fourth quarter of 1999, the
Company offered extended payment terms on limited shipments of EPOGEN(R)
and NEUPOGEN(R) to certain wholesalers totaling $45 million. Sales in the
first quarter of 2000 were adversely impacted by these Year 2000-related
sales (see item 3 above).
(5) During the third quarter of 1999, due to reduced uncertainties, the Company
reduced its potential spillover liabilities to Johnson & Johnson by $49
million (see Note 4, "Other items, net--Legal award").
F-22
SCHEDULE II
AMGEN INC.
VALUATION ACCOUNTS
Years ended December 31, 2000, 1999 and 1998
(In millions)
Additions
Balance at Charged to Balance
Beginning Costs and at End
of Period Expenses Deductions of Period
---------- ---------- ---------- ---------
Year ended December 31, 2000:
Allowance for doubtful accounts.... $26.0 $ 0.1 $4.9 $21.2
Year ended December 31, 1999:
Allowance for doubtful accounts.... $17.1 $10.1 $1.2 $26.0
Year ended December 31, 1998:
Allowance for doubtful accounts.... $14.2 $ 3.6 $0.7 $17.1
F-23