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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended December 31, 2004 |
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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)
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Delaware
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95-3540776 |
(State or other jurisdiction of
incorporation or organization) |
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(I.R.S. Employer
Identification No.) |
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One Amgen Center Drive,
Thousand Oaks, California
(Address of principal executive offices) |
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91320-1799
(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 þ No o
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. o
Indicate by check mark whether the registrant is an accelerated
filer. þ
The approximate aggregate market value of voting and non-voting
stock held by non-affiliates of the registrant was
$78,645,591,780 as of February 10,
2005A
1,252,717,295
(Number of shares of common stock outstanding as of
February 10, 2005)
A Excludes
2,305,892 shares of common stock held by directors and officers,
and any stockholders whose ownership exceeds five percent of the
shares outstanding, at February 10, 2005. 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.
INDEX
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PART I
Overview
Amgen Inc. (including its subsidiaries, “Amgen”) was
incorporated in 1980 and is a global biotechnology company that
discovers, develops, manufactures, and markets human
therapeutics based on advances in cellular and molecular
biology. We operate in one business segment — human
therapeutics.
We market human therapeutic products in the areas of nephrology,
supportive cancer care, and inflammatory disease. Our principal
products include EPOGEN® (Epoetin alfa), Aranesp®
(darbepoetin alfa), Neulasta® (pegfilgrastim),
NEUPOGEN® (Filgrastim), and ENBREL® (etanercept),
which is marketed under a co-promotion agreement with Wyeth in
the United States and Canada. EPOGEN® and Aranesp®
stimulate the production of red blood cells to treat anemia.
Neulasta® and NEUPOGEN® selectively stimulate the
production of neutrophils, one type of white blood cell that
helps the body fight infections. ENBREL® blocks the
biologic activity of tumor necrosis factor (“TNF”) by
competitively inhibiting TNF, a substance induced in response to
inflammatory and immunological responses, such as rheumatoid
arthritis and psoriasis.
In April 2004, the U.S. Food and Drug Administration
(“FDA”) approved ENBREL® for the treatment of
adult patients with chronic moderate to severe plaque psoriasis
who are candidates for systemic therapy or phototherapy and we
immediately launched ENBREL® for this indication. In
September 2004, the FDA approved ENBREL® for inducing a
Major Clinical Response in active rheumatoid arthritis (a Major
Clinical Response represents a high level of disease control).
Additionally, in September 2004, the FDA approved ENBREL®
in a pre-filled syringe (50 mg/mL liquid formation) for
once-weekly use in most patients.
In September 2004, the European Commission approved expanded
marketing authorization for Aranesp® in the European Union
(“EU”) to allow extended Aranesp® dosing
intervals of once every three weeks in the treatment of adult
cancer patients with non-myeloid malignancies who are receiving
chemotherapy and up to once-per-month Aranesp®
administration in the treatment of anemia in chronic kidney
disease (“CKD”) patients not on dialysis.
In March 2004, the FDA approved Sensipar® (cinacalcet HCl)
for the treatment of secondary hyperparathyroidism in CKD
patients on dialysis and for the treatment of hypercalcemia in
patients with parathyroid carcinoma. Additionally in October
2004, the European Commission approved Mimpara® (cinacalcet
HCl) (known as Sensipar® in the United States) in the EU,
for the treatment of secondary hyperparathyroidism in patients
with CKD on dialysis as well as for the treatment of elevated
calcium levels in patients with cancer of the parathyroid gland.
In December 2004, following priority review, the FDA approved
Kepivancetm
(palifermin), the first and only therapy to decrease the
incidence and duration of severe oral mucositis (mouth sores) in
patients with hematologic (blood) cancers undergoing
high-dose chemotherapy, with or without radiation, followed by a
bone marrow transplant.
We maintain sales forces and marketing operations in the United
States, Europe, Canada, and Australia. We market our principal
products to healthcare providers including clinics, hospitals,
and pharmacies. In addition, we have entered into licensing
and/or co-promotion agreements to market certain of our products
including Aranesp®, Neulasta®, NEUPOGEN®, and
ENBREL® in certain geographic areas outside of the United
States. In the United States, we sell primarily to wholesale
distributors. Outside the United States, we sell principally to
hospitals and/or wholesalers depending upon the distribution
practice in each country.
We focus our research and development (“R&D”)
efforts on novel therapeutics delivered in the form of proteins,
monoclonal antibodies, and small molecules in the areas of
oncology, inflammation, metabolic disorders, neuroscience, and
general medicine. We have research facilities in the United
States, and have clinical development staff in the United
States, Europe, Canada, Australia, and Japan. To enhance our
internal R&D efforts, we have acquired and licensed certain
product and technology rights and have established R&D
collaborations. On August 13, 2004, we acquired Tularik
Inc. (“Tularik”) at a purchase price of approximately
$1.5 billion in a transaction accounted for as a business
combination. Tularik was a company engaged in drug discovery
related to cell signaling and the control of gene expression. In
connection with the Tularik acquisition, we incurred a charge of
$554 million associated with writing off the fair value of
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in-process research and development (“IPR&D”)
acquired (see Note 7, “Acquisitions” in the
consolidated financial statements).
We manufacture our principal products and we operate commercial
manufacturing facilities located in the United States, Puerto
Rico, and a packaging and distribution center in the
Netherlands. Additional supply of certain of our products is
manufactured by third-party contract manufacturers.
Principal Products
EPOGEN® 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. The FDA approved EPOGEN® for
the treatment of anemic adult and pediatric patients with
chronic renal failure who are on dialysis in 1989 and 1999,
respectively. EPOGEN® 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.
We were granted an exclusive license to manufacture and market
recombinant human erythropoietin in the United States under a
licensing agreement with Kirin-Amgen, Inc. (“KA”), a
joint venture between Kirin Brewery Company, Limited
(“Kirin”) and Amgen (see “Joint Ventures and
Business Relationships — Kirin Brewery Company,
Limited”).
We market EPOGEN® in the United States for the treatment of
anemia associated with chronic renal failure for patients who
are on dialysis. We have retained exclusive rights to market
EPOGEN® in the United States for dialysis patients. We
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 (see “Joint Ventures and Business
Relationships — Johnson & Johnson”).
Johnson & Johnson markets recombinant human
erythropoietin under the trademark PROCRIT® in the United
States (see Note 1, “Summary of significant accounting
policies — Product sales” to the consolidated
financial statements).
EPOGEN® sales for the years ended December 31, 2004,
2003, and 2002 were $2,601 million, $2,435 million,
and $2,261 million, respectively.
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Aranesp® (darbepoetin alfa) |
Aranesp® is Amgen’s registered trademark for one of
its erythropoiesis stimulating proteins, a protein that
stimulates red blood cell production. A reduced red blood cell
count can result in anemia (see “— EPOGEN®
(Epoetin alfa)”). In 2001, Aranesp® was approved in
the United States, most countries in Europe, Australia, and New
Zealand for the treatment of anemia associated with chronic
renal failure, including patients on dialysis and patients not
on dialysis. In July 2002, we received approval to market
Aranesp® in the United States for the treatment of
chemotherapy-induced anemia in patients with non-myeloid
malignancies. In August 2002 and June 2003, respectively, the
European Commission approved Aranesp® for the treatment of
anemia in adult cancer patients with solid tumors receiving
chemotherapy and for the treatment of chemotherapy-induced
anemia in adult patients with non-myeloid malignancies.
We were granted an exclusive license by KA to manufacture and
market darbepoetin alfa in the United States, all European
countries, Canada, Australia, New Zealand, Mexico, all Central
and South American countries, and certain countries in Central
Asia, North Africa, and the Middle East. Under this license, we
market Aranesp® in these geographic areas for all approved
indications for which reimbursement is established. Darbepoetin
alfa is marketed under the brand name Nespo® in Italy.
Worldwide Aranesp® sales for the years ended
December 31, 2004, 2003, and 2002 were $2,473 million,
$1,544 million, and $416 million, respectively.
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Neulasta® (pegfilgrastim) |
Neulasta® is Amgen’s registered trademark for a
protein that selectively stimulates production of certain white
blood cells known as neutrophils and is based on the Filgrastim
molecule (see “— NEUPOGEN®
(Filgrastim))” for additional information on neutrophils).
A polyethylene glycol molecule or “PEG” is added to
enlarge the Filgrastim molecule, thereby extending its half-life
and causing it to be removed more slowly from the body. Because
pegfilgrastim works by binding to its receptor on the
neutrophils and its precursors, pegfilgrastim remains in the
circulation until neutrophils recovery has occurred. This
neutrophil-regulated clearance allows for administration as a
single dose per chemotherapy cycle compared with NEUPOGEN®
which requires more frequent dosing. In January 2002, the FDA
approved Neulasta® for decreasing the incidence of
infection, as manifested by febrile neutropenia, in patients
with non-myeloid malignancies receiving myelosuppressive
anti-cancer drugs associated with a clinically significant
incidence of febrile neutropenia. In August 2002, the European
Commission approved Neulasta® for the reduction in the
duration of neutropenia and the incidence of febrile neutropenia
in patients treated with cytotoxic chemotherapy for malignancy.
We were granted an exclusive license to manufacture and market
pegfilgrastim in the United States, Europe, Canada, Australia,
and New Zealand under a licensing agreement with KA. Under this
license, we market Neulasta® in these geographic areas for
all approved indications for which reimbursement is established.
Pegfilgrastim is marketed under the brand name
Neupopegtm
in Italy.
Worldwide Neulasta® sales for the years ended
December 31, 2004, 2003, and 2002 were $1,740 million,
$1,255 million and $464 million, respectively.
NEUPOGEN® 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 defend 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 certain types of cancers, targets cell
types which grow rapidly, such as tumor cells. Normal cells that
also divide rapidly, such as neutrophils, are also vulnerable to
the effects of cytotoxic chemotherapy, resulting in neutropenia
with an increased risk of severe infection. Very often,
neutropenia is the dose limiting side effect of chemotherapy and
can thus be responsible for a reduction in the amount of
chemotherapy that can be administered safely. Such reductions in
chemotherapy dose can compromise the effectiveness of
chemotherapy on the cancer it is being used to treat, with the
result of a higher treatment failure rate. By addressing the
dose limiting side effect of neutropenia, full doses of
chemotherapy can be given, resulting in the potential for an
improved treatment success rate in certain types of cancer such
as early stage breast cancer and in intermediate grade
non-Hodgkin’s Lymphomas. Because of this, NEUPOGEN® is
prescribed more frequently in the curative setting, in which
myelosuppressive chemotherapy is administered with the intent to
cure cancer, rather than in the palliative setting, in which
myelosuppressive chemotherapy is administered to treat other
complications of cancer by managing tumor growth. In 1991, the
FDA approved NEUPOGEN® to decrease the incidence of
infection as manifested by febrile neutropenia for patients with
non-myeloid malignancies undergoing myelosuppressive
chemotherapy.
In the United States, most countries in Europe, Canada, and
Australia, NEUPOGEN® is approved for the following
indications: to decrease the incidence of infection as
manifested by febrile neutropenia for patients with non-myeloid
malignancies undergoing myelosuppressive chemotherapy; to reduce
the duration of neutropenia and neutropenia-related consequences
for patients with non-myeloid malignancies undergoing
myeloablative chemotherapy 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 peripheral blood progenitor cells
(“PBPC”) for stem cell transplantation; and to reduce
the recovery time of neutrophils and the duration of fever
following induction or consolidation chemotherapy treatment in
adult patients with acute myelogenous leukemia (“AML”).
We were granted an exclusive license to manufacture and market
G-CSF in the United States, Europe, Canada, Australia, and New
Zealand under a licensing agreement with KA. Under this license,
we market
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G-CSF as NEUPOGEN® in these geographic areas for all
approved indications for which reimbursement is established.
Filgrastim is marketed under the brand name GRANULOKINE® in
Italy.
Worldwide NEUPOGEN® sales for the years ended
December 31, 2004, 2003, and 2002 were $1,175 million,
$1,267 million, and $1,380 million, respectively.
ENBREL® is Amgen’s registered trademark for its TNF
receptor fusion protein that inhibits the binding of TNF to TNF
receptors, which can result in a significant reduction in
inflammatory activity. ENBREL® was launched in November
1998 by Immunex Corporation (“Immunex”) for the
treatment of adult patients with rheumatoid arthritis. We
acquired the rights to ENBREL® in July 2002 as part of our
acquisition of Immunex.
In April 2004, the FDA approved ENBREL® for the treatment
of adult patients with chronic moderate to severe plaque
psoriasis who are candidates for systemic therapy or
phototherapy and we immediately launched ENBREL® for this
indication. In September 2004, the FDA approved ENBREL® for
inducing a Major Clinical Response in active rheumatoid
arthritis (a Major Clinical Response represents a high level of
disease control). Additionally, in September 2004, ENBREL®
was also approved in a new 50 mg/mL pre-filled syringe as
the recommended dosing form for treatment in all approved adult
indications. The new pre-filled syringe, which was made
available for patient use in the fourth quarter of 2004,
eliminates the need to mix drug prior to injecting and allows
most patients receiving ENBREL® to take only one injection
per week, instead of the two 25 mg injections previously
used weekly by patients. In addition to the approvals received
in 2004, ENBREL® is approved in the United States for
reducing the signs and symptoms, improving physical function,
and inhibiting the progression of structural damage in patients
with moderately to severely active rheumatoid arthritis; for
reducing the signs and symptoms of moderately to severely active
polyarticular-course juvenile rheumatoid arthritis in patients
who have had an inadequate response to one or more
disease-modifying medicines; for reducing the signs and symptoms
of active arthritis and inhibiting the progression of structural
damage in patients with psoriatic arthritis; and to treat the
signs and symptoms in patients with active ankylosing
spondylitis.
We market ENBREL® under a co-promotion agreement with Wyeth
in the United States and Canada for all approved indications
(see “Joint Ventures and Business Relationships —
Wyeth”). The rights to market ENBREL® outside of the
United States and Canada are reserved to Wyeth.
ENBREL® sales for the years ended December 31, 2004
and 2003 and the period from July 16, 2002 through
December 31, 2002 were $1,900 million,
$1,300 million, and $362 million, respectively.
Marketing and Distribution
We maintain a sales and marketing force in the United States,
Europe, Canada, and Australia. Our sales force markets our
principal products to healthcare providers including clinics,
hospitals, and pharmacies. We also market certain products
directly to consumers through direct-to-consumer print and
television advertising. In addition, for certain of our
products, we promote programs to increase public awareness of
the health risks associated with the diseases these products
treat, as well as providing support to various patient education
and support programs in these therapeutic areas. We have granted
Johnson & Johnson a license to commercialize
recombinant human erythropoietin as a human therapeutic in the
United States in all markets other than dialysis (see
“Joint Ventures and Business Relationships —
Johnson & Johnson”). Johnson & Johnson
markets recombinant human erythropoietin under the trademark
PROCRIT® in the United States (see Note 1,
“Summary of significant accounting policies —
Product sales” to the consolidated financial statements).
Under a co-promotion agreement with Wyeth, Amgen and Wyeth
market ENBREL® in the United States and Canada for all
approved indications. The rights to detail and
promote ENBREL® in the United States and Canada for
use in oncology are reserved to Amgen (see “Joint Ventures
and Business Relationships — Wyeth”).
Additionally, we have entered into licensing and/or co-promotion
agreements to market certain of our products including
Aranesp®, Neulasta®, NEUPOGEN®, and ENBREL®
in certain geographic areas outside of the United States.
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In the United States, we sell primarily to wholesale
distributors of pharmaceutical products. With the exception of
ENBREL®, we utilize these wholesale distributors as the
principal means of distributing our products to healthcare
providers such as clinics, hospitals, and pharmacies. With
respect to ENBREL®, we primarily drop-ship wholesaler
orders directly to pharmacies for end users. We monitor the
financial condition of our larger distributors and limit our
credit exposure by setting appropriate credit limits and
requiring collateral from certain customers. We had net product
sales to three large wholesalers each accounting for more than
10% of total revenues for the years ended December 31,
2004, 2003, and 2002. Net product sales to AmerisourceBergen
Corporation were $3,406 million, $2,686 million, and
$2,084 million for the years ended December 31, 2004,
2003, and 2002, respectively. Net product sales to McKesson
Corporation were $1,809 million, $1,340 million, and
$844 million for the years ended December 31, 2004,
2003, and 2002, respectively. Net product sales to Cardinal
Distribution were $1,683 million, $1,596 million, and
$989 million for the years ended December 31, 2004,
2003, and 2002, respectively. Outside the United States,
Aranesp®, Neulasta®, and NEUPOGEN® are
principally distributed to hospitals and/or wholesalers
depending upon the distribution practice in each country for
which the product has been launched.
Reimbursement
In the United States, dialysis providers are primarily
reimbursed for EPOGEN® 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 patients, state Medicaid programs, private
insurance, and to a lesser extent, state kidney patient
programs. The ESRD Program reimbursement rate is established by
federal law and is monitored and implemented by the Centers for
Medicare & Medicaid Services (“CMS”). Most
patients receiving Aranesp®, Neulasta®, and
NEUPOGEN® for approved indications are covered by both
government and private payer health care programs. Therefore,
sales of Aranesp®, Neulasta®, and NEUPOGEN® are
dependent, in part, on the availability and extent of
reimbursement from third-party payers, including governments and
private insurance plans. Primary reimbursement for ENBREL®
is obtained from private payers. Generally, worldwide use of our
products may be affected by cost containment pressures from
governments and private insurers on health care providers in
response to ongoing initiatives to reduce health care
expenditures (see “MD&A — Factors That May
Affect Amgen — Our sales depend on payment and
reimbursement from third-party payers, and, to the extent that
reimbursement for our products is reduced, this could negatively
impact the utilization of our products.”).
The Medicare Prescription Drug, Improvement and Modernization
Act (or the “Medicare Modernization Act”
(“MMA”)) was enacted into law in December 2003. We
expect that, beginning in 2005, reimbursement changes resulting
from the MMA are likely, to a degree, to negatively affect
product sales of some of our marketed products. The main
components of the MMA that affect our currently marketed
products are as follows:
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Through 2004 the Average Wholesale Price (“AWP”)
mechanism was the basis of Medicare Part B payment for
covered outpatient drugs and biologics. Effective
January 1, 2005, in the physician clinic market segment,
Aranesp®, Neulasta® and NEUPOGEN® will be
reimbursed under a new Medicare Part B system that
reimburses each product at 106% of its “average sales
price” (“ASP”) (sometimes referred to as
“ASP+6%”). On November 3, 2004, the CMS released
final rules for revisions to payment policies under the
physician fee schedule for 2005. CMS then calculated each of our
product’s ASPs based on data submissions from us. ASPs will
remain in effect for one quarter and will be updated quarterly
thereafter. The 2005 reimbursement rates for Aranesp®,
Neulasta®, and NEUPOGEN® (calculated at 106% of the
ASPs and initially based on third quarter 2004 company
data), are lower than our 2004 reimbursement rates as the ASP
methodology incorporates sales incentives offered to healthcare
providers. Per the MMA, effective January 1, 2006,
physicians in this market segment will have the choice under the
“competitive acquisition program” (CAP) between
purchasing and billing for drugs under the ASP+6% system or
obtaining drugs from vendors selected by CMS via a competitive
bidding process. |
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The Medicare hospital outpatient prospective payment system
(“OPPS”), which determines payment rates for specified
covered outpatient drugs and biologics in the hospital
outpatient setting, will continue to utilize AWP as the basis
for reimbursement in 2005. On November 3, 2004, CMS issued a |
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final rule for the reimbursement of Aranesp® in 2005. Under
this final rule, as in 2003 and 2004, CMS continued the
application of an “equitable adjustment” such that the
Aranesp® reimbursement rate for 2005 is based on the AWP of
PROCRIT®. For 2005, the reimbursement rate for
Aranesp® is 83% of the AWP for PROCRIT®, down from 88%
of the AWP for PROCRIT® in 2004, with a dose conversion
ratio of 330 U PROCRIT® to 1 mcg Aranesp®, the same
ratio as 2004. Effective January 1, 2006, the OPPS system
will change from an AWP based reimbursement system to a system
based on “average acquisition cost”. This change will
affect Aranesp®, Neulasta® and NEUPOGEN® when
administered in the hospital outpatient setting. Although we do
not know how CMS will define the OPPS average acquisition cost,
it is possible that CMS could link acquisition cost to ASP,
which could lower the reimbursement rate. |
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Pursuant to final rules issued by CMS on November 3, 2004,
Medicare reimbursement for EPOGEN® used in the dialysis
setting for calendar year 2005 has been changed from the
previous rate of $10 per 1,000 Units to $9.76 per
1,000 Units, a rate based upon an average acquisition cost for
2003 determined by the Office of the Inspector General
(“OIG”) and adjusted for price inflation based on the
Producer Price Index for pharmaceutical products. Pursuant to
the CMS final rules, the difference between the 2004
reimbursement rates for all drugs separately billed outside the
dialysis composite rate (including EPOGEN®) and the 2005
reimbursement rates for such drugs will be added to the
composite rate that dialysis providers receive for dialysis
treatment. Again in 2006, the EPOGEN® rate may change, as
the MMA provided for discretion in either continuing to pay for
these separately reimbursed dialysis drugs at acquisition cost,
or switching to an ASP based system. The payment rate for
dialysis drugs not studied by the OIG, including Aranesp®,
will be ASP+6%. |
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We believe that beginning on January 1, 2006, ENBREL®,
Sensipar®, and Kineret® will be covered by the
MMA-mandated Medicare outpatient prescription drug benefit (also
known as “Part D”). With the exception of a
demonstration project that CMS is conducting in 2004-2005 that
will, among other things, provide reimbursement for ENBREL®
for certain Medicare beneficiary participants, Medicare
currently does not cover prescriptions for ENBREL®,
Sensipar®, and Kineret®. |
With the exception of the Part D prescription drug benefit,
we believe these changes driven by the MMA are lowering the 2005
reimbursement rate for all areas in which CMS provides
reimbursement for EPOGEN®, Aranesp®, Neulasta®
and NEUPOGEN®. However, because we cannot predict the
impact of any such changes on how, or under what circumstances,
healthcare providers will prescribe or administer our products,
as of the date of this filing, we cannot predict the full impact
of the MMA on our business; however, it is likely to be, to a
degree, negative.
In addition, on July 8, 2004, CMS released a proposed
revision to the Hematocrit Measurement Audit Program Memorandum
(“HMA-PM”), a Medicare payment review mechanism used
by CMS to audit EPOGEN® utilization and appropriate
hematocrit outcomes of dialysis patients. As of the date of this
filing, the comment period for the proposed revision has expired
and no final program memorandum has been issued. The proposed
policy would not permit reimbursement for EPOGEN® in the
following circumstances without medical justification:
EPOGEN® doses greater than 40,000 Units per month in a
patient with a hemoglobin greater than 13 grams per deciliter or
doses greater than 20,000 Units per month in a patient with
hemoglobin greater than 14 grams per deciliter. If the proposed
revision, which has not yet been finalized, is adopted as the
final form, it could result in a reduction in utilization of
EPOGEN®. Although the proposed revision was scheduled to go
into effect as early as January 1, 2005, it is unclear as
to when it may be implemented. We and the dialysis community
have provided public comment based on data analysis suggesting
that revision to the proposed policy is unwarranted. Given the
importance of EPOGEN® utilization for maintaining the
quality of care for dialysis patients, the precise impact of
such a change on provider utilization remains unclear.
Sales of all our products are and will be affected by government
and private payer reimbursement policies. Reduction in
reimbursement for our products could have a material adverse
effect on our results of operations.
Research and Development and Selected Product Candidates
We focus our R&D efforts on human therapeutics delivered in
the form of proteins, monoclonal antibodies, and small molecules
in the areas of oncology, inflammation, metabolic disorders,
neuroscience, and
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general medicine (see “MD&A — Factors That
May Affect Amgen — Our product development efforts may
not result in commercial products”). Our product candidates
come from internal research, acquisitions, and licensing from
and collaborations with third parties. We have research
facilities in the United States, and clinical development staff
in the United States, Europe, Canada, Australia, and Japan (see
“Item 2. Properties”). We focus on the
development of novel therapeutics for the treatment of serious
illness. We take a modality-independent approach to
R&D — that is, we identify targets, then choose
the modality best suited to address a specific target. As such,
our discovery programs may yield targets that lead to the
development of therapeutics delivered as proteins, small
molecules, or monoclonal antibodies. In addition, acquisitions
of companies and technologies, and establishing R&D
collaborations have enhanced our strategic position within the
biotechnology industry by strengthening and diversifying our
product base, product pipeline, and discovery research
capabilities in proteins, small molecules, and antibodies.
R&D expenses for the years ended December 31, 2004,
2003, and 2002 were $2,028 million, $1,655 million,
and $1,117 million, respectively. In 2004 and 2002, we
recorded $554 million and $2,992 million for the
write-off of acquired IPR&D resulting from the Tularik and
Immunex acquisitions, respectively (see Note 7,
“Acquisitions” to the consolidated financial
statements).
The following table is a selection of certain of our product
candidates in our therapeutic areas of focus and shows the
status of these molecules as of February 3, 2005.
Additional product candidate (pipeline) information can be
found on our website at (http://www.amgen.com). (This
website address is not intended to function as a hyperlink, and
the information contained on our website is not intended to be a
part of this filing.)
| |
|
|
|
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|
| Molecule |
|
Disease/Condition |
|
Status |
| |
|
|
|
|
|
Oncology
|
|
|
|
|
| |
AMG 102
|
|
Cancer |
|
Phase 1 |
| |
AMG 114
|
|
Chemotherapy-induced anemia |
|
Phase 1 |
| |
AMG 162
|
|
Bone metastases (cancer spread to bone) |
|
Phase 2 |
| |
AMG 162
|
|
Bone loss induced by hormone ablation therapy for breast cancer
or prostate cancer |
|
Phase 3 |
| |
AMG 386
|
|
Cancer |
|
Phase 1 |
| |
AMG 531
|
|
Immune Thrombocytopenic Purpura (an autoimmune bleeding disorder) |
|
Phase 2 |
| |
AMG 706
|
|
Cancer |
|
Phase 2 |
| |
AMG 951
|
|
Cancer |
|
Phase 1 |
| |
panitumumab
|
|
Colorectal cancer |
|
Phase 3 |
| |
palifermin
|
|
Oral mucositis associated with radiation therapy and
chemotherapy for solid tumors |
|
Phase 3 |
|
Inflammation
|
|
|
|
|
| |
AMG 108
|
|
Osteoarthritis |
|
Phase 2 |
| |
AMG 162
|
|
Rheumatoid arthritis |
|
Phase 2 |
| |
AMG 317
|
|
Asthma |
|
Phase 1 |
| |
AMG 623
|
|
Systemic lupus erythematosus |
|
Phase 1 |
| |
AMG 714
|
|
Rheumatoid arthritis |
|
Phase 2 |
| |
anakinra
|
|
Osteoarthritis |
|
Phase 2 |
|
Metabolic disorders
|
|
|
|
|
| |
AMG 076
|
|
Obesity |
|
Phase 1 |
| |
AMG 131
|
|
Type 2 diabetes |
|
Phase 2 |
| |
AMG 162
|
|
Postmenopausal osteoporosis |
|
Phase 3 |
| |
Leptin
|
|
Lipodystrophy (abnormal fat changes) |
|
Phase 2 |
| |
Leptin
|
|
Hypothalamic amenorrhea (absence of menstruation) |
|
Phase 2 |
| |
cinacalcet HCl
|
|
Primary hyperparathyroidism |
|
Phase 2 |
| |
cinacalcet HCl
|
|
Secondary hyperparathyroidism in chronic renal insufficiency |
|
Phase 3 |
|
Neuroscience
|
|
|
|
|
| |
AMG 517
|
|
Pain |
|
Phase 1 |
| |
GDNF
|
|
Parkinson’s Disease |
|
Development temporarily discontinued |
|
General medicine
|
|
|
|
|
| |
darbepoetin alfa
|
|
Anemia in congestive heart failure. |
|
Phase 2 |
8
The following represents additional information about certain of
our product candidates that are in phase 2 or later human
clinical trials.
AMG 162 is an investigational, fully human monoclonal antibody
that specifically targets the receptor activator of nuclear
factor kappa B ligand (RANKL), a key mediator of the resorptive
phase of bone remodeling. Inhibition of RANKL signaling is a
rational therapeutic strategy for treating conditions where
excessive bone resorption or bone remodeling prevail. AMG 162 is
being studied across a range of conditions, including
osteoporosis, treatment-induced bone loss, rheumatoid arthritis,
bone metastases, and multiple myeloma.
Amgen announced interim data from a Phase 2 clinical study
reporting the clinical effects of AMG 162 on bone mineral
density endpoints in postmenopausal, osteoporotic women. Based
on this interim data, Phase 3 clinical studies with AMG 162
were initiated in 2004.
AMG 162 is also being studied in metastatic bone disease for the
suppression of bone loss in patients with cancer. In one study,
AMG 162 reduced bone turnover markers in cancer patients
compared to standard therapy. Phase 2 clinical studies of
AMG 162 in metastatic bone disease were initiated in 2004.
AMG 531 is a first-in-class molecule with a novel mechanism of
action for the treatment of immune
(idiopathic) thrombocytopenic purpura (“ITP”).
ITP is an autoimmune bleeding disorder characterized by an
abnormal decrease in platelets, a condition known as
thrombocytopenia. Platelets are specialized blood cells that
help prevent and stop bleeding by participating in clotting. ITP
is characterized by thrombocytopenia that results in bruising
and bleeding that is sometimes severe. Phase 2 clinical
studies were completed in 2004.
AMG 706 is a potent, oral, multi-kinase inhibitor with
anti-angiogenic activity achieved by selectively targeting
vascular endothelial growth factor (VEGF) receptors,
platelet derived growth factor (PDGF) receptor, Kit and
Ret. By inhibiting multiple receptors, AMG 706 potentially may
provide more than one mechanism of action in various cancers.
Early clinical data for AMG 706 show signs of tumor regression
with promising preliminary safety data using once-daily
continuous dosing that potentially allows for combination
therapy. A Phase 2 clinical study evaluating AMG 706 in
imatinib-resistant GIST is ongoing.
Co-developed with Abgenix, Inc. (“Abgenix”)
panitumumab (rHuMAb-EGFr) targets the epidermal growth factor
receptor (EGFr). The EGFr pathway is important in normal and
tumor cell growth. Panitumumab is the first fully human
monoclonal antibody directed against EGFr and is being evaluated
for the treatment of various types of cancer (solid tumor). In
Phase 3 clinical studies to date, panitumumab has
demonstrated anti-tumor activity in advanced, refractory
colorectal cancer. Amgen initiated pivotal clinical studies
evaluating panitumumab as a third-line monotherapy in colorectal
cancer patients in 2004.
Palifermin is currently in Phase 3 clinical studies to
investigate its safety and efficacy for oral mucositis in
patients with solid tumors receiving localized radiation with or
without chemotherapy.
AMG 108 is a monoclonal antibody that blocks the action of
interleukin-1 (“IL-1”), a cytokine believed to play a
role in the joint destruction associated with osteoarthritis.
Phase 2 clinical studies are ongoing investigating the
treatment of AMG 108 in osteoarthritis.
9
AMG 714 is a fully human monoclonal antibody directed against
interleukin-15 (IL-15) that is being developed under an
agreement with Genmab S/ A. IL-15 blockade has potential utility
in a wide variety of inflammatory diseases, such as rheumatoid
arthritis, psoriasis, inflammatory bowel disease, lupus,
multiple sclerosis and others. A Phase 2 trial
investigating AMG 714 in the treatment of rheumatoid arthritis
is currently under way.
Anakinra is a recombinant form of a naturally occurring human
protein that regulates IL-1, a key cytokine in regulating normal
immune function and the cascade of reactions that cause the
inflammatory process of rheumatoid arthritis. A Phase 2
clinical study investigating anakinra for the treatment of
osteoarthritis was conducted in 2004; the study has been
completed and results are being analyzed.
Phase 2 efficacy and safety studies have been initiated
with AMG 131 for the treatment of patients with type 2 (insulin
resistant) diabetes mellitus. AMG 131, an orally-administered
therapy, is expected to lower blood glucose in diabetic patients
by improving the body’s ability to respond to insulin. AMG
131 is a selective modulator of PPAR&gama; (peroxisome
proliferator activated receptor gamma), a receptor involved in
regulating the body’s ability to respond to insulin.
Darbepoetin alpha is currently being evaluated in a Phase 2
study for treatment of anemia in patients with heart failure.
Cinacalcet HCl is currently being evaluated in studies for use
in secondary hyperparathyroidism of chronic renal insufficiency
(CRI) and for use in primary hyperparathyroidism.
The following represents additional information about a product
candidate that failed in late-stage development.
Neurotrophic factors are proteins which play a role in nerve
cell protection and regeneration and which may therefore be
useful in treating a variety of neurological disorders,
including neurodegenerative diseases of the central and
peripheral nervous systems, and also nerve injury or trauma. In
June 2004, we announced that the phase 2 study of GDNF for
the treatment of advanced Parkinson’s disease did not meet
the primary study endpoint upon completion of six months of the
double-blind treatment phase of the study even though the small
phase 1 pilot investigator initiated open label study over
a three year period appeared to result in improvements for
advanced Parkinson’s disease patients. Subsequently, in the
fall of 2004, we discontinued clinical development of GDNF in
patients with advanced Parkinson’s disease and no longer
provide GDNF to patients with advanced Parkinson’s disease
after several patients in the phase 2 study developed
neutralizing antibodies and new preclinical data showed that
GDNF caused irreversible damage to the area of the brain
critical to movement control and coordination. On
February 11, 2005, we confirmed our previous decision to
halt clinical trials and, as a part of that decision and based
on thorough scientific review, we also concluded that we will
not provide GDNF to the 48 patients who participated in
clinical trials that were terminated in the fall of 2004.
However, we plan to continue to support GDNF by continuing to
conduct additional research to better understand the potential
of GDNF in the treatment of Parkinson’s disease, including
by expanding toxicology studies and work on discoveries to
improve delivery of GDNF.
Competition
Competition among biotechnology, pharmaceutical, and other
companies that research, develop, manufacture, or market
biologics and pharmaceuticals is intense and is expected to
increase (see “MD&A —
10
Factors That May Affect Amgen – Our marketed products face
substantial competition and others may discover, develop,
acquire or commercialize products before or more successfully
than we do”). We compete with these entities in all areas
of our business including competing to attract and retain
qualified scientific and technical personnel.
Our products’ competitive position among other biologic and
pharmaceutical products approved for sale may be based on, among
other things, patent position, product efficacy, safety,
reliability, availability, patient convenience/delivery devices
and price, as well as, the development and marketing of new
competitive products. Certain of our products face substantial
competition from products marketed by large pharmaceutical
companies, which have greater clinical, research, regulatory,
manufacturing, marketing, financial experience and human
resources than we do. In addition, 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. Certain of our products may also face competition from
follow-on biologics, also known as biosimilars in Europe, in
certain geographic areas. Our European patent relating to
erythropoietin expired on December 12, 2004 and our
European patent relating to G-CSF expires on August 22,
2006. While we do not market erythropoietin in Europe as this
right belongs to Johnson & Johnson (through KA), we do
market Aranesp® in the EU, which competes with
Johnson & Johnson’s and others’
erythropoietin products. Additionally, we market G-CSF in most
countries in Europe as NEUPOGEN®. We believe that after the
expiration of each of these patents, other companies could
receive approval for and market follow-on biologics to each of
these products in Europe. We believe that the EU is currently in
the process of developing regulatory requirements related to the
development and approval of follow-on biologics. Until such
requirements are finalized, we cannot predict when follow-on
biologics could appear in the market in the EU. However, based
on the process and timing outlined by the European Agency for
the Evaluation of Medical Products (“EMEA”), we
believe product specific guidelines are not likely to be
finalized until 2006.
Some of our competitors are actively engaged in R&D in areas
where we are also developing product candidates. The competitive
marketplace for our product candidates is significantly
dependent upon the timing of entry into the market. Early entry
may have important advantages in gaining product acceptance and
market share contributing to the product’s eventual success
and profitability. Accordingly, in some cases, the relative
speed with which we can develop products, complete the testing,
receive approval, and supply commercial quantities of the
product to the market is expected to be important to our
competitive position.
In addition, we compete with large pharmaceutical and
biotechnology companies when entering into cooperative
arrangements with smaller companies and research organizations
in the biotechnology industry for the development and
commercialization of products and product candidates. Small
companies, academic institutions, governmental agencies, and
other public and private research organizations conduct a
significant amount of R&D in the biotechnology industry.
These entities may seek to enter into licensing arrangements to
collect royalties for use of technology or for the sale of
products they have discovered or developed. We may face
competition in our licensing or acquisition activities from
pharmaceutical companies and large biotechnology companies that
also seek to acquire technologies or product candidates from
these entities. Accordingly, we may have difficulty acquiring
technologies or product candidates on acceptable terms.
The following provides additional information on competition
related to our principal products in our therapeutic areas of
focus.
Any products or technologies that are directly or indirectly
successful in addressing anemia associated with CKD could
negatively impact the market for EPOGEN® and Aranesp®.
Aranesp® directly competes with other currently marketed
products which treat anemia, including EPOGEN® and the
recombinant human erythropoietin product marketed by
Johnson & Johnson (see “Products —
EPOGEN® (Epoetin alfa)” and “Products —
Aranesp® (darbepoetin alfa)”). In Europe,
Aranesp® directly competes with erythropoietin products
marketed by Janssen-Cilag/ Johnson & Johnson and Roche
in the nephrology setting. Transkaryotic Therapies
(“TKT”) is developing gene-activated erythropoietin
for the treatment of anemia (see “Item 3. Legal
Proceedings — Transkaryotic Therapies and Aventis
litigation”). Roche is also develop-
11
ing a pegylated erythropoietin product for the treatment of
anemia. In addition, Yamanouchi/ FibroGen are developing an
erythropoietic small molecule for the treatment of anemia.
Any products or technologies that are directly or indirectly
successful in addressing anemia associated with chemotherapy
could negatively impact the market for Aranesp®. In the
United States, Aranesp® directly competes with other
currently marketed products which treat anemia associated with
chemotherapy, including the recombinant human erythropoietin
product marketed by Johnson & Johnson (see
“Products — EPOGEN® (Epoetin alfa)”).
In Europe, Aranesp® directly competes with erythropoietin
products marketed by Janssen-Cilag/ Johnson & Johnson
and Roche in the oncology setting. TKT is also developing its
gene-activated erythropoietin for the treatment of anemia (see
“Item 3. Legal Proceedings — Transkaryotic
Therapies and Aventis litigation”). Roche and Yamanouchi/
FibroGen are also developing their products for the treatment of
anemia in the oncology setting.
Neulasta® and NEUPOGEN® could face competition in some
circumstances from companies marketing or developing treatments
for neutropenia associated with chemotherapy, for bone marrow
and PBPC transplant patients, and AML. In the United States,
Neulasta® and NEUPOGEN® currently face market
competition in certain indications from a granulocyte macrophage
colony-stimulating factor (“GM-CSF”) product marketed
by Berlex Laboratories, Inc., a division of Schering
(“Berlex”) and from the chemoprotectant, amifostine.
In Europe, Neulasta® and NEUPOGEN® currently face
market competition in certain indications from a competing G-CSF
product (lenograstim), a GM-CSF (molgramostim), a G-CSF product
marketed by Chugai Pharmaceuticals Co., Ltd.
(“Chugai”) and Sanofi-Aventis, and the GM-CSF product
marketed by Novartis AG (“Novartis”). In certain areas
outside the United States and Europe, Neulasta®and
NEUPOGEN® currently compete in certain indications with a
G-CSF product marketed by Chugai and a modified G-CSF protein
marketed by Kyowa Hakko Kogyo Co., Ltd.
NEUPOGEN® also competes with Neulasta® in the United
States and Europe. U.S. NEUPOGEN® sales have been
adversely impacted by Neulasta®. However, we believe that
most of the conversion in the United States has occurred. We
believe that we are experiencing conversion of NEUPOGEN®
patients to Neulasta® in Europe, but we believe that this
conversion will occur to a lesser extent than that experienced
in the United States. However, we cannot accurately predict the
rate or timing of future conversion of NEUPOGEN® patients
to Neulasta® in Europe.
ENBREL® could face competition in some circumstances from
companies developing or marketing rheumatoid arthritis,
ankylosing spondylitis, psoriatic arthritis, and psoriasis
treatments. Current treatments for these indications include
generic methotrexate and other products marketed by, among
others, Biogen IDEC Inc., Centocor, Inc./ Johnson &
Johnson, Abbott Laboratories (“Abbott”), Genentech,
Inc. (“Genentech”), Pfizer, Novartis, and
Sanofi-Aventis. In addition, a number of companies have cytokine
inhibitors in development including GlaxoSmithKline, Pfizer,
Bristol-Myers Squibb, Repligen, and Taisho Pharmaceutical Co.,
Ltd.
We are currently developing product candidates, including AMG
162, panitumumab, and others, which we expect will enter into
highly competitive markets, if approved. These product
candidates would face substantial competition from products
currently marketed as well as those under development by other
pharmaceutical and biotechnology companies.
Manufacturing and Raw Materials
We have manufacturing facilities which produce commercial
quantities of Epoetin alfa, Aranesp®, Neulasta®,
NEUPOGEN®, and ENBREL®. We operate commercial
manufacturing facilities located in the United States and Puerto
Rico, and a packaging and distribution center in the Netherlands
(see “Item 2.
12
Properties”). Our manufacturing facilities in Juncos,
Puerto Rico, are responsible for formulation, fill and finish
activities related to our production of Epoetin alfa,
Aranesp®, Neulasta®, NEUPOGEN® and ENBREL®.
In addition to these activities, the Puerto Rico facilities
perform key manufacturing support functions including quality
control, process development, procurement and production
scheduling. In 2005, the Puerto Rico facilities are anticipated
to begin production of NEUPOGEN® and Neulasta® bulk
drug product in a new manufacturing plant for which we plan to
submit an application for FDA approval in the first quarter of
2005. We are also constructing a second bulk manufacturing plant
in Juncos which will be used for the production of Epoetin alfa
and Aranesp®. We actively manage our inventory supply
produced by our manufacturing facilities and the supply produced
by our third-party manufacturers (see “MD&A —
Factors That May Affect Amgen — We have grown rapidly,
and if we fail to adequately manage that growth our business
could be adversely impacted.” and
“MD&A — Factors That May Affect
Amgen — We formulate, fill and finish substantially
all our products at our Puerto Rico manufacturing facility; if
significant natural disasters or production failures occur at
this facility, we may not be able to supply these
products.”). In addition to producing our own commercial
quantities of Epoetin alfa, we also supply Epoetin alfa in the
United States to Johnson & Johnson under a supply
agreement. Commercial quantities of ENBREL® produced by our
large-scale biopharmaceutical manufacturing facility in West
Greenwich, Rhode Island (the “RI Facility”) are by
itself, insufficient to fill the current level of demand for
this product. Our current plan to increase U.S. and Canadian
supply of ENBREL® includes completion of an additional
large-scale cell culture commercial manufacturing facility
adjacent to the current RI Facility, which we plan to submit for
FDA approval in 2005. We also have contract manufacturing
agreements with BI Pharma and Genentech for the production of
additional supply of ENBREL®. In addition, we utilize
third-party contract manufacturers to perform fill and finish
services and packaging services for ENBREL®.
|
|
|
Boehringer Ingelheim Pharma KG |
Amgen and Wyeth have a long-term supply agreement with BI Pharma
to manufacture commercial quantities of ENBREL®. In 2000
and 2002, the long-term supply agreement was amended to provide
for additional production capacity, improved manufacturing
processes, and to extend the term of the agreement.
Our supply of ENBREL® is significantly dependent on product
manufactured by BI Pharma, and, accordingly, we have made
significant purchase commitments to BI Pharma (see Note 8,
“Commitments and contingencies” to the consolidated
financial statements). Under the supply agreement, BI Pharma has
reserved a specified level of production capacity for
ENBREL®, and our supply under these purchase commitments
for ENBREL® is manufactured from that reserved production
capacity. We are required to submit a rolling three-year
forecast for manufacturing the bulk drug for ENBREL®, and a
rolling forecast for a shorter period for the number of finished
vials of ENBREL® to be manufactured from the bulk drug. We
have submitted firm orders for the maximum production capacity
that BI Pharma currently has reserved for ENBREL®. We will
be responsible for substantial payments to BI Pharma if we fail
to use a specified percentage of the production capacity that BI
Pharma has reserved for ENBREL® each calendar year or if
the BI Pharma supply agreement is terminated prematurely under
specified conditions.
We have a manufacturing agreement with Genentech to produce
ENBREL® at Genentech’s manufacturing facility in South
San Francisco, California. In October 2004, the FDA
approved this facility for ENBREL® production and Genentech
began manufacturing commercial quantities of ENBREL®. Under
the terms of the agreement, Genentech will produce ENBREL®
through 2005, with an extension through 2006 by mutual agreement.
Certain raw materials, medical devices, and components necessary
for our commercial manufacturing of our products are proprietary
products of other companies, and in some cases, such proprietary
products are specifically cited in our drug application with the
FDA such that they must be obtained from that specific, sole
source. We currently attempt to manage the risk associated with
such sole sourced raw materials by active inventory management
and alternate source development, when feasible (see
“MD&A — Factors That May Affect
Amgen — Certain of our raw materials, medical devices
and components are single-sourced from third
13
parties; third-party supply failures could adversely affect our
ability to supply our products”). We monitor the financial
condition of our suppliers, their ability to supply our needs
and the market conditions for these raw materials. Also, certain
of the raw materials required in the commercial manufacturing
and formulation of our products are derived from biological
sources, including mammalian tissues, bovine serum, and human
serum albumin, or HSA. We are 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, recall and/or
restriction could adversely impact or disrupt our commercial
manufacturing of our products.
Joint Ventures and Business Relationships
We generally discover, develop, manufacture, and market our
products. From time to time, we may enter into joint ventures
and other business relationships to provide additional
development, manufacturing, and marketing capabilities. In
addition to our internal R&D efforts, we have acquired
certain product and technology rights and have established
R&D collaborations to enhance our R&D capabilities and
internally developed product pipeline. Our R&D
collaborations generally can consist of non-refundable, upfront
license fees, R&D and commercial performance milestones,
cost sharing, royalties and/or profit sharing. Additionally,
these collaborations may include manufacturing and co-promotion
arrangements. Our collaboration agreements with third parties
are performed on a “best efforts” basis with no
guarantee of either technological or commercial success.
|
|
|
Kirin Brewery Company, Limited |
We formed KA, a 50-50 joint venture with Kirin in 1984. KA
develops and commercializes certain of our and Kirin’s
technologies, which have been transferred to this joint venture.
KA has given exclusive licenses to us to manufacture and market:
1) recombinant human erythropoietin in the United States,
2) darbepoetin alfa in the United States, all European
countries, Canada, Australia, New Zealand, Mexico, all Central
and South American countries, and certain countries in Central
Asia, North Africa, and the Middle East, and
3) pegfilgrastim and G-CSF in the United States, Europe,
Canada, Australia, and New Zealand. We currently market certain
of these products under the brand names EPOGEN®
(erythropoietin), Aranesp® (darbepoetin alfa),
Neulasta®(pegfilgrastim), and NEUPOGEN® (G-CSF).
KA has also given exclusive licenses to Kirin to manufacture and
market: 1) recombinant human erythropoietin in Japan,
2) darbepoetin alfa in Japan, the People’s Republic of
China (“China”), Taiwan, Korea, and certain other
countries in Southeast Asia, and 3) G-CSF and pegfilgrastim
in Japan, Taiwan and Korea. Kirin markets recombinant human
erythropoietin and G-CSF in China under a separate agreement.
Kirin markets its recombinant human erythropoietin product in
Japan under the trademark ESPO®. Kirin markets its G-CSF
product in its respective territories under the trademark
GRAN®. KA has licensed to Johnson & Johnson rights
to recombinant human erythropoietin in certain geographic areas
of the world (see “— Johnson &
Johnson”). Under its agreement with KA, Johnson &
Johnson pays a royalty to KA based on sales.
In connection with our various license agreements with KA, we
pay KA royalties based on product sales and also receive payment
for conducting certain R&D activities on behalf of KA (See
Note 2, “Related party transactions” to the
consolidated financial statements).
We 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 the United
States, all recombinant human erythropoietin sold by
Johnson & Johnson is manufactured by us and sold by
Johnson & Johnson under the trademark PROCRIT®
(Epoetin alfa). PROCRIT® brand Epoetin alfa is identical to
EPOGEN® brand Epoetin alfa, which is manufactured and sold
by us in the United States dialysis market. Pursuant to the
license agreement with Johnson & Johnson, we earn a 10%
royalty on sales of PROCRIT® by Johnson & Johnson
in the United States.
Outside the United States, with the exception of China and
Japan, Johnson & Johnson was granted rights to
manufacture and commercialize recombinant human erythropoietin
as a human therapeutic for all uses
14
under a licensing agreement with KA. With respect to its sales
outside of the United States, Johnson & Johnson
manufactures and commercializes its own brand of Epoetin alfa
which is then sold throughout the world by Johnson &
Johnson under various trademarks such as EPREX® and
ERYPO®. We are not involved in the manufacture of Epoetin
alfa sold by Johnson & Johnson outside of the United
States.
Amgen and Wyeth market and sell ENBREL® under a
co-promotion agreement in the United States and Canada for all
approved indications. The rights to detail and
promote ENBREL® in the United States and Canada for
oncology indications are reserved to Amgen. The rights to market
ENBREL® outside of the United States and Canada are
reserved to Wyeth. Under the co-promotion agreement, a
management committee comprised of equal representation from
Wyeth and Amgen is responsible for overseeing the marketing and
sales of ENBREL® including: strategic planning, the
approval of an annual marketing plan, product pricing, and the
establishment of a brand team. The brand team, with equal
representation from each party, prepares and implements the
annual marketing plan, which includes a minimum level of
financial and sales personnel commitment from each party, and is
responsible for all sales activities. Further, pursuant to the
co-promotion agreement, Wyeth and Amgen each pay a defined
percentage of all selling and marketing expenses approved by the
management committee. In addition, we pay Wyeth a percentage of
the annual gross profits of ENBREL®, which reflect the
sharing of manufacturing costs, in the United States and Canada
attributable to all approved indications for ENBREL® on a
scale that increases as gross profits increase; however, we
maintain a majority share of ENBREL® profits. Under the
co-promotion agreement, Wyeth is required to reimburse Amgen
for: 1) certain clinical and regulatory expenses we incur
in connection with the filing and approval of any new
indications for ENBREL® in the United States and Canada,
excluding oncology and rheumatoid arthritis indications;
2) certain specified patent expenses related to
ENBREL®; and 3) certain costs, expenses, and
liabilities associated with the manufacture, use, or sale of
ENBREL® in the United States and Canada.
We also have a global supply agreement with Wyeth related to the
manufacture, supply, inventory, and allocation of supplies of
ENBREL®.
In October 2003, Amgen and Abgenix amended an existing agreement
to jointly develop and commercialize panitumumab, a fully human
monoclonal antibody created by Abgenix (See “Selected
Product Candidates”). Under the amended agreement, we have
decision-making authority for the joint development and
commercialization of panitumumab, but development and
commercialization costs, as well as any potential profits from
future sales of panitumumab, are shared equally. We have the
right to conduct all future clinical trials. In addition,
Abgenix will manufacture clinical and early commercial supplies
of panitumumab with our support and assistance. If clinical
trials for panitumumab are successful and regulatory approval is
received, we would have the primary role in implementing
marketing and product launch activities for panitumumab, while
Abgenix may participate in co-promotion.
We have agreed to advance Abgenix up to $60 million that
may be used by Abgenix to fund its share of development and
commercialization costs for panitumumab. Abgenix is not
obligated to repay such advances if panitumumab does not reach
commercialization. As Abgenix’s obligation to repay such
advances is dependent upon the commercialization of an
in-process technology, such advances are expensed as incurred.
Government Regulation
Regulation by governmental authorities in the United States and
other countries is a significant factor in the production and
marketing of our products and our ongoing R&D activities
(see “MD&A — Factors That May Affect
Amgen — Our current products and products in
development cannot be sold if we do not obtain and maintain
regulatory approval”).
In order to clinically test, manufacture, and market products
for therapeutic use, we must satisfy mandatory procedures and
safety and effectiveness standards established by various
regulatory bodies. In the United States, the Public Health
Service Act and the Federal Food, Drug, and Cosmetic Act, as
amended, and the regulations promulgated there under, and other
federal and state statutes and regulations govern,
15
among other things, the testing, manufacture, labeling, storage,
record keeping, approval, advertising, and promotion of our
products on a product-by-product basis. Product development and
approval within this regulatory framework takes a number of
years and involves 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 us.
In addition to regulating and auditing human clinical trials,
the FDA regulates and inspects equipment, facilities,
laboratories, and processes used in the manufacturing and
testing 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. We 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,
laboratories, and processes following the initial approval. If,
as a result of these inspections, the FDA determines that our
equipment, facilities, laboratories, 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 us, including the suspension
of our manufacturing operations.
In the European 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 European
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.
We are 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 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
arrangements that do not violate the anti-kickback statutes. We
seek 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
our practices, it is possible that our 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 payers
(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. Our activities relating to the
sale and marketing of our 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 us of violating these laws, there could be a material
adverse effect on us, including our stock price. Our 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.
16
Since 1991, we have 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 in this program has included extending comparable
discounts under the Public Health Service (“PHS”)
pharmaceutical pricing program. Under the Medicaid rebate
program, we pay a rebate for each unit of our 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 us 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 our reports of our current AMP
and best price for each of our products to the CMS. The terms of
our 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
our rebate liability for past quarters, depending on the
direction of the correction. In addition to retroactive rebates
(and interest, if any), if we 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.
We also make our 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% off the AMP to non-federal customers (the
non-federal average manufacturer price, “non-FAMP”).
Our 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 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 we were
found to have knowingly reported a false non-FAMP, in addition
to other penalties available to the government, the VHC Act
provides for civil monetary penalties of $100,000 per item
that is incorrect.
We are 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 laws, rules, and/or regulations.
Our R&D activities involve the controlled use of hazardous
materials, chemicals, biological materials, and various
radioactive compounds. We believe that our procedures comply
with the standards prescribed by federal, state, or local laws,
rules, and/or regulations; however, the risk of injury or
accidental contamination cannot be completely eliminated. Our
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 we are 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. Our present and future
business has been and will continue to be subject to various
other laws, rules, and/or regulations.
17
Patents and Trademarks
We have filed applications for a number of patents, have been
granted patents, or have obtained rights relating to our
products and various potential products. Our material patents
are set forth in the table below.
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| Product |
|
|
|
General Subject Matter |
|
Expiration |
| |
|
|
|
|
|
|
|
Epoetin alfa
|
|
U.S |
|
— Process of making erythropoietin
(issued in 1995 and 1997) |
|
8/15/2012 |
| |
|
|
|
— Product claims to erythropoietin
(issued in 1996 and 1997) |
|
8/20/2013 |
| |
|
|
|
— Pharmaceutical compositions of erythropoietin
(issued in 1999) |
|
8/20/2013 |
| |
|
|
|
— Cells that make certain levels of erythropoietin
(issued in 1998) |
|
5/26/2015 |
|
darbepoetin alfa
|
|
Europe(1) |
|
— Glycosylation analogs of erythropoietin proteins
(issued in 1999) |
|
10/12/2010 |
| |
|
|
|
— Glycosylation analogs of erythropoietin proteins
(issued in 1997) |
|
8/16/2014 |
|
Filgrastim
|
|
U.S. |
|
— Methods for recombinant production of G-CSF
(issued in 1998) |
|
8/23/2005 |
| |
|
|
|
— Analogs of G-CSF (issued in 1999) |
|
8/23/2005 |
| |
|
|
|
— Pharmaceutical Compositions Comprising G-CSF
(issued in 2002) |
|
8/23/2005 |
| |
|
|
|
— DNA, vectors, cells and processes relating to
recombinant G-CSF (issued in 1989 and 1991) |
|
3/7/2006 |
| |
|
|
|
— G-CSF polypeptides (issued in 1996) |
|
12/3/2013 |
| |
|
|
|
— Methods of treatment using G-CSF polypeptides
(issued in 1996) |
|
12/10/2013 |
| |
|
Europe(1) |
|
— G-CSF DNA Vectors, cells, polypeptides, methods of
use and production (issued in 1991) |
|
8/22/2006 |
|
pegfilgrastim
|
|
U.S. |
|
— Pegylated G-CSF (issued in 1998) |
|
10/20/2015 |
| |
|
Europe(1) |
|
— Pegylated G-CSF (issued in 1999) |
|
2/8/2015 |
|
etanercept
|
|
U.S. |
|
— Methods of treating TNF — dependent
disease
(issued in 2003) |
|
9/5/2009 |
| |
|
|
|
— TNFR proteins and pharmaceutical compositions
(issued in 1999 and 2001) |
|
9/5/2009 |
| |
|
|
|
— TNFR DNA vectors, cells and processes for making
proteins (issued in 1995 and 2000) |
|
10/23/2012 |
|
|
| (1) |
In some cases these European patents may also be entitled to
Supplemental Protection in one or more countries in Europe and
the length of any such extension will vary country by country. |
There can be no assurance that our patents or licensed patents
will afford legal protection against competitors or provide
significant proprietary protection or competitive advantage. In
addition, our 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 we 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 ours. Additionally, for certain of our product candidates,
competitors, or potential competitors may claim that their
existing or pending patents prevent us from commercializing such
product candidates in certain territories. Further, when our
patents expire, other companies could develop new competitive
products to our products. Our near-term European patent
expirations could result in new competitive products to our
products in Europe. Our European patent relating to
erythropoietin expired on December 12, 2004 and our
European patent relating to G-CSF expires on
August 22, 2006. We believe that after the expiration
of each of these patents, other
18
companies could receive approval for and market follow-on
biologics (sometimes referred to as “biosimilar” in
Europe) to each of these products in Europe. We believe that the
EU is currently in the process of developing regulatory
requirements related to the development and approval of
follow-on biologics. Until such requirements are finalized, we
cannot predict when follow-on biologics could appear in the
market in the EU. However, based on the process and timing
outlined by the EMEA, we believe product specific guidelines are
not likely to be finalized until 2006.
In general, we have obtained licenses from various parties which
we deem to be necessary or desirable for the manufacture, use or
sale of our products. These licenses generally require us 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 us. There can be no assurance
any licenses required under such patents will be available for
license on acceptable terms or at all. We are engaged in various
legal proceedings relating to certain of our patents (see
“Item 3. Legal Proceedings”).
Trade secret protection for our unpatented confidential and
proprietary information is important to us. To protect our trade
secrets, we generally require our staff members, 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
us. However, others could either develop independently the same
or similar information or obtain access to our information.
Human Resources
As of December 31, 2004, we had approximately 14,400 staff
members, which includes approximately 100 part-time staff
members. Of the total staff members as of December 31,
2004, approximately 5,600 were engaged in R&D, approximately
2,700 were engaged in selling and marketing, approximately 4,400
were engaged in commercial manufacturing activities, and
approximately 1,700 were engaged in other activities. There can
be no assurance that we will be able to continue attracting and
retaining qualified personnel in sufficient numbers to meet our
needs. None of our staff members are covered by a collective
bargaining agreement, and we have experienced no work stoppages.
We consider our staff relations to be good.
Executive Officers
The executive officers of the Company as of February 28,
2005 are as follows:
Mr. Kevin W. Sharer, age 56, has served as a director
of the Company since November 1992. Since May 2000,
Mr. Sharer has been Chief Executive Officer and President
of the Company and has also been Chairman of the Board since
December 2000. From October 1992 to May 2000, Mr. Sharer
served as President and Chief Operating Officer of the Company.
From April 1989 to October 1992, Mr. Sharer was President
of the Business Markets Division of MCI Communications
Corporation, a telecommunications company. From February 1984 to
March 1989, Mr. Sharer held numerous executive capacities
at General Electric Company. Mr. Sharer is a director of
Unocal Corporation, 3M Company and Northrop Grumman Corporation.
Dr. Hassan Dayem, age 58, became Senior Vice President
and Chief Information Officer in May 2002. From December 1998 to
May 2002, Dr. Dayem served as Vice President, Information
Services and Chief Information Officer at Merck & Co.,
Inc. (“Merck”), a pharmaceutical company. From June
1997 to December 1998, Dr. Dayem served as Vice President,
Research Information Services at Merck. From February 1977 to
May 1997, Dr. Dayem was at Los Alamos National Laboratory,
where he held several positions including Division Director,
Computing, Information and Communications Division from July
1993 to May 1997.
Dr. Dennis M. Fenton, age 53, became Executive Vice
President in March 2000 and in May 2003 became Executive Vice
President, Operations and Compliance Officer. From January 1995
to March 2000, Dr. Fenton served as Senior Vice President,
Operations; from August 1992 to January 1995 as Senior Vice
President, Sales and Marketing; and from July 1991 to August
1992 as Vice President, Process Development, Facilities and
Manufacturing Services. From October 1988 to July 1991,
Dr. Fenton also served as Vice
19
President, Pilot Plant Operations and Clinical Manufacturing;
and from 1985 to October 1988, he served as Director, Pilot
Plant Operations.
Mr. Brian McNamee, age 48, became Senior Vice
President, Human Resources in June 2001. From November 1999 to
June 2001, Mr. McNamee served as Vice President of Human
Resources at Dell Computer Corp. From 1998 to 1999,
Mr. McNamee served as Senior Vice President, Human
Resources for the National Broadcasting Corporation
(“NBC”), a division of General Electric Company. From
July 1988 to November 1999, Mr. McNamee held human resource
positions at General Electric Company.
Mr. George J. Morrow, age 52, became Executive Vice
President of Worldwide Sales and Marketing, in January 2001 and
became Executive Vice President, Global Commercial Operations in
April 2003. From January 1999 to December 2000, Mr. Morrow
was President and Chief Executive Officer of Glaxo Wellcome Inc.
(“Glaxo”), a subsidiary of GlaxoSmithKline plc. From
January 1997 to December 1998, Mr. Morrow was Managing
Director of Glaxo Wellcome U.K., also a subsidiary of
GlaxoSmithKline plc. From May 1993 to December 1996,
Mr. Morrow was Group Vice President for Commercial
Operations of Glaxo.
Mr. Richard D. Nanula, age 44, became Executive Vice
President and Chief Financial Officer in August 2001. From
November 1999 to February 2001, Mr. Nanula was Chairman and
Chief Executive Officer of Broadband Sports, Inc., an Internet
media company. From March 1998 to May 1999, Mr. Nanula was
President and Chief Operating Officer of Starwood
Hotels & Resorts Worldwide, a worldwide hotel and
gaming company. From August 1986 to March 1998, Mr. Nanula
was at the Walt Disney Company; where he held several positions
including Senior Executive Vice President and Chief Financial
Officer and President of Disney Stores Worldwide.
Mr. Nanula currently serves on the Board of Directors of
The Boeing Company.
Dr. Roger M. Perlmutter, age 52, became Executive Vice
President of Research and Development in January 2001. From July
1999 to December 2000, Dr. Perlmutter was Executive Vice
President, Worldwide Basic Research and Preclinical Development
of Merck Research Laboratories. From February 1999 to July 1999,
Dr. Perlmutter served as Executive Vice President of Merck
Research Laboratories, and from February 1997 to January 1999,
as Senior Vice President of Merck Research Laboratories. From
May 1989 to January 1997, Dr. Perlmutter was also Chairman
of the Department of Immunology, University of Washington, and
from January 1991 to January 1997, Professor in the Departments
of Immunology, Biochemistry and Medicine, University of
Washington. From October 1991 to January 1997,
Dr. Perlmutter served as Investigator at the Howard Hughes
Medical Institute at the University of Washington.
Dr. Perlmutter currently serves on the Board of Directors
of Stem Cells, Inc.
Mr. David J. Scott, age 52, became Senior Vice
President, General Counsel and Secretary in March 2004. From May
1999 to February 2004, Mr. Scott served as Senior Vice
President and General Counsel of Medtronic, Inc., a medical
technology company, and also as Secretary from January 2000.
From December 1997 to April 1999, Mr. Scott served as
General Counsel of London-based United Distillers &
Vintners. From April 1996 to November 1997, Mr. Scott
served as General Counsel of London-based International
Distillers & Vintners.
Geographic Area Financial Information
For financial information concerning the geographic areas in
which we operate, see Note 9, “Segment
information — Geographic information” to the
consolidated financial statements.
Factors That May Affect Amgen
We operate in a rapidly changing environment that involves a
number of risks, uncertainties, and assumptions, many of which
are beyond our control. For a discussion of some of these risks,
see “Factors That May Affect Amgen” in the MD&A
section of this Report included under “Item 7”.
Other risks are discussed elsewhere in this Form 10-K.
Investor Information
Financial and other information about us is available on our
website (http://www.amgen.com) (This website address is
not intended to function as a hyperlink, and the information
contained in our website is not intended to be a part of this
filing). We make available on our website, free of charge,
copies of our annual
20
report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K, and amendments to those
reports filed or furnished pursuant to Section 13(a) or
15(d) of the Exchange Act as soon as reasonably practicable
after filing such material electronically or otherwise
furnishing it to the SEC.
Our principal executive offices and a majority of our
administrative and a significant portion of our R&D
facilities are located in forty-four buildings in Thousand Oaks,
California. Thirty-seven of the buildings located in Thousand
Oaks are owned and seven are leased. Adjacent to these buildings
are facilities that are under construction and additional land
for future expansion. The Thousand Oaks, California, properties
include manufacturing facilities licensed by various regulatory
bodies to produce commercial quantities of Epoetin alfa,
Aranesp®, Neulasta®, and NEUPOGEN®.
We own six buildings in Longmont, Colorado, including a
manufacturing complex that is licensed to produce commercial
quantities of Epoetin alfa and Aranesp® bulk drug
substance. We have undeveloped land adjacent to the Longmont
site to accommodate future expansion. We also own two buildings
and lease four buildings in Boulder, Colorado, housing process
development research and manufacturing facilities capable of
producing commercial quantities of Kineret® bulk drug
substance.
We own ten buildings and lease space in nine buildings in the
Seattle, Washington area, which house research, manufacturing,
and administrative facilities. In connection with the Immunex
acquisition in 2002, we initiated an integration plan to
consolidate certain Immunex leased facilities, and currently
only occupy three of the nine leased buildings. In January 2004,
we opened the Seattle research center. We also own additional
land for future expansion in the Seattle, Washington area.
We own five buildings in West Greenwich, Rhode Island, including
a manufacturing facility which produces commercial quantities of
ENBREL®, and lease a warehouse facility in Cranston, Rhode
Island. We are also currently completing a new manufacturing
plant adjacent to the existing manufacturing facility in Rhode
Island to produce commercial quantities of ENBREL®, which
we plan to submit for FDA approval in 2005.
As part of the Tularik acquisition, we assumed leases on eight
buildings in South San Francisco, California, which house
R&D and administrative facilities. In connection with the
acquisition, we initiated an integration plan to consolidate
certain Tularik leased facilities, and currently only occupy two
of the eight buildings. Additionally, we assumed leases on land
for future development in the South San Francisco,
California area.
Elsewhere in North America, we own a distribution center in
Louisville, Kentucky, and a research facility in Cambridge,
Massachusetts. We lease facilities for administrative offices in
Washington, D.C. and Canada, and lease five facilities for
regional sales and marketing offices in the United States.
Outside North America, we own six buildings in Juncos, Puerto
Rico, including both bulk and formulation, fill and finish
manufacturing facilities and warehouse facilities. Our
facilities in Juncos, Puerto Rico, are responsible for
formulation, fill and finish activities related to our
production of Epoetin alfa, Aranesp®, Neulasta®,
NEUPOGEN® and ENBREL®. In 2005, we plan to submit an
application for FDA approval of a new bulk drug production plant
in Puerto Rico which will be used for the production of
NEUPOGEN® and Neulasta®. We are also constructing a
second bulk manufacturing plant in Juncos which will be used for
the production of Epoetin alfa and Aranesp®. In addition,
we own additional property on the Puerto Rico Site for future
expansion. We also own a European packaging and distribution
center in Breda, The Netherlands. We lease facilities in
seventeen European countries, Australia, New Zealand, and Japan,
for administration, sales and marketing, and/or development.
We believe that our existing facilities plus anticipated
additions are sufficient to meet our expected needs.
|
|
| Item 3. |
LEGAL PROCEEDINGS |
Certain of our legal proceedings are discussed below. While it
is impossible to predict accurately or to determine the eventual
outcome of these matters, we do not believe any such proceedings
currently pending will have a material adverse effect on our
annual consolidated financial statements, although an adverse
21
resolution in any reporting period of one or more of the
proceedings could have a material impact on the results of
operations for that period.
|
|
|
Transkaryotic Therapies and Aventis Litigation |
On April 15, 1997, Amgen filed suit in the Massachusetts
District Court against TKT and Hoechst Marion Roussel, Inc.
(“HMR” — now Aventis Pharmaceuticals Inc.,
together with TKT, the “Defendants”) alleging
infringement of three U.S. patents owned by Amgen that
claim an erythropoietin product and processes for making
erythropoietin. Amgen sought an injunction preventing the
Defendants from making, importing, using, or selling
erythropoietin in the United States. 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.
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”). On
May 15, 2000, trial began in the Massachusetts District
Court. On June 9, 2000, the Massachusetts District Court
granted Defendants’ motion for non-infringement of
U.S. Patent No. 5,618,698 (the “’698
Patent”), removing the ’698 Patent from this action.
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 U.S. Patent No. 5,621,080 (the
“’080 Patent”), claims 1, 3, 4, and 6
of U.S. Patent No. 5,756,349 (the “’349
Patent”) and claim 1 of the ’422 Patent were valid,
enforceable, and infringed by TKT’s erythropoietin 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 U.S. Patent
No. 5,547,933 (the “933 Patent”) were not
infringed, and that if infringed the claims of the ’933
patent would be invalid.
On January 26, 2001, the Defendants 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. On March 22, 2001, Amgen filed an Amended Notice
of Cross-Appeal to include claim 9 of the ’698 patent.
After the parties briefed the issues on appeal, oral arguments
were heard on May 7, 2002 by the U.S. Court of Appeals
for the Federal Circuit.
On January 6, 2003, the U.S. Court of Appeals for the
Federal Circuit upheld the District Court’s decision that
the Defendants infringe the ’349 and ’422 patents and
held that claims 1 and 2 of the ’933 patent were invalid.
The court further upheld the enforceability and validity of all
of the asserted claims except for validity over two references
which was vacated and remanded to the District Court. The court
vacated and remanded to the District Court of Massachusetts for
further consideration of (i) the finding of infringement of
the ’080 patent, (ii) the holding of non-infringement
of the ’698 patent, and (iii) the effect of two
references on the validity of the asserted claims of the
patents. On January 20, 2003, the Defendants filed a
Combined Motion for Panel Rehearing and Rehearing En Banc with
the Federal Circuit regarding the court’s affirmance of the
validity of the asserted claims under 35 U.S.C. §112.
On March 3, 2003, the Federal Circuit denied the
Defendant’s Motions for Panel Rehearing and Rehearing En
Banc. The Massachusetts District Court held a trial on the
remanded issues on October 7-8 and 15-17 and November 3-6,
2003. On October 30, 2003, the Massachusetts District Court
ruled that claims 2-4 of the ’080 patent are infringed.
On October 15, 2004, the Massachusetts District Court
decided the remaining issues remanded from the U.S. Court
of Appeals for the Federal Circuit in Amgen’s favor. In the
October 15 decision, the court ruled that claims 4-9 of the
’698 patent are valid and infringed, claims 2-4 of the
’080 claims are valid, claim 1 of the ’422 is valid
and claim 7 of the ’349 patent is valid and infringed. On
December 10, 2004, TKT filed a Notice of Appeal to the
U.S. Court of Appeals for the Federal Circuit.
|
|
|
Israel Bio-Engineering Project Litigation |
On September 3, 2002, Israel Bio-Engineering Project
(“IBEP”), filed a patent infringement lawsuit against
Amgen’s wholly-owned subsidiary, Immunex Corporation
(“Immunex”), Wyeth and Wyeth Pharmaceuticals in the
U.S. District Court for the Central District of California,
relating to a U.S. Patent
22
No. 5,981,701 (the “’701 Patent”). Although
not the title owner of record, IBEP alleges that it owns the
’701 Patent. IBEP asserts that the manufacture and sale of
ENBREL® (etanercept) infringes claim 1 of this patent.
IBEP seeks an accounting of damages and of any royalties or
license fees paid to a third-party and seeks to have the damages
trebled on account of alleged willful infringement. IBEP also
seeks to force the defendants to take a compulsory non-exclusive
license. On September 4, 2003, Yeda Research and
Development Co. Ltd. (“Yeda”), the title owner of
record of the ’701 patent, joined as an
interventor-defendant. On February 18, 2004, the court
granted summary judgment in favor of Yeda on the issue of
ownership.
On March 31, 2004, judgment was entered in favor of the
defendants including Amgen and Immunex. IBEP filed a Notice of
Appeal and filed its appeal brief on June 2, 2004. Amgen
and Immunex filed their appeal brief on July 29, 2004. IBEP
filed its reply brief on August 27, 2004. Oral argument
heard by the Court of Appeals for the Federal Circuit was held
on January 11, 2005.
On June 18, 2003, Amgen and Immunex filed suit in the
U.S. District Court for the Central District of California
against The Trustees of Columbia University
(“Columbia”) seeking a declaratory judgment that
Columbia’s claims for royalties under license agreements
with Amgen and Immunex lack merit and that no royalties are
owed. The complaint further sought a declaratory judgment that
Amgen and Immunex do not infringe Columbia’s recently
issued U.S. Patent No. 6,455,275 (the “’275
Patent”) and that the ’275 Patent is invalid and
unenforceable. On February 12, 2004, Columbia filed breach
of contract and declaratory relief counterclaims against Amgen
and Immunex along with its answer to the complaint.
On April 8, 2004, the Judicial Panel on Multidistrict
Litigation transferred this action to the U.S. District
Court for the District of Massachusetts for consolidated
pre-trial proceedings with other actions involving the ’275
Patent.
On May 6, 2004, the U.S. Patent and Trademark Office
(“PTO”) granted a request to reexamine the ’275
Patent. On June 18, 2004, Columbia filed a reissue
application in the PTO of the ’275 Patent. On June 23,
2004, the U.S. District Court of the District of
Massachusetts denied Columbia’s request to stay the
litigation pending the reexamination and reissue proceedings
before the PTO. The court also scheduled a November 22,
2004 hearing regarding motions for summary judgment that the
’275 Patent is invalid for double patenting and a
December 13, 2004 trial date on that issue.
On September 1, 2004, The Trustees of Columbia University
(“Columbia”) filed a covenant not to sue the
plaintiffs for infringement of the ’275 patent. On
October 12, 2004, Columbia filed an Amended and Restated
Covenant. Columbia filed a Motion to Dismiss based upon this
covenant, seeking to dismiss claims against Amgen and Immunex
which it contends relate to the ’275 Patent and to transfer
the remaining claims back to the U.S. District Court for
the Central District of California. On November 5, 2004,
the Court granted Columbia’s Motion to Dismiss claims based
upon the ’275 patent and requested briefing regarding the
schedule for remaining issues.
On December 15, 2004, Amgen Manufacturing Limited, Amgen
USA Inc. and Immunex Rhode Island Corporation, Amgen’s
subsidiaries, filed a Complaint in the U.S. District Court
for the District of Massachusetts seeking a declaratory judgment
that the plaintiffs do not infringe Columbia’s ’275
Patent and that the ’275 Patent is invalid and
unenforceable. On January 4, 2005, Columbia filed a Motion
to Dismiss the complaint for lack of subject matter
jurisdiction. On January 18, 2005, the plaintiffs opposed
Columbia’s motion.
|
|
|
Average Wholesale Price Litigation |
Amgen and Immunex are named as defendants, either separately or
together, in numerous civil actions broadly alleging that they,
together with many other pharmaceutical manufacturers, reported
prices for certain products in a manner that allegedly inflated
reimbursement under the Medicare and/or Medicaid programs, and
commercial insurance plans, including co-payments paid to
providers who prescribe and administer the products. The
complaints generally assert varying claims under the federal
RICO statutes, their state law corollaries, as well as state law
claims for deceptive trade practices, common law fraud, and
various related
23
state law claims. The complaints seek an undetermined amount of
damages, as well as other relief, including declaratory and
injunctive relief.
The AWP litigation was commenced against Amgen and Immunex on
December 19, 2001 with the filing of Citizens for Consumer
Justice et al. v. Abbott Laboratories, Inc.,
et al. Additional cases have been filed since that time.
Most of these actions, as discussed below, have been
consolidated, or are in the process of being consolidated, in a
federal Multi-District Litigation proceeding (“the MDL
Proceeding”), captioned In Re: Pharmaceutical Industry
Average Wholesale Price Litigation MDL No. 1456 and pending
in the U.S. District Court for the District of
Massachusetts (“the Massachusetts District Court”).
These cases that are, or are in the process of being
consolidated into the MDL Proceeding, are being brought by
consumer classes and certain state and local governmental
entities. The cases consist of the following:
|
|
|
| |
• |
Citizens for Consumer Justice, et al., v. Abbott
Laboratories, Inc., et al.; Teamsters Health &
Welfare Fund of Philadelphia, et al., v. Abbott
Laboratories, Inc., et al.; Action Alliance of
Senior Citizens of Greater Philadelphia v. Immunex
Corp.; Constance Thompson, et al. v. Abbott
Laboratories, Inc., et al.; John Rice, et al. v.
Abbott Laboratories, Inc., et al.; Ronald Turner,
et al. v. Abbott Laboratories, Inc., et al.;
Congress of California Seniors v. Abbott Laboratories,
et al.; State of Montana v. Abbott
Laboratories, Inc., et al.; State of Nevada v.
American Home Products Corp., et al.; County of
Suffolk v. Abbott Laboratories, Inc., et al.; IUOE,
Local 68 v. AstraZeneca, PLC, et al.; County of
Westchester v. Abbott Laboratories, Inc., et al.;
County of Rockland v. Abbott Laboratories, Inc.,
et al.; City of New York v. Abbott Laboratories, Inc.,
et al.; and County of Nassau v. Abbott
Laboratories, Inc., et al; County of Onondaga v.
Abbott Laboratories, Inc., et al. |
In the MDL Proceeding, the U.S. District Court for the
District of Massachusetts has set various deadlines relating to
motions to dismiss the complaints, discovery, class
certification, summary judgment and other pre-trial issues. For
the class action cases, the Court has divided the defendant
companies into a Phase I group and a Phase II group.
The class certification hearing for the Phase I group was
held on February 10, 2004. Both Amgen and Immunex are in
the Phase II group, and plaintiffs have yet to file their
motion for class certification as to the Phase II companies.
Certain AWP cases are not a part of the MDL Proceeding. These
cases are:
|
|
|
| |
• |
Robert J. Swanston v. TAP Pharmaceutical Products, Inc.,
et al. This Arizona state class action was filed
against Amgen and Immunex on December 20, 2002 in the
Maricopa County, Arizona Superior Court. The Court has set a
hearing on plaintiffs’ motion to certify a statewide class
for May 13, 2005. |
| |
| |
• |
Commonwealth of Pennsylvania v. TAP Pharmaceutical
Products, Inc., et al. This case was filed against
Amgen in the Commonwealth Court for Pennsylvania in Harrisburg,
Pennsylvania on March 10, 2004. On February 1, 2005,
the court sustained defendants Preliminary Objections, and gave
the Commonwealth of Pennsylvania 30 days in which to file
an amended complaint. |
| |
| |
• |
State of Wisconsin v. Amgen, Inc., et al. An
amended complaint was filed against Amgen and Immunex on
November 1, 2004 in the Circuit Court for Dane County,
Wisconsin. Defendants’ filed their motions to dismiss the
complaint on January 20, 2005. |
| |
| |
• |
Commonwealth of Kentucky v. Alphapharma, Inc.,
et al. This case was filed against Amgen and Immunex on
November 4, 2004 in the Franklin County Circuit Court,
Franklin County, Kentucky. Defendants filed their motions to
dismiss the complaint on February 1, 2005. |
| |
| |
• |
State of Alabama v. Abbott Laboratories, Inc., et.
al. This case was filed against Amgen and Immunex on
January 26, 2005 in the Circuit Court of Montgomery County,
Alabama. |
| |
| |
• |
People of State of Illinois v. Abbott, et. al This
case was filed against Amgen and Immunex on February 7,
2005 in the Circuit Court for Cook County, Illinois. |
|
|
|
Immunex Governmental Investigations |
According to press reports, many pharmaceutical companies are
under investigation by the U.S. Department of Justice, the
U.S. Department of Health and Human Services, and/or state
agencies
24
related to the pricing of their products. Immunex has received
notices from the U.S. Department of Justice requesting it
to produce documents in connection with a Civil False Claims Act
investigation of the pricing of Immunex’s current and
former products for sale and eventual reimbursement by Medicare
or state Medicaid programs. Immunex also received similar
requests to procure documents from the U.S. Department of
Health and Human Services and state agencies. Several of
Immunex’s current and former products are or were regularly
sold at substantial discounts from list price. The Company does
not know what action, if any, the federal government or any
state agency may take as a result of their investigations.
|
|
|
State Attorney General Investigations |
Amgen and/or Immunex have been advised by several State
Attorneys General of pending investigations regarding drug
pricing practices pertaining to the calculation of Average
Manufacturer Price (“AMP”) and Best Price calculations
under the Medicaid Drug Rebate Act. These states have requested
that Amgen and Immunex preserve records relating to AMP and best
price calculations. The Company does not know what actions, if
any, may be taken as a result of these investigations.
|
|
|
Johnson & Johnson Arbitration/ Demand for Separate
BLA |
On November 11, 2003, Ortho Biotech Products, L.P., Ortho
Biotech Inc., and Ortho-McNeil Pharmaceutical (wholly owned
subsidiaries of Johnson & Johnson, collectively,
“Ortho”) filed a demand for arbitration against the
Company before the American Arbitration Association in Chicago,
Illinois. In its demand, Ortho seeks declaratory relief that,
among other things, (1) Ortho has the right under the
parties’ Product License Agreement to apply for its own FDA
license to market its brand of recombinant erythropoietin,
PROCRIT®, based on bulk product supplied by the Company,
(2) the Company must cooperate with Ortho to achieve
Ortho’s separate FDA licensure, (3) pending FDA
approval of Ortho’s separate license, the Company must
continue to supply Ortho with Ortho’s commercial
requirements of finished erythropoeitin products, and
(4) pending FDA approval of Ortho’s separate license,
the Company must cooperate with Ortho on erythropoeitin
development projects, including Ortho’s proposal for a
120,000 unit per ml formulation.
Amgen contests Ortho’s claims and will respond accordingly.
|
|
| Item 4. |
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
No matters were submitted to a vote of our security holders
during the last quarter of our fiscal year ended
December 31, 2004.
25
PART II
|
|
| Item 5. |
MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS |
Our common stock trades on The NASDAQ Stock Market under the
symbol AMGN. As of February 11, 2005, there were
approximately 15,000 holders of record of our common stock. No
cash dividends have been paid on the common stock to date, and
we currently intend to utilize any earnings for development of
our business and for repurchases of our 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
2004 and 2003:
| |
|
|
|
|
|
|
|
|
|
| |
|
High | |
|
Low | |
| |
|
| |
|
| |
|
2004
|
|
|
|
|
|
|
|
|
| |
4th Quarter
|
|
$ |
64.76 |
|
|
$ |
52.70 |
|
| |
3rd Quarter
|
|
|
59.98 |
|
|
|
53.23 |
|
| |
2nd Quarter
|
|
|
60.43 |
|
|
|
52.82 |
|
| |
1st Quarter
|
|
|
66.23 |
|
|
|
57.83 |
|
|
2003
|
|
|
|
|
|
|
|
|
| |
4th Quarter
|
|
$ |
67.14 |
|
|
$ |
57.62 |
|
| |
3rd Quarter
|
|
|
71.54 |
|
|
|
64.52 |
|
| |
2nd Quarter
|
|
|
67.50 |
|
|
|
57.60 |
|
| |
1st Quarter
|
|
|
58.87 |
|
|
|
48.88 |
|
|
|
| Item 5(c). |
CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES
OF EQUITY SECURITIES |
During the three months ended December 31, 2004, we had two
outstanding stock repurchase programs. The amount we spend and
the number of shares repurchased varies based on a variety of
factors including the stock price and blackout periods in which
we are restricted from repurchasing shares. Repurchases under
our stock repurchase program reflect, in part, our confidence in
the long-term value of Amgen common stock. A summary of our
repurchase activity for the three months ended December 31,
2004 is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Total Number of | |
|
Maximum $ Value | |
| |
|
Total Number | |
|
Average | |
|
Shares Purchased as | |
|
that May Yet Be | |
| |
|
of Shares | |
|
Price Paid | |
|
Part of Publicly | |
|
Purchased Under the | |
| |
|
Purchased | |
|
per Share | |
|
Announced Programs | |
|
Programs(1) | |
| |
|
| |
|
| |
|
| |
|
| |
|
October 1 — October 31
|
|
|
6,965,448 |
|
|
$ |
55.53 |
|
|
|
6,964,112 |
|
|
$ |
1,606,702,718 |
|
|
November 1 — November 30
|
|
|
10,633,691 |
|
|
|
59.98 |
|
|
|
10,625,000 |
|
|
|
968,880,721 |
|
|
December 1 — December 31
|
|
|
35,339 |
|
|
|
13.87 |
|
|
|
— |
|
|
|
5,968,880,721 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
17,634,478 |
(2) |
|
$ |
58.13 |
|
|
|
17,589,112 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
In December 2003, the Board authorized us to repurchase up to
$5.0 billion of common stock. Additionally, in December
2004, the Board authorized us to repurchase up to an additional
$5.0 billion of common stock. |
| |
| (2) |
The difference between total number of shares purchased and the
total number of shares purchased as part of publicly announced
programs is due to repurchases of common stock from certain
employees in connection with their exercise of stock options
issued prior to June 23, 1998 as well as shares of common
stock withheld by us for the payment of taxes upon vesting of
certain employees’ restricted stock. |
26
|
|
| Item 6. |
SELECTED FINANCIAL DATA |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| Consolidated Statement of Operations Data: |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions, except per share data) | |
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Product sales(1)
|
|
$ |
9,977 |
|
|
$ |
7,868 |
|
|
$ |
4,991 |
|
|
$ |
3,511 |
|
|
$ |
3,202 |
|
| |
Other revenues
|
|
|
573 |
|
|
|
488 |
|
|
|
532 |
|
|
|
505 |
|
|
|
427 |
|
| |
|
Total revenues
|
|
|
10,550 |
|
|
|
8,356 |
|
|
|
5,523 |
|
|
|
4,016 |
|
|
|
3,629 |
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cost of sales (excludes amortization of acquired intangible
assets presented below)
|
|
|
1,731 |
|
|
|
1,341 |
|
|
|
736 |
|
|
|
443 |
|
|
|
408 |
|
| |
Research and development
|
|
|
2,028 |
|
|
|
1,655 |
|
|
|
1,117 |
|
|
|
865 |
|
|
|
845 |
|
| |
Write off of acquired in-process research and development(2)
|
|
|
554 |
|
|
|
— |
|
|
|
2,992 |
|
|
|
— |
|
|
|
30 |
|
| |
Selling, general and administrative
|
|
|
2,556 |
|
|
|
1,957 |
|
|
|
1,449 |
|
|
|
974 |
|
|
|
851 |
|
| |
Amortization of acquired intangible assets
|
|
|
333 |
|
|
|
336 |
|
|
|
155 |
|
|
|
— |
|
|
|
— |
|
| |
Other items, net(3)
|
|
|
— |
|
|
|
(24 |
) |
|
|
(141 |
) |
|
|
203 |
|
|
|
(49 |
) |
|
Net income (loss)
|
|
|
2,363 |
|
|
|
2,259 |
|
|
|
(1,392 |
) |
|
|
1,120 |
|
|
|
1,139 |
|
|
Diluted earnings (loss) per share
|
|
|
1.81 |
|
|
|
1.69 |
|
|
|
(1.21 |
) |
|
|
1.03 |
|
|
|
1.05 |
|
|
Cash dividends declared per share
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
At December 31, | |
| |
|
| |
| Consolidated Balance Sheet Data: |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Total assets(4)
|
|
$ |
29,221 |
|
|
$ |
26,113 |
|
|
$ |
24,456 |
|
|
$ |
6,443 |
|
|
$ |
5,400 |
|
|
Long-term debt(5)
|
|
|
3,937 |
|
|
|
3,080 |
|
|
|
3,048 |
|
|
|
223 |
|
|
|
223 |
|
|
Stockholders’ equity(4)
|
|
|
19,705 |
|
|
|
19,389 |
|
|
|
18,286 |
|
|
|
5,217 |
|
|
|
4,315 |
|
|
|
| (1) |
We began recording ENBREL® sales subsequent to our
acquisition of Immunex on July 15, 2002. |
| |
| (2) |
As part of the accounting for the Tularik and Immunex
acquisitions, we recorded a charge to write-off acquired
IPR&D of $554 million in 2004 and $2,992 million
in 2002, respectively. The IPR&D charge represents an
estimate of the fair value of the in-process research and
development for projects and technologies that, as of the
acquisition date, had not reached technological feasibility and
had no alternative future use. See Note 7,
“Acquisitions” to the consolidated financial
statements for further discussion of the IPR&D write-offs
related to the Tularik and Immunex acquisitions. |
| |
| (3) |
See Note 12, “Other items, net” to the
consolidated financial statements for further discussion of
other items, net for 2003 and 2002. Other items, net in 2001
consists of a charge primarily related to the costs of
terminating collaboration agreements with various third parties,
including PRAECIS PHARMACEUTICALS INCORPORATED and certain
academic institutions. Other items, net in 2000 includes a
benefit of $74 million related to a legal proceeding with
Johnson & Johnson partially offset by a charitable
contribution of $25 million to the Amgen Foundation. |
| |
| (4) |
In August 2004, we acquired all of the outstanding common stock
of Tularik for a purchase price of approximately
$1.5 billion. In July 2002, we acquired all of the
outstanding common stock of Immunex for a purchase price of
approximately $17.8 billion. See Note 7,
“Acquisitions” to the consolidated financial
statements for further discussion of these acquisitions and the
related accounting. |
| |
| (5) |
In March 2002, we issued 30-year zero-coupon, senior convertible
notes (“Convertible Notes”) with a face amount at
maturity of $3.95 billion. Holders of the Convertible Notes
may require us to purchase all or a portion of the notes on
specific dates as early as March 1, 2005 at the original
issuance price plus accrued original issue discount
(“accreted value”) through the purchase dates. On
March 2, 2005, as a result of certain holders of the
Convertible Notes exercising their March 1, 2005 put
option, we repurchased $1,175 million, or approximately
40%, of the outstanding Convertible Notes at their then-accreted
value for cash. Concurrently, we amended the terms of the
Convertible Notes to add an |
27
|
|
|
additional put date in order to permit the remaining holders, at
their option, to cause us to repurchase the Convertible Notes on
March 1, 2006 at the then-accreted value. Accordingly, the
portion of the Convertible Notes outstanding at
December 31, 2004 not repurchased on March 2, 2005 was
classified as long-term debt. See Note 4, “Financing
arrangements” to the consolidated financial statements for
further discussion of the terms of the Convertible Notes.
Additionally, in November 2004, we issued $1 billion
aggregate principal amount of 4.00% senior notes due in
2009 and $1 billion aggregate principal amount of
4.85% senior notes due in 2014. |
|
|
| Item 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS |
|
|
|
Forward looking statements |
This report and other documents we file with the Securities and
Exchange Commission (“SEC”) contain forward looking
statements that are based on current expectations, estimates,
forecasts and projections about us, our future performance, our
business or others on our behalf, our beliefs and our
management’s assumptions. In addition, we, or others on our
behalf, may make forward looking statements in press releases or
written statements, or in our communications and discussions
with investors and analysts in the normal course of business
through meetings, webcasts, phone calls, and conference calls.
Words such as “expect,” “anticipate,”
“outlook,” “could,” “target,”
“project,” “intend,” “plan,”
“believe,” “seek,” “estimate,”
“should,” “may,” “assume,”
“continue,” variations of such words and similar
expressions are intended to identify such forward looking
statements. These statements are not guarantees of future
performance and involve certain risks, uncertainties, and
assumptions that are difficult to predict. We describe our
respective risks, uncertainties, and assumptions that could
affect the outcome or results of operations in “Factors
That May Affect Amgen”. We have based our forward looking
statements on our management’s beliefs and assumptions
based on information available to our management at the time the
statements are made. We caution you that actual outcomes and
results may differ materially from what is expressed, implied,
or forecast by our forward looking statements. Reference is made
in particular to forward looking statements regarding product
sales, reimbursement, expenses, earnings per share, liquidity
and capital resources, and trends. Except as required under the
federal securities laws and the rules and regulations of the
SEC, we do not have any intention or obligation to update
publicly any forward looking statements after the distribution
of this report, whether as a result of new information, future
events, changes in assumptions, or otherwise.
Overview
The following management’s discussion and analysis
(“MD&A”) is intended to assist the reader in
understanding Amgen. MD&A is provided as a supplement to,
and should be read in conjunction with, our consolidated
financial statements and accompanying notes.
We are a global biotechnology company that discovers, develops,
manufactures, and markets human therapeutics based on advances
in cellular and molecular biology. Our mission is to serve
patients. As a science-based, patient-focused organization, we
discover and develop innovative therapies to treat serious
illness. We operate in one business segment — human
therapeutics. Therefore, our results of operations are discussed
on a consolidated basis.
We primarily earn revenues and income and generate cash from
sales of human therapeutic products in the areas of nephrology,
supportive cancer care, and inflammatory disease. For the year
ended December 31, 2004, total revenues were
$10,550 million and net income was $2,363 million, or
$1.81 per share. As of December 31, 2004, cash, cash
equivalents and marketable securities were $5,808 million.
For the years ended December 31, 2004, 2003, and 2002,
product sales represented 95%, 94%, and 90% of total revenues,
respectively. Over the last two years, our product sales growth
has been primarily driven by sales of Aranesp®,
ENBREL®, and Neulasta®, which benefited from market
share gains and/or market growth. We expect these products to
continue to drive sales growth in the near term. Most patients
receiving our principal products for approved indications,
excluding ENBREL®, are covered by both government and
private payers health care programs. Therefore, our product
sales are and will be affected by government and private payer
reimbursement policies. Reduction in reimbursement could
adversely affect our results of operations. For example, the MMA
was enacted into law in December 2003. We expect that, beginning
in
28
2005, reimbursement changes resulting from the MMA are likely,
to a degree, to negatively affect product sales of some of our
marketed products. For additional information on reimbursement
and its impact on our business, see “Reimbursement” in
“Item 1. Business”. Although we have achieved
market share gains during 2004, we expect that continued gains
will be a challenge as we operate in a highly competitive
environment. Going forward, we expect to continue to focus on
market share gains, but we also expect to increase our focus on
growing the market. See “Competition” in
“Item 1. Business” for further information on the
impact of competition on our business.
International product sales for the years ended
December 31, 2004, 2003, and 2002 represented 17%, 14%, and
10% of total product sales and consisted principally of European
sales. International product sales have grown substantially
since 2002 as a result of the launches of Aranesp®and
Neulasta® and continued market penetration. International
product sales grew 54% during 2004 and 123% during 2003. Our
international sales are impacted by foreign currency changes
(see “Results of Operations” discussion below).
International product sales growth during 2004 and 2003
benefited by $164 million and $166 million,
respectively, from foreign currency exchange rate changes.
However, both positive and negative impacts from movements in
foreign exchange rates have been mitigated by the natural,
opposite impact to our international operating expenses and as a
result of our foreign currency hedging activities. Our hedging
activities seek to offset the impact, both positive and
negative, that foreign exchange rate changes may have on our net
income. As such, the impact to our results of operations from
changes in foreign currency exchange rates has been largely
mitigated.
For 2004, operating income increased $257 million primarily
as a result of our product sales growth. Operating income as a
percentage of product sales was 34% for 2004 compared to 39% for
2003. This decrease was primarily attributable to the impact of
the 2004 IPR&D charge of $554 million relating to the
acquisition of Tularik. During 2004, we increased our operating
expenses to support our product sales growth and to invest in
R&D to advance our product pipeline. In 2005, our operating
expenses are expected to further increase in support of our
anticipated product sales growth, and as a result of our
continued investment in R&D to advance our pipeline.
We focus our R&D efforts on human therapeutics delivered in
the form of proteins, monoclonal antibodies, and small molecules
in the areas of oncology, inflammation, metabolic disorders,
neuroscience, and general medicine. We focus on the development
of novel therapeutics for the treatment of serious illness. We
take a modality-independent approach to R&D — that
is, we identify targets, then choose the modality best suited to
address a specific target. To enhance our internal R&D
efforts, we have acquired and licensed certain product and
technology rights and have established R&D collaborations.
On August 13, 2004, we acquired Tularik at a purchase price
of approximately $1.5 billion in a transaction accounted
for as a business combination. Tularik was a company engaged in
drug discovery related to cell signaling and the control of gene
expression. In connection with the Tularik acquisition, we
incurred a charge of $554 million associated with writing
off the fair value of IPR&D acquired (see Note 7,
“Acquisitions” in the consolidated financial
statements). The IPR&D write-off represents the estimated
fair value of the various acquired R&D projects in
Tularik’s pipeline that, as of the acquisition date, had
not reached technological feasibility and had no alternative
future use. See “Research and Development and Selected
Product Candidates” in “Item 1. Business”
for further information on our product pipeline. We expect to
continue to invest significantly in R&D.
There are many economic and industry-wide factors that affect
our business, including, among others, those relating to broad
reimbursement changes, increased complexity and cost of R&D,
increasingly intense competition for our currently marketed
products and product candidates, complex and expanding
regulatory requirements, and intellectual property protection.
See “Item 1. Business” and “Factors That May
Affect Amgen” for further information on these economic and
industry-wide factors and their impact on our business.
29
Results of Operations
For the years ended December 31, 2004, 2003, and 2002,
total product sales by geographic region were as follows
(amounts in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
Change | |
|
2003 | |
|
Change | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Total U.S.
|
|
$ |
8,279 |
|
|
|
22 |
% |
|
$ |
6,764 |
|
|
|
50 |
% |
|
$ |
4,497 |
|
|
Total International
|
|
|
1,698 |
|
|
|
54 |
% |
|
|
1,104 |
|
|
|
123 |
% |
|
|
494 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total product sales
|
|
$ |
9,977 |
|
|
|
27 |
% |
|
$ |
7,868 |
|
|
|
58 |
% |
|
$ |
4,991 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See “Principal Products” in “Item 1.
Business” for a discussion of our principal products and
their approved indications. Product sales are influenced by a
number of factors, including demand, third-party reimbursement
availability and policies, pricing strategies, wholesaler
inventory management practices, foreign currency exchange
effects, new product launches and indications, competitive
products, product supply, and acquisitions.
Sales growth in 2004 was principally driven by demand for
Aranesp®, ENBREL®, and Neulasta®. U.S. sales
for Aranesp® and Neulasta® were impacted by higher
incentives earned by customers under performance-based
contracts. International product sales growth benefited by
$164 million from foreign currency exchange rate changes.
In the near term, we expect sales growth to continue to be
driven primarily by Aranesp®, ENBREL®, and
Neulasta®. We believe that changes in reimbursement for our
products are likely to adversely affect, to a degree, the
prescription and administration of our products by healthcare
providers, impacting sequential sales growth and historical
sales trends. In prior years, certain of our products have
reported sales in the first quarter that were comparable or
slightly less than reported sales in the fourth quarter of the
previous year. However, due to the uncertainties surrounding the
impact of reimbursement, we are unsure that such historical
sales trends will continue.
For the years ended December 31, 2004, 2003, and 2002,
total EPOGEN® and Aranesp® sales by geographic region
were as follows (amounts in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
Change | |
|
2003 | |
|
Change | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
EPOGEN® — U.S.
|
|
$ |
2,601 |
|
|
|
7 |
% |
|
$ |
2,435 |
|
|
|
8 |
% |
|
$ |
2,261 |
|
|
Aranesp® — U.S.
|
|
|
1,533 |
|
|
|
56 |
% |
|
|
980 |
|
|
|
244 |
% |
|
|
285 |
|
|
Aranesp® — International
|
|
|
940 |
|
|
|
67 |
% |
|
|
564 |
|
|
|
331 |
% |
|
|
131 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Aranesp® — Total
|
|
|
2,473 |
|
|
|
60 |
% |
|
|
1,544 |
|
|
|
271 |
% |
|
|
416 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total EPOGEN® and Aranesp®
|
|
$ |
5,074 |
|
|
|
28 |
% |
|
$ |
3,979 |
|
|
|
49 |
% |
|
$ |
2,677 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increases in combined EPOGEN® and worldwide
Aranesp® sales for the years ended December 31, 2004
and 2003 were primarily driven by worldwide demand for
Aranesp®. The increase for the year ended December 31,
2003 reflects the mid-year 2002 approval of Aranesp® for
the treatment of chemotherapy-induced anemia in the United
States and Europe.
The growth in reported EPOGEN® sales for the year ended
December 31, 2004 was primarily driven by demand, which
reflects dialysis patient population growth and a continued
focus in the renal community on patient outcomes, and to a
lesser extent, increases in wholesaler inventory levels.
For the year ended December 31, 2003, the growth in
reported EPOGEN® sales was primarily due to demand, and to
a lesser extent, spillover (See “Summary of Critical
Accounting Policies — EPOGEN® revenue
recognition” and Note 1, “Summary of significant
accounting policies — Product sales” to the
consolidated financial statements). Demand was driven by growth
in the dialysis patient population and improved patient outcomes.
30
Patients receiving treatment for anemia associated with end
stage renal disease with EPOGEN® are covered primarily
under medical programs provided by the federal government. We
believe EPOGEN® sales growth will primarily depend on
dialysis patient population growth and changes in reimbursement
rates or a change in the basis for reimbursement by the federal
government (see “Factors That May Affect Amgen —
Our sales depend on payment and reimbursement from third-party
payers, and, to the extent that reimbursement for our products
is reduced, this could negatively impact the utilization of our
products.”). We believe EPOGEN® sales growth will also
be dependent, in part, on future governmental or private
organization regulations or guidelines relating to the use of
our products and cost containment pressures from the federal
government on health care providers. Further, EPOGEN®
competes to a slight degree with Aranesp® in the United
States as some health care providers use Aranesp® to treat
anemia associated with chronic renal failure instead of
EPOGEN®. To the extent that future Aranesp® sales in
the United States are impacted by the effects of reimbursement
and pricing strategies (see Aranesp® below), we would
expect further competition between EPOGEN® and
Aranesp® for the treatment of anemia associated with
chronic renal failure for patients who are on dialysis.
The increase in U.S. Aranesp® sales for the year ended
December 31, 2004 was driven by demand, which benefited
from market share gains in both oncology and nephrology and
market growth. Sales growth was impacted by higher incentives
earned by customers attaining higher sales volumes and growth
under performance-based contracts. The increase in international
Aranesp® sales for the year ended December 31, 2004
was principally driven by demand, and to a lesser extent,
favorable changes in foreign currency exchange rates.
International Aranesp® sales growth for 2004 benefited by
$92 million from foreign currency exchange rate changes.
The increase in U.S. Aranesp® sales for the year ended
December 31, 2003 was principally driven by demand,
reflecting the mid-year 2002 launch of Aranesp® for the
treatment of chemotherapy-induced anemia in the United States.
The increase in international Aranesp® sales for the year
ended December 31, 2003 was principally driven by demand,
reflecting the mid-year 2002 launch of Aranesp® for the
treatment of chemotherapy-induced anemia in Europe, and to a
lesser extent, favorable changes in foreign currency exchange
rates. International Aranesp® sales growth for 2003
benefited by $87 million from favorable changes in foreign
currency exchange rates.
We believe future worldwide Aranesp® sales growth will be
dependent, in part, on such factors as: reimbursement by third
party payers (including governments and private insurance plans)
(see “Factors That May Affect Amgen — Our sales
depend on payment and reimbursement from third-party payers,
and, to the extent that reimbursement for our products is
reduced, this could negatively impact the utilization of our
products.”); cost containment pressures from governments
and private insurers on health care providers; governmental or
private organization regulations or guidelines relating to the
use of our products; penetration of new and existing markets;
patient population growth; the effects of pricing strategies;
competitive products or therapies, including follow-on biologic
products in Europe; the development of new treatments for
cancer; and changes in foreign currency exchange rates.
For the years ended December 31, 2004, 2003, and 2002,
total Neulasta® and NEUPOGEN® sales by geographic
region were as follows (amounts in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
Change | |
|
2003 | |
|
Change | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Neulasta® — U.S.
|
|
$ |
1,476 |
|
|
|
26 |
% |
|
$ |
1,175 |
|
|
|
153 |
% |
|
$ |
464 |
|
|
Neulasta® — International
|
|
|
264 |
|
|
|
230 |
% |
|
|
80 |
|
|
|
N/A |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Neulasta® — Total
|
|
$ |
1,740 |
|
|
|
39 |
% |
|
$ |
1,255 |
|
|
|
170 |
% |
|
$ |
464 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NEUPOGEN® — U.S.
|
|
|
778 |
|
|
|
(12 |
)% |
|
|
881 |
|
|
|
(15 |
)% |
|
|
1,042 |
|
|
NEUPOGEN® — International
|
|
|
397 |
|
|
|
3 |
% |
|
|
386 |
|
|
|
14 |
% |
|
|
338 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
NEUPOGEN® — Total
|
|
|
1,175 |
|
|
|
(7 |
)% |
|
|
1,267 |
|
|
|
(8 |
)% |
|
|
1,380 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Neulasta® and NEUPOGEN®
|
|
$ |
2,915 |
|
|
|
16 |
% |
|
$ |
2,522 |
|
|
|
37 |
% |
|
$ |
1,844 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
The increase in combined worldwide Neulasta® and
NEUPOGEN® sales for the years ended December 31, 2004
and 2003 was driven by worldwide demand for Neulasta®. The
increase for the year ended December 31, 2003 reflects the
April 2002 launch of Neulasta®.
The increase in U.S. Neulasta® sales for the year
ended December 31, 2004 was primarily driven by demand,
which benefited from new clinical data demonstrating the value
of first cycle use. Sales growth was impacted by higher
incentives earned by customers attaining higher sales volumes
and growth under performance-based contracts. The increase in
international Neulasta® sales for the year ended
December 31, 2004 was primarily due to demand, which
reflects continued market penetration since the January 2003
launch of Neulasta® in Europe, and to a lesser extent,
favorable changes in foreign currency exchange rates.
International Neulasta® sales growth for 2004 benefited by
$27 million from foreign currency exchange rate changes.
The increase in U.S. Neulasta® sales for the year
ended December 31, 2003 was primarily driven by
U.S. demand, which reflects the conversion of
NEUPOGEN® patients to Neulasta®resulting from the
April 2002 Neulasta® launch. International Neulasta®
sales for the year ended December 31, 2003 reflect the
January 2003 launch of Neulasta® in Europe.
The decrease in U.S. NEUPOGEN® sales for the year
ended December 31, 2004 was primarily due to a decline in
demand. The increase in international NEUPOGEN® sales for
the year ended December 31, 2004 was due to favorable
changes in foreign currency exchange rates partially offset by a
decline in demand. International NEUPOGEN® sales growth for
2004 benefited by $38 million from foreign currency
exchange rate changes. Both the United States and international
decreases in demand reflect the conversion of NEUPOGEN®
patients to Neulasta®.
The decrease in NEUPOGEN® sales in the United States for
the year ended December 31, 2003 was principally due to the
conversion of patients from NEUPOGEN® to Neulasta®.
The increase in international NEUPOGEN® sales for the year
ended December 31, 2003 was entirely due to favorable
changes in foreign currency exchange rates.
We believe future worldwide Neulasta® and NEUPOGEN®
sales growth will be dependent, in part, on such factors as:
reimbursement by third-party payers (including governments and
private insurance plans) (see “Factors That May Affect
Amgen — Our sales depend on payment and reimbursement
from third-party payers, and, to the extent that reimbursement
for our products is reduced, this could negatively impact the
utilization of our products.”); cost containment pressures
from governments and private insurers on health care providers;
governmental or private organization regulations or guidelines
relating to the use of our products; penetration of existing
markets; patient population growth; the effects of pricing
strategies; competitive products or therapies, including
follow-on biologic products in Europe; the development of new
treatments for cancer; and changes in foreign currency exchange
rates. Future chemotherapy treatments that are less
myelosuppressive may require less Neulasta®/
NEUPOGEN®, however, other future chemotherapy treatments
that are more myelosuppressive, such as dose dense chemotherapy,
could require more Neulasta®/ NEUPOGEN®.
NEUPOGEN® competes with Neulasta® in the United States
and Europe. U.S. NEUPOGEN® sales have been adversely
impacted by conversion to Neulasta®. However, we believe
that most of the conversion in the United States has occurred.
We believe that we are experiencing conversion of NEUPOGEN®
patients to Neulasta® in Europe, but we believe that this
conversion will occur to a lesser extent than that experienced
in the United States. However, we cannot accurately predict the
rate or timing of future conversion of NEUPOGEN® patients
to Neulasta® in Europe.
For the years ended December 31, 2004, 2003, and 2002,
total ENBREL® sales by geographic region were as follows
(amounts in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
Change | |
|
2003 | |
|
Change | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
ENBREL® — U.S.
|
|
$ |
1,827 |
|
|
|
46 |
% |
|
$ |
1,254 |
|
|
|
262 |
% |
|
$ |
346 |
|
|
ENBREL® — International
|
|
|
73 |
|
|
|
59 |
% |
|
|
46 |
|
|
|
188 |
% |
|
|
16 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total ENBREL®
|
|
$ |
1,900 |
|
|
|
46 |
% |
|
$ |
1,300 |
|
|
|
259 |
% |
|
$ |
362 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
ENBREL® sales growth for the year ended December 31,
2004 was driven by demand, benefiting from ENBREL®’s
competitive profile and significant growth of biologics in the
rheumatology and dermatology markets. In the dermatology market,
ENBREL® has grown significantly since its approval for
moderate to severe psoriasis in April of 2004 and has become the
number one prescribed systemic therapy in this market.
ENBREL® sales for the year ended December 31, 2003
were primarily driven by the addition of new patients in both
rheumatology and dermatology. The increase from the prior year
reflects that we only recorded ENBREL® sales beginning on
July 16, 2002, subsequent to the close of the Immunex
acquisition. These sales were adversely impacted by supply
constraints.
We believe that future ENBREL® sales growth will be
dependent, in part, on such factors as: the effects of competing
products or therapies; penetration of existing and new markets,
including potential new indications; the availability and extent
of reimbursement by government and third-party payers;
governmental or private organization regulations or guidelines
relating to the use of our products (see “Factors That May
Affect Amgen — Our sales depend on payment and
reimbursement from third-party payers, and, to the extent that
reimbursement for our products is reduced, this could negatively
impact the utilization of our products”); and limits on the
current supply of and sources of ENBREL®.
|
|
|
Selected operating expenses |
The following table summarizes selected operating expenses for
the years ended December 31, 2004, 2003, and 2002 (amounts
in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Product sales
|
|
$ |
9,977 |
|
|
$ |
7,868 |
|
|
$ |
4,991 |
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cost of sales (excludes amortization of acquired intangible
assets)
|
|
$ |
1,731 |
|
|
$ |
1,341 |
|
|
$ |
736 |
|
| |
|
% of product sales
|
|
|
17 |
% |
|
|
17 |
% |
|
|
15 |
% |
| |
Research and development
|
|
$ |
2,028 |
|
|
$ |
1,655 |
|
|
$ |
1,117 |
|
| |
|
% of product sales
|
|
|
20 |
% |
|
|
21 |
% |
|
|
22 |
% |
| |
Write-off of acquired in-process research and development
|
|
$ |
554 |
|
|
$ |
— |
|
|
$ |
2,992 |
|
| |
Selling, general and administrative
|
|
$ |
2,556 |
|
|
$ |
1,957 |
|
|
$ |
1,449 |
|
| |
|
% of product sales
|
|
|
26 |
% |
|
|
25 |
% |
|
|
29 |
% |
Cost of sales, which excludes the amortization of acquired
intangible assets (see “Consolidated Statements of
Operations”), increased 29% for the year ended
December 31, 2004, primarily driven by higher sales
volumes, and to a lesser extent, higher manufacturing costs due
to changes in the product mix. In 2005, we expect cost of sales
to be affected by further product mix changes, including the
impact of higher ENBREL® sales as it has significantly
higher manufacturing costs and royalty expenses as compared to
our other principal products.
Cost of sales for the year ended December 31, 2003
increased 82% over the prior year, primarily due to higher
sales. The increase in cost of sales as a percentage of product
sales in 2003 primarily reflects an increase of ENBREL®
sales as a percentage of total product sales. ENBREL® has
significantly higher manufacturing costs and royalty expense
compared to our other products. Additionally, the manufacturing
costs of the Rhode Island production facility, which began
producing in December 2002, are greater than those of our
contract manufacturer, BI Pharma.
R&D expenses are primarily comprised of salaries and
benefits associated with R&D personnel, overhead and
occupancy costs, clinical trial and related clinical
manufacturing costs, contract services, and other outside costs.
R&D expenses increased 23% for the year ended
December 31, 2004, primarily driven by higher staff-related
costs including the addition of R&D personnel from Tularik,
and to a lesser extent, higher costs relating to clinical
manufacturing and key clinical trials costs, including the
commencement of large-scale
33
phase 3 trials for AMG 162, Amgen’s investigational
therapy for bone loss. In 2004, staff-related costs and clinical
manufacturing and clinical trial costs increased approximately
$233 million and $122 million, respectively. In 2005,
we expect our R&D expenses to increase primarily due to
higher clinical manufacturing and clinical trial costs to
support our development efforts for AMG 162 and Aranesp®
(TREAT) (see “Item 1. Business — Research
and Development and Selected Product Candidates”).
In 2003, R&D expenses increased 48% over the prior year,
primarily due to higher outside R&D costs, principally
licensing and milestone fees which include the Biovitrum AB
up-front fee of $87 million, higher staff-related costs,
and higher clinical manufacturing costs. In 2003, outside
R&D costs, staff-related costs and clinical manufacturing
costs increased approximately $252 million,
$163 million, and $92 million, respectively.
|
|
|
Acquired in-process research and development |
IPR&D represents an estimate of the fair value of the
various R&D projects and technologies in the acquired
company’s pipeline that, as of the acquisition date, had
not reached technological feasibility and had no alternative
future use. In 2004 and 2002, we incurred charges of
$554 million and $2,992 million, respectively,
associated with writing off the fair value of IPR&D acquired
in the Tularik and Immunex acquisitions, respectively (see
Note 7, “Acquisitions” in the consolidated
financial statements).
|
|
|
Selling, general and administrative |
Selling, general and administrative (“SG&A”)
expenses are primarily comprised of salaries and benefits
associated with sales and marketing, finance, legal, and other
administrative personnel; outside marketing expenses; overhead
and occupancy costs; and other general and administrative costs.
SG&A increased 31% for the year ended December 31,
2004, primarily due to higher staff-related costs and higher
outside marketing expenses, which reflects higher spending to
support our products in competitive markets and sales growth.
Outside marketing expenses include the Wyeth profit share
related to ENBREL®, which has increased due to ENBREL®
sales growth. In 2004, staff-related costs and outside marketing
expenses increased approximately $255 million and
$236 million, respectively. In 2005, we expect higher Wyeth
profit share expense due to expected ENBREL® sales growth;
however, we expect to see some leveraging of our 2004 SG&A
spending during 2005. Additionally, SG&A expenses in the
fourth quarter are expected to increase over the previous three
quarters in a trend similar to that which has occurred in
previous years.
In 2003, SG&A expenses increased 35%, over the prior year
primarily due to higher outside marketing expenses, which
includes higher Wyeth profit share as a result of ENBREL®
sales growth, and higher staff-related costs to support new
products in competitive markets and sales growth. In 2003,
outside marketing expenses, which include the Wyeth profit
share, increased approximately $276 million and
staff-related costs increased approximately $207 million.
In 2003, other items, net consisted of a benefit for the
recovery of costs and expenses associated with a legal award
related to an arbitration proceeding with Johnson &
Johnson of $74 million, partially offset by a charitable
contribution to the Amgen Foundation of $50 million.
In 2002, other items, net consisted of a benefit of
$40 million related to the recovery of certain expenses
accrued in the fourth quarter of 2001 related to terminating
collaboration agreements with various third parties and a legal
award associated with the product license arbitration with
Johnson & Johnson of $151 million, partially
offset by a charitable contribution to the Amgen Foundation of
$50 million.
See Note 12, “Other items, net”, to the
consolidated financial statements for further discussion.
Our effective tax rate was 30.4%, 28.8%, and (103.3%) for 2004,
2003, and 2002 respectively.
Our effective tax rate for 2004 has increased primarily due to
the write-off of non-deductible IPR&D costs of
$554 million in connection with the acquisition of Tularik.
This increase was partially offset by an increase in the amount
of foreign earnings intended to be invested indefinitely outside
the United States.
34
Our negative effective tax rate for 2002 was due to the pre-tax
loss resulting from the write-off of non-deductible IPR&D
costs of $2,992 million in connection with the acquisition
of Immunex. The 2003 effective tax rate was higher than the 2002
effective tax rate primarily due to Immunex IPR&D write-off
in 2002 and the loss of the possession tax credit in 2003
partially offset by an increase in the amount of foreign
earnings intended to be invested indefinitely outside the United
States.
During 2002, we restructured our Puerto Rico manufacturing
operations using a controlled foreign corporation. As permitted
in Accounting Principles Board Opinion (“APB”)
No. 23, “Accounting for Income Taxes —
Special Areas”, we do not provide U.S. income taxes on
our controlled foreign corporations’ undistributed earnings
that are intended to be invested indefinitely outside the United
States.
On October 22, 2004, the President of the United States
signed the American Jobs Creation Act of 2004 (the “Jobs
Act”), which provides a temporary incentive to repatriate
undistributed foreign earnings. However, uncertainty remains as
to how to interpret numerous provisions in the Jobs Act. As
such, we are currently evaluating the repatriation provisions of
the Jobs Act and our 2004 results of operations do not reflect
any impact relating to such repatriation provisions.
See Note 3, “Income taxes”, to the consolidated
financial statements for further discussion.
In December 2004, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standard
(“SFAS”) No. 123R, “Share-Based
Payment”. SFAS No. 123R will require us to
account for our stock options using a fair-value-based method as
described in such statement and recognize the resulting
compensation expense in our financial statements. We currently
account for our employee stock options using the intrinsic value
method under APB No. 25, “Accounting for Stock Issued
to Employees” and related Interpretations, which generally
results in no employee stock option expense. We plan to adopt
SFAS No. 123R using the modified-retrospective
transition method on July 1, 2005 and do not plan to
restate our financial statements for periods ending prior to
January 1, 2005. We expect that our after tax expense for
stock options for the full twelve months in 2005 will range
between $170 million to $220 million, or $0.13 to
$0.17 per share. The estimated after tax expense for 2005
is less than the corresponding pro forma expense amount for 2004
($292 million, see Note 1, “Summary of
significant accounting policies — Employee stock
options” in the consolidated financial statements)
principally due to a reduction in the estimated number of stock
options to be granted in 2005 and a reduction in the estimated
fair value of our stock options, which is primarily due to a
lower estimated future volatility of our stock price, reflecting
the consideration of implied volatility in our publicly traded
equity instruments. However, the actual annual expense in 2005
is dependent on a number of factors including the number of
stock options granted, our common stock price and related
expected volatility, and other inputs utilized in estimating the
fair value of the stock options at the time of grant.
Accordingly, the adoption in 2005 of SFAS No. 123R
will have a material impact on our results of operations.
Financial Condition, Liquidity and Capital Resources
The following table summarizes selected financial data (amounts
in millions):
| |
|
|
|
|
|
|
|
|
| |
|
December 31, | |
|
December 31, | |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Cash, cash equivalents, and marketable securities
|
|
$ |
5,808 |
|
|
$ |
5,123 |
|
|
Total assets
|
|
|
29,221 |
|
|
|
26,113 |
|
|
Current debt
|
|
|
1,173 |
|
|
|
— |
|
|
Non-current debt
|
|
|
3,937 |
|
|
|
3,080 |
|
|
Stockholders’ equity
|
|
|
19,705 |
|
|
|
19,389 |
|
We believe that existing funds, cash generated from operations,
and existing sources of and access to financing are adequate to
satisfy our working capital, capital expenditure and debt
service requirements for the foreseeable future, as well as to
support our stock repurchase programs. However, in order to
provide for greater financial flexibility and liquidity, we may
raise additional capital from time to time.
35
|
|
|
Cash, cash equivalents, and marketable securities |
Of the total cash, cash equivalents, and marketable securities
at December 31, 2004, approximately $2.1 billion
represents cash generated from operations in foreign tax
jurisdictions and is intended for use outside the United States
(see “Results of Operations — Income
taxes”). If these funds are repatriated for use in our
U.S. operations, additional taxes on certain of these
amounts would be required to be paid. Based on our preliminary
analysis to date, we are limited under the Jobs Act to
repatriate up to $500 million in foreign profits to take
advantage of the 85% dividends received deduction.
The primary objectives for our marketable securities portfolio,
which is primarily comprised of fixed income investments, is
liquidity and safety of principal. Investments are made with the
objective of achieving the highest rate of return, consistent
with these two objectives. Our investment policy limits
investments to certain types of instruments issued by
institutions primarily with investment grade credit ratings and
places restrictions on maturities and concentration by type and
issuer.
As of December 31, 2004, we had Convertible Notes (30-year,
zero-coupon senior convertible notes) with an accreted value of
$2.9 billion outstanding and having an aggregate face
amount of $3.95 billion and yield to maturity of 1.125%.
The original issue discount of $1.13 billion is being
accreted to the balance of the Convertible Notes and recognized
as interest expense over the life of the Convertible Notes using
the effective interest method. The holders of the Convertible
Notes may require us to purchase all or a portion of their notes
on various dates, the earliest of which is March 1, 2005,
at a price equal to the original issuance price plus the accrued
original issue discount (“accreted value”) through the
purchase dates. In such event, under the terms of the
Convertible Notes, we have the right to pay the purchase price
in cash and/or shares of common stock, which would be issued at
the then current market price. On March 2, 2005, as a
result of certain holders of the Convertible Notes exercising
their March 1, 2005 put option, we repurchased
$1,175 million, or approximately 40%, of the outstanding
Convertible Notes at their then-accreted value for cash.
Concurrently, we amended the terms of the Convertible Notes to
add an additional put date in order to permit the remaining
holders, at their option, to cause us to repurchase the
Convertible Notes on March 1, 2006 at the then-accreted
value. Accordingly, the portion of the Convertible Notes
outstanding at December 31, 2004 not repurchased on
March 2, 2005 was classified as long-term debt (see
Note 4, “Financing arrangements —
Convertible notes” to the consolidated financial
statements). Our Convertible Notes are rated A2 by Moody’s
and A+ by Standard & Poor’s.
Holders of the Convertible Notes may convert each of their notes
into 8.8601 shares of common stock of Amgen (the
“conversion rate”) at any time on or before the
maturity date. The conversion price per share as of any day will
equal the original issuance price plus the accrued original
issue discount to that day, divided by the conversion rate, or
$83.22 per share as of December 31, 2004.
In November 2004, we issued $1.0 billion aggregate
principal amount of 4.00% senior notes due 2009 (the
“2009 Notes”) and $1.0 billion aggregate
principal amount of 4.85% senior notes due 2014 (the
“2014 Notes”). The net proceeds of $1,989 million
are intended to be used for purchases of shares under our stock
repurchase program and for general corporate purposes, including
capital expenditures and working capital.
In July 2004, we established a $1.0 billion five-year
unsecured revolving credit facility to be used for general
corporate purposes, including commercial paper support.
Additionally, we increased the size of our commercial paper
authorization by $1.0 billion to $1.2 billion. No
amounts were outstanding under the credit facility or commercial
paper program as of December 31, 2004.
We have a $1.0 billion shelf registration (the “$1
Billion Shelf”) which allows us to issue debt securities,
common stock, and associated preferred share purchase rights,
preferred stock, warrants to purchase debt securities, common
stock or preferred stock, securities purchase contracts,
securities purchase units and depositary shares. The $1 Billion
Shelf was established to provide for further financial
flexibility and the securities available for issuance may be
offered from time to time with terms to be determined at the
time of issuance. As of December 31, 2004, no securities
had been issued under the $1 Billion Shelf.
As of December 31, 2004, we had $200 million of
long-term debt securities outstanding. These long-term debt
securities consisted of: 1) $100 million of debt
securities that bear interest at a fixed rate of 6.5% and
36
mature in 2007 (the “2007 Notes”) under a
$500 million debt shelf registration (the
‘$500 Million Shelf”), and
2) $100 million of debt securities that bear interest
at a fixed rate of 8.1% and mature in 2097 (the “Century
Notes”). Our outstanding long-term debt is rated A2 by
Moody’s and A+ by Standard & Poor’s. Under
the $500 Million Shelf, all of the remaining
$400 million of debt securities available for issuance may
be offered from time to time under our medium-term note program
with terms to be determined at the time of issuance.
Certain of our financing arrangements contain non-financial
covenants and as of December 31, 2004, we are in compliance
with all applicable covenants.
The following table summarizes our cash flow activity for the
years ended December 31, 2004, 2003, and 2002 (amounts in
millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Net cash provided by operating activities
|
|
$ |
3,697 |
|
|
$ |
3,567 |
|
|
$ |
2,249 |
|
|
Net cash used in investing activities
|
|
|
(1,399 |
) |
|
|
(3,210 |
) |
|
|
(2,864 |
) |
|
Net cash (used in) provided by financing activities
|
|
|
(1,609 |
) |
|
|
(1,372 |
) |
|
|
1,778 |
|
Cash provided by operating activities has been and is expected
to continue to be our primary recurring source of funds. The
increase in cash provided by operating activities during the
year ended December 31, 2004 resulted primarily from higher
cash receipts from customers driven by the growth in product
sales. This increase was partially offset primarily by the
timing of cash payments relating to our tax liabilities (See
consolidated statements of cash flows).
Capital expenditures totaled $1,336 million in 2004
compared with $1,357 million in the prior year. Capital
expenditures in 2004 primarily related to the Thousand Oaks site
expansion, the new ENBREL® manufacturing plant in Rhode
Island, and the Puerto Rico manufacturing expansion. Capital
expenditures in 2003 primarily related to the new ENBREL®
manufacturing plant in Rhode Island, the Puerto Rico
manufacturing expansion, and the Seattle research center which
was completed in January 2004.
We currently estimate 2005 spending on capital projects and
equipment to be consistent with 2004. The most significant of
these expenditures are expected to relate to the new
ENBREL® manufacturing plant in Rhode Island, the Puerto
Rico manufacturing expansion, and the Thousand Oaks site
expansion.
In December 2003, the Board of Directors (the “Board”)
authorized us to repurchase up to $5.0 billion of common
stock. Additionally, in December 2004, the Board authorized us
to repurchase up to an additional $5.0 billion of common
stock. As of December 31, 2004, $5,969 million was
available for stock repurchases. The amount we spend and the
number of shares repurchased varies based on a variety of
factors including the stock price and blackout periods in which
we are restricted from repurchasing shares. Repurchases under
our stock repurchase programs reflect, in part, our confidence
in the long-term value of Amgen common stock. A summary of our
repurchase activity for the years ended December 31, 2004
and 2003 is as follows (amounts in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
Shares | |
|
Dollars | |
|
Shares | |
|
Dollars | |
| |
|
| |
|
| |
|
| |
|
| |
|
First quarter
|
|
|
10 |
|
|
$ |
650 |
|
|
|
8 |
|
|
$ |
451 |
|
|
Second quarter
|
|
|
17 |
|
|
|
1,000 |
|
|
|
7 |
|
|
|
449 |
|
|
Third quarter
|
|
|
24 |
|
|
|
1,398 |
|
|
|
5 |
|
|
|
324 |
|
|
Fourth quarter
|
|
|
18 |
|
|
|
1,024 |
|
|
|
10 |
|
|
|
577 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total
|
|
|
69 |
|
|
$ |
4,072 |
|
|
|
30 |
|
|
$ |
1,801 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
37
See “Part II — Item 5 Market for
Registrants Common Equity and Related Stockholder Matters and
Issuer Purchases of Equity Securities —
Item 5(c). Changes in Securities, Use of Proceeds and
Issuer Purchases of Equity Securities” for additional
information regarding our stock repurchase programs.
In November 2004, we issued $1.0 billion aggregate
principal amount of 4.00% senior notes due 2009 (the
“2009 Notes”) and $1.0 billion aggregate
principal amount of 4.85% senior notes due 2014 (the
“2014 Notes”). The net proceeds of $1,989 million
are intended to be used for purchases of shares under our stock
repurchase program and for general corporate purposes, including
capital expenditures and working capital.
We receive cash from the exercise of employee stock options and
proceeds from the sale of stock pursuant to the employee stock
purchase plan. Employee stock option exercises and proceeds from
the sale of stock by us pursuant to the employee stock purchase
plans provided $453 million and $529 million of cash
during the years ended December 31, 2004 and 2003,
respectively. 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 our stock relative
to the exercise price of such options.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that are
currently material or reasonably likely to be material to our
financial position or results of operations.
Contractual Obligations
Contractual obligations represent future cash commitments and
liabilities under agreements with third parties, and exclude
contingent liabilities for which we cannot reasonably predict
future payment. Accordingly, the table below excludes
contractual obligations relating to milestone and royalty
payments due to third parties contingent upon certain future
events. Such events could include, but are not limited to,
development milestones, regulatory approvals and product sales.
Additionally, the expected timing of payment of the obligations
presented below is estimated based on current information.
Timing of payments and actual amounts paid may be different
depending on the timing of receipt of goods or services or
changes to agreed-upon terms or amounts for some obligations.
The following chart represents our contractual obligations as of
December 31, 2004, aggregated by type (in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Payments Due by Period | |
| |
|
| |
| |
|
|
|
Less Than | |
|
1-3 | |
|
3-5 | |
|
More Than | |
| Contractual Obligations |
|
Total | |
|
1 Year | |
|
Years | |
|
Years | |
|
5 Years | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Long-term debt obligations(1)
|
|
$ |
6,584 |
|
|
$ |
1,278 |
(2) |
|
$ |
2,068 |
(2) |
|
$ |
1,190 |
|
|
$ |
2,048 |
|
|
Operating lease obligations
|
|
|
656 |
|
|
|
81 |
|
|
|
131 |
|
|
|
96 |
|
|
|
348 |
|
|
Purchase obligations(3)
|
|
|
2,291 |
|
|
|
1,087 |
|
|
|
525 |
|
|
|
298 |
|
|
|
381 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$ |
9,531 |
|
|
$ |
2,446 |
|
|
$ |
2,724 |
|
|
$ |
1,584 |
|
|
$ |
2,777 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
The long-term obligation amounts in the above table differ from
the related carrying amounts on the Consolidated Balance Sheet
as of December 31, 2004 due to the accretion of the
original issue discount on the Convertible Notes and the
inclusion of future interest payments. Future interest payments
are included on the 2007 Notes, the 2009 Notes, the 2014 Notes,
and the Century Notes at fixed rates of 6.5%, 4.00%, 4.85%, and
8.1%, respectively, through maturity in 2007, 2009, 2014, and
2097, respectively. |
| |
| (2) |
Holders of the Convertible Notes may require us to purchase all
or a portion of the notes on specific dates as early as
March 1, 2005 at the original issuance price plus accrued
original issue discount (“accreted value”) through the
purchase dates. On March 2, 2005, as a result of certain
holders of the Convertible Notes exercising their March 1,
2005 put option, we repurchased $1,175 million, or
approximately 40%, of the outstanding Convertible Notes at their
then-accreted value for cash. Concurrently, we amended the terms
of the Convertible Notes to add an additional put date in order
to permit the remaining holders, at their option, to cause us to
repurchase the Convertible Notes on March 1, 2006 at the
then-accreted value. The amounts above reflect the Convertible
Notes’ accreted value repurchased on March 1, 2005 and
the remaining Convertible Notes’ accreted value on
March 1, 2006, the next put date. In the event |
38
|
|
|
we are required to repurchase the remaining Convertible Notes,
we may choose to pay the purchase price in cash and/or shares of
common stock, which would be issued at the then current market
price. See Note 4, “Financing arrangements” to
the consolidated financial statements for further discussion of
the terms of the Convertible Notes. |
| |
| (3) |
Purchase obligations primarily relate to (1) our long-term
supply agreement with BI Pharma for the manufacture of
commercial quantities of ENBREL®, which are based on firm
commitments for the purchase of production capacity for
ENBREL® and reflect certain estimates such as production
run success rates and bulk drug yields achieved;
(2) R&D commitments (including those related to
clinical trials) for new and existing products; (3) capital
expenditures which primarily relate to the Thousand Oaks site
expansion, the new Rhode Island manufacturing plant, and the
Puerto Rico manufacturing expansion; and (4) open purchase
orders for the acquisition of goods and services in the ordinary
course of business. Our obligation to pay certain of these
amounts may be reduced based on certain future events. |
Summary of Critical Accounting Policies
The preparation of our consolidated financial statements in
conformity with United States generally accepted accounting
principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and
the notes to the financial statements. Some of those judgments
can be subjective and complex, and therefore, actual results
could differ materially from those estimates under different
assumptions or conditions.
|
|
|
Product sales, sales incentives and returns |
Sales of our products other than EPOGEN® (see
“EPOGEN® revenue recognition” below) are
recognized when shipped and title and risk of loss have passed.
This typically occurs at the time products are shipped to the
customer, generally a wholesale distributor.
In the United States, we utilize these wholesalers as the
principal means of distributing our products to healthcare
providers such as clinics, hospitals, and pharmacies. Products
we sell outside the United States are principally distributed to
hospitals and/or wholesalers depending upon the distribution
practice in each country for which the product has been
launched. We monitor the inventory levels of our products at our
wholesale distributors using third-party data, and we believe
that wholesaler inventories have been maintained at appropriate
levels (generally two to three weeks) given end-user demand.
Accordingly, historical fluctuations in wholesaler inventory
levels have not significantly impacted our method of estimating
sales incentives and returns.
Accruals for estimated rebates (including Medicaid), wholesaler
chargebacks, discounts, and other incentives (collectively
“sales incentives”) are recorded in the same period
that the related sales are recorded and are recognized as a
reduction in product sales. Sales incentive accruals are based
on reasonable estimates of the amounts earned or to be claimed
on the related sales. These estimates take into consideration
current contractual and statutory requirements, specific known
market events and trends, internal and external historical data,
and forecasted customer buying patterns. Sales incentives are
product-specific and, therefore, for any given year, can be
impacted by the mix of products sold.
Reductions in product sales relating to sales incentives are
comprised of the following (amounts in millions):
| |
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Rebates
|
|
$ |
1,033 |
|
|
$ |
520 |
|
|
Wholesaler chargebacks
|
|
|
1,069 |
|
|
|
553 |
|
|
Discounts and other incentives
|
|
|
490 |
|
|
|
286 |
|
| |
|
|
|
|
|
|
| |
Total sales incentives
|
|
$ |
2,592 |
|
|
$ |
1,359 |
|
| |
|
|
|
|
|
|
Rebates earned by healthcare providers such as clinics,
hospitals and pharmacies in the United States are the sales
incentives that are most difficult to estimate. These rebates
are performance-based offers that are primarily based on
attaining contractually specified sales volumes and growth. As a
result, the calculation of
39
the accrual for these rebates is complicated by the need to
estimate customer buying patterns and the resulting applicable
contractual rebate rate(s) to be earned over a contractual
period. These rebates totaled $1,033 million in 2004 and
$520 million in 2003. We believe that the methodology we
use to accrue for rebates is reasonable and appropriate given
current facts and circumstances. However, actual results may
differ. For example, a 5 percent change in the revenue
reduction attributable to rebates recognized in 2004 would have
had an approximate $50 million effect on our reported
product sales in 2004.
Wholesaler chargebacks are another type of arrangement included
in “sales incentives” that relates to our contractual
agreements to sell products to healthcare providers in the
United States at fixed prices that are lower than the list
prices we charge wholesalers. When the healthcare providers
purchase our products through wholesalers at these reduced
prices, the wholesaler charges us for the difference between the
prices they pay us and the prices they sold the products to the
healthcare providers. These chargebacks from wholesalers totaled
$1,069 million in 2004 and $553 million in 2003.
Accruals for wholesaler chargebacks are less difficult to
estimate than rebates and closely approximate actual results
since chargeback amounts are fixed at the date of purchase by
the healthcare provider and we settle these deductions generally
within a few weeks of incurring the liability.
Amounts accrued for sales incentives are adjusted when trends or
significant events indicate that adjustment is appropriate.
Accruals are also adjusted to reflect actual results. However,
such adjustments to date have not been material to our results
of operations or financial position. The following table
summarizes amounts recorded in accrued liabilities regarding
sales incentives (amounts in millions):
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Balance at | |
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Amounts | |
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Balance at | |
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Beginning | |
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Charged Against | |
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End of | |
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of Period | |
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Product Sales* | |
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Payments | |
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Year ended December 31, 2004
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$ |
358 |
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$ |
2,592 |
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$ |
2,361 |
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$ |
589 |
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Year ended December 31, 2003
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$ |
212 |
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$ |
1,359 |
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$ |
1,213 |
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$ |
358 |
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| * |
Includes immaterial amounts related to prior year product sales
based on changes in estimates. Such amounts represented less
than 1% of amounts charged against product sales for both 2004
and 2003. |
Accruals for estimated sales returns are recorded in the same
period that the related product sales are recorded and are
recognized as reductions in product sales. Returns are estimated
through comparison of historical return data to their related
sales on a production lot basis. Historical rates of return are
determined for each product and are adjusted for known or
expected changes in the marketplace specific to each product
when appropriate. Historically, sales returns have been
insignificant, amounting to approximately 1% of gross product
sales.
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EPOGEN® revenue recognition |
We have the exclusive right to sell Epoetin alfa for dialysis,
certain diagnostics, and all non-human, non-research uses in the
United States. We granted to 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 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 referred to as “spillover”. Accordingly, we
do not recognize product sales we make into the exclusive market
of Johnson & Johnson and do recognize the product sales
made by Johnson & Johnson into our exclusive market.
Sales in our exclusive market are derived from our sales to our
customers, as adjusted for spillover. We are employing an
arbitrated audit methodology to measure each party’s
spillover based on independent third-party data on shipments to
end users and their estimated usage. Data on end user usage is
derived in part using market sampling techniques, and
accordingly, the results of such sampling can produce
variability in the amount of recognized spillover. We initially
recognize spillover based on estimates of shipments to end users
and their usage, utilizing historical third-party data and
subsequently adjust such amounts based on revised third-party
data as received. Differences between initial estimates of
spillover and amounts based on revised third-party data could
produce materially different amounts for recognized EPOGEN®
sales. However, such differences to date have not been material.
40
Our effective tax rate reflects the impact of undistributed
foreign earnings for which no U.S. taxes have been provided
because such earnings are intended to be invested indefinitely
outside the United States based on our projected cash flow,
working capital, and long-term investment requirements of our
U.S. and foreign operations. If future events, including
material changes in estimates of cash, working capital, and
long-term investment requirements necessitate that certain
assets associated with these earnings be repatriated to the
United States, an additional tax provision and related liability
would be required which could materially impact our future
effective tax rate. The Jobs Act provides a temporary incentive
to repatriate undistributed foreign earnings. However, we are
currently evaluating the repatriation provisions of the Jobs
Act, as there is uncertainty as to how to interpret many of its
provisions.
In the ordinary course of business, we are involved in various
types of legal proceedings such as intellectual property
disputes, contractual disputes, tax claims, and governmental
investigations. Certain of these proceedings are discussed in
“Item 3. Legal Proceedings”. We record accruals
for such contingencies to the extent we conclude their
occurrence is both probable and estimable. We consider all
relevant factors when making assessments regarding these
contingencies.
Our income tax returns are routinely audited by the Internal
Revenue Service and various state and foreign tax authorities.
Significant disputes may arise with these tax authorities
involving issues of the timing and amount of deductions and
allocations of income among various tax jurisdictions because of
differing interpretations of tax laws and regulations. We
periodically evaluate our exposures associated with tax filing
positions. While we believe our positions comply with applicable
laws, we record liabilities based upon estimates of the ultimate
outcomes of these matters.
While it is not possible to predict accurately or determine the
eventual outcome of these matters, we do not believe any such
items currently pending will have a material adverse effect on
our annual consolidated financial statements, although an
adverse resolution in any quarterly reporting period of one or
more of these items could have a material impact on the results
of operations for that period.
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Tularik purchase price allocation |
The purchase price for Tularik was allocated to the tangible and
identifiable intangible assets acquired and liabilities assumed
based on their estimated fair values at the acquisition date. An
independent third-party valuation firm was engaged to assist in
determining the fair values of various research and development
projects and technologies in Turlarik’s pipeline that, as
of the acquisition date, had not reached technological
feasibility and had no alternative future use. This valuation
required the use of significant estimates and assumptions
including but not limited to:
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determining the timing and expected costs to complete the
in-process projects, |
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projecting regulatory approvals, |
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estimating future cash flows from product sales resulting from
completed products and in-process projects, |
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and developing appropriate discount rates and probability rates
by project. |
We believe the fair values assigned to the assets acquired and
liabilities assumed are based upon reasonable assumptions given
current available facts and circumstances. However, certain
estimates for the purchase price allocation may change due to
unanticipated events and as subsequent information becomes
available.
Factors That May Affect Amgen
The following items are representative of the risks,
uncertainties, and assumptions that could affect the outcome of
the forward looking statements.
41
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Our sales depend on payment and reimbursement from
third-party payers, and, to the extent that reimbursement for
our products is reduced, this could negatively impact the
utilization of our products. |
In both domestic and foreign markets, sales of our products are
dependent, in part, on the availability of reimbursement from
third-party payers such as state and federal governments, under
programs such as Medicare and Medicaid in the United States, and
private insurance plans. In certain foreign markets, the pricing
and profitability of our products generally are subject to
government controls. In the United States, there have been,
there are, and we expect there will continue to be, a number of
state and federal laws and/or regulations, or in some cases
draft legislation or regulations that could limit the amount
that state or federal governments will pay to reimburse the cost
of pharmaceutical and biologic products. For example, the
Medicare Prescription Drug, Improvement and Modernization Act
(or the Medicare Modernization Act (MMA)) was enacted into law
in December 2003. In addition, we believe that private insurers,
such as managed care organizations, may adopt their own
reimbursement reductions in response to legislation or
regulations, including, without limitation, the MMA. However, we
believe that private payers ability to fully implement
reimbursement mechanisms in alignment with government
legislation or regulations is limited. For example, we are aware
of a few private payers who have adopted an average sales price
methodology similar in structure to that of the MMA. However,
the reimbursement rates based on such methodology are
substantially greater than those under the current MMA
reimbursement rates. We expect that, beginning in 2005,
reimbursement changes resulting from the MMA are likely, to a
degree, to negatively affect product sales of some of our
marketed products. The main components of the MMA that affect
our currently marketed products are as follows:
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Through 2004 the Average Wholesale Price (AWP) mechanism was the
basis of Medicare Part B payment for covered outpatient
drugs and biologics. Effective January 1, 2005, in the
physician clinic market segment, Aranesp®, Neulasta®
and NEUPOGEN® will be reimbursed under a new Medicare
Part B system that reimburses each product at 106% of its
“average sales price” (“ASP”) (sometimes
referred to as “ASP+6%”). On November 3, 2004,
The Centers for Medicare and Medicaid Services (“CMS”)
released final rules for revisions to payment policies under the
physician fee schedule for 2005. CMS then calculated each of
Amgen’s product’s ASPs based on data submissions from
us. ASPs will remain in effect for one quarter and will be
updated quarterly thereafter. The 2005 reimbursement rates for
Aranesp®, Neulasta®, and NEUPOGEN®(calculated at
106% of the ASPs and initially based on third quarter
2004 company data), are lower than our 2004 reimbursement
rates as the ASP methodology incorporates sales incentives
offered to healthcare providers. Per the MMA, effective
January 1, 2006, physicians in this market segment will
have the choice under the “competitive acquisition
program” (CAP) between purchasing and billing for drugs
under the ASP+6% system or obtaining drugs from vendors selected
by CMS via a competitive bidding process. |
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The Medicare hospital outpatient prospective payment system
(OPPS), which determines payment rates for specified covered
outpatient drugs and biologics in the hospital outpatient
setting, will continue to utilize AWP as the basis for
reimbursement in 2005. On November 3, 2004, CMS issued a
final rule for the reimbursement of Aranesp® in 2005. Under
this final rule, as in 2003 and 2004, CMS continued the
application of an “equitable adjustment” such that the
Aranesp® reimbursement rate for 2005 is based on the AWP of
PROCRIT®. For 2005 the reimbursement rate for Aranesp®
is 83% of the AWP for PROCRIT®, down from 88% of the AWP
for PROCRIT® in 2004, with a dose conversion ratio of 330 U
PROCRIT® to 1 mcg Aranesp®, the same ratio as 2004.
Effective January 1, 2006, the OPPS system will change from
an AWP based reimbursement system to a system based on
“average acquisition cost”. This change will affect
Aranesp®, Neulasta® and NEUPOGEN® when
administered in the hospital outpatient setting. Although we do
not know how CMS will define the OPPS average acquisition cost,
it is possible that CMS could link acquisition cost to ASP,
which could lower the reimbursement rate. |
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Pursuant to final rules issued by CMS on November 3, 2004,
Medicare reimbursement for EPOGEN® used in the dialysis
setting for calendar year 2005 has been changed from the
previous rate of $10 per 1,000 Units to $9.76 per
1,000 Units, a rate based upon an average acquisition cost for
2003 determined by the Office of the Inspector General
(OIG) and adjusted for price inflation based on the
Producer Price Index for pharmaceutical products. Pursuant to
the CMS final rules, the difference between the |
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2004 reimbursement rates for all drugs separately billed outside
the dialysis composite rate (including EPOGEN®) and the
2005 reimbursement rates for such drugs will be added to the
composite rate that dialysis providers receive for dialysis
treatment. Again in 2006, the EPOGEN® rate may change, as
the MMA provided for discretion in either continuing to pay for
these separately reimbursed dialysis drugs at acquisition cost,
or switching to an ASP based system. The payment rate for
dialysis drugs not studied by the OIG, including Aranesp®,
will be ASP+6%. |
We believe these changes driven by the MMA are lowering the 2005
reimbursement rate for all areas in which CMS provides
reimbursement for EPOGEN®, Aranesp®, Neulasta®
and NEUPOGEN®. However, because we cannot predict the
impact of any such changes on how, or under what circumstances,
healthcare providers will prescribe or administer our products,
as of the date of this filing, we cannot predict the full impact
of the MMA on our business; however, it is likely to be, to a
degree, negative.
In addition, on July 8, 2004, CMS released a proposed
revision to the Hematocrit Measurement Audit Program Memorandum
(HMA-PM), a Medicare payment review mechanism used by CMS to
audit EPOGEN® utilization and appropriate hematocrit
outcomes of dialysis patients. As of the date of this filing,
the comment period for the proposed revision has expired and no
final program memorandum has been issued. The proposed policy
would not permit reimbursement for EPOGEN® in the following
circumstances without medical justification: EPOGEN® doses
greater than 40,000 Units per month in a patient with a
hemoglobin greater than 13 grams per deciliter or doses greater
than 20,000 Units per month in a patient with hemoglobin greater
than 14 grams per deciliter. If the proposed revision, which has
not yet been finalized, is adopted as the final form, it could
result in a reduction in utilization of EPOGEN®. Although
the proposed revision was scheduled to go into effect as early
as January 1, 2005, it is unclear as to when it may be
implemented. Amgen and the dialysis community have provided
public comment based on data analysis suggesting that revision
to the proposed policy is unwarranted. Given the importance of
EPOGEN® utilization for maintaining the quality of care for
dialysis patients, the precise impact of such a change on
provider utilization remains unclear.
If, and when, reimbursement rates or availability for our
marketed products changes adversely or if we fail to obtain
adequate reimbursement for our current or future products,
health care providers may limit how much or under what
circumstances they will prescribe or administer them, which
could reduce the use of our products or cause us to reduce the
price of our products. This 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 United States
the use of EPOGEN® in connection with treatment for
end-stage renal disease is funded primarily by the
U.S. federal government. In early 1997, CMS, formerly known
as Healthcare Financing Administration (HCFA), instituted a
reimbursement change for EPOGEN®, which materially and
adversely affected our EPOGEN® sales until the policies
were revised. Also, we believe the increasing emphasis on
cost-containment initiatives in the United States has and will
continue to put pressure on the price and usage of our products,
which may adversely impact product sales. Further, when a new
therapeutic product is approved, the governmental and/or private
coverage and reimbursement for that product is uncertain. We
cannot predict the availability or amount of reimbursement for
our approved products or product candidates, including those at
a late stage of development, and current reimbursement policies
for marketed products may change at any time. Sales of all our
products are and will be affected by government and private
payer reimbursement policies. Reduction in reimbursement for our
products could have a material adverse effect on our results of
operations.
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Our current products and products in development cannot be
sold if we do not maintain regulatory approval. |
We and certain of our licensors and partners conduct research,
preclinical testing, and clinical trials for our product
candidates. In addition, we manufacture and contract manufacture
and certain of our licensors and partners manufacture our
product candidates. We also manufacture and contract
manufacture, price, sell, distribute, and market or co-market
our products for their approved indications. These activities
are subject to extensive regulation by numerous state and
federal governmental authorities in the United States, such as
the FDA and CMS, as well as in foreign countries, including
Europe. Currently, we are required in the United States and in
foreign countries to obtain approval from those countries’
regulatory authorities before we can manufacture (or have our
third-party manufacturers produce product), market and sell our
products in those countries. In our experience, obtaining
regulatory approval is costly and takes many years, and after it
is
43
obtained, it remains costly to maintain. The FDA and other U.S.
and foreign regulatory agencies have substantial authority to
terminate clinical trials, require additional testing, delay or
withhold registration and marketing approval, require changes in
labeling of our products, and mandate product withdrawals.
Substantially all of our marketed products are currently
approved in the United States and most are approved in Europe
and in other foreign countries for specific uses. However, later
discovery of unknown problems with our products could result in
restrictions on the sale or use of such products, including
potential withdrawal of the product from the market. If new
medical data suggests an unacceptable safety risk or previously
unidentified side-affects, we may voluntarily withdraw, or
regulatory authorities may mandate the withdrawal of such
product from the market for some period or permanently. We
currently manufacture and market all our approved principal
products, and we plan to manufacture and market many of our
potential products. See “— We may be required to
perform additional clinical trials or change the labeling of our
products if we or others identify side effects after our
products are on the market.” Even though we have obtained
regulatory approval for our marketed products, these products
and our manufacturing processes are subject to continued review
by the FDA and other regulatory authorities. In addition,
ENBREL® is manufactured both by us at our Rhode Island
manufacturing facility and by third-party contract
manufacturers, Boehringer Ingelheim Pharma KG (“BI
Pharma”) and Genentech, Inc. (“Genentech”). Fill
and finish of bulk product produced both at our Rhode Island
manufacturing facility and at Genentech is done by us and
third-party service providers. BI Pharma, Genentech, and these
third-party service providers are also subject to FDA regulatory
authority. (See “— Limits on supply for
ENBREL® may constrain ENBREL® sales.”) In
addition, later discovery of unknown problems with our products
or manufacturing processes or those of our contract
manufacturers or third-party service providers could result in
restrictions on the sale, manufacture, or use of such products,
including potential withdrawal of the products from the market.
If regulatory authorities determine that we or our contract
manufacturers or third-party service providers have violated
regulations or if they restrict, suspend, or revoke our prior
approvals, they could prohibit us from manufacturing or selling
our marketed products until we or our contract manufacturers or
third-party service providers comply, or indefinitely. In
addition, if regulatory authorities determine that we or our
licenser or partner conducting research and development
activities on our behalf have not complied with regulations in
the research and development of a product candidate, then they
may not approve the product candidate and we will not be able to
market and sell it. If we were unable to market and sell our
products or product candidates, our business and results of
operations would be materially and adversely affected.
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If our intellectual property positions are challenged,
invalidated, circumvented or expire, or if we fail to prevail in
present and future intellectual property litigation, our
business could be adversely affected. |
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. Third parties may challenge,
invalidate, or circumvent our patents and patent applications
relating to our products, product candidates, and technologies.
In addition, our patent positions might not protect us against
competitors with similar products or technologies because
competing products or technologies may not infringe our patents.
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, costly, and can
preclude or delay commercialization of products. We are
currently, and in the future may be, involved in patent
litigation. For example, we are involved in an ongoing patent
infringement lawsuit against Transkaryotic Therapies, Inc.
(“TKT”) and Aventis with respect to our erythropoietin
patents. If we lose or settle this or other litigations at
certain stages or entirely, we could be: subject to competition
and/or significant liabilities; required to enter into
third-party licenses for the infringed product or technology; or
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, or at all.
Our success depends in part on our ability to obtain and defend
patent rights and other intellectual property rights that are
important to the commercialization of our products and product
candidates. We have filed applications for a number of patents
and have been granted patents or obtained rights relating to
erythropoietin, natural and recombinant G-CSF, darbepoetin alfa,
pegfilgrastim, etanercept, and our other products and potential
products. We market our erythropoietin, recombinant G-CSF,
darbepoetin alfa,
44
pegfilgrastim, and etanercept products as EPOGEN®,
NEUPOGEN®, Aranesp®, Neulasta®, and ENBREL®,
respectively. For additional information on our material patents
see “Patents and Trademarks” in “Item 1.
Business.”
We also have been granted or obtained rights to patents in
Europe relating to: erythropoietin; G-CSF; pegfilgrastim
(pegylated G-CSF); etanercept; two relating to darbepoetin alfa;
and hyperglycosylated erythropoietic proteins. Our European
patent relating to erythropoietin expired on December 12,
2004 and our European patent relating to G-CSF expires on
August 22, 2006. We believe that after the expiration of
each of these patents, other companies could receive approval
for and market follow-on or biosimilar products to each of these
products in Europe; presenting additional competition to our
products. (See “Our marketed products face substantial
competition and other companies may discover, develop, acquire
or commercialize products before or more successfully than we
do.”) While we do not market erythropoietin in Europe as
this right belongs to Johnson & Johnson (through KA),
we do market Aranesp® in the EU, which competes with
Johnson & Johnson’s and others’
erythropoietin products. We believe that the EU is currently in
the process of developing regulatory requirements related to the
development and approval of new competitive products. Until such
requirements are finalized, we cannot predict when follow-on or
biosimilar products could appear on the market in the EU or to
what extent such additional competition would impact future
Aranesp® and NEUPOGEN®/ Neulasta® sales in the
EU. However, based on the process and timing outlined by the
EMEA, we believe product specific guidelines are not likely to
be finalized until 2006.
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Limits on supply for ENBREL® may constrain
ENBREL® sales. |
U.S. and Canadian supply of ENBREL® is impacted by many
manufacturing variables, such as the timing and actual number of
production runs, production success rate, bulk drug yield, and
the timing and outcome of product quality testing. For example,
in the second quarter of 2002, the prior co-marketer with
respect to ENBREL®, experienced a brief period where no
ENBREL® was available to fill patient prescriptions,
primarily due to variation in the expected production yield from
BI Pharma. If we are at any time unable to provide an
uninterrupted supply of ENBREL® to patients, we may lose
patients, physicians may elect to prescribe competing
therapeutics instead of ENBREL®, and ENBREL® sales
will be adversely affected, which could materially and adversely
affect our results of operations. See “— We are
dependent on third parties for a significant portion of our
supply and the fill and finish of ENBREL®; and our sources
of supply are limited.”
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We are dependent on third parties for a significant portion
of our supply and the fill and finish of ENBREL®; and our
sources of supply are limited. |
We currently produce a substantial portion of annual
ENBREL®supply at our Rhode Island manufacturing facility.
However, we also depend on third parties for a significant
portion of our ENBREL® supply as well as for the fill and
finish of ENBREL® that we manufacture. BI Pharma is our
primary third-party manufacturer of ENBREL® bulk drug;
accordingly, our U.S. and Canadian supply of ENBREL® is
currently significantly dependent on BI Pharma’s production
schedule for ENBREL®. We would be unable to produce
ENBREL® in sufficient quantities to substantially offset
shortages in BI Pharma’s scheduled production if BI Pharma
or other third-party manufacturers used for the fill and finish
of ENBREL® bulk drug were to cease or interrupt production
or services or otherwise fail to supply materials, products, or
services to us for any reason, including due to labor shortages
or disputes, due to regulatory requirements or action, or due to
contamination of product lots or product recalls. This in turn
could materially reduce our ability to satisfy demand for
ENBREL®, which could materially and adversely affect our
operating results. Factors that will affect our actual supply of
ENBREL® at any time include, without limitation, the
following:
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BI Pharma does not produce ENBREL® continuously; rather, it
produces the bulk drug substance through a series of periodic
campaigns throughout the year. Our Rhode Island manufacturing
facility is currently dedicated to ENBREL® production. The
amount of commercial inventory available to us at any time
depends on a variety of factors, including the timing and actual
number of BI Pharma’s production runs, the actual number of
runs at our Rhode Island manufacturing facility, and, for either
the Rhode Island or BI Pharma facilities, the level of
production yields and success rates, the timing and outcome of
product quality testing, and the amount of filling and packaging
capacity. |
45
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BI Pharma schedules the vialing production runs for ENBREL®
in advance, based on the expected timing and yield of bulk drug
production runs. Therefore, if BI Pharma realizes production
yields beyond expected levels, or provides additional
manufacturing capacity for ENBREL®, it may not have
sufficient vialing capacity for all of the ENBREL® bulk
drug that it produces. As a result, even if we are able to
increase our supply of ENBREL® bulk drug, BI Pharma may not
be able to fill and finish the extra bulk drug in time to
prevent any supply interruptions. |
We are dependent on third parties for some fill and finish and
packaging of ENBREL® bulk drug substance manufactured at
our Rhode Island facility. If third-party fill and finish and
packaging manufacturers are unable to provide sufficient
capacity or otherwise unable to provide services to us, then
supply of ENBREL® could be adversely affected.
Our current plan to increase U.S. and Canadian supply of
ENBREL® includes completion of an additional large-scale
cell culture commercial manufacturing facility adjacent to the
current Rhode Island manufacturing facility. We expect to submit
this facility for FDA approval in 2005. Additionally, we have
entered into a manufacturing agreement with Genentech to produce
ENBREL® at Genentech’s manufacturing facility in South
San Francisco, California and the FDA approved this
facility for ENBREL® production in October 2004. Under the
terms of the agreement, Genentech is expected to produce
ENBREL® through 2005, with an extension through 2006 by
mutual agreement. ENBREL® bulk drug substance produced at
the Genentech facility will be produced in campaigns similar to
those conducted at BI Pharma. Consequently, supply from the
Genentech facility is expected to also be dependent on the
timing and number of production runs in addition to the other
manufacturing, filling, and packaging risk discussed above. In
addition, Wyeth is constructing a new manufacturing facility in
Ireland, which is expected to increase the U.S. and Canadian
supply of ENBREL®. If the additional ENBREL®
manufacturing capacity at the Rhode Island site, or in Ireland
are not completed on time, or if these manufacturing facilities
do not receive FDA or the European Agency for the Evaluation of
Medical Products (EMEA) approval before we encounter supply
constraints, our ENBREL® sales would be restricted, which
could have a material adverse effect on our results of
operations. (See “— Limits on supply for
ENBREL® may constrain ENBREL® sales.”) If these
third-party manufacturing facilities are completed and approved
by the various regulatory authorities, our costs of acquiring
bulk drug may fluctuate.
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We formulate, fill and finish substantially all our products
at our Puerto Rico manufacturing facility; if significant
natural disasters or production failures occur at this facility,
we may not be able to supply these products. |
We currently perform all of the formulation, fill and finish for
EPOGEN®, Aranesp®, NEUPOGEN® and Neulasta®
and some formulation, fill and finish operations for
ENBREL® at our manufacturing facility in Juncos, Puerto
Rico. Our global supply of these products is dependent on the
uninterrupted and efficient operation of this facility. Power
failures, the breakdown, failure or substandard performance of
equipment, the improper installation or operation of equipment,
natural or other disasters, including hurricanes, or failures to
comply with regulatory requirements, including those of the FDA,
among others, could adversely affect our formulation, fill and
finish operations. As a result, we may be unable to supply these
products, which could adversely and materially affect our
product sales. Although we have obtained limited insurance to
protect against business interruption loss, there can be no
assurance that such coverage will be adequate or that such
coverage will continue to remain available on acceptable terms,
if at all. The extent of the coverage of our insurance could
limit our ability to mitigate for lost sales and could result in
such losses materially and adversely affecting our operating
results.
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Our marketed products face substantial competition and other
companies may discover, develop, acquire or commercialize
products before or more successfully than we do. |
We operate in a highly competitive environment. Our products
compete with other products or treatments for diseases for which
our products may be indicated. For example, ENBREL®
competes in certain circumstances with rheumatoid arthritis
products marketed by Biogen IDEC Inc., Centocor, Inc.,
Johnson & Johnson, Abbott, Genentech, Pfizer, Novartis,
and Sanofi-Aventis, as well as the generic drug methotrexate,
and may face competition from other potential therapies being
developed. Additionally, Aranesp® competes with
Johnson & Johnson in the United States and the EU.
Further, if our currently marketed products are
46
approved for new uses, or if we sell new products, we may face
new, additional competition that we do not face today.
Additionally, some of our competitors, including biotechnology
and pharmaceutical companies, market products or are actively
engaged in research and development in areas where we have
products or where we are developing product candidates or new
indications for existing products. In the future, we expect that
our products will compete with new drugs currently in
development, drugs approved for other indications that may be
approved for the same indications as those of our products, and
off-label use of drugs approved for other indications. Our
European patent relating to erythropoietin expired on
December 12, 2004 and our European patent relating to G-CSF
expires on August 22, 2006. We believe that after the
expiration of each of these patents, other companies could
receive approval for and market follow-on or biosimilar products
to each of these products in Europe; presenting additional
competition to our products. While we do not market
erythropoietin in Europe as this right belongs to
Johnson & Johnson (through KA), we do market
Aranesp® in the EU, which competes with Johnson &
Johnson’s and others’ erythropoietin products. We
believe that the EU is currently in the process of developing
regulatory requirements related to the development and approval
of follow-on or biosimilar products. Until such requirements are
finalized, we cannot predict when follow-on or biosimilar
products could appear on the market in the EU or to what extent
such additional competition would impact future Aranesp®
and NEUPOGEN®/ Neulasta® sales in the EU. However,
based on the process and timing outlined by the EMEA, we believe
product specific guidelines are not likely to be finalized until
2006. Our products may compete against products that have lower
prices, superior performance, are easier to administer, or that
are otherwise competitive with our products. Our inability to
compete effectively could adversely affect product sales.
Large pharmaceutical corporations may have greater clinical,
research, regulatory, manufacturing, marketing, financial
experience and human 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. These
resources may make it difficult for us to compete with them to
successfully discover, develop, and market new products and for
our current products to compete with new products or new product
indications that these competitors may bring to market. Business
combinations among our competitors may also increase competition
and the resources available to our competitors.
|
|
|
Certain of our raw materials, medical devices and components
are single-sourced from third parties; third-party supply
failures could adversely affect our ability to supply our
products. |
Certain raw materials necessary for commercial manufacturing and
formulation of our products are provided by single-source
unaffiliated third-party suppliers. Also, certain medical
devices and components necessary for fill, finish, and packaging
of our products are provided by single-source unaffiliated
third-party suppliers. Certain of these raw materials, medical
devices, and components are the proprietary products of these
unaffiliated third-party suppliers and, in some cases, such
proprietary products are specifically cited in our drug
application with the FDA so that they must be obtained from that
specific sole source and could not be obtained from another
supplier unless and until the FDA approved that other supplier.
We would be unable to obtain these raw materials, medical
devices, or components for an indeterminate period of time if
these third-party single-source suppliers were to cease or
interrupt production or otherwise fail to supply these materials
or products to us for any reason, including due to regulatory
requirements or action, due to adverse financial developments at
or affecting the supplier, or due to labor shortages or
disputes. This, in turn, could materially and adversely affect
our ability to satisfy demand for our products, which could
materially and adversely affect our operating results.
Also, certain of the raw materials required in the commercial
manufacturing and the formulation of our products are derived
from biological sources, including mammalian tissues, bovine
serum and human serum albumin, or HSA. We are investigating
alternatives to certain biological sources. Raw materials may be
subject to contamination and/or recall. Also, some countries in
which we market our products may restrict the use of certain
biologically derived substances in the manufacture of drugs. A
material shortage, contamination, recall, and/or restriction of
the use of certain biologically derived substances in the
manufacture of our products could adversely impact or disrupt
our commercial manufacturing of our products or could result in
a mandated withdrawal of our products from the market. This too,
in turn, could adversely affect our ability to satisfy demand
for our products, which could materially and adversely affect
our operating results.
47
|
|
|
Our product development efforts may not result in commercial
products. |
We intend to continue an aggressive research and 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 in humans or
animals |
| |
| |
• |
the necessary regulatory bodies, such as the FDA, did not
approve our product candidate for an intended use |
| |
| |
• |
the product candidate was not economical for us to manufacture
and commercialize |
| |
| |
• |
other companies or people have or may have proprietary rights to
our product candidate, such as 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 |
| |
| |
• |
certain of our licensors or partners may fail to effectively
conduct clinical development or clinical manufacturing activities |
Several of our product candidates have failed or been
discontinued at various stages in the product development
process, including, but not limited to, Brain Derived
Neurotrophic Factor (“BDNF”), Megakaryocyte Growth and
Development Factor (“MGDF”), and Glial Cell
Lined-Derived Neurotrophic Factor (“GDNF”). For
example, in 1997, we announced the failure of BDNF for the
treatment of amyotrophic lateral sclerosis, or Lou Gehrig’s
Disease, because the product candidate, when administered by
injection, did not produce acceptable clinical results for a
specific use after a phase 3 trial, even though BDNF had
progressed successfully through preclinical and earlier clinical
trials. In addition, in 1998, we discontinued development of
MGDF, a novel platelet growth factor, at the phase 3 trial
stage after several people in platelet donation trials developed
low platelet counts and neutralizing antibodies. Also, in June
2004, we announced that the phase 2 study of GDNF for the
treatment of advanced Parkinson’s disease did not meet the
primary study endpoint upon completion of six months of the
double-blind treatment phase of the study even though a small
phase 1 pilot investigator initiated open label study over
a three year period appeared to result in improvements for
advanced Parkinson’s disease patients. Subsequently, in the
fall of 2004 we discontinued clinical development of GDNF in
patients with advanced Parkinson’s disease after several
patients in the phase 2 study developed neutralizing
antibodies and new preclinical data showed that GDNF caused
irreversible damage to the area of the brain critical to
movement control and coordination. On February 11, 2005, we
confirmed our previous decision to halt clinical trials and, as
a part of that decision and based on thorough scientific review,
we also concluded that we will not provide GDNF to the
48 patients who participated in clinical trials that were
terminated in the fall of 2004. 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 intended 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 current products and products in
development cannot be sold if we do not maintain regulatory
approval.”)
48
|
|
|
We may be required to perform additional clinical trials or
change the labeling of our products if we or others identify
side effects after our products are on the market. |
If we or others identify side effects after any of our products
are on the market, or if manufacturing problems occur,
regulatory approval may be withdrawn and reformulation of our
products, additional clinical trials, changes in labeling of our
products, and changes to or re-approvals of our manufacturing
facilities may be required, any of which could have a material
adverse effect on sales of the affected products and on our
business and results of operations.
After any of our products are approved for commercial use, we or
regulatory bodies could decide that changes to our product
labeling are required. Label changes may be necessary for a
number of reasons, including: the identification of actual or
theoretical safety or efficacy concerns by regulatory agencies
or the discovery of significant problems with a similar product
that implicates an entire class of products. Any significant
concerns raised about the safety or efficacy of our products
could also result in the need to reformulate those products, to
conduct additional clinical trials, to make changes to our
manufacturing processes, or to seek re-approval of our
manufacturing facilities. Significant concerns about the safety
and effectiveness of a product could ultimately lead to the
revocation of its marketing approval. The revision of product
labeling or the regulatory actions described above could be
required even if there is no clearly established connection
between the product and the safety or efficacy concerns that
have been raised. The revision of product labeling or the
regulatory actions described above could have a material adverse
effect on sales of the affected products and on our business and
results of operations. (See “— Our current
products and products in development cannot be sold if we do not
maintain regulatory approval.”)
|
|
|
Our business may be impacted by government investigations or
litigation. |
We and certain of our subsidiaries are involved in legal
proceedings relating to various patent matters, government
investigations, and other legal proceedings that arise from time
to time in the ordinary course of our business. Matters required
to be disclosed by us are set forth in “Item 3. Legal
Proceedings” in our Form 10-K for the year ended
December 31, 2004 and are updated as required in
subsequently filed Form 10-Qs. Litigation is inherently
unpredictable, and excessive verdicts can occur. Consequently,
it is possible that we could, in the future, incur judgments or
enter into settlements of claims for monetary damages that could
have a material adverse effect on our results of operations in
the period in which such amounts are incurred.
The Federal government, state governments and private payers are
investigating, and many have filed actions against, numerous
pharmaceutical and biotechnology companies, including Amgen and
Immunex, alleging that the reporting of prices for
pharmaceutical products has resulted in false and overstated
Average Wholesale Price (“AWP”), which in turn is
alleged to have improperly inflated the reimbursement paid by
Medicare beneficiaries, insurers, state Medicaid programs,
medical plans and other payers to health care providers who
prescribed and administered those products. As of the date of
this filing, a number of these actions have been brought against
us and/or Immunex, now a wholly owned subsidiary of ours.
Additionally, a number of states have pending investigations
regarding our Medicaid drug pricing practices and the
U.S. Departments of Justice and Health and Human Services
have requested that Immunex produce documents relating to
pricing issues. Further, certain state government entity
plaintiffs in some of these AWP cases are also alleging that
companies, including ours, are not reporting their “best
price” to the states under the Medicaid program. These
cases and investigations are described in “Item 3.
Legal Proceedings — Average Wholesale Price
Litigation” in our Form 10-K for the year ended
December 31, 2004, and are updated as required in
subsequent Form 10-Qs. Other states and agencies could
initiate investigations of our pricing practices. A decision
adverse to our interests on these actions and/or investigations
could result in substantial economic damages and could have a
material adverse effect on our results of operations in the
period in which such amounts are incurred.
|
|
|
We may be required to defend lawsuits or pay damages for
product liability claims. |
Product liability is a major risk in testing and marketing
biotechnology and pharmaceutical products. We may face
substantial product liability exposure in human clinical trials
and for products that we sell after regulatory approval. Product
liability claims, regardless of their merits, could be costly
and divert manage-
49
ment’s attention, and adversely affect our reputation and
the demand for our products. Amgen and Immunex have been named
as defendants in product liability actions for certain company
products.
|
|
|
Our operating results may fluctuate, and this fluctuation
could cause financial results to be below expectations. |
Our operating results may fluctuate from period to period for a
number of reasons. In budgeting our operating expenses for the
foreseeable future, 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, some of which we cannot control. For
example, we may face:
|
|
|
| |
• |
changes in the government’s or private payers’
reimbursement policies for our products |
| |
| |
• |
inability to maintain regulatory approval of marketed products |
| |
| |
• |
changes in our product pricing strategies |
| |
| |
• |
lower than expected demand for our products |
| |
| |
• |
inability to provide adequate supply of our products |
| |
| |
• |
changes in wholesaler buying patterns |
| |
| |
• |
increased competition from new or existing products |
| |
| |
• |
fluctuations in foreign currency exchange rates |
Of course, there may be other factors that affect our revenues
in any given period. Similarly if investors or the investment
community are uncertain about our financial performance for a
given period, our stock price could also be adversely impacted.
|
|
|
We have grown rapidly, and if we fail to adequately manage
that growth our business could be adversely impacted. |
We have had an aggressive growth plan that has included
substantial and increasing investments in research and
development, sales and marketing, and facilities. We plan to
continue to grow and our plan has a number of risks, some of
which we cannot control. For example:
|
|
|
| |
• |
we need to generate higher revenues to cover a higher level of
operating expenses, and our ability to do so may depend on
factors that we do not control |
| |
| |
• |
we will need to assimilate new staff members |
| |
| |
• |
we will need to manage complexities associated with a larger and
faster growing organization |
| |
| |
• |
we will need to accurately anticipate demand for the products we
manufacture and maintain adequate manufacturing capacity, and
our ability to do so may depend on factors that we do not control |
| |
| |
• |
we will need to start up and operate a number of new
manufacturing facilities, which may result in temporary
inefficiencies and higher cost of goods |
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, which could adversely affect
your investment. |
Our stock price, like that of other biotechnology companies, is
highly volatile. For example, in the fifty-two weeks prior to
December 31, 2004, the trading price of our common stock
has ranged from a high of $66.88 per share to a low of
$52.00 per share. Our stock price may be affected by a
number of factors, such as:
|
|
|
| |
• |
changes in reimbursement policies or medical practices |
| |
| |
• |
adverse developments regarding the safety or efficacy of our
products |
50
|
|
|
| |
• |
clinical trial results |
| |
| |
• |
actual or anticipated product supply constraints |
| |
| |
• |
product development announcements by us or our competitors |
| |
| |
• |
regulatory matters |
| |
| |
• |
announcements in the scientific and research community |
| |
| |
• |
intellectual property and legal matters |
| |
| |
• |
broader economic, industry and market trends unrelated to our
performance |
In addition, if our revenues, earnings or other financial
results in any period fail to meet the investment
community’s expectations, there could be an immediate
adverse impact on our stock price.
|
|
|
Our corporate compliance program cannot guarantee that we are
in compliance with all potentially applicable federal and state
regulations. |
The development, manufacturing, distribution, pricing, sales,
marketing, and reimbursement of our products, together with our
general operations, is subject to extensive federal and state
regulation. (See “— Our current products and
products in development cannot be sold if we do not maintain
regulatory approval.” and “— We may be
required to perform additional clinical trials or change the
labeling of our products if we or others identify side effects
after our products are on the market.”) While we have
developed and instituted a corporate compliance program based on
current best practices, we cannot assure you that we or our
employees are or will be in compliance with all potentially
applicable federal and state regulations and/or laws. If we fail
to comply with any of these regulations and/or laws a range of
actions could result, including, but not limited to, the
termination of clinical trials, the failure to approve a product
candidate, restrictions on our products or manufacturing
processes, including withdrawal of our products from the market,
significant fines, exclusion from government healthcare
programs, or other sanctions or litigation.
|
|
|
Our marketing of ENBREL® will be dependent in
part upon Wyeth. |
Under a co-promotion agreement, we and Wyeth market and sell
ENBREL® in the United States and Canada. A management
committee comprised of an equal number of representatives from
us and Wyeth is responsible for overseeing the marketing and
sales of ENBREL®: including strategic planning, the
approval of an annual marketing plan, product pricing, and the
establishment of a brand team. The brand team, with equal
representation from us and Wyeth, will prepare and implement the
annual marketing plan, which includes a minimum level of
financial and sales personnel commitment from each party, and is
responsible for all sales activities. If Wyeth fails to market
ENBREL® effectively or if we and Wyeth fail to coordinate
our efforts effectively, our sales of ENBREL® may be
adversely affected.
|
|
|
Guidelines and recommendations published by various
organizations can reduce 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 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 related 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 recommendations or
guidelines will result in decreased use of our products could
adversely affect prevailing market prices for our common stock.
51
|
|
|
Continual manufacturing process improvement efforts may
result in the carrying value of certain existing manufacturing
facilities or other assets becoming impaired. |
In connection with our ongoing process improvement activities
associated with products we manufacture, we continually invest
in our various manufacturing practices and related processes
with the objective of increasing production yields and success
rates to gain increased cost efficiencies and capacity
utilization. Depending on the timing and outcomes of these
efforts and our other estimates and assumptions regarding future
product sales, the carrying value of certain manufacturing
facilities or other assets may not be fully recoverable and
could result in the recognition of an impairment in the carrying
value at the time that such effects are identified. The
potential recognition of impairment in the carrying value, if
any, could have a material and adverse affect on our results of
operations.
|
|
|
We may not realize all of the anticipated benefits of our
merger with Tularik. |
On August 13, 2004, we merged with Tularik Inc. The success
of our merger with Tularik will depend, in part, on our ability
to retain Tularik staff and to realize the anticipated
synergies, cost savings, and growth opportunities from
integrating the businesses of Tularik with the businesses of
Amgen. Our success in realizing these benefits and the timing of
this realization depend upon the successful integration of the
operations and personnel of Tularik. The integration of two
independent companies is a complex, costly, and time-consuming
process. The difficulties of combining the operations of the
companies include, among others:
|
|
|
| |
• |
retaining key staff members |
| |
| |
• |
consolidating research and development operations |
| |
| |
• |
consolidating corporate and administrative infrastructures |
| |
| |
• |
preserving ours and Tularik’s research and development, and
other important relationships |
| |
| |
• |
minimizing the diversion of management’s attention from
ongoing business concerns |
| |
| |
• |
coordinating geographically separate organizations |
In addition, even if we are able to integrate Tularik’s
operations successfully, this integration may not result in the
realization of the full benefits of the synergies, cost savings,
or sales and growth opportunities that we expect or that these
benefits will be achieved within the anticipated time frame. For
example, as of the date of this filing, we have discontinued a
number of Tularik clinical development programs and may
discontinue other or all such programs. Further, the elimination
of significant duplicative costs may not be possible or may take
longer than anticipated and the benefits from the merger may be
offset by costs incurred in integrating the companies. We cannot
assure you that the integration of Tularik with us will result
in the realization of the full benefits anticipated by us to
result from the merger. Our failure to achieve these benefits
could have a material adverse effect on our results of
operations.
|
|
| Item 7A. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Interest income earned on our fixed income investment portfolio
is impacted by fluctuations in U.S. interest rates upon
reinvestment of funds received on maturity or sale of securities
at the then current market rates. In 2004, we entered into two
interest rate swap agreements, which also qualify and are
designated as fair value hedges, to protect against possible
increases in value of the 2009 Notes and 2014 Notes. In 2003, we
entered into two interest rate swap agreements, which also
qualify and are designated as fair value hedges, to protect
against possible increase in value of the 2007 Notes and the
Century Notes. Changes in interest rates do not affect interest
expense incurred on our 2007 Notes, 2009 Notes, 2014 Notes,
Century Notes and Convertible Notes because they bear interest
at fixed rates. The following tables provide information about
our financial instruments that are sensitive to changes in
interest rates. For our investment portfolio and debt
obligations, the tables present principal cash flows and related
weighted-average interest rates by expected maturity dates.
Additionally, we have assumed our 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
swaps, the tables present the notional amounts and related
weighted-average interest rates by contractual maturity date.
Variable rates relating to the interest
52
rate swaps are the average forward rates for the term of each
contract. The notional amount is used to calculate the
contractual cash flows to be exchanged under the contract.
Interest Rate Sensitivity
Principal (Notional) Amount by Expected Maturity as of
December 31, 2004
(Dollars in millions)
Average Interest Rate
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
There- | |
|
|
|
Fair value | |
| |
|
2005 | |
|
2006 | |
|
2007 | |
|
2008 | |
|
2009 | |
|
after | |
|
Total | |
|
12/31/04 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Available-for-sale debt securities
|
|
$ |
4,021 |
|
|
$ |
630 |
|
|
$ |
241 |
|
|
$ |
268 |
|
|
$ |
221 |
|
|
|
— |
|
|
$ |
5,381 |
|
|
$ |
5,390 |
|
|
Average Interest rate
|
|
|
1.9 |
% |
|
|
3.3 |
% |
|
|
5.1 |
% |
|
|
4.3 |
% |
|
|
3.9 |
% |
|
|
— |
|
|
|
|
|
|
|
|
|
|
Medium and long-term notes
|
|
|
— |
|
|
|
— |
|
|
$ |
100 |
|
|
|
— |
|
|
$ |
1,000 |
|
|
$ |
1,100 |
|
|
$ |
2,200 |
|
|
$ |
2,242 |
|
|
Interest rate
|
|
|
— |
|
|
|
— |
|
|
|
6.5 |
% |
|
|
— |
|
|
|
4.0 |
% |
|
|
5.1 |
% |
|
|
|
|
|
|
|
|
|
Convertible Notes(1)
|
|
$ |
1,175 |
|
|
$ |
1,762 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
2,937 |
|
|
$ |
2,933 |
|
|
Interest rate
|
|
|
1.125 |
% |
|
|
1.125 |
% |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Interest rate swaps related to available-for-sale debt
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pay fixed/receive variable
|
|
$ |
120 |
|
|
$ |
25 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
145 |
|
|
$ |
|
(1) |
|
Average pay rate
|
|
|
4.2 |
% |
|
|
4.5 |
% |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Average receive rate
|
|
|
2.2 |
% |
|
|
2.2 |
% |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Interest rate swaps related to debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pay variable/receive fixed
|
|
|
— |
|
|
|
— |
|
|
$ |
100 |
|
|
|
— |
|
|
$ |
500 |
|
|
$ |
1,100 |
|
|
$ |
1,700 |
|
|
|
— |
|
|
Average pay rate
|
|
|
— |
|
|
|
— |
|
|
|
2.4 |
% |
|
|
— |
|
|
|
2.5 |
% |
|
|
2.5 |
% |
|
|
|
|
|
|
|
|
|
Average receive rate
|
|
|
— |
|
|
|
— |
|
|
|
3.6 |
% |
|
|
— |
|
|
|
3.9 |
% |
|
|
4.7 |
% |
|
|
|
|
|
|
|
|
Interest Rate Sensitivity
Principal (Notional) Amount by Expected Maturity as of
December 31, 2003
(Dollars in millions)
Average Interest Rate
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
There- | |
|
|
|
Fair value | |
| |
|
2004 | |
|
2005 | |
|
2006 | |
|
2007 | |
|
2008 | |
|
after | |
|
Total | |
|
12/31/03 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Available-for-sale debt securities
|
|
$ |
2,077 |
|
|
$ |
1,254 |
|
|
$ |
667 |
|
|
$ |
393 |
|
|
$ |
476 |
|
|
$ |
— |
|
|
$ |
4,867 |
|
|
$ |
4,882 |
|
|
Average Interest rate
|
|
|
2.8 |
% |
|
|
4.0 |
% |
|
|
4.1 |
% |
|
|
5.2 |
% |
|
|
3.7 |
% |
|
|
— |
|
|
|
|
|
|
|
|
|
|
Medium and long-term notes
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
100 |
|
|
|
— |
|
|
$ |
100 |
|
|
$ |
200 |
|
|
$ |
249 |
|
|
Interest rate
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6.5 |
% |
|
|
— |
|
|
|
8.1 |
% |
|
|
|
|
|
|
|
|
|
Convertible Notes(1)
|
|
|
— |
|
|
$ |
2,917 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
2,917 |
|
|
$ |
2,979 |
|
|
Interest rate
|
|
|
— |
|
|
|
1.125 |
% |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Interest rate swaps related to available-for-sale debt
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pay fixed/receive variable
|
|
$ |
25 |
|
|
$ |
120 |
|
|
$ |
25 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
170 |
|
|
$ |
|
(8) |
|
Average pay rate
|
|
|
3.9 |
% |
|
|
4.2 |
% |
|
|
4.5 |
% |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Average receive rate
|
|
|
1.3 |
% |
|
|
2.3 |
% |
|
|
3.4 |
% |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Interest rate swaps related to debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pay variable/receive fixed
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
100 |
|
|
|
— |
|
|
$ |
100 |
|
|
$ |
200 |
|
|
$ |
|
(5) |
|
Average pay rate
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4.6 |
% |
|
|
— |
|
|
|
5.1 |
% |
|
|
|
|
|
|
|
|
|
Average receive rate
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3.6 |
% |
|
|
— |
|
|
|
5.5 |
% |
|
|
|
|
|
|
|
|
|
|
| (1) |
Holders of the Convertible Notes may require us to purchase all
or a portion of the notes on specific dates as early as
March 1, 2005 at the original issuance price plus accrued
original issue discount (“accreted value”) through the
purchase dates. On March 2, 2005, as a result of certain
holders of the Convertible Notes exercising their March 1,
2005 put option, we repurchased $1,175 million, or
approximately 40%, of the outstanding Convertible Notes at their
then-accreted value for cash. Concurrently, we amended the terms
of the Convertible Notes to add an additional put date in order
to permit the remaining holders, at their option, to cause us to
repurchase the Convertible Notes on March 1, 2006 at the
then-accreted |
53
|
|
|
value. The amounts above reflect the Convertible Notes’
accreted value repurchased on March 1, 2005 and the
remaining Convertible Notes’ accreted value on
March 1, 2006, the next put date. In the event we are
required to repurchase the remaining Convertible Notes, we may
choose to pay the purchase price in cash and/or shares of common
stock, which would be issued at the then current market price.
See Note 4, “Financing arrangements” to the
consolidated financial statements for further discussion of the
terms of the Convertible Notes. |
We are exposed to equity price risks on the marketable portion
of equity securities included in our portfolio of investments
entered into for the promotion of business and strategic
objectives. These investments are generally in small
capitalization stocks in the biotechnology industry sector. At
December 31, 2004 and 2003, we had equity forward contracts
to hedge against changes in the fair market value of a portion
of our equity investment portfolio. We did not have material
equity price risk on the unhedged portion of our equity
investment portfolio at December 31, 2004 and 2003.
Our results of operations are affected by fluctuations in the
value of the U.S. dollar as compared to foreign currencies,
predominately the Euro, as a result of the sales of our products
in foreign markets. Foreign currency forward and option
contracts are used to hedge against the effects of such
fluctuations. Both positive and negative impacts to our
international product sales from movements in foreign exchange
rates have been mitigated by the natural, opposite impact to our
international operating expenses and as a result of our foreign
currency hedging activities. Our hedging activities seek to
offset the impact, both positive and negative, that foreign
exchange rate changes may have on our results of operations. As
such, the impact to our results of operations from changes in
foreign currency exchange rates has been largely mitigated.
|
|
| Item 8. |
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
The information required by this item is incorporated herein by
reference to the financial statements and schedule listed in
Item 15 (a)1 and (a)2 of Part IV of this
Form 10-K Annual Report.
|
|
| Item 9. |
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES |
None.
|
|
| Item 9A. |
CONTROLS AND PROCEDURES |
We maintain “disclosure controls and procedures”, as
such term is defined under Exchange Act Rule 13a-15(e),
that are designed to ensure that information required to be
disclosed in Amgen’s Exchange Act reports is recorded,
processed, summarized, and reported within the time periods
specified in the SEC’s rules and forms, and that such
information is accumulated and communicated to Amgen’s
management, including its Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions
regarding required disclosures. In designing and evaluating the
disclosure controls and procedures, Amgen’s management
recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of
achieving the desired control objectives and in reaching a
reasonable level of assurance Amgen’s management
necessarily was required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.
We have carried out an evaluation under the supervision and with
the participation of our management, including Amgen’s
Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of Amgen’s
disclosure controls and procedures. Based upon their evaluation
and subject to the foregoing, the Chief Executive Officer and
Chief Financial Officer concluded that our disclosure controls
and procedures were effective as of December 31, 2004.
Further, management determined that, as of December 31,
2004, there were no changes in our internal control over
financial reporting that occurred during the fourth fiscal
quarter that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
54
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING
Management of the Company is responsible for establishing and
maintaining adequate internal control over financial reporting,
as such term is defined in Rule 13a-15(f) under the
Securities Exchange Act of 1934. The Company’s internal
control over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external purposes in accordance with generally accepted
accounting principles in the U.S. However, all internal
control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be
effective can provide only reasonable assurance with respect to
financial statement preparation and reporting.
Management assessed the effectiveness of the Company’s
internal control over financial reporting as of
December 31, 2004. In making this assessment, management
used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal
Control-Integrated Framework. Based on our assessment,
management believes that the Company maintained effective
internal control over financial reporting as of
December 31, 2004, based on those criteria.
Management’s assessment of the effectiveness of the
Company’s internal control over financial reporting has
been audited by Ernst & Young, LLP, an independent
registered public accounting firm, as stated in their report
appearing below, which expresses unqualified opinions on
management’s assessment and on the effectiveness of the
Company’s internal control over financial reporting as of
December 31, 2004.
55
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON
INTERNAL CONTROL OVER FINANCIAL REPORTING
The Board of Directors and Stockholders of Amgen Inc.
We have audited management’s assessment, included in the
accompanying Management’s Report on Internal Control Over
Financial Reporting, that Amgen Inc. (the “Company”)
maintained effective internal control over financial reporting
as of December 31, 2004, based on criteria established in
Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(the COSO criteria). The Company’s management is
responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting. Our responsibility
is to express an opinion on management’s assessment and an
opinion on the effectiveness of the company’s internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
management’s assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, management’s assessment that Amgen Inc.
maintained effective internal control over financial reporting
as of December 31, 2004, is fairly stated, in all material
respects, based on the COSO criteria. Also, in our opinion,
Amgen Inc. maintained, in all material respects, effective
internal control over financial reporting as of
December 31, 2004, based on the COSO criteria.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Amgen Inc. as of
December 31, 2004 and 2003 and related consolidated
statements of operations, stockholders’ equity and cash
flows for each of the three years in the period ended
December 31, 2004 of Amgen Inc. and our report dated
March 4, 2005 expressed an unqualified opinion thereon.
Los Angeles, California
March 4, 2005
56
PART III
|
|
| Item 10. |
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT |
Directors of the Registrant
The members of the Board of Directors of the Company (the
“Board”) as of February 28, 2005 are as follows:
Dr. David Baltimore, age 66, has served as a director
of the Company since June 1999. Since October 1997,
Dr. Baltimore has been the President of the California
Institute of Technology. From July 1995 to October 1997,
Dr. Baltimore was an Institute Professor at the
Massachusetts Institute of Technology (“MIT”), and
from July 1994 to October 1997, the Ivan R. Cottrell Professor
of Molecular Biology and Immunology at MIT. Dr. Baltimore
is a director of BB Biotech, AG, a Swiss investment company, and
MedImmune, Inc. In 1975, Dr. Baltimore was the co-recipient
of the Nobel Prize in Medicine.
Mr. Frank J. Biondi, Jr., age 60, has served as a
director of the Company since January 2002. Since March 1999, he
has served as Senior Managing Director of WaterView Advisors
LLC, an investment advisor organization. From April 1996 to
November 1998, Mr. Biondi served as Chairman and Chief
Executive Officer of Universal Studios, Inc. From July 1987 to
January 1996, Mr. Biondi served as President and Chief
Executive Officer of Viacom, Inc. Mr. Biondi is a director
of Harrahs Entertainment, Inc., Hasbro, Inc. and The Bank of New
York Company, Inc.
Mr. Jerry D. Choate, age 66, has served as a director
of the Company since August 1998. From January 1995 to January
1999, Mr. Choate served as Chairman of the Board and Chief
Executive Officer of The Allstate Corporation
(“Allstate”), an insurance holding company. From
August 1994 to January 1995, Mr. Choate served as President
and Chief Executive Officer of Allstate and had previously held
various management positions at Allstate since 1962.
Mr. Choate is a director of Valero Energy Corporation and
serves on the Board of Trustees for the Van Kampen Mutual Funds.
Mr. Edward V. Fritzky, age 54, has served as a
director of the Company since July 2002. From January 1994 to
July 2002, Mr. Fritzky served as Chief Executive Officer,
President and Chairman of the board of directors of Immunex
Corporation, a biotechnology company. From March 1989 to January
1994, Mr. Fritzky was President and Vice President of
Lederle Laboratories, a division of American Cyanamid Company, a
pharmaceutical company. Mr. Fritzky is a director of Geron
Corporation, SonoSite, Inc. and Jacobs Engineering Group Inc.
Mr. Frederick W. Gluck, age 69, has served as a
director of the Company since February 1998. Mr. Gluck is a
former managing partner of McKinsey & Company, Inc.
(“McKinsey”), an international management consulting
firm. From 1967 to 1995, he served with McKinsey and from 1988
to 1994 he led the firm as its Managing Director, when he
retired to join Bechtel Group, Inc., an engineering,
construction and project management company, where he served as
Vice Chairman and Director. Mr. Gluck retired from Bechtel
in July 1998. He rejoined McKinsey as a consultant in 1998 and
continued in that role until July 2003. Mr. Gluck is a
director of HCA Inc. and GVI Security Solutions, Inc.
Mr. Frank C. Herringer, age 62, has served as a
director of the Company since May 2004. Mr. Herringer has
been Chairman of the Board of Transamerica Corporation
(“Transamerica”), a financial services company, since
1995. From 1991 to 1999, he served as Chief Executive Officer of
Transamerica and from 1986 to 1999 he served as President. From
1999 to 2000, Mr. Herringer served on the Executive Board
of Aegon N.V. and as Chairman of the Board of Aegon U.S.A.
Mr. Herringer is a director of AT&T Corp. and The
Charles Schwab Corporation.
Mr. Franklin P. Johnson, Jr., age 76, has served
as a director of the Company since October 1980. He is the
general partner of Asset Management Partners, a venture capital
limited partnership. Mr. Johnson has been a private venture
capital investor for more than five years. Mr. Johnson is a
director of Applied MicroCircuits Corporation.
Dr. Gilbert S. Omenn, age 63, has served as a director
of the Company since January 1987. Since September 1997, he has
been Professor of Internal Medicine, Human Genetics and Public
Health at the University of Michigan. From September 1997 to
July 2002, Dr. Omenn also served as Executive Vice
57
President for Medical Affairs and as Chief Executive Officer of
the University of Michigan Health System. From July 1982 to
September 1997, Dr. Omenn was the Dean of the School of
Public Health and Community Medicine and Professor of Medicine
at the University of Washington. Dr. Omenn is a director of
Rohm & Haas Co.
Ms. Judith C. Pelham, age 59, has served as a director
of the Company since May 1995. She is currently
President-Emeritus of Trinity Health, a national system of
healthcare facilities, including hospitals, long-term care, home
care, psychiatric care, residences for the elderly and
ambulatory care, and the third largest Catholic healthcare
system in the U.S. From May 2000 to December 2004,
Ms. Pelham was President and CEO of Trinity Health. From
January 1993 to April 2000, Ms. Pelham was the President
and Chief Executive Officer of Mercy Health Services, a system
of hospitals, home care, long-term care, ambulatory services and
managed care established to carry out the health ministry
sponsored by the Sisters of Mercy Regional Community of Detroit.
From 1982 to 1992, Ms. Pelham was President and Chief
Executive Officer of Daughters of Charity Health Services,
Austin, Texas, a network of hospitals, home care and ambulatory
services serving central Texas.
Admiral J. Paul Reason, USN (Retired), age 63, has served
as a director of the Company since January 2001. Since July
2000, he has been the President and Chief Operating Officer of
Metro Machine Corporation, a privately held ship repair company.
From December 1996 to September 1999, Admiral Reason was a Four
Star Admiral and Commander-In-Chief of the U.S. Atlantic
Fleet of the U.S. Navy. From August 1994 to November 1996,
Admiral Reason served as Deputy Chief of Naval Operations. From
June 1965 to July 1994, Admiral Reason served in numerous
capacities, both at sea and ashore, in the U.S. Navy.
Admiral Reason is a director of Wal-Mart Stores, Inc. and
Norfolk Southern Corporation.
Dr. Donald B. Rice, age 65, has served as a director
of the Company since October 2000. Dr. Rice is Chairman of
the Board of Agensys, Inc., a private biotechnology company, and
has been Chief Executive Officer and President of Agensys, Inc.
since its founding in late 1996. From March 1993 until August
1996, Dr. Rice was President and Chief Operating Officer
and a director of Teledyne, Inc., a diversified technology-based
manufacturing company with major segments in specialty metals
and aerospace. Dr. Rice is a director of Wells
Fargo & Company, Unocal Corporation and Vulcan
Materials Company.
Mr. Leonard D. Schaeffer, age 59, has served as a
director of the Company since March 2004. Since December 2004,
Mr. Schaeffer has been Chairman of the Board of Directors
of WellPoint Inc., the largest health insurance company in the
U.S. From 1992 through 2004 he was Chairman and Chief
Executive Officer of WellPoint Health Networks Inc.
Mr. Schaeffer was the Administrator of the U.S. Health
Care Financing Administration from 1978 to 1980. He is Chairman
of the Board of the National Institute for Health Care
Management and a member of the Institute of Medicine.
Mr. Schaeffer is a director of Allergan, Inc.
Mr. Kevin W. Sharer, age 56, has served as a director
of the Company since November 1992. Since May 2000,
Mr. Sharer has been Chief Executive Officer and President
of the Company and has also been Chairman of the Board since
December 2000. From October 1992 to May 2000, Mr. Sharer
served as President and Chief Operating Officer of the Company.
From April 1989 to October 1992, Mr. Sharer was President
of the Business Markets Division of MCI Communications
Corporation, a telecommunications company. From February 1984 to
March 1989, Mr. Sharer served in numerous executive
capacities at General Electric Company. Mr. Sharer is a
director of Unocal Corporation, 3M Company and Northrop Grumman
Corporation.
Executive Officers of the Registrant
Information about our executive officers is contained in the
discussion entitled “Executive Officers” in
“Part I — Item 1. Business”.
Audit Committee and Audit Committee Financial Expert
The Audit Committee of the Board of Directors is comprised of
Frank J. Biondi, Jr., who serves as Chairman, and David
Baltimore, Frank C. Herringer, Franklin P. Johnson, Jr.,
Gilbert S. Omenn and Judith C. Pelham. The Board has determined
that each of Messrs. Biondi, Herringer, and Johnson is an
“audit committee financial expert” as defined by the
Securities and Exchange Commission and each is independent
58
under the revised listing standards of NASDAQ. The Audit
Committee meets the NASDAQ composition requirements, including
the requirements regarding financial literacy and financial
sophistication.
Section 16(a) Beneficial Ownership Reporting
Compliance
Section 16(a) of the Exchange Act requires the
Company’s executive officers and directors, and persons who
own more than 10% of a registered class of the Company’s
equity securities (“Reporting Persons”), to file
reports of ownership and changes in ownership with the SEC and
with NASDAQ. Based solely on the Company’s review of the
reports filed by Reporting Persons, and written representations
from certain Reporting Persons that no other reports were
required for those persons, the Company believes that, during
the year ended December 31, 2004, the Reporting Persons met
all applicable Section 16(a) filing requirements, except
for Adm. J. Paul Reason, who, in April 2004, filed a late
Form 4 covering an exercise of stock options conducted in
February 2004, and Timothy O. Martin, the Company’s Chief
Accounting Officer, who, in January 2005, filed a late
Form 4 covering a grant of restricted stock made in
December 2004.
Code of Ethics
We maintain a code of ethics applicable to our principal
executive officer, principal financial officer, principal
accounting officer or controller, and other persons performing
similar functions. To view this code of ethics free of charge,
please visit our website at www.amgen.com (This website
address is not intended to function as a hyperlink, and the
information contained in our website is not intended to be a
part of this filing). We intend to satisfy the disclosure
requirements under Item 5.05 of Form 8-K regarding an
amendment to, or waiver from, a provision of this code of
ethics, if any, by posting such information on our website as
set forth above.
|
|
| Item 11. |
EXECUTIVE COMPENSATION |
|
|
|
Compensation of Directors |
Directors of the Company who are also employees of the Company
are not separately compensated for their service as directors.
Non-employee director compensation consists of (i) an
annual retainer of $55,000; (ii) an Audit Committee chair
fee of $20,000; (iii) a Compensation Committee chair fee of
$10,000; (iv) an other committee chair fee of $6,000;
(v) Board meeting fees of $3,000 per meeting ($1,500
for telephonic attendance), and (vi) committee meeting fees
of $1,500 per meeting ($750 for telephonic attendance).
The non-employee directors received the following aggregate
amounts of cash compensation for the year ended
December 31, 2004: Dr. Baltimore, $75,250;
Mr. Biondi, $99,000; Mr. Choate, $92,750;
Mr. Gluck, $76,750; Mr. Herringer, $55,899;
Mr. Johnson, $85,000; Dr. Omenn, $82,750;
Ms. Pelham, $84,250; Adm. Reason, $82,000; Dr. Rice,
$90,250; and Mr. Schaeffer, $81,325.
Non-employee directors are compensated for attending committee
meetings of which they are not members if they are invited to do
so by the Chairman of the Board or the Chair of the committee.
The members of the Board also are entitled to reimbursement of
their expenses, in accordance with Company policy, incurred in
connection with attendance at Board and committee meetings and
conferences with the Company’s senior management. There are
no family relationships among any directors of the Company.
Pursuant to the Amended and Restated Director Equity Incentive
Program under the Company’s Amended and Restated 1991
Equity Incentive Plan (the “1991 Plan”), non-employee
directors receive in March of each year stock options for
5,000 shares of Common Stock and restricted stock units
(“RSUs”) to acquire $100,000 worth of Common Stock.
New non-employee directors are entitled to an inaugural grant of
stock options for 20,000 shares of Common Stock.
59
Material Terms of Stock Options. Stock options vest
(a) on the date of grant if the non-employee director has
had three years of prior continuous service as a non-employee
director, or (b) one year from the date of grant if the
non-employee director has had less than three years of prior
continuous service as a non-employee director. Under certain
circumstances, in the case of death or disability of a director,
the vesting of unvested stock options may be partially or
completely accelerated. The exercise price of stock options is
100% of the fair market value of the Common Stock on the grant
date and the stock options must be exercised within seven years
from the grant date. Stock options granted in March 2004 to
non-employee directors had an exercise price of $59.48, the fair
market value of the Common Stock on the grant date.
Material Terms of RSUs. RSUs vest (a) on the date of
grant if the non-employee director has had three years of prior
continuous service as a non-employee director, or (b) one
year from the date of grant if the non-employee director has had
less than three years of prior continuous service as a
non-employee director. In the event of a director’s death
or disability, a prorated portion of RSUs would vest. The number
of RSUs granted to a director is based on the closing price of
the Common Stock on the grant date and are paid in Common Stock
(on a one-to-one basis) on the vesting date, unless a director
has previously selected a deferred payment alternative. In March
2004, each non-employee director received 1,643 RSUs.
Other Benefits. Non-employee directors are eligible to
participate in the Matching Gift Program of The Amgen Foundation
(the “Foundation”) on the same terms as the
Company’s employees. The Foundation will match qualifying
contributions made by non-employee directors to eligible
organizations, up to $20,000 per non-employee director per
year. In addition, directors are eligible to participate in the
Amgen Nonqualified Deferred Compensation Plan. See
“— Employment and Compensation Arrangements.”
Compensation of Executive Officers
|
|
|
Summary Compensation Table. |
The following table sets forth summary information concerning
certain compensation awarded, paid to, or earned by the Named
Executive Officers for all services rendered in all capacities
to the Company for the years ended December 31, 2004, 2003,
and 2002:
Summary Compensation Table
| |
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| |
|
|
|
|
|
|
|
|
|
Long-term Compensation | |
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|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
| |
|
Annual Compensation | |
|
Awards | |
|
|
| |
|
| |
|
| |
|
|
| |
|
|
|
Other Annual | |
|
Restricted | |
|
Securities | |
|
All Other | |
| |
|
|
|
Salary | |
|
|
|
Compensation | |
|
Stock | |
|
Underlying | |
|
Compensation | |
| Name and Principal Position |
|
Year | |
|
($)(1) | |
|
Bonus ($) | |
|
($) | |
|
Award(s) ($) | |
|
Options (#) | |
|
($)(2) | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Kevin W. Sharer
|
|
|
2004 |
|
|
|
1,301,954 |
|
|
|
3,622,000 |
|
|
|
255,382 |
(3) |
|
|
— |
|
|
|
225,000 |
|
|
|
364,284 |
|
| |
Chairman of the Board, |
|
|
2003 |
|
|
|
1,098,333 |
|
|
|
2,475,000 |
|
|
|
217,844 |
(3) |
|
|
— |
|
|
|
450,000 |
|
|
|
530,554 |
|
| |
Chief Executive Officer
|
|
|
2002 |
|
|
|
980,000 |
|
|
|
1,800,000 |
|
|
|
16,140 |
(3) |
|
|
— |
|
|
|
450,000 |
|
|
|
497,750 |
(4) |
| |
and President
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
George J. Morrow
|
|
|
2004 |
|
|
|
823,815 |
|
|
|
1,700,000 |
(5) |
|
|
1,555 |
(6) |
|
|
— |
|
|
|
75,000 |
|
|
|
3,404,845 |
(7) |
| |
Executive Vice President, |
|
|
2003 |
|
|
|
756,001 |
|
|
|
1,390,000 |
(5) |
|
|
1,577 |
(6) |
|
|
— |
|
|
|
150,000 |
|
|
|
3,249,161 |
(7) |
| |
Global Commercial Operations
|
|
|
2002 |
|
|
|
683,335 |
|
|
|
1,276,252 |
(5) |
|
|
20,148 |
(6) |
|
|
— |
|
|
|
150,000 |
|
|
|
3,024,607 |
(7) |
|
Roger M. Perlmutter
|
|
|
2004 |
|
|
|
794,393 |
|
|
|
1,460,000 |
(5) |
|
|
10,837 |
(8) |
|
|
— |
|
|
|
75,000 |
|
|
|
1,717,129 |
(9) |
| |
Executive Vice President, |
|
|
2003 |
|
|
|
737,333 |
|
|
|
1,365,000 |
(5) |
|
|
101,802 |
(8) |
|
|
— |
|
|
|
150,000 |
|
|
|
1,595,624 |
(9) |
| |
Research and Development
|
|
|
2002 |
|
|
|
683,333 |
|
|
|
1,276,250 |
(5) |
|
|
235,279 |
(8) |
|
|
— |
|
|
|
150,000 |
|
|
|
1,415,339 |
(9) |
|
Dennis M. Fenton
|
|
|
2004 |
|
|
|
767,755 |
|
|
|
1,210,000 |
|
|
|
1,406 |
(10) |
|
|
1,257,198 |
(11) |
|
|
75,000 |
|
|
|
181,491 |
|
| |
Executive Vice President, |
|
|
2003 |
|
|
|
726,800 |
|
|
|
1,145,000 |
|
|
|
— |
|
|
|
— |
|
|
|
150,000 |
|
|
|
344,494 |
|
| |
Operations and Corporate
|
|
|
2002 |
|
|
|
680,000 |
|
|
|
1,071,000 |
|
|
|
— |
|
|
|
— |
|
|
|
150,000 |
|
|
|
13,181 |
|
| |
Compliance Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard D. Nanula
|
|
|
2004 |
|
|
|
695,442 |
|
|
|
1,095,000 |
|
|
|
1,611 |
(12) |
|
|
— |
|
|
|
75,000 |
|
|
|
163,738 |
|
| |
Executive Vice President, |
|
|
2003 |
|
|
|
658,334 |
|
|
|
1,040,000 |
|
|
|
1,441 |
(12) |
|
|
— |
|
|
|
150,000 |
|
|
|
188,849 |
|
| |
and Chief Financial Officer
|
|
|
2002 |
|
|
|
616,667 |
|
|
|
971,250 |
|
|
|
— |
|
|
|
— |
|
|
|
225,000 |
|
|
|
57,343 |
|
|
|
|
| |
(1) |
Includes compensation deferred under the Company’s
Retirement and Savings Plan (the “401(k) Plan”) and
Nonqualified Deferred Compensation Plan (“DCP”)
otherwise payable in cash during each calendar year. |
60
|
|
|
| |
(2) |
Figures shown reflect net amounts. Amounts shown for 2004, 2003
and 2002 include Company credits to the SRP and matching
contributions made by the Company (the “Company
Contribution”) to the 401(k) Plan. The 2002 amount shown
for Mr. Sharer also includes certain deferred compensation
(see footnote (4)). Amounts shown for 2004, 2003 and 2002 for
Mr. Morrow and Dr. Perlmutter also include certain
deferred compensation (see footnotes (7) and (9)). The SRP
is a non-qualified, unfunded plan and participation is available
to selected participants in the 401(k) Plan who are affected by
the limits of the Internal Revenue Code of 1986, as amended (the
“Code”), on the amount of employee compensation that
may be recognized for purposes of calculating the Company
Contributions. The table below sets forth (a) amounts,
including accrued dividends, interest and unrealized gains or
losses that the accounts of the Named Executive Officers were
credited with (reduced by) pursuant to the SRP for the years
ended December 31, 2004, 2003 and 2002 and (b) the
Company Contributions for the years ended December 31,
2004, 2003, and 2002. |
| |
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|
| Plan |
|
Year | |
|
Sharer | |
|
Morrow | |
|
Perlmutter | |
|
Fenton | |
|
Nanula | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
SRP
|
|
|
2004 |
|
|
$ |
354,034 |
|
|
$ |
201,179 |
|
|
$ |
195,045 |
|
|
$ |
171,241 |
|
|
$ |
153,488 |
|
| |
|
|
2003 |
|
|
$ |
514,554 |
|
|
$ |
226,112 |
|
|
$ |
155,013 |
|
|
$ |
328,494 |
|
|
$ |
172,849 |
|
| |
|
|
2002 |
|
|
$ |
(18,250 |
) |
|
$ |
83,307 |
|
|
$ |
56,884 |
|
|
$ |
(2,819 |
) |
|
$ |
41,343 |
|
|
401(k)
|
|
|
2004 |
|
|
$ |
10,250 |
|
|
$ |
10,250 |
|
|
$ |
10,250 |
|
|
$ |
10,250 |
|
|
$ |
10,250 |
|
| |
|
|
2003 |
|
|
$ |
16,000 |
|
|
$ |
16,000 |
|
|
$ |
16,000 |
|
|
$ |
16,000 |
|
|
$ |
16,000 |
|
| |
|
|
2002 |
|
|
$ |
16,000 |
|
|
$ |
16,000 |
|
|
$ |
16,000 |
|
|
$ |
16,000 |
|
|
$ |
16,000 |
|
|
|
|
| |
(3) |
The amounts shown for 2004 and 2003, respectively, include
$216,849 and $212,763, respectively, that is the incremental
cost to the Company of Mr. Sharer’s personal use of
the Company’s aircraft. The amounts shown for 2004, 2003
and 2002, respectively, include tax gross-ups of $12,188, $1,245
and $16,140, respectively, for the value of
Mr. Sharer’s personal use of a car and driver provided
by the Company. The amount shown for 2004 includes a tax
gross-up of $1,441 for the value of personal financial
counseling reimbursed by the Company. |
| |
| |
(4) |
Includes a deferred compensation credit of $500,000 as a result
of a Company contribution to the DCP. |
| |
| |
(5) |
The amounts shown for each of 2004, 2003 and 2002 include
retention bonuses for each year in the amount of $200,000. See
“— Employment and Compensation Arrangements.” |
| |
| |
(6) |
The amount shown for 2004 includes a tax gross-up of $114 for
the value of Mr. Morrow’s personal use of a car and
driver provided by the Company. The amounts shown for each of
2004 and 2003 include a tax gross-up of $1,441 for the value of
personal financial counseling reimbursed by the Company. The
amounts shown for 2003 and 2002, respectively, include tax
gross-ups of $136 and $8,210, respectively, for reimbursement of
relocation-related expenses. The amount shown for 2002 includes
reimbursement in the amount of $11,938 made by the Company in
accordance with Mr. Morrow’s participation in the
Company’s relocation mortgage subsidy program. |
| |
| |
(7) |
The amounts shown for 2004, 2003 and 2002, respectively, include
deferred compensation credits of $3,163,958, $2,980,149 and
$2,807,017, respectively, as a result of Company contributions
to the Amgen Inc. Executive Nonqualified Retirement Plan. See
“— Executive Nonqualified Retirement Plan.”
The amounts shown for 2004, 2003 and 2002, respectively, include
premiums of $29,458, $26,900 and $26,900, respectively, paid by
the Company for a term life insurance policy in the amount of
$15,000,000 for Mr. Morrow’s benefit. The 2002 amount
includes a premium of $91,383 paid by the Company for the
assumption of split dollar life insurance policies provided to
Mr. Morrow by his former employer. The Company would be
reimbursed for certain of its premium payments from the proceeds
of the split dollar life insurance policies in the event
Mr. Morrow dies or in certain other events. See
“— Employment and Compensation Arrangements.” |
| |
| |
(8) |
The amounts shown for 2004 and 2003, respectively, include tax
gross-ups of $10,837 and $5,887, respectively, for the value of
Dr. Perlmutter’s personal use of a car and driver
provided by the Company. The amounts shown for 2003 and 2002,
respectively, include $75,409 and $29,514, respectively, of
relocation-related expenses reimbursed to Dr. Perlmutter,
and tax gross-ups of $2,365 and $91,896, respectively, for
reimbursement of relocation-related expenses. The amount shown
for 2002 includes reimbursement in the amount of $113,869 made
by the Company in accordance with Dr. Perlmutter’s
participation in the Company’s relocation mortgage subsidy
program. |
61
|
|
|
| |
(9) |
The amounts shown for 2004, 2003 and 2002, respectively, include
deferred compensation credits of $1,501,384, $1,414,161 and
$1,332,005, respectively, as a result of Company contributions
to the Amgen Inc. Executive Nonqualified Retirement Plan. See
“— Executive Nonqualified Retirement Plan.”
The amounts shown for each of 2004, 2003 and 2002 also include
premiums of $10,450 paid by the Company for a term life
insurance policy in the amount of $10,000,000 for
Dr. Perlmutter’s benefit. See
“— Employment and Compensation Arrangements.” |
|
|
| (10) |
This amount includes tax gross-ups of $29 for the value of
Mr. Fenton’s personal use of a car and driver provided
by the Company, and $1,377 for the value of personal financial
counseling reimbursed by the Company. |
| |
| (11) |
Calculated by multiplying the amount of restricted stock by the
closing market price of $62.86 on December 6, 2004, the
date of the restricted stock grant, less aggregate consideration
paid by Dr. Fenton of $2.00. The Compensation Committee
awarded Dr. Fenton 20,000 shares of restricted stock
of Amgen in consideration of his payment of $2.00. The value of
such restricted stock as of December 31, 2004 was
$1,282,998 (calculated by multiplying the amount of restricted
stock by the closing market price of $64.15 per share on
December 31, 2004, less the aggregate purchase price of
$2.00). |
| |
| (12) |
The amount shown for 2004 includes a tax gross-up of $170 for
the value of Mr. Nanula’s personal use of a car and
driver provided by the Company. The amounts shown for each of
2004 and 2003 include a tax gross-up of $1,441 for the value of
personal financial counseling reimbursed by the Company. |
Stock Option Grants
The following table sets forth information concerning individual
grants of stock options made by the Company during the year
ended December 31, 2004, to each of the Named Executive
Officers:
Option Grants in Fiscal Year 2004
| |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Individual Grants | |
| |
|
| |
| |
|
Number of | |
|
Percent of | |
|
|
|
Potential Realizable Value | |
| |
|
Securities | |
|
Total Options | |
|
|
|
at Assumed Annual Rates | |
| |
|
Underlying | |
|
Granted to | |
|
|
|
of Stock Price Appreciation | |
| |
|
Options | |
|
Employees in | |
|
Exercise | |
|
|
|
for Option Term(1) | |
| |
|
Granted | |
|
Fiscal | |
|
or Base | |
|
Expiration | |
|
| |
| Name |
|
(#)(2) | |
|
Year(3) | |
|
Price ($/sh) | |
|
Date | |
|
5% ($) | |
|
10% ($) | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Kevin W. Sharer
|
|
|
225,000 |
(4) |
|
|
1.38% |
|
|
|
59.48 |
|
|
|
3/15/11 |
|
|
|
5,448,225 |
|
|
|
12,696,681 |
|
|
George J. Morrow
|
|
|
75,000 |
(4) |
|
|
0.46% |
|
|
|
59.48 |
|
|
|
3/15/11 |
|
|
|
1,816,075 |
|
|
|
4,232,227 |
|
|
Roger M. Perlmutter
|
|
|
75,000 |
(4) |
|
|
0.46% |
|
|
|
59.48 |
|
|
|
3/15/11 |
|
|
|
1,816,075 |
|
|
|
4,232,227 |
|
|
Dennis M. Fenton
|
|
|
75,000 |
(4) |
|
|
0.46% |
|
|
|
59.48 |
|
|
|
3/15/11 |
|
|
|
1,816,075 |
|
|
|
4,232,227 |
|
|
Richard D. Nanula
|
|
|
75,000 |
(4) |
|
|
0.46% |
|
|
|
59.48 |
|
|
|
3/15/11 |
|
|
|
1,816,075 |
|
|
|
4,232,227 |
|
|
|
| (1) |
The potential realizable value is based on the term of the
option at the time of its grant, which is seven years for the
stock options granted to the Named Executive Officers. The
assumed 5% and 10% annual rates of appreciation over the term of
the options are set forth in accordance with SEC rules and
regulations and do not represent the Company’s estimates of
stock price appreciation. The potential realizable value is
calculated by assuming that the stock price on the date of grant
appreciates at the indicated rate, compounded annually, for the
entire term of the option and that the option is exercised and
the stock sold on the last day of its term at this appreciated
stock price. No valuation method can accurately predict future
stock prices or option values because there are too many unknown
factors. No gain to the optionee is possible unless the stock
price increases over the option term. Such a gain in stock price
would benefit all stockholders. |
| |
| (2) |
Options shown in the table have a term of seven years, subject
to earlier termination if the optionee ceases employment with
the Company or an affiliate of the Company (as defined in the
applicable plan). The vesting of all options will be
automatically accelerated in the event of a change in control
(as defined in the applicable plan). In addition, the options
are subject to, in certain circumstances, full or partial
accelerated vesting upon the death or permanent and total
disability of the optionee while in the employ of the Company or
an affiliate of the Company, or voluntary retirement of an
optionee after age 60 who |
62
|
|
|
has been employed by the Company or an affiliate of the Company
for at least 15 consecutive years (“Voluntary
Retirement”), as provided in the option grant agreement, or
at the discretion of the Compensation Committee as permitted by
the applicable plan. Additionally, upon Voluntary Retirement, if
applicable, options terminate on the earlier of the termination
date set forth in the grant agreement or three years following
the date of Voluntary Retirement. |
|
|
| (3) |
In 2004, the Company granted stock options covering a total of
16,332,651 shares of Common Stock to Company employees
under all stock option plans maintained by the Company and this
number was used in calculating the percentages. |
| |
| (4) |
Options vest and are exercisable as to 20% of the total grant on
each of the first, second, third, fourth and fifth anniversaries
of the date of the grant. |
Aggregated Option Exercises
The following table sets forth information (on an aggregated
basis) concerning each exercise of stock options during the year
ended December 31, 2004, by each of the Named Executive
Officers and the final year-end value of unexercised options:
Aggregated Option Exercises in Fiscal Year 2004 and Fiscal
Year-End 2004 Option Values
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Individual Grants | |
| |
|
| |
| |
|
|
|
Number of | |
|
|
| |
|
|
|
Securities Underlying | |
|
Value of Unexercised | |
| |
|
Shares | |
|
|
|
Unexercised Options at | |
|
In-the-Money Options | |
| |
|
Acquired on | |
|
Value Realized | |
|
Fiscal Year-End (#) | |
|
at Fiscal Year-End ($)(1) | |
| Name |
|
Exercise(#) | |
|
($)(2) | |
|
Exerciseable/Unexerciseable | |
|
Exerciseable/Unexerciseable | |
| |
|
| |
|
| |
|
| |
|
| |
|
Kevin W. Sharer
|
|
|
3,534 |
|
|
|
140,757 |
|
|
|
898,820/1,135,000 |
|
|
|
5,795,606/8,596,602 |
|
|
George J. Morrow
|
|
|
59,998 |
|
|
|
1,273,607 |
|
|
|
240,002/425,000 |
|
|
|
771,352/2,978,050 |
|
|
Roger M. Perlmutter
|
|
|
— |
|
|
|
— |
|
|
|
275,000/425,000 |
|
|
|
1,870,825/3,043,675 |
|
|
Dennis M. Fenton
|
|
|
169,378 |
|
|
|
7,234,677 |
|
|
|
396,544/416,998 |
|
|
|
5,649,430/2,790,338 |
|
|
Richard D. Nanula
|
|
|
— |
|
|
|
— |
|
|
|
345,000/425,000 |
|
|
|
1,646,250/2,770,550 |
|
|
|
| (1) |
Value of unexercised in-the-money options is calculated based on
the fair market value of the underlying securities, minus the
exercise price, and assumes sale of the underlying securities on
December 31, 2004, the last trading day for 2004, at a
price of $64.15 per share, the fair market value of the
Common Stock on such date. |
| |
| (2) |
Value realized is based on the fair market value of the Common
Stock on the respective dates of exercise, minus the applicable
exercise price, and does not necessarily indicate that the
optionee sold stock on that date, at that price, or at all. |
Long-Term Incentive Plan Awards
The following table sets forth information concerning the
participation of the Named Executive Officers in the Amended and
Restated Amgen Inc. Performance Award Program (the
“Program”) established under the 1991 Plan:
Long-Term Incentive Plan Awards in Fiscal Year 2004
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Number of | |
|
|
|
Future Payout Value ($)(2) | |
| |
|
Units | |
|
|
|
| |
| Name |
|
(#)(1) | |
|
Performance Period | |
|
Threshold(3) | |
|
Target(3) | |
|
Maximum(3) | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Kevin W. Sharer
|
|
|
112,500 |
|
|
|
01/01/04 to 12/31/06 |
|
|
$ |
0 |
|
|
$ |
6,691,500 |
|
|
$ |
15,055,875 |
|
|
George J. Morrow
|
|
|
37,500 |
|
|
|
01/01/04 to 12/31/06 |
|
|
$ |
0 |
|
|
$ |
2,230,500 |
|
|
$ |
5,018,625 |
|
|
Roger M. Perlmutter
|
|
|
37,500 |
|
|
|
01/01/04 to 12/31/06 |
|
|
$ |
0 |
|
|
$ |
2,230,500 |
|
|
$ |
5,018,625 |
|
|
Dennis M. Fenton
|
|
|
37,500 |
|
|
|
01/01/04 to 12/31/06 |
|
|
$ |
0 |
|
|
$ |
2,230,500 |
|
|
$ |
5,018,625 |
|
|
Richard D. Nanula
|
|
|
37,500 |
|
|
|
01/01/04 to 12/31/06 |
|
|
$ |
0 |
|
|
$ |
2,230,500 |
|
|
$ |
5,018,625 |
|
63
|
|
| (1) |
These amounts reflect the number of performance units
(“Performance Units”) granted to each Named Executive
Officer in 2004 for the performance period that began on
January 1, 2004 and ends on December 31, 2006 (the
“2004-2006 Performance Period”). A Performance Unit is
a right granted to a participant to receive Common Stock, the
payment of which is contingent upon the Company achieving
specified performance goals pre-established by the Compensation
Committee. Performance Units are assigned a unit value based on
the fair market value of a share of Common Stock on the grant
date. For the 2004-2006 Performance Period, the value of a
Performance Unit is $59.48, which was the fair market value of a
share of Common Stock on March 15, 2004, the grant date.
The aggregate dollar value of the Performance Units granted to
each of the Named Executive Officers for the 2004-2006
Performance Period are: Mr. Sharer, $6,691,500;
Mr. Morrow, $2,230,500; Dr. Perlmutter, $2,230,500;
Dr. Fenton, $2,230,500; and Mr. Nanula, $2,230,500. |
| |
| (2) |
The performance goals for the 2004-2006 Performance Period are
based on (i) the Company’s independent financial
performance and (ii) comparative financial performance, in
each case with respect to compound annual growth rates for
revenue and earnings per share, as such metrics are defined in
the goals for the 2004-2006 Performance Period. The ultimate
number of Performance Units earned is based on the level of the
Company’s individual and comparative financial performance.
The Company’s individual financial performance is evaluated
against pre-established thresholds and targets for the
performance goals. However, if the Company’s individual
performance is below the minimum specified level for either
revenue or earnings per share growth, then no individual
performance is achieved with respect to that measure (regardless
of comparative performance). For the comparative performance
measure, the Company ranks, from highest to lowest, the
performance of each company in a pre-established peer group
(consisting of leading biotechnology and pharmaceutical
companies) based on such other company’s revenue and
earnings per share compound annual growth rates for the
2004-2006 Performance Period. The higher the Company ranks with
respect to relative revenue and earnings per share growth, the
greater the level of achievement. The Company’s independent
performance results and its comparative performance results,
which are determined by the Compensation Committee after the end
of the 2004-2006 Performance Period, are combined under a set
formula to determine an ultimate level of attainment of goals,
which is expressed as a percentage. This percentage, which may
range from 0% to 225%, is multiplied by the number of
Performance Units initially granted. The resulting number of
Performance Units is multiplied by the initial value per unit to
determine the aggregate dollar value of the award. The aggregate
dollar value of the award is divided by the Share Price (as
defined below) to determine the number of shares of Common Stock
then payable to a participant. The Compensation Committee is
required to determine the amount of the performance award
payable to each participant within six months following the end
of the applicable performance period. The “Share
Price” is the average of the daily closing prices of a
share of Common Stock on NASDAQ for the 30 trading days ending
seven trading days immediately preceding the date that the
Compensation Committee determines the amount of the award
payable to participants. Accordingly, the number of shares of
Common Stock that will be delivered to each Named Executive
Officer, if any, cannot be determined at this time. If a
participant’s employment with the Company is terminated
prior to the last business day of a performance period by reason
of such participant’s voluntary retirement (assuming the
participant is retirement eligible under the Program), death or
disability, the prorated amount of such participant’s
award, if any, applicable to such performance period will be
paid. Notwithstanding the foregoing, if a participant’s
employment with the Company is terminated for any reason within
six months following the commencement of a performance period,
all of such participant’s rights to an award for such
performance period are forfeited. |
| |
| (3) |
These values are set forth in accordance with SEC rules and
regulations, and are based on SEC definitions of
“Threshold,” “Target,” and
“Maximum.” Such terms may have different meanings
under the Program. There is no guaranteed payout under the
Program and thus the “Threshold” for SEC disclosure
purposes is $0. The Program contains a different definition of
“Threshold” that reflects a required minimum level of
financial performance for there to be any award payable. |
64
Change-in-Control Arrangements
Effective as of October 20, 1998 (the “Effective
Date”), the Board of Directors adopted the Amgen Inc.
Change of Control Severance Plan, as amended (the “CCS
Plan”), which provides certain severance benefits to
persons who hold certain designated positions with the Company
as of the date on which a Change of Control (as defined below)
of the Company occurs. If a Change of Control had occurred on
December 31, 2004, the CCS Plan would have covered
approximately 1,259 officers and key employees of the Company,
including each of the Named Executive Officers. Under the terms
of the CCS Plan, the CCS Plan extended through December 31,
2004, subject to automatic one year extensions unless the
Company notified the participants no later than
September 30, 2004 that the term would not be extended. The
Company did not notify participants that the term would not be
extended, so the term has been extended to December 31,
2005, subject to possible further extensions. If a Change of
Control occurs during the original or any extended term, the CCS
Plan will continue in effect for at least 36 months
following the Change of Control. Prior to the occurrence of a
Change of Control, the Company has the right to terminate or
amend the CCS Plan at any time; after the occurrence of a Change
of Control, the CCS Plan may not be terminated or amended in any
way that adversely affects a participant’s interests under
the CCS Plan without the participant’s written consent.
Under the CCS Plan, a Change of Control generally will be deemed
to have occurred at any of the following times: (i) upon
the acquisition by any person, entity or group of beneficial
ownership of 50% or more of either the then outstanding Common
Stock or the combined voting power of the Company’s then
outstanding securities entitled to vote generally in the
election of directors; or (ii) at the time individuals
making up the Incumbent Board (as defined in the CCS Plan) cease
for any reason to constitute at least a majority of the Board;
or (iii) immediately prior to the consummation by the
Company of a reorganization, merger, or consolidation with
respect to which persons who were the stockholders of the
Company immediately prior to such transaction do not,
immediately thereafter, own more than 50% of the shares of the
Company entitled to vote generally in the election of directors;
or (iv) a liquidation or dissolution of the Company or the
sale of all or substantially all of the assets of the Company;
or (v) any other event which the Incumbent Board, in its
sole discretion, determines is a change of control.
Under the CCS Plan, if a Change of Control occurs and a
participant’s employment is terminated within the two year
period immediately following the Change of Control by the
Company other than for Cause or Disability (each as defined in
the CCS Plan) or by the participant for Good Reason (as defined
in the CCS Plan), the participant will be entitled to certain
payments and benefits in lieu of further salary payments
subsequent to such termination and in lieu of severance benefits
otherwise payable by the Company (but not including accrued
vacation and similar benefits otherwise payable upon
termination). In the event of such termination, the participant
will receive a lump sum cash severance payment in an amount
equal to the excess, if any, of (A) the product of
(x) a benefits multiple (either 3, 2 or 1,
depending on the participant’s position (a “Benefits
Multiple”)), and (y) the sum of (i) the
participant’s annual base salary immediately prior to
termination or, if higher, immediately prior to the Change of
Control, plus (ii) the participant’s targeted annual
bonus for the year in which the termination occurs or, if
higher, the participant’s average annual bonus for the
three years immediately prior to the Change of Control; over
(B) the aggregate value (determined in accordance with
Section 280G of the Code) of the acceleration of vesting of
the participant’s unvested stock options in connection with
the Change of Control. An award to a participant under the Amgen
Inc. Performance Award Program will be excluded from the
calculation described in (B) above. The terms of the
Amended and Restated 1988 Stock Option Plan, the 1991 Plan, and
the Amended and Restated 1997 Special Non-Officer Equity
Incentive Plan, Article II of the Amended and Restated 1993
Equity Incentive Plan, and Article II of the Amended and
Restated 1999 Equity Incentive Plan contain the same definition
of “change of control” as the CCS Plan definition, and
such option plans provide for the acceleration of vesting of
issued and outstanding stock options upon the occurrence of a
change of control.
Participants who are senior executive-level staff members
(including each of the Named Executive Officers) have a Benefits
Multiple of 3; participants who are senior management-level
staff members at the level of “director” or equivalent
and above have a Benefits Multiple of 2; and management-level
staff members at the level of “associate director” or
equivalent have a Benefits Multiple of 1.
65
The Company will also provide the participant with continued
health and other group insurance benefits for a period of one to
three years (depending on the participant’s Benefits
Multiple) after the participant’s termination of
employment. In addition, the participant will be fully vested in
his or her accrued benefits under the Company’s retirement
plans and the Company will provide the participant with
additional fully vested benefits under such plans, to the extent
allowed under applicable law, in an amount equal to the benefits
the participant would have earned under the plans had the
participant continued to be employed by the Company for a number
of years equal to the participant’s Benefits Multiple. If
such benefits are not allowed under applicable law, a lump sum
payment in an amount equal to the value of such benefits will be
paid to the participant. The participant will also be
indemnified by the Company and will be provided with
directors’ and officers’ liability insurance (if
applicable), each as set forth in the CCS Plan. If a Change of
Control had occurred on the Effective Date, each of the Named
Executive Officers would have received such indemnification and
liability insurance. In addition, if any payment, distribution
or acceleration of vesting of any stock option or other right
with respect to a participant who is a “disqualified
individual” (within the meaning of Section 280G of the
Code) would be subject to the excise tax imposed by
Section 4999 of the Code, then the Company will pay the
participant an additional lump sum cash payment in an amount
equal to 20% of the amount of the participant’s
“excess parachute payments” (within the meaning of
Section 280G of the Code).
The CCS Plan provides that for a period of years equal to a
participant’s Benefits Multiple after the
participant’s termination of employment, the participant
will not disclose confidential information of the Company and
will not solicit or offer employment to any of the
Company’s employees. In the event that the participant
breaches any of such provisions, the participant will forfeit
any right to receive further payments or benefits under the CCS
Plan.
Employment and Compensation Arrangements
Mr. Morrow became Executive Vice President, Worldwide Sales
and Marketing pursuant to an amended and restated offer letter,
effective as of January 19, 2001. He became Executive Vice
President, Global Commercial Operations in April 2003. The offer
letter provided for a monthly salary of $54,167 and a $750,000
bonus that was paid within 30 days of the start of
Mr. Morrow’s employment with the Company.
Mr. Morrow was guaranteed a minimum incentive payment of
$750,000 for each of 2001 and 2002 under the Company’s
Amended and Restated Management Incentive Plan (the
“MIP”). The Company will also pay Mr. Morrow a
retention bonus of $200,000 on each of the first five one-year
anniversaries of the start of his employment with the Company.
The Company has also agreed to provide Mr. Morrow with
certain non-qualified deferred compensation benefits. See
“— Executive Nonqualified Retirement Plan.”
In addition, the Company also agreed to maintain and pay the
premiums on a term life insurance policy in the amount of
$15,000,000 for Mr. Morrow’s benefit until 2006. The
Company also agreed to either assume responsibility for, or
provide alternative compensation with respect to, a split dollar
life insurance policy provided to Mr. Morrow by his former
employer. Prior to the Sarbanes-Oxley Act, the Company made a
loan of $1,000,000 to Mr. Morrow. In compliance with the
Sarbanes-Oxley Act, the Company no longer makes personal loans
to executive officers prohibited by such act. See
“Item 13. Certain Relationships and Related
Transactions.”
Mr. Morrow was granted an option to
purchase 200,000 shares of Common Stock on
January 19, 2001 with an exercise price of $60.00 per
share. The Company also agreed to grant to Mr. Morrow an
option under the periodic stock option program to
purchase 150,000 shares of Common Stock in each of
2001 and 2002. On June 15, 2001, July 2, 2001 and
July 1, 2002, respectively, the Company granted to
Mr. Morrow an option to purchase 50,000 shares,
100,000 shares and 150,000 shares of Common Stock with
a per share exercise price of $67.06, $61.67 and $38.36,
respectively.
If, within the first five years of his employment with the
Company, Mr. Morrow’s employment is terminated without
cause, or he resigns from the Company due to a reduction of his
duties or base salary or annual target incentive opportunity
under the MIP, Mr. Morrow will be entitled to receive three
years of base salary and target incentive paid monthly and
health care benefits, unless such health care benefits are
obtained from another employer. Mr. Morrow is also entitled
to receive severance benefits under the Company’s CCS Plan
in the event of a change of control of the Company.
66
Dr. Perlmutter became Executive Vice President, Research
and Development pursuant to an amended and restated offer
letter, effective as of January 8, 2001. The offer letter
provided for a monthly salary of $54,167 and a $750,000 bonus
that was paid within 30 days of the start of
Dr. Perlmutter’s employment with the Company.
Dr. Perlmutter was guaranteed a minimum incentive payment
of $750,000 for each of 2001 and 2002 under the MIP. The Company
will also pay Dr. Perlmutter a retention bonus of $200,000
on each of the first five one-year anniversaries of the start of
his employment with the Company. The Company has also agreed to
provide Dr. Perlmutter with certain non-qualified deferred
compensation benefits. See “— Executive
Nonqualified Retirement Plan.” In addition, the Company
also agreed to maintain and pay the premiums on a term life
insurance policy in the amount of $10,000,000 for
Dr. Perlmutter’s benefit until 2007. Prior to the
Sarbanes-Oxley Act, the Company made a loan of $1,000,000 to
Dr. Perlmutter. In compliance with the Sarbanes-Oxley Act,
the Company no longer makes personal loans to executive officers
prohibited by such act. See “Item 13. Certain
Relationships and Related Transactions.”
Dr. Perlmutter was granted an option to
purchase 200,000 shares of Common Stock on
January 8, 2001 with an exercise price of $58.68 per
share. The Company also agreed to grant to Dr. Perlmutter
an option under the periodic stock option program to
purchase 150,000 shares of Common Stock in each of
2001 and 2002. On June 15, 2001, July 2, 2001 and
July 1, 2002, respectively, the Company granted to
Dr. Perlmutter an option to
purchase 50,000 shares, 100,000 shares and
150,000 shares of Common Stock with a per share exercise
price of $67.06, $61.67 and $38.36, respectively. On
January 8, 2001, Dr. Perlmutter was also awarded
111,500 shares of restricted Common Stock in consideration
of his payment of $11.15. The Company has a right to repurchase
the restricted stock at the price paid by Dr. Perlmutter in
the event that his employment is terminated for any reason other
than his death or permanent and total disability. The
Company’s repurchase option shall lapse with respect to the
following number of shares on the following dates:
40,000 shares on April 1, 2002; 23,750 shares on
April 1, 2003; 23,750 shares on April 1, 2004 and
24,000 shares on April 1, 2005. On March 22,
2002, the offer letter was amended to accelerate the lapse of
the repurchase option with respect to the first
40,000 shares to March 25, 2002 from April 1,
2002.
If, within the first five years of his employment with the
Company, Dr. Perlmutter’s employment is terminated
without cause, or he resigns from the Company due to a reduction
of his duties or base salary or annual target incentive
opportunity under the MIP, Dr. Perlmutter will be entitled
to receive three years of base salary and target incentive paid
monthly and health care benefits, unless such health care
benefits are obtained from another employer. Dr. Perlmutter
is also entitled to receive severance benefits under the
Company’s CCS Plan in the event of a change of control of
the Company.
Mr. Nanula became Executive Vice President pursuant to an
amended and restated offer letter, effective as of May 14,
2001. He became the Company’s Chief Financial Officer in
August 2001. The offer letter provided for a monthly salary of
$50,000. Prior to the Sarbanes-Oxley Act, the Company made a
loan of $3,000,000 to Mr. Nanula. In compliance with the
Sarbanes-Oxley Act, the Company no longer makes personal loans
to executive officers prohibited by such act. See
“Item 13. Certain Relationships and Related
Transactions.”
Mr. Nanula was granted an option to
purchase 200,000 shares of Common Stock on
May 16, 2001 with an exercise price of $65.00 per
share. The Company also agreed to grant to Mr. Nanula an
option under the periodic stock option program to
purchase 150,000 shares of Common Stock in each of
2001 and 2002. On June 15, 2001, July 2, 2001 and
July 1, 2002, respectively, the Company granted to
Mr. Nanula an option to purchase 50,000 shares,
100,000 shares and 150,000 shares of Common Stock with
a per share exercise price of $67.06, $61.67 and $38.36,
respectively. On May 14, 2001, Mr. Nanula was also
awarded 85,000 shares of restricted Common Stock in
consideration of his payment of $8.50. The Company has a right
to repurchase the restricted stock at the price paid by
Mr. Nanula in the event that his employment is terminated
for any reason other than his death or permanent and total
disability. The Company’s repurchase option shall lapse
with respect to the following number of shares on the following
dates: 20,000 shares on May 16, 2004;
20,000 shares on May 16, 2005 and 45,000 shares
on May 16, 2006.
67
If, within the first five years of his employment with the
Company, Mr. Nanula’s employment is terminated without
cause, or he resigns from the Company due to a reduction of his
duties or base salary or annual target incentive opportunity
under the MIP, Mr. Nanula will be entitled to receive three
years of base salary and target incentive paid monthly and
health care benefits, unless such health care benefits are
obtained from another employer. Mr. Nanula is also entitled
to receive severance benefits under the Company’s CCS Plan
in the event of a change of control of the Company.
In connection with the Company’s acquisition of Immunex
Corporation, the Company and Mr. Edward V. Fritzky entered
into an employment agreement effective July 15, 2002. The
employment agreement was amended and restated on January 2,
2003. Pursuant to the employment agreement, Mr. Fritzky was
employed by the Company as a special advisor and was also
appointed to the Board of Directors. The employment agreement,
which terminated on July 15, 2004, provided for an annual
base salary of not less than $500,000 for the term of the
employment agreement. The Company also contributed a retention
bonus of $1,000,000 to a deferred compensation account
established for Mr. Fritzky. The retention bonus vested as
follows: $500,000 on July 15, 2003 and $250,000 on each of
January 15, 2004 and July 15, 2004. Additionally, in
consideration of Mr. Fritzky’s waiver of any right to
payment pursuant to the Immunex Corporation Leadership
Continuity Policy, the Company made a one-time payment to
Mr. Fritzky of $5.4 million.
Mr. Fritzky was granted an option to
purchase 450,000 shares of Common Stock on
July 15, 2002 with an exercise price of $31.07 per
share, with one third of the shares vesting upon grant and one
third vesting on each of the first and second anniversaries of
the date of grant. Mr. Fritzky was also awarded
100,000 shares of restricted Common Stock in consideration
of his payment of $10.00. Upon the grant of the restricted
Common Stock, 34,000 shares became fully vested. The
remaining shares vested as follows: 33,000 shares on
July 15, 2003 and 33,000 shares on July 15, 2004.
Pursuant to the employment agreement, Mr. Fritzky received
reimbursement of up to $250,000 annually for secretarial,
communications and technology support services approved by the
Company. Mr. Fritzky was also entitled to receive financial
counseling and tax planning services. If Mr. Fritzky is
subject to excise tax as imposed by Section 4999 of the
Code on any benefits paid or payable to Mr. Fritzky
(“Total Payments”), the Company will pay an additional
amount (the “Gross-Up Payment”) such that the net
amount retained by Mr. Fritzky, after deduction of any
excise tax and any federal, state and local income and
employment taxes and excise tax upon the Gross-Up Payment, and
after taking into account the phase out of itemized deductions
and personal exemptions attributable to the Gross-Up Payment is
equal to the Total Payments.
During the term of Mr. Fritzky’s employment under the
agreement, he could not be employed by any person or company
other than the Company, without the Company’s prior
approval. Mr. Fritzky could, however, perform limited
consulting services to certain companies, so long as the
consulting did not violate Mr. Fritzky’s proprietary
information and arbitration agreement with the Company or
interfere with Mr. Fritzky’s duties under the
employment agreement. Mr. Fritzky could also be
self-employed, an independent contractor, a partner or a
consultant in a venture fund, or a founding member of a
biotechnology startup so long as these activities did not
compete with the Company, violate the proprietary information
and arbitration agreement or interfere with
Mr. Fritzky’s duties under the employment agreement.
|
|
|
Compensation and management development committee interlocks
and insider participation |
The Company’s Compensation Committee consists of
Mr. Choate, Mr. Gluck, Adm. Reason, Dr. Rice and
Mr. Schaeffer, all of whom are non-employee directors.
Mr. Choate has a daughter and a son-in-law who are employed
by the Company. See “Item 13. Certain Relationships
and Related Transactions.”
|
|
|
Executive nonqualified retirement plan |
The Amgen Inc. Executive Nonqualified Retirement Plan has been
established to provide supplemental retirement income benefits
for a select group of management and highly compensated
employees through Company contributions. Participants are
selected by the Compensation Committee. Mr. Morrow and
Dr. Perlmutter are currently the only participants in this
plan.
68
Under the plan, if Mr. Morrow is actively employed by the
Company on January 19, 2006, the Company will credit a
deferred compensation account with $15,000,000 for his benefit.
In the event that Mr. Morrow’s employment with the
Company is terminated without cause prior to January 19,
2006, the Company will pay to Mr. Morrow, between January 2
and January 31 of the year following the year in which his
employment was terminated, a prorated portion of the
$15,000,000. This prorated portion will be equal to the ratio of
the number of full months of Mr. Morrow’s active
employment with the Company and 60 months; provided,
however, that if the termination of Mr. Morrow’s
employment occurs within two years after a change of control of
the Company, Mr. Morrow will receive the prorated portion
described above, plus an amount equal to $15,000,000 minus the
sum of the prorated portion, and an amount equal to the
aggregate spread between the exercise prices of
Mr. Morrow’s unvested stock options which are
in-the-money, and the vesting of which is accelerated by the
change of control of the Company, and the NASDAQ closing price
of the Common Stock on the date of the change of control.
If the termination of Mr. Morrow’s employment prior to
January 19, 2006 is due to his permanent and total
disability, Mr. Morrow will receive, on the second
anniversary of the date upon which he last completed one week of
active employment with the Company, a pro rata portion of the
$15,000,000 based upon the ratio of the sum of the number of
full months of his active employment with the Company plus
24 months, and 80 months.
If Mr. Morrow continues to be actively employed with the
Company until January 19, 2011, the Company will credit
interest on the deferred compensation account at a rate equal to
125% of the 10-year moving average yield on 10-year
U.S. Treasury notes, adjusted and compounded annually, from
January 19, 2006 until the date upon which the deferred
compensation account and accrued interest is distributed to
Mr. Morrow. If Mr. Morrow’s employment is
terminated for any reason prior to January 19, 2011, the
Company will credit interest on the deferred compensation
account at a rate equal to 100% of the 10-year moving average
yield on 10-year U.S. Treasury notes, adjusted and
compounded annually, from January 19, 2006 until the date
upon which the deferred compensation account and accrued
interest is distributed to Mr. Morrow.
Under the plan, if Dr. Perlmutter is actively employed by
the Company on September 16, 2007, the Company will credit
a deferred compensation account with $10,000,000 for his
benefit. In the event that Dr. Perlmutter’s employment
with the Company is terminated without cause prior to
September 16, 2007, the Company will pay to
Dr. Perlmutter, between January 2 and January 31 of the
year following the year in which his employment was terminated,
a prorated portion of the $10,000,000. This prorated portion
will be equal to the ratio of the number of full months of
Dr. Perlmutter’s active employment with the Company
and 80 months; provided, however, that if the termination
of Dr. Perlmutter’s employment occurs within two years
after a change of control of the Company, Dr. Perlmutter
will receive the prorated portion described above, plus an
amount equal to $10,000,000 minus the sum of the prorated
portion, and an amount equal to the aggregate spread between the
exercise prices of Dr. Perlmutter’s unvested stock
options which are in-the-money, and the vesting of which is
accelerated by the change of control of the Company, and the
NASDAQ closing price of the Common Stock on the date of the
change of control.
If the termination of Dr. Perlmutter’s employment
prior to September 16, 2007 is due to his permanent and
total disability, Dr. Perlmutter will receive, on the
second anniversary of the date upon which he last completed one
week of active employment with the Company, a pro rata portion
of the $10,000,000 based upon the ratio of the sum of the number
of full months of his active employment with the Company plus
24 months, and 80 months.
If Dr. Perlmutter continues to be actively employed by the
Company until January 7, 2011, the Company will credit
interest on the deferred compensation account at a rate equal to
125% of the 10-year moving average yield on 10-year
U.S. Treasury notes, adjusted and compounded annually, from
September 16, 2007 until the date upon which the deferred
compensation account and accrued interest is distributed to
Dr. Perlmutter. If Dr. Perlmutter’s employment is
terminated for any reason prior to January 7, 2011, the
Company will credit interest on the deferred compensation
account at a rate equal to 100% of the 10-year moving average
yield on 10-year U.S. Treasury notes, adjusted and
compounded annually, from September 16, 2006 until the date
upon which the deferred compensation account and accrued
interest is distributed to Dr. Perlmutter.
69
|
|
|
Nonqualified deferred compensation plan |
The Amgen Nonqualified Deferred Compensation Plan (the
“DCP”) was established to provide eligible
participants with an opportunity to defer all or a portion of
their compensation and to earn tax-deferred returns on the
deferrals. Directors, officers and other key employees of the
Company selected by the Compensation Committee (including each
of the Named Executive Officers) are eligible to participate in
the DCP. Directors may defer all or a portion of their
retainers, chair fees and meeting fees. All other participants
may defer up to a maximum of 50% of their annual base salary and
up to a maximum of 100% of their annual incentive bonus, with a
minimum deferral amount of $2,000. Under the DCP, the Company
may, in its sole discretion, credit any amount it desires to any
participant’s account.
The DCP is an unfunded plan for tax purposes and for purposes of
Title I of the Employee Retirement Income Security Act of
1974, as amended. A “rabbi trust” has been established
to satisfy the Company’s obligations under the DCP.
The Compensation Committee selects measurement funds consisting
of mutual funds, insurance company funds, indexed rates or other
methods for participants to choose from for the purpose of
providing the basis on which gains and losses shall be
attributed to account balances under the DCP. Participants are
entitled to select one or more measurement funds and they do not
have an ownership interest in the measurement funds they select.
The Compensation Committee may, in its sole discretion,
discontinue, substitute, or add measurement funds at any time.
Payments from the DCP are made in a lump sum or in annual
installments for up to ten years at the election of the
participant. In addition, participants may elect to receive a
short-term payout of a deferral as soon as three years after the
end of the plan year in which the deferral was made.
70
|
|
| Item 12. |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
Equity Compensation Plan Information
The following table sets forth certain information as of
December 31, 2004 concerning our common stock that may be
issued upon the exercise of options or pursuant to purchases of
stock under all of our equity compensation plans approved by
stockholders and equity compensation plans not approved by
stockholders in effect as of December 31, 2004:
| |
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|
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|
|
|
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|
|
|
|
| |
|
|
|
|
|
(c) | |
| |
|
(a) | |
|
|
|
Number of | |
| |
|
Number of | |
|
(b) | |
|
Securities Remaining | |
| |
|
Securities to be | |
|
Weighted | |
|
Available for Future | |
| |
|
Issued Upon | |
|
Average | |
|
Issuance Under | |
| |
|
Exercise of | |
|
Exercise Price | |
|
Equity Compensation | |
| |
|
Outstanding | |
|
Outstanding | |
|
Plans (Excluding | |
| |
|
Options and | |
|
Options and | |
|
Securities Reflected | |
| Plan Category |
|
Rights | |
|
Rights | |
|
in Column (a)) | |
| |
|
| |
|
| |
|
| |
|
Equity compensation plans approved by Amgen security holders:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Amended and Restated 1987 Directors’ Stock Option
Plan(1)
|
|
|
121,600 |
|
|
$ |
10.45 |
|
|
|
— |
|
| |
Amended and Restated 1991 Equity Incentive Plan
|
|
|
16,851,899 |
|
|
$ |
56.83 |
|
|
|
38,239,303 |
|
| |
Amended and Restated Employee Stock Purchase Plan
|
|
|
— |
|
|
$ |
— |
(2) |
|
|
12,431,637 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total Approved Plans
|
|
|
16,973,499 |
|
|
$ |
56.49 |
|
|
|
50,670,940 |
|
|
Equity compensation plans not approved by Amgen security holders:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Amended and Restated 1993 Equity Incentive Plan(3)
|
|
|
5,241,185 |
|
|
$ |
26.77 |
|
|
|
— |
|
| |
Amended and Restated 1999 Equity Incentive Plan(3)
|
|
|
10,085,813 |
|
|
$ |
58.07 |
|
|
|
6,711,124 |
|
| |
Amgen Inc. Amended and Restated 1997 Equity Incentive Plan(4)
|
|
|
3,478,667 |
|
|
$ |
31.14 |
|
|
|
600,103 |
|
| |
Tularik Inc. 1991 Stock Plan(4)
|
|
|
21,272 |
|
|
$ |
1.95 |
|
|
|
— |
|
| |
Tularik Inc. Amended and Restated 1997 Non-Employee
Directors’ Stock Option Plan(4)
|
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
| |
Amended and Restated 1997 Special Non-Officer Equity Incentive
Plan
|
|
|
53,411,760 |
|
|
$ |
51.31 |
|
|
|
1,976,219 |
|
|
Foreign Affiliate Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Amgen Limited Sharesave Plan
|
|
|
— |
|
|
$ |
— |
(5) |
|
|
372,839 |
|
| |
The Amgen Limited 2000 UK Company Employee Share Option Plan(6)
|
|
|
— |
|
|
$ |
— |
|
|
|
300,000 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total Unapproved Plans
|
|
|
72,238,697 |
|
|
$ |
49.49 |
|
|
|
9,960,285 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total All Plans
|
|
|
89,212,196 |
|
|
$ |
50.82 |
|
|
|
60,631,225 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| (1) |
The Amended and Restated 1987 Directors’ Stock Option
Plan (the “1987 Plan”) terminated on January 27,
1997. Although there are options still outstanding under the
1987 Plan, no shares are available for issuance under this plan
for future grants. |
| |
| (2) |
The purchase occurred on December 31, 2004 (the
“Purchase Date”) with a purchase of an aggregate
1,219,582 shares of Common Stock at a purchase price of
$53.00 per share, such purchase price reflects the lesser
of 85% of either the closing price of the Common Stock on the
Purchase Date or the closing price of the Common Stock on the
start date of the applicable employee’s participation in
the plan. |
71
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|
| (3) |
These plans were assumed pursuant to the terms of the merger
agreement between Amgen and Immunex Corporation which was
approved by our stockholders in May 2002. Both plans were
previously approved by Immunex Corporation’s shareholders.
The Amended and Restated 1993 Equity Incentive Plan terminated
on March 11, 2003 and no shares are available for issuance
under the 1993 Plan for future grants. |
| |
| (4) |
These plans were assumed by Amgen in connection with the merger
of Tularik Inc. with and into Amgen SF, LLC, a wholly owned
subsidiary of Amgen, on August 13, 2004 (the
“Merger”). All of these plans were previously approved
by Tularik Inc.’s shareholders. The Tularik Inc. 1991 Stock
Plan (the “Tularik 1991 Plan”) was terminated on
March 14, 1997 by Tularik Inc. The Tularik Inc. Amended and
Restated 1997 Non-Employee Directors’ Stock Option Plan
(the “1997 Director Plan”) was terminated
pursuant to its terms by the Board of Directors of Amgen Inc. on
the date of the Merger. Although there are options still
outstanding under the Tularik 1991 Plan and the
1997 Director Plan, no shares are available for issuance
under these plans for future grants. |
| |
| (5) |
As of December 31, 2003, there were no further offerings
under the Amgen Limited Sharesave Plan and last share purchase
under this plan was March 31, 2003. |
| |
| (6) |
Although 300,000 shares of common stock are authorized for
issuance under the Amgen Limited 2000 UK Company Employee Share
Option Plan, no shares have been issued under this plan. |
Summary of Equity Compensation Plans Not Approved by
Stockholders
The following is a summary of the equity compensation plans,
which have shares available for issuance for future grants as of
December 31, 2004 and were adopted or assumed by the Board
without the approval of our stockholders:
|
|
|
Amended and Restated 1999 Equity Incentive Plan |
The Amended and Restated 1999 Equity Incentive Plan (formerly
known as the Immunex Corporation 1999 Stock Option Plan) (the
“1999 Plan”) was assumed pursuant to the terms of the
merger agreement between the Company and Immunex Corporation
which was approved by the Company’s stockholders in May
2002. The plan was previously approved by Immunex
Corporation’s shareholders. The 1999 Plan consists of two
articles — Article I which governs awards granted
prior to July 15, 2002 (the “Restatement Date”)
and Article II which governs awards granted on or after the
Restatement Date. As the terms of Stock Awards (as defined
below) made pursuant to the 1999 Plan going forward are governed
exclusively by Article II of the plan, the following is a
description of the material provisions of Article II of the
1999 Plan. This description is qualified in its entirety by
reference to the 1999 Plan itself, which was filed as an exhibit
to the Company’s Form S-8 dated July 16, 2002.
Stock Subject to the 1999 Plan. Subject to adjustments
upon certain changes in the common stock, the shares available
for issuance under the 1999 Plan upon exercise of the
outstanding grants made pursuant to the 1999 Plan are
Amgen’s common stock. The number of shares authorized for
issuance under the 1999 Plan is 19,273,852. Awards of
(i) incentive stock options, (ii) nonqualified stock
options, (iii) stock bonuses, and (iv) rights to
purchase restricted stock (“Stock Award”) may be
granted under the 1999 Plan.
Administration. The 1999 Plan is administered by the
Board of Directors. The Board of Directors has delegated
administration of the 1999 Plan to the committees of the Board
and certain officers of Amgen Inc.
Eligibility. Incentive stock options may be granted under
the 1999 Plan to all employees (including officers) of Amgen or
its affiliates. All employees (including officers) and directors
of Amgen or its affiliates and consultants to Amgen or its
affiliates, or trusts for the benefit of such an employee,
director or consultant or his or her spouse or members of their
immediate family (“permitted trusts”) designated by
any such employee, director or consultant, are eligible to
receive Stock Awards other than incentive stock options under
the 1999 Plan.
For incentive stock options granted under the 1999 Plan, the
aggregate fair market value, determined at the time of grant, of
the shares of common stock with respect to which such options
are exercisable for the first time by an optionee during any
calendar year (under all such plans of Amgen or any affiliate of
Amgen) may
72
not exceed $100,000. No person may receive Stock Awards for more
than 649,455 shares of common stock in any calendar year.
Terms of Discretionary Options. The following is a
description of the permissible terms of options granted under
the 1999 Plan, other than options awarded to non-employee
directors which are described below under the heading
“Terms of Non-Discretionary Options Awarded to Non-Employee
Directors” (the options described in this section are
referred to as “Discretionary Options”). Individual
Discretionary Option grants may be more restrictive as to any or
all of the permissible terms described below.
The exercise price of Discretionary Options must be equal to at
least 100% of the fair market value of the underlying stock on
the date of the option grant. The exercise price of
Discretionary Options must be paid either: (i) in cash at
the time the option is exercised; or (ii) at the discretion
of the Board, (a) by delivery of common stock of Amgen that
has been held for the period required to avoid a charge to
Amgen’s earnings, (b) pursuant to a deferred payment
or other arrangement, or (c) in any other form of legal
consideration acceptable to the Board.
Generally, optionees may designate certain specified trusts as
beneficiaries with respect to Discretionary Options. In the
absence of such a designation, after the death of the optionee,
Discretionary Options shall be exercisable by the person(s) to
whom the optionee’s rights pass by will or by the laws of
descent and distribution. Generally, during the lifetime of an
optionee who is a natural person, only the optionee may exercise
the Discretionary Option.
The maximum term of Discretionary Options is 10 years.
Absent death, disability or voluntary retirement in certain
circumstances, Discretionary Options generally terminate three
months after termination of the optionee’s employment or
relationship as a consultant or director of Amgen or any
affiliate of Amgen. Individual options by their terms may
provide for exercise within a longer period of time following
termination of employment or the relationship as a director or
consultant.
Discretionary Options either become exercisable in cumulative
increments or are exercisable in full immediately. The Board has
the power to accelerate the beginning of the period during which
an option may be exercised (the “vesting date”).
Options granted from the Restatement Date under the 1999 Plan
typically vest at the rate of 25% per year during the
optionee’s employment or service as a consultant. Stock
options typically provide for the acceleration of the vesting of
options if the optionee voluntarily retires at or after
age 60 after having been an employee of Amgen or its
affiliate for at least fifteen consecutive years and such
retirement is not the result of permanent and total disability
(“Voluntary Retirement”). Generally, if any optionee
shall terminate his or her employment or relationship as a
director or consultant with Amgen or an affiliate due to death
or disability, then, in such event, the vesting date for those
Discretionary Options granted to such employee, director or
consultant or to the permitted trust of such employee, director
or consultant which have not vested as of the date of such
employee’s, director’s or consultant’s
termination for reasons of death or disability shall
automatically be accelerated by twelve months for each full year
of employment or relationship with Amgen of such employee,
director or consultant. Upon Voluntary Retirement, Discretionary
Options shall not terminate until the earlier of the termination
date set forth in the applicable grant agreement or three years
following the date of Voluntary Retirement. The Board also has
the power to accelerate the time during which a Discretionary
Option may be exercised. To the extent provided by the terms of
a Discretionary Option, an optionee may satisfy any federal,
state or local tax withholding obligations relating to the
exercise of such option by (1) a cash payment upon
exercise, (2) by authorizing Amgen to withhold a portion of
the stock otherwise issuable to the optionee, (3) by
delivering already-owned stock of Amgen or (4) by a
combination of these means.
Terms of Non-Discretionary Options Awarded to Non-Employee
Directors. The Board may from time to time adopt award
programs under the 1999 Plan providing for the grant of formula
or non-discretionary Stock Awards to directors of Amgen who are
not employees of Amgen or any affiliate. The terms and
conditions of any such program shall be established by the Board
in its sole discretion, subject to the terms and conditions of
the 1999 Plan.
Terms of Stock Bonuses and Purchases of Restricted Stock.
Stock bonuses and purchases of restricted stock shall be in such
form and contain such terms and conditions as the Board shall
deem appropriate. The following is a description of some of the
permissible terms of stock bonuses and purchases of restricted
stock
73
under the 1999 Plan. Individual stock bonuses or purchases of
restricted stock may be more restrictive as to any or all of the
permissible terms described below or on different terms and
conditions.
The purchase price under each stock purchase agreement shall be
determined by the Board and may provide for a nominal purchase
price or a purchase price that is less than fair market value of
the underlying common stock on the award date. The Board may
determine that eligible participants may be awarded stock
pursuant to a stock bonus agreement in consideration for past
services actually rendered to Amgen or for its benefit.
The purchase price of stock acquired pursuant to a stock
purchase agreement must be paid in accordance with the same
terms as Discretionary Options. See “Terms of Discretionary
Options.”
Shares of common stock sold or awarded under the 1999 Plan may,
but need not, be subject to a repurchase option in favor of the
Company in accordance with a vesting schedule determined by the
Board. To the extent provided by the terms of a stock bonus or
restricted stock purchase agreement, a participant may satisfy
any federal, state or local tax withholding obligations relating
to the lapsing of a repurchase option or vesting of a stock
bonus or a restricted stock award in the same manner as that of
Discretionary Options. See “Terms of Discretionary
Options.”
Generally, rights under a stock bonus or restricted stock
purchase agreement shall not be assignable by any participant
under the 1999 Plan.
Adjustment Provisions. If there is any change in the
stock subject to the 1999 Plan or subject to any Stock Award
granted under the 1999 Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in
property other than cash, stock split, liquidating dividend,
combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of
consideration by the Company), the 1999 Plan and outstanding
Stock Awards thereunder will be appropriately adjusted as to the
class and the maximum number of shares subject to such plan, the
maximum number of shares which may be granted to a participant
in a calendar year, the class, number of shares and price per
share of stock subject to such outstanding Stock Awards.
Change in Control. For purposes of the 1999 Plan, a
Change in Control occurs at the following times: (i) upon
the acquisition of beneficial ownership of 50% or more of either
the then outstanding shares of common stock or the combined
voting power of the Company’s then outstanding voting
securities entitled to vote generally in the election of
directors; or (ii) at the time individuals making up the
Incumbent Board (as defined in the 1999 Plan) cease for any
reason to constitute at least a majority of the Board; or
(iii) immediately prior to the consummation by the Company
of a reorganization, merger, or consolidation with respect to
which persons who were the stockholders of the Company
immediately prior to such transaction do not, immediately
thereafter, own more than 50% of the combined voting power of
the reorganized, merged or consolidated company’s voting
securities entitled to vote generally in the election of
directors, or a liquidation or dissolution of the Company or the
sale of all or substantially all of the assets of the Company;
or (iv) the occurrence of any other event which the
incumbent Board determines is a Change of Control. Upon the
occurrence of a Change in Control, to the extent permitted by
applicable law, the vesting and exercisability of any
outstanding Stock Awards under the 1999 Plan will accelerate.
Upon and following such acceleration, at the election of the
holder of the Stock Award, the Stock Award may be
(a) exercised with respect to stock options or, if the
surviving or acquiring corporation agrees to assume the Stock
Awards or substitute similar awards, (b) assumed or
(c) replaced with substitute Stock Awards. Options not
exercised, substituted or assumed prior to or upon the Change in
Control shall be terminated.
Duration, Amendment and Termination. The Board may
suspend or terminate the 1999 Plan without stockholder approval
or ratification at any time or from time to time. No incentive
stock options may be granted under the 1999 Plan after
February 22, 2009. No amendment, suspension or termination
may impair the rights or obligations under any Stock Award
except with the consent of the person to whom the Stock Award
was granted.
|
|
|
Amgen Inc. Amended and Restated 1997 Equity Incentive Plan |
The Amgen Inc. Amended and Restated 1997 Equity Incentive Plan
(formerly known as the Tularik Inc. 1997 Equity Incentive Plan,
as amended) (the “Acquired 1997 Plan”) was assumed by
Amgen in connection
74
with the merger of Tularik Inc. with and into Amgen SF, LLC, a
wholly owned subsidiary of Amgen on August 13, 2004. The
Acquired 1997 Plan was previously approved by Tularik
Inc.’s shareholders. The Acquired 1997 Plan consists of two
articles — Article I which governs awards granted
prior to August 13, 2004 (the “Restatement Date”)
and Article II which governs awards granted on or after the
Restatement Date. As the terms of options grants made pursuant
to the Acquired 1997 Plan going forward are governed exclusively
by Article II of the plan, the following is a description
of the material provisions of Article II of the Acquired
1997 Plan. This description is qualified in its entirety by
reference to the Acquired 1997 Plan itself, which was filed as
an exhibit to the Company’s Form S-8 dated
August 16, 2004. Except as described below, the material
provisions of Article II of the Acquired 1997 Plan are
substantially similar to those of Article II of the 1999
Plan described above (reference to the 1999 Plan are deemed to
be replaced with references to the Acquired 1997 Plan, as
applicable):
|
|
|
| |
• |
The Acquired 1997 Plan will terminate on March 2, 2007; |
Subject to adjustments upon certain changes in the common stock,
the number of shares authorized for issuance under
Article II of the Acquired 1997 Plan is 1,153,152;
|
|
|
| |
• |
As of February 10, 2005, 422,934 shares remain
available for future grants under Article II of the
Acquired 1997 Plan and if any Stock Award granted under the
Acquired 1997 Plan expires or otherwise terminates without
having been exercised in full, the common stock not purchased
under the rights issued under Article II of the Acquired
1997 Plan shall again become available for issuance under the
Acquired 1997 Plan; and |
| |
| |
• |
No Stock Award may be granted to any person under
Article II of the Acquired 1997 Plan who is an employee or
director of or consultant to the Company or its affiliates
(other than Tularik Inc.) on the Restatement Date; |
| |
| |
• |
Under Article II of the Acquired 1997 Plan, no person may
receive Stock Awards for more than 451,000 shares of common
stock in any calendar year; |
| |
| |
• |
Subject to adjustments upon certain changes in the common stock,
under Article II of the Acquired 1997 Plan no more than
902,006 of the shares eligible for issuance under the plan in
any calendar year may be issued upon exercise of Incentive Stock
Options under the plan; |
| |
| |
• |
The purchase price under each stock purchase agreement shall be
not less than fifty (50%) of the fair market value of the
Company’s Common Stock on the date such award is
made; and |
| |
| |
• |
The Board shall have the power to condition the grant or vesting
of stock bonuses and rights to purchase restricted stock under
Article II of the Acquired 1997 Plan upon attainment of
performance goals with respect to any one or more of the
following business criteria with respect to the Company, any
affiliate, any division, any operating unit or any product line:
(i) return on capital, assets or equity, (ii) sales or
revenue, (iii) net income, (iv) cash flow,
(v) earnings per share, (vi) adjusted earnings or
adjusted net income (as defined by the plan), (vii) working
capital, (vii) total shareholder return, (ix) economic
value or (x) product development, research, in-licensing,
out-licensing, litigation, human resources, information
services, manufacturing, manufacturing capacity, production,
inventory, site development, plant, building or facility
development, government relations, product market share,
mergers, acquisitions or sales of assets or subsidiaries. |
|
|
|
Amended and Restated 1997 Special Non-Officer Equity
Incentive Plan |
The Amended and Restated 1997 Special Non-Officer Equity
Incentive Plan (the “1997 Plan”) was adopted by the
Company on December 8, 1997. This description is qualified
in its entirety by reference to the 1997 Plan itself, which was
filed as an exhibit to the Company’s Form 10-Q for the
quarter ended September 30, 2002. Except as described
below, the material provisions of the 1997 Plan are
substantially similar to those of Article II of the 1999
Plan described above (reference to the 1999 Plan are deemed to
be replaced with references to the 1997 Plan, as applicable):
|
|
|
| |
• |
The 1997 Plan does not have a set termination date; |
| |
| |
• |
Officers who are appointed by the Board are excluded from the
1997 Plan; |
75
|
|
|
| |
• |
The 1997 Plan does not provide for non-discretionary grants to
Directors of the Company; |
| |
| |
• |
Subject to adjustments upon certain changes in the common stock,
the number of shares authorized for issuance under the 1997 Plan
is 101,000,000; |
| |
| |
• |
As of February 10, 2005, 2,459,348 shares remain
available for future grants under the 1997 Plan and if any Stock
Award granted under the 1997 Plan expires or otherwise
terminates without having been exercised in full, the common
stock not purchased under the rights issued under
Article II of the 1997 Plan shall again become available
for issuance under the 1997 Plan; and |
| |
| |
• |
Under the 1997 Plan, no person may receive Stock Awards for more
than 2,000,000 shares of common stock in any calendar year. |
|
|
|
The Amgen Limited Sharesave Plan |
The Amgen Limited Sharesave Plan (the “Sharesave
Plan”) was adopted by the Board of Directors of Amgen
Limited, the Company’s indirectly wholly-owned UK
subsidiary, and approved by the Board of Directors of the
Company in October 1998. In general, the Sharesave Plan
authorizes Amgen Limited to grant options to certain employees
of Amgen Limited to buy shares of the Company’s common
stock during three-year offering periods through savings
contributions and guaranteed company bonuses. The principal
purposes of the Sharesave Plan are to provide the Company’s
eligible Amgen Limited employees with benefits comparable to
those received by U.S. employees under the Company’s
Amended and Restated Employee Stock Purchase Plan through the
granting of options. Under the Sharesave Plan, not more than
400,000 shares of common stock are authorized for issuance
upon exercise of options subject to adjustment upon certain
changes in the Company’s common stock. The Sharesave Plan
is administered by the Board of Directors of Amgen Limited.
Options are generally exercisable during the six months
following the three year offering period at an exercise price
determined by the Board, which cannot be less than 80% of the
market value of the Company’s common stock determined in
accordance with sections 272 and 273 of the UK Taxation of
Chargeable Gains Act of 1992 (the “Act of 1992”) and
agreed for the purpose of the Sharesave Plan with the Shares
Valuation Division (the “Division”) of the Inland
Revenue for the business day last preceding the date of
invitation (the “Exercise Price Determination
Process”) at the commencement of the offering. Amounts in
the Sharesave Plan are paid to the participants to the extent
that options are not exercised.
|
|
|
Amgen Limited 2000 UK Company Employee Share Option Plan |
The Amgen Limited 2000 UK Company Employee Share Option Plan
(“CSOP”) was adopted by the Board of Directors of
Amgen Limited and approved by the Board of Directors of the
Company in June 1999. The CSOP was established to provide stock
option grants to employees of Amgen Limited in accordance with
certain UK tax laws. The terms of the CSOP are, to the extent
permitted under UK laws, consistent with the Company’s 1997
Plan, as described above, with the exception of the following
variations: (i) options cannot be granted to consultants,
(ii) options cannot be transferred, (iii) options
outstanding after an employee’s death must be exercised
within 12 months of the date of such death and
(iv) the change in control provision is eliminated. No
termination date has been specified for the CSOP. Although
300,000 shares of common stock are authorized for issuance
under the CSOP, no shares have been issued under the CSOP.
76
Common Stock
The following table sets forth certain information regarding the
beneficial ownership of the Company’s Common Stock as of
February 28, 2005, by: (i) each director and nominee;
(ii) the Company’s Chief Executive Officer, and each
of its other four most highly compensated executive officers for
the year ended December 31, 2004 (collectively the
“Named Executive Officers”); and (iii) all
directors and nominees, Named Executive Officers and executive
officers of the Company as a group. To the Company’s
knowledge, there were no holders beneficially owning more than
5% of the Common Stock as of February 28, 2005.
| |
|
|
|
|
|
|
|
|
| |
|
Common Stock | |
| |
|
Beneficially Owned(1)(2) | |
| |
|
| |
| |
|
Number of | |
|
Percent of | |
| Beneficial Owner |
|
Shares | |
|
Total | |
| |
|
| |
|
| |
|
David Baltimore
|
|
|
134,243 |
|
|
|
* |
|
|
Frank J. Biondi, Jr.
|
|
|
97,000 |
|
|
|
* |
|
|
Jerry D. Choate
|
|
|
150,643 |
|
|
|
* |
|
|
Edward V. Fritzky(3)
|
|
|
839,533 |
|
|
|
* |
|
|
Frederick W. Gluck
|
|
|
91,643 |
|
|
|
* |
|
|
Frank C. Herringer(4)
|
|
|
12,075 |
|
|
|
* |
|
|
Franklin P. Johnson, Jr.(5)
|
|
|
2,440,870 |
|
|
|
* |
|
|
Gilbert S. Omenn(6)
|
|
|
296,801 |
|
|
|
* |
|
|
Judith C. Pelham
|
|
|
106,643 |
|
|
|
* |
|
|
J. Paul Reason
|
|
|
82,693 |
|
|
|
* |
|
|
Donald B. Rice
|
|
|
118,643 |
|
|
|
* |
|
|
Leonard D. Schaeffer
|
|
|
25,000 |
|
|
|
* |
|
|
Kevin W. Sharer(7)
|
|
|
976,911 |
|
|
|
* |
|
|
George J. Morrow
|
|
|
315,002 |
|
|
|
* |
|
|
Roger M. Perlmutter
|
|
|
399,260 |
|
|
|
* |
|
|
Dennis M. Fenton(8)
|
|
|
512,235 |
|
|
|
* |
|
|
Richard D. Nanula
|
|
|
425,000 |
|
|
|
* |
|
|
All directors and nominees, Named Executive Officers and
executive officers as a group (20 individuals)(3)(4)(5)(6)(7)(8)
|
|
|
7,361,221 |
|
|
|
* |
|
|
|
| (1) |
Information in this table is based on the Company’s records
and information provided by directors, nominees, Named Executive
Officers and executive officers. Unless otherwise indicated in
the footnotes and subject to community property laws where
applicable, each of the directors and nominees, Named Executive
Officers and executive officers has sole voting and/or
investment power with respect to such shares. |
| |
| (2) |
Includes shares which the individuals shown have the right to
acquire as of February 28, 2005, or within 60 days
thereafter, as follows: Dr. Baltimore, 129,000 shares;
Mr. Biondi, 97,000 shares; Mr. Choate,
145,000 shares; Mr. Fritzky, 601,800 shares;
Mr. Gluck, 85,000 shares; Mr. Johnson,
122,200 shares; Dr. Omenn, 122,200 shares;
Ms. Pelham, 101,000 shares; Adm. Reason,
81,000 shares; Dr. Rice, 113,000 shares;
Mr. Schaeffer, 25,000 shares; Mr. Sharer,
943,820 shares; Mr. Morrow, 305,002 shares;
Dr. Perlmutter, 340,000 shares; Dr. Fenton,
383,648 shares; and Mr. Nanula, 360,000 shares.
Such shares are deemed to be outstanding in calculating the
percentage ownership of such individual (and the group), but are
not deemed to be outstanding as to any other person. |
| |
| (3) |
Includes 1,056 shares held by Mr. Fritzky’s
children. |
| |
| (4) |
Includes 10,075 shares held by family trusts. |
| |
| (5) |
Includes 600,000 shares held by Asset Management Partners,
a venture capital limited partnership, of which Mr. Johnson
is the general partner. As the general partner, Mr. Johnson
may be deemed to have |
77
|
|
|
voting and investment power as to all of these shares, and
therefore may be deemed to be a beneficial owner of such shares.
Also includes 1,006,627 shares held by a family trust. |
| |
| (6) |
Includes 5,590 shares held by one of Dr. Omenn’s
children. |
| |
| (7) |
Includes 33,091 shares held by a trust. |
| |
| (8) |
Includes 108,587 shares held by family trusts. |
Contractual Contingent Payment Rights
In 1993, the Company exercised its option to purchase the
Class A and Class B limited partnership interests of
Amgen Clinical Partners, L.P. (the “Partnership”), a
limited partnership previously formed to develop and
commercialize products from certain technologies for human
pharmaceutical use in the United States. As a result of the
Company exercising such option, each then-holder of a limited
partnership interest in the Partnership acquired contractual
contingent payment rights (“CCPR”s) based on the
number of such holder’s interests. Certain of the
Company’s directors owned Class A partnership
interests in the Partnership and are current owners of CCPRs.
CCPRs are not voting securities but entitle the holders thereof
to receive quarterly payments, subject to certain adjustments,
equal to a stated percentage of the Company’s sales of
certain products in specified geographic areas. In 2004, each
such director earned $200,368 for each whole Class A CCPR
held. The following table sets forth certain information
regarding the ownership of the Company’s Class A CCPRs
as of February 28, 2005, by: (i) each director and
nominee; (ii) each of the Named Executive Officers; and
(iii) all directors and nominees, Named Executive Officers
and executive officers as a group:
| |
|
|
|
|
|
|
|
|
| |
|
Contractual Contingent | |
| |
|
Payment Rights | |
| |
|
Benefically Owned(1) | |
| |
|
| |
| |
|
Number of | |
|
Percent of | |
| Beneficial Owner |
|
Rights | |
|
Total | |
| |
|
| |
|
| |
|
David Baltimore
|
|
|
— |
|
|
|
* |
|
|
Frank J. Biondi,Jr.
|
|
|
— |
|
|
|
* |
|
|
Jerry D. Choate
|
|
|
— |
|
|
|
* |
|
|
Edward V. Fritzky
|
|
|
— |
|
|
|
* |
|
|
Frederick W. Gluck
|
|
|
— |
|
|
|
* |
|
|
Frank C. Herringer
|
|
|
— |
|
|
|
* |
|
|
Franklin P. Johnson, Jr.(2)
|
|
|
4.0 |
|
|
|
* |
|
|
Gilbert S. Omenn
|
|
|
0.5 |
|
|
|
* |
|
|
Judith C. Pelham
|
|
|
— |
|
|
|
* |
|
|
J. Paul Reason
|
|
|
— |
|
|
|
* |
|
|
Donald B. Rice
|
|
|
— |
|
|
|
* |
|
|
Leonard D. Schaeffer
|
|
|
— |
|
|
|
* |
|
|
Kevin W. Sharer
|
|
|
— |
|
|
|
* |
|
|
George J. Morrow
|
|
|
— |
|
|
|
* |
|
|
Roger M. Perlmutter
|
|
|
— |
|
|
|
* |
|
|
Dennis M. Fenton
|
|
|
— |
|
|
|
* |
|
|
Richard D. Nanula
|
|
|
— |
|
|
|
* |
|
|
All directors and nominees, Named Executive Officers and
executive officers as a group(20 individuals)
|
|
|
4.5 |
|
|
|
* |
|
|
|
| (1) |
Information in this table is based on the Company’s records
and information provided by directors, nominees, Named Executive
Officers and executive officers. Unless otherwise indicated in
the footnotes and subject to community property laws where
applicable, each holder of a CCPR has sole investment power with
respect to such right(s) beneficially owned. |
78
|
|
| (2) |
Includes four rights held by Asset Management Partners, a
venture capital limited partnership, of which Mr. Johnson
is the general partner. As the general partner, Mr. Johnson
may be deemed to have investment power as to all of these
rights, and therefore may be deemed to be a beneficial owner of
such rights. |
|
|
| Item 13. |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS |
Loans to Executive Officers
As a result of the Sarbanes-Oxley Act of 2002, the Company no
longer makes personal loans to executive officers that are
prohibited by such act. Prior to the Sarbanes-Oxley Act, the
Company had made personal loans to the executive officers of the
Company listed below, generally in connection with their
relocation closer to the Company. The annual interest rate on
the loans to each officer, except the loan to Mr. Nanula,
was 3% during the year ended December 31, 2004 and will be
3% for the year ending December 31, 2005. These interest
rates are established and adjusted annually based on the average
introductory rates on adjustable loans offered by California
banks and savings and loans. The loan to Mr. Nanula is
fixed at 5% for the term of the loan.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Largest | |
|
|
| |
|
|
|
|
|
Aggregate | |
|
Aggregate | |
| |
|
|
|
|
|
Indebtedness | |
|
Outstanding | |
| |
|
|
|
Original | |
|
Since | |
|
Indebtedness | |
| |
|
|
|
Amount of | |
|
January 1, | |
|
at March 1, | |
| Name |
|
Date of Loan | |
|
Loan ($) | |
|
2004 ($) | |
|
2005 ($) | |
| |
|
| |
|
| |
|
| |
|
| |
|
Hassan Dayem
|
|
|
July 2002 |
|
|
|
500,000 |
|
|
|
500,000 |
|
|
|
500,000 |
|
|
Brian M. McNamee
|
|
|
May 2001 |
|
|
|
500,000 |
|
|
|
500,000 |
|
|
|
— |
|
|
George J. Morrow
|
|
|
March 2001 |
|
|
|
1,000,000 |
|
|
|
750,000 |
|
|
|
500,000 |
|
|
Richard D. Nanula
|
|
|
June 2001 |
|
|
|
3,000,000 |
|
|
|
3,212,500 |
|
|
|
3,100,000 |
|
|
Roger M. Perlmutter
|
|
|
June 2001 |
|
|
|
1,000,000 |
|
|
|
1,000,000 |
|
|
|
1,000,000 |
|
Philanthropy
In 2000, the Company established a $2,000,000 endowed
professorship at the California Institute of Technology
(“Cal Tech”) in honor of Gordon Binder, the
Company’s former Chairman and Chief Executive Officer. The
endowment was paid in installments beginning in 2000. As of
December 31, 2004, the Company has paid the full $2,000,000
under the endowment. Dr. Baltimore, a member of the Board,
has been the President of Cal Tech since December 1996.
The Amgen Foundation (the “Foundation”) seeks to
advance science education, improve quality of care and access
for patients, and support resources that create sound
communities in which we live and work. The Foundation makes
contributions to regional and national nonprofit organizations
that complement Amgen’s dedication to significantly
improving people’s lives. In 2002, the Foundation pledged
$1,000,000 to the UCSB Foundation in support of the John Carbon
Chair in Biochemistry and Molecular Biology. As of
December 31, 2004, the Company has paid the full $1,000,000
under the pledge. Mr. Gluck, a member of the Board, serves
on the Board of Trustees of the UCSB Foundation.
Other Relationships
Amy Choate and Charles Lear, daughter and son-in-law,
respectively, of Mr. Choate, a member of the Board, are
employed by the Company as a human resources manager and as a
manager of information systems communications, respectively. In
2004, Ms. Choate and Mr. Lear were paid $133,229 and
$107,219, respectively, in salary and bonus and also
participated in the Company’s periodic stock option program.
On March 2, 2001, the Company signed a letter agreement
with Dr. Joan Kreiss, the spouse of Dr. Perlmutter,
Executive Vice President, Research and Development, regarding
possible funding of research grants for certain scientific work
conducted by Dr. Kreiss. Under the terms of the letter
agreement, if Dr. Kreiss relocates to Southern California,
the Company will work with Dr. Kreiss and any new
university with which she affiliates to try to obtain
fellowships or grants to replace those that Dr. Kreiss is
unable to transfer, if any. In addition, if replacement
fellowships or grants cannot be obtained from other sources, the
79
Company, as part of its general scientific research mission or
through its charitable contribution programs, will work with
Dr. Kreiss and the new university with which she affiliates
to fund any deficits or grants which are attributable to
fellowships or grants that she is not able to transfer, up to an
amount not to exceed $1,250,000 per year for a period of
five years from the date that Dr. Kreiss assumes a new
position in Southern California. The Company has not funded any
amounts pursuant to this agreement.
|
|
| Item 14. |
PRINCIPAL ACCOUNTANT FEES AND SERVICES |
|
|
|
Independent Registered Public Accountants |
The following summarizes the fees paid to Ernst & Young
LLP for the years ended December 31, 2004 and 2003:
| |
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Audit
|
|
$ |
4,970,000 |
|
|
$ |
2,215,000 |
|
|
Audit-Related
|
|
|
230,000 |
|
|
|
615,000 |
|
|
Tax
|
|
|
814,000 |
|
|
|
1,760,000 |
|
|
All Other
|
|
|
18,000 |
|
|
|
15,000 |
|
| |
|
|
|
|
|
|
|
Total Fees
|
|
$ |
6,032,000 |
|
|
$ |
4,605,000 |
|
| |
|
|
|
|
|
|
Audit-Related fees are primarily attributable to audits of
affiliated companies and of the Company’s retirement plans.
The 2003 Audit-Related fees also include amounts for audits of
third party royalties owed to the Company. Tax fees are
primarily attributable to various corporate tax planning and
compliance activities and expatriate tax compliance. All Other
fees are attributable to the Company’s subscription to an
Ernst & Young LLP online service used for accounting
research purposes. Ernst & Young LLP did not perform
any professional services with respect to information systems
design and implementation for the years ended December 31,
2004 and 2003. The Audit Committee has considered whether the
Audit-Related, Tax and All Other services provided by
Ernst & Young LLP are compatible with maintaining that
firm’s independence.
From and after the effective date of the SEC rule requiring
Audit Committee pre-approval of all audit and permissible
non-audit services provided by independent registered public
accountants, the Audit Committee has pre-approved all audit and
permissible non-audit services provided by Ernst &
Young LLP.
PART IV
|
|
| Item 15. |
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 Registered
Public Accounting Firm
|
|
|
F-1 |
|
|
Consolidated Statements of Operations for each of the three
years in the period ended December 31, 2004
|
|
|
F-2 |
|
|
Consolidated Balance Sheets at December 31, 2004 and 2003
|
|
|
F-3 |
|
|
Consolidated Statements of Stockholders’ Equity for each of
the three years in the period ended December 31, 2004
|
|
|
F-4 |
|
|
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 2004
|
|
|
F-5 |
|
|
Notes to Consolidated Financial Statements
|
|
|
F-6 - F-28 |
|
80
(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-29 |
|
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.(9) |
| |
3 |
.2 |
|
Amended and Restated Bylaws of Amgen Inc. (as amended and
restated July 13, 2004).(43) |
| |
| |
3 |
.3 |
|
Certificate of Amendment of Restated Certificate of
Incorporation.(17) |
| |
| |
3 |
.4 |
|
Certificate of Designations of Series A Junior
Participating Preferred Stock.(20) |
| |
| |
4 |
.1 |
|
Indenture dated January 1, 1992 between the Company and
Citibank N.A., as trustee.(3) |
| |
| |
4 |
.2 |
|
First Supplement to Indenture, dated February 26, 1997
between the Company and Citibank N.A., as trustee.(6) |
| |
| |
4 |
.3 |
|
Officer’s Certificate pursuant to Sections 2.1 and 2.3 of
the Indenture, as supplemented, establishing a series of
securities
“81/8% Debentures
due April 1, 2097.”(8) |
| |
| |
4 |
.4 |
|
81/8% Debentures
due April 1, 2097.(8) |
| |
| |
4 |
.5 |
|
Form of stock certificate for the common stock, par value $.0001
of the Company.(9) |
| |
| |
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 Amgen Inc. and Citibank,
N.A., as Trustee, establishing a series of securities entitled
“6.50% Notes Due December 1, 2007”.(11) |
| |
| |
4 |
.7 |
|
6.50% Notes Due December 1, 2007 described in
Exhibit 4.6.(11) |
| |
| |
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.(12) |
| |
| |
4 |
.9 |
|
Indenture, dated as of August 4, 2003, between the Company
and JP Morgan Chase Bank, N.A., as trustee.(46) |
| |
| |
4 |
.10 |
|
Indenture, dated as of March 1, 2002, between Amgen Inc.
and LaSalle Bank National Association.(27) |
| |
| |
4 |
.11 |
|
Form of Liquid Yield
Optiontm
Note due 2032.(27) |
| |
| |
4 |
.12 |
|
Registration Rights Agreement, dated as of March 1, 2002,
between Amgen Inc. and Merrill Lynch, Pierce, Fenner &
Smith Incorporated.(27) |
| |
| |
4 |
.13 |
|
Officers’ Certificate of Amgen Inc. dated November 18,
2004, including forms of the Company’s 4.00% Senior
Notes due 2009 and 4.85% Senior Notes due 2014.(48) |
| |
| |
4 |
.14 |
|
Form of 4.00% Senior Note due 2014.(48) |
| |
| |
4 |
.15 |
|
Registration Rights Agreement, dated as of November 18,
2004, among Amgen Inc. and Morgan Stanley & Co. and
Merrill Lynch, Pierce, Fenner & Smith Incorporated as
representatives of the several initial purchasers.(48) |
| |
| |
4 |
.16 |
|
Supplemental Indenture, dated as of March 2, 2005, between
Amgen Inc. and LaSalle Bank National Association.(52) |
| |
| |
10 |
.1+ |
|
Amended and Restated 1991 Equity Incentive Plan(as of December
2004).(49) |
| |
| |
10 |
.2+ |
|
Amgen Inc. Amended and Restated 1997 Equity Incentive Plan(as of
August 2004).(50) |
| |
| |
10 |
.3 |
|
Shareholder’s Agreement of Kirin-Amgen, Inc., dated
May 11, 1984, between the Company and Kirin Brewery
Company, Limited.(20) |
| |
| |
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.(17) |
| |
| |
10 |
.5 |
|
Product License Agreement, dated September 30, 1985, and
Technology License Agreement, dated, September 30, 1985
between Amgen Inc. and Ortho Pharmaceutical Corporation.(17) |
81
| |
|
|
|
|
| Exhibit No. | |
|
Description |
| | |
|
|
| |
| |
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.(17) |
| |
| |
10 |
.7+ |
|
Amended and Restated Employee Stock Purchase Plan of Amgen
Inc.(17) |
| |
| |
10 |
.8 |
|
Research, Development Technology Disclosure and License
Agreement PPO, dated January 20, 1986, by and between Amgen
Inc. 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.(20) |
| |
| |
10 |
.10 |
|
Assignment and License Agreement, dated October 16, 1986,
between Amgen Inc. and Kirin-Amgen, Inc.(20) |
| |
| |
10 |
.11 |
|
G-CSF European License Agreement, dated December 30, 1986,
between Kirin-Amgen, Inc. and Amgen Inc.(20) |
| |
| |
10 |
.12+ |
|
Retirement and Savings Plan of Amgen Inc. (as amended and
restated effective January 1, 2003).(41) |
| |
| |
10 |
.13 |
|
Purchase Agreement, dated as of November 15, 2004, among
Amgen Inc. and Morgan Stanley & Co. and Merrill Lynch,
Pierce, Fenner & Smith Incorporated as representatives
of the several initial purchasers.(48) |
| |
| |
10 |
.14+* |
|
First Amendment to the Amgen Retirement and Savings Plan (As
Amended and Restated Effective As of January 1, 2003). |
| |
| |
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
Amgen Inc.(2) |
| |
| |
10 |
.16 |
|
ENBREL® Supply Agreement, dated April 12, 2002,
between Immunex Corporation and Genentech, Inc. (with certain
confidential information deleted therefrom).(31) |
| |
| |
10 |
.17 |
|
Partnership Purchase Agreement, dated March 12, 1993,
between Amgen Inc., Amgen Clinical Partners, L.P., Amgen
Development Corporation, the Class A limited partners and
the Class B limited partner.(4) |
| |
| |
10 |
.18+* |
|
Second Amendment to the Amgen Retirement and Savings Plan (As
Amended And Restated Effective As Of January 1, 2003). |
| |
| |
10 |
.19+ |
|
First Amendment to Amgen Inc. Change of Control Severance
Plan.(17) |
| |
| |
10 |
.20+ |
|
First Amendment to the Amgen Inc. Executive Incentive Plan.(49) |
| |
| |
10 |
.21 |
|
G-CSF United States License Agreement dated June 1, 1987
(effective July 1, 1986) between Kirin-Amgen, Inc. and
Amgen Inc.(20) |
| |
| |
10 |
.22 |
|
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).(20) |
| |
| |
10 |
.23 |
|
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).(20) |
| |
| |
10 |
.24 |
|
Amendment No. 10 dated March 1, 1996 to the
Shareholders’ Agreement of Kirin-Amgen, Inc. dated
May 11, 1984.(20) |
| |
| |
10 |
.25+ |
|
Amgen Inc. Change of Control Severance Plan effective as of
October 20, 1998.(14) |
| |
| |
10 |
.26 |
|
Preferred Share Rights Agreement, dated as of December 12,
2000, between Amgen Inc. and American Stock Transfer and Trust
Company, as Rights Agent.(19) |
| |
| |
10 |
.27+ |
|
First Amendment, effective January 1, 1998, to the Amended
and Restated Employee Stock Purchase Plan of Amgen Inc.(10) |
| |
| |
10 |
.28 |
|
Amendment No. 11 dated March 20, 2000 to the
Shareholders’ Agreement of Kirin-Amgen, Inc. dated
May 11, 1984.(20) |
| |
| |
10 |
.29+ |
|
Agreement between Amgen Inc. and Dr. Fabrizio Bonanni,
dated March 3, 1999.(16) |
| |
| |
10 |
.30 |
|
Amendment No. 1 dated June 1, 1987 to Kirin-Amgen,
Inc./Amgen G-CSF European License Agreement dated
December 30, 1986.(20) |
82
| |
|
|
|
|
| Exhibit No. | |
|
Description |
| | |
|
|
| |
| |
10 |
.31 |
|
Amendment No. 2 dated March 15, 1988 to Kirin-Amgen,
Inc./Amgen G-CSF European License Agreement dated
December 30, 1986.(20) |
| |
| |
10 |
.32 |
|
Amendment No. 3 dated October 20, 1988 to Kirin-Amgen,
Inc./Amgen G-CSF European License Agreement dated
December 30, 1986.(20) |
| |
| |
10 |
.33 |
|
Amendment No. 4 dated December 29, 1989 to
Kirin-Amgen, Inc./Amgen G-CSF European License Agreement dated
December 30, 1986.(20) |
| |
| |
10 |
.34+ |
|
Amended and Restated 1987 Directors’ Stock Option Plan
of Amgen Inc.(7) |
| |
| |
10 |
.35+ |
|
Amgen Inc. Amended and Restated 1993 Equity Incentive Plan
(formerly known as the Immunex Corporation 1993 Stock Option
Plan).(39) |
| |
| |
10 |
.36+ |
|
Amgen Inc. Executive Incentive Plan. (28) |
| |
| |
10 |
.37+ |
|
Promissory Note of Dr. Fabrizio Bonanni, dated
October 29, 1999.(16) |
| |
| |
10 |
.38+ |
|
2002 Special Severance Pay Plan for Amgen Employees.(35) |
| |
| |
10 |
.39 |
|
Amendment No. 6 dated May 11, 1984 to the
Shareholders’ Agreement of Kirin-Amgen, Inc. dated
May 11, 1984.(20) |
| |
| |
10 |
.40 |
|
Amendment No. 7 dated July 17, 1987 (effective
April 1, 1987) to the Shareholders’ Agreement of
Kirin-Amgen, Inc. dated May 11, 1984.(20) |
| |
| |
10 |
.41 |
|
Amendment No. 8 dated May 28, 1993 (effective
November 13, 1990) to the Shareholders’ Agreement of
Kirin-Amgen, Inc. dated May 11, 1984.(20) |
| |
| |
10 |
.42 |
|
Amendment No. 9 dated December 9, 1994 (effective
June 14, 1994) to the Shareholders’ Agreement of
Kirin-Amgen, Inc. dated May 11, 1984.(20) |
| |
| |
10 |
.43+ |
|
Agreement between Amgen Inc. and Mr. George J. Morrow,
dated March 3, 2001.(21) |
| |
| |
10 |
.44+ |
|
Promissory Note of Mr. George J. Morrow, dated
March 11, 2001.(21) |
| |
| |
10 |
.45+ |
|
Agreement between Amgen Inc. and Dr. Roger M.
Perlmutter, M.D., Ph.D., dated March 5, 2001.(21) |
| |
| |
10 |
.46+ |
|
Agreement between Amgen Inc. and Mr. Brian McNamee, dated
May 5, 2001.(22) |
| |
| |
10 |
.47+ |
|
Agreement between Amgen Inc. and Mr. Richard Nanula, dated
May 15, 2001.(22) |
| |
| |
10 |
.48+ |
|
Promissory Note of Mr. Richard Nanula, dated June 27,
2001.(22) |
| |
| |
10 |
.49+ |
|
Promissory Note of Dr. Roger M. Perlmutter, dated
June 29, 2001.(22) |
| |
| |
10 |
.50 |
|
Amendment No. 1 to ENBREL® Supply Agreement, effective
as of September 20, 2002 (with certain confidential
information deleted therefrom).(41) |
| |
| |
10 |
.51+ |
|
Second Amendment to the Amgen Inc. Change of Control Severance
Plan.(23) |
| |
| |
10 |
.52+* |
|
Third Amendment to the Amgen Inc. Change of Control Severance
Plan. |
| |
| |
10 |
.53+ |
|
Promissory Note of Mr. Brian McNamee, dated May 30,
2001.(23) |
| |
| |
10 |
.54+ |
|
Restricted Stock Purchase Agreement between Amgen Inc. and
Mr. Richard Nanula, dated May 16, 2001.(23) |
| |
| |
10 |
.55+* |
|
Fourth Amendment to the Amgen Inc. Change of Control Severance
Plan. |
| |
| |
10 |
.56+ |
|
Agreement between Amgen Inc. and Dr. Beth C. Seidenberg,
dated December 21, 2001.(26) |
| |
| |
10 |
.57+ |
|
Amendment to Agreement between Amgen Inc. and Dr. Beth C.
Seidenberg, dated December 21, 2001.(26) |
| |
| |
10 |
.58+ |
|
Form of Performance Unit Agreement (Amended and Restated
Effective December 6, 2004). (49) |
| |
| |
10 |
.59 |
|
Amendment No. 2 to ENBREL® Supply Agreement, effective
as of July 16, 2002. |
| |
| |
10 |
.60+ |
|
Amgen Inc. Executive Nonqualified Retirement Plan, effective
January 1, 2001.(26) |
| |
| |
10 |
.61+ |
|
Amgen Inc. Performance Award Program (Amended and Restated
Effective December 6, 2004). (49) |
| |
| |
10 |
.62+ |
|
Fourth Amendment to the Amgen Retirement and Savings Plan (As
Amended and Restated Effective as of January 1, 2003).(49) |
| |
| |
10 |
.63+ |
|
Agreement between Amgen Inc. and Dr. Joseph Miletich, dated
March 22, 2002.(29) |
83
| |
|
|
|
|
| Exhibit No. | |
|
Description |
| | |
|
|
| |
| |
10 |
.64+ |
|
Restricted Stock Purchase Agreement between Amgen Inc. and
Dr. Joseph Miletich, dated April 1, 2002.(29) |
| |
| |
10 |
.65+ |
|
Fifth Amendment to the Amgen Inc. Change of Control Severance
Plan.(49) |
| |
| |
10 |
.66 |
|
Agreement Regarding Governance and Commercial Matters by and
among Wyeth (formerly American Home Products Corporation),
American Cyanamid Company and Amgen Inc. dated December 16,
2001 (with certain confidential information deleted
therefrom).(28) |
| |
| |
10 |
.67+ |
|
Amgen Inc. Supplemental Retirement Plan (As Amended and Restated
Effective January 1, 2005).(45) |
| |
| |
10 |
.68+ |
|
Amgen Inc. Amended and Restated 1999 Stock Purchase Plan
(formerly known as the Immunex Corporation 1999 Stock Purchase
Plan).(32) |
| |
| |
10 |
.69 |
|
ENBREL® Supply Agreement among Immunex Corporation,
American Home Products Corporation and Boehringer Ingelheim
Pharma KG, dated as of November 5, 1998 (with certain
confidential information deleted therefrom).(33) |
| |
| |
10 |
.70 |
|
Amendment No. 1 to the ENBREL® Supply Agreement among
Immunex Corporation, American Home Products Corporation and
Boehringer Ingelheim Pharma KG, dated June 27, 2000 (with
certain confidential information deleted therefrom).(34) |
| |
| |
10 |
.71 |
|
Amendment No. 2 to the ENBREL® Supply Agreement among
Immunex Corporation, American Home Products Corporation and
Boehringer Ingelheim Pharma KG, dated June 3, 2002 (with
certain confidential information deleted therefrom).(35) |
| |
| |
10 |
.72 |
|
Asset Purchase Agreement, dated May 2, 2002, by and between
Immunex Corporation and Schering Aktiengesellschaft (with
certain confidential information deleted therefrom).(35) |
| |
| |
10 |
.73 |
|
Amendment No. 1 to the Asset Purchase Agreement dated as of
September 25, 2002, by and between Immunex Corporation and
Schering Aktiengesellschaft.(35) |
| |
| |
10 |
.74 |
|
Amendment No. 2 to the Asset Purchase Agreement dated as of
July 17, 2002, by and between Immunex Corporation and
Schering Aktiengesellschaft.(35) |
| |
| |
10 |
.75+ |
|
Promissory Note of Ms. Beth Seidenberg, dated
March 20, 2002.(35) |
| |
| |
10 |
.76+ |
|
Agreement between Amgen Inc. and Edward Fritzky, dated
July 15, 2002.(35) |
| |
| |
10 |
.77+ |
|
Amgen Nonqualified Deferred Compensation Plan (As Amended and
Restated Effective January 1, 2005).(45) |
| |
| |
10 |
.78+ |
|
Stock Option Agreement between Amgen Inc. and Edward Fritzky,
dated July 15, 2002.(35) |
| |
| |
10 |
.79+ |
|
Promissory Note of Dr. Hassan Dayem, dated July 10,
2002.(35) |
| |
| |
10 |
.80 |
|
Amendment No. 3 to the ENBREL® Supply Agreement among
Immunex Corporation, American Home Products Corporation and
Boehringer Ingelheim Pharma KG, dated December 18, 2002
(with certain confidential information deleted therefrom).(38) |
| |
| |
10 |
.81+ |
|
Forms of Option Grant Agreements under the Company’s
Amended and Restated 1991 Equity Incentive Plan, effective
December 2003.(51) |
| |
| |
10 |
.82+ |
|
Amgen Inc. Credit Agreement, dated as of July 16, 2004,
among Amgen Inc. the Banks therein named, Citibank N.A., as
Issuing Bank, Citicorp USA, Inc., as Administrative Agent and
Barclays Bank PLC, as Syndication Agent.(44) |
| |
| |
10 |
.83+ |
|
Restricted Stock Purchase Agreement between Amgen Inc. and
Dr. Beth C. Seidenberg, dated January 14, 2002 and
First Amendment thereto dated September 20, 2002.(38) |
| |
| |
10 |
.84+ |
|
Restricted Stock Purchase Agreement between Amgen Inc. and Brian
M. McNamee, dated March 3, 2003.(40) |
| |
| |
10 |
.85 |
|
Amendment No. 3 to ENBREL® Supply Agreement, effective
as of March 26, 2003 (with certain confidential information
deleted therefrom).(41) |
| |
| |
10 |
.86 |
|
Amendment No. 4 to ENBREL® Supply Agreement, effective
as of October 31, 2003 (with certain confidential
information deleted therefrom).(41) |
| |
| |
10 |
.87 |
|
Description of Amendment No. 1 to Amended and Restated
Promotion Agreement, effective as of July 8, 2003 (with
certain confidential information deleted therefrom).(41) |
| |
| |
10 |
.88+ |
|
Amended and Restated Agreement between Amgen Inc. and David J.
Scott, dated February 16, 2004.(41) |
84
| |
|
|
|
|
| Exhibit No. | |
|
Description |
| | |
|
|
| |
| |
10 |
.89+ |
|
Amgen Inc. Director Equity Incentive Program (Amended and
Restated Effective December 6, 2004).(49) |
| |
| |
10 |
.90+ |
|
Form of Restricted Stock Unit Agreement.(41) |
| |
| |
10 |
.91+ |
|
Amgen Inc. Performance Award Program, effective as of
December 9, 2003.(41) |
| |
| |
10 |
.92+ |
|
Form of Performance Unit Agreement.(41) |
| |
| |
10 |
.93 |
|
Description of Amendment No. 2 to Amended and Restated
Promotion Agreement, effective as of April 20, 2004.(43) |
| |
| |
10 |
.94+ |
|
Third Amendment to the Amgen Retirement and Savings Plan (As
Amended and Restated Effective as of January 1, 2003).(45) |
| |
| |
21 |
* |
|
Subsidiaries of the Company. |
| |
| |
23 |
|
|
Consent of Ernst & Young LLP, Independent Registered
Public Accounting Firm. The consent set forth on page 90 is
incorporated herein by reference. |
| |
| |
24 |
|
|
Power of Attorney. The Power of Attorney set forth on
page 89 is incorporated herein by reference. |
| |
31 |
* |
|
Rule 13a-14(a) Certifications. |
| |
32 |
** |
|
Section 1350 Certifications. |
(* = filed herewith)
|
|
| |
(** = furnished herewith and not “filed” for
purposes of Section 18 of the Securities Exchange Act of
1934, as amended) |
(+ = 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 Form S-3 Registration Statement
dated December 19, 1991 and incorporated herein by
reference. |
| |
| |
(4) |
Filed as an exhibit to the Form 8-A dated March 31,
1993 and incorporated herein by reference. |
| |
| |
(5) |
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. |
| |
| |
(6) |
Filed as an exhibit to the Form 8-K Current Report dated
March 14, 1997 on March 14, 1997 and incorporated
herein by reference. |
| |
| |
(7) |
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. |
| |
| |
(8) |
Filed as an exhibit to the Form 8-K Current Report dated
April 8, 1997 on April 8, 1997 and incorporated herein
by reference. |
| |
| |
(9) |
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. |
|
|
| (10) |
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. |
| |
| (11) |
Filed as an exhibit to the Form 8-K Current Report dated
and filed on December 5, 1997 and incorporated herein by
reference. |
| |
| (12) |
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. |
| |
| (13) |
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. |
| |
| (14) |
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. |
85
|
|
| (15) |
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. |
| |
| (16) |
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. |
| |
| (17) |
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. |
| |
| (18) |
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. |
| |
| (19) |
Filed as an exhibit to the Form 8-K Current Report dated
December 13, 2000 on December 18, 2000 and
incorporated herein by reference. |
| |
| (20) |
Filed as an exhibit to the Annual Report on Form 10-K for
the year ended December 31, 2000 on March 7, 2001 and
incorporated herein by reference. |
| |
| (21) |
Filed as an exhibit to the Form 10-Q for the quarter ended
March 31, 2001 on May 14, 2001 and incorporated herein
by reference. |
| |
| (22) |
Filed as an exhibit to the Form 10-Q for the quarter ended
June 30, 2001 on July 27, 2001 and incorporated herein
by reference. |
| |
| (23) |
Filed as an exhibit to the Form 10-Q for the quarter ended
September 30, 2001 on October 26, 2001 and
incorporated herein by reference. |
| |
| (24) |
Filed as an exhibit to the Form 8-K Current Report dated
December 16, 2001 on December 17, 2001 and
incorporated herein by reference. |
| |
| (25) |
Filed as an exhibit to the Form S-4 Registration Statement
dated January 31, 2002 and incorporated herein by reference. |
| |
| (26) |
Filed as an exhibit to the Annual Report on Form 10-K for
the year ended December 31, 2001 on February 26, 2002
and incorporated herein by reference. |
| |
| (27) |
Filed as an exhibit to the Form 8-K Current Report dated
February 21, 2002 on March 1, 2002 and incorporated
herein by reference. |
| |
| (28) |
Filed as an exhibit to Amendment No. 1 to the Form S-4
Registration Statement dated March 22, 2002 and
incorporated herein by reference. |
| |
| (29) |
Filed as an exhibit to the Form 10-Q for the quarter ended
March 31, 2002 on April 29, 2002 and incorporated
herein by reference. |
| |
| (30) |
Filed as an exhibit to the Post-Effective Amendment No. 1
to the Form S-4 Registration Statement dated July 15,
2002 and incorporated herein by reference. |
| |
| (31) |
Filed as an exhibit to Form 8-K Current Report of Immunex
Corporation dated April 12, 2002 on May 7, 2002 and
incorporated herein by reference. |
| |
| (32) |
Filed as an exhibit to the Form S-8 dated July 16,
2002 and incorporated herein by reference. |
| |
| (33) |
Filed as an exhibit to the Annual Report on Form 10-K of
Immunex Corporation for the year ended December 31, 1998. |
| |
| (34) |
Filed as an exhibit to the Form 10-Q of Immunex Corporation
for the quarter ended June 30, 2000. |
| |
| (35) |
Filed as an exhibit to the Form 10-Q for the quarter ended
June 30, 2002 on August 13, 2002 and incorporated
herein by reference. |
| |
| (36) |
Filed as an exhibit to the Form 10-Q for the quarter ended
September 30, 2002 on November 5, 2002 and
incorporated herein by reference. |
| |
| (37) |
Filed as an exhibit to the Form S-8 dated March 17,
1999 and incorporated herein by reference. |
| |
| (38) |
Filed as an exhibit to the Form 10-K for the year ended
December 31, 2002 on March 10, 2003 and incorporated
herein by reference. |
| |
| (39) |
Filed as an exhibit to the Form 10-Q for the quarter ended
March 31, 2003 on May 2, 2003 and incorporated herein
by reference. |
86
|
|
| (40) |
Filed as an exhibit to the Form 10-Q for the quarter ended
June 30, 2003 on July 30, 2003 and incorporated herein
by reference. |
| |
| (41) |
Filed as an exhibit to the Annual Report on Form 10-K for
the year ended December 31, 2003 on March 11, 2004 and
incorporated herein by reference. |
| |
| (42) |
Filed as an exhibit to the Form S-4 dated April 26,
2004 and incorporated herein by reference. |
| |
| (43) |
Filed as an exhibit to the Form S-4/ A dated June 29,
2004 and incorporated herein by reference. |
| |
| (44) |
Filed as an exhibit to the Form 10-Q for the quarter ended
June 30, 2004 on August 6, 2004 and incorporated
herein by reference. |
| |
| (45) |
Filed as an exhibit to the Form 8-K Current Report dated
October 5, 2004 on October 12, 2004 and incorporated
herein by reference. |
| |
| (46) |
Filed as an exhibit to Form S-3 Registration Statement
dated August 4, 2003 and incorporated herein by reference. |
| |
| (47) |
Filed as an exhibit to Form 8-K dated October 5, 2004
and incorporated by reference. |
| |
| (48) |
Filed as an exhibit to Form 8-K dated November 15,
2004 and incorporated herein by reference. |
| |
| (49) |
Filed as an exhibit to Form 8-K dated December 6, 2004
and incorporated herein by reference. |
| |
| (50) |
Filed as an exhibit to Form S-8 dated August 16, 2004
and incorporated herein by reference. |
| |
| (51) |
Filed as an exhibit to the Form 10-Q for the quarter ended
June 30, 2004 on August 6, 2004 and incorporated
herein by reference. |
| |
| (52) |
Filed as an exhibit to Form 8-K dated March 2, 2005
and incorporated herein by reference. |
(b) Reports on Form 8-K
We also furnished or filed, as appropriate, four Current Reports
on Form 8-K during the three months ended December 31,
2004. A report dated October 5, 2004 was filed with the SEC
to report our Third Amendment to the Amgen Retirement and
Savings Plan (As Amended and Restated Effective as of January
2003) (the “Amgen 401(k) Plan”) and the Amendment and
Restatement of the Amgen Supplemental Retirement Plan (As
Amended and Restated Effective November 1, 1999) and the
Amgen Nonqualified Deferred Compensation Plan. This
October 5, 2004 report also described the terms of a
retention payment to be credited to the account of Fabrizio
Bonanni, Senior Vice President, Manufacturing in the
Nonqualified Deferred Compensation Plan. A report dated
October 20, 2004 was furnished to the SEC and contained our
press release announcing our earnings for the three and nine
months ended September 30, 2004. A report dated
November 15, 2004 was filed with the SEC reporting our
entry into and terms of a Purchase Agreement for our sale (on
the date of such agreement) of $1,000,000,000 in principal
amount of our 4.00% Senior Notes due 2009 (the “2009
Notes”), dated as of November 15, 2004 among Amgen and
Morgan Stanley & Co. and Merrill Lynch, Pierce,
Fenner & Smith Incorporated as representatives of the
initial purchasers of the 2009 Notes and the forms and terms of
the collateral agreements related to this sale. A report dated
December 6, 2004 was filed with the SEC to report our:
Fourth Amendment to the Amgen 401(k) Plan; Fifth Amendment to
the Amgen Inc. Change of Control Severance Plan; First Amendment
to the Amgen Inc. Executive Incentive Plan and the Amendment and
Restatement of the 1991 Equity Incentive Plan and the
corresponding Amendment and Restatement of the Amgen Inc.
Performance Award Program and the form of performance unit
agreement under such program.
87
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.
Date: 3/9/05
|
|
|
| |
By: |
/s/ Richard D. Nanula
|
|
|
| |
|
| |
Richard D. Nanula |
| |
Executive Vice President |
| |
and Chief Financial Officer |
88
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Richard D.
Nanula and Timothy O. Martin, 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
Kevin
W. Sharer |
|
Chairman of the Board, Chief Executive
Officer and President, and Director
(Principal Executive Officer) |
|
3/9/05 |
| |
/s/ Richard D. Nanula
Richard
D. Nanula |
|
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer) |
|
3/9/05 |
| |
/s/ Timothy O. Martin
Timothy
O. Martin |
|
Vice President Control Planning and
Chief Accounting Officer
(Principal Accounting Officer) |
|
3/9/05 |
| |
/s/ David Baltimore
David
Baltimore |
|
Director |
|
3/9/05 |
| |
/s/ Frank J. Biondi,
Jr.
Frank
J. Biondi, Jr. |
|
Director |
|
3/9/05 |
| |
/s/ Jerry D. Choate
Jerry
D. Choate |
|
Director |
|
3/9/05 |
| |
/s/ Edward V. Fritzky
Edward
V. Fritzky |
|
Director |
|
3/9/05 |
| |
/s/ Frederick W. Gluck
Frederick
W. Gluck |
|
Director |
|
3/9/05 |
| |
/s/ Frank C. Herringer
Frank
C. Herringer |
|
Director |
|
3/9/05 |
| |
/s/ Franklin P. Johnson,
Jr.
Franklin
P. Johnson, Jr. |
|
Director |
|
3/9/05 |
| |
/s/ Gilbert S. Omenn
Gilbert
S. Omenn |
|
Director |
|
3/9/05 |
| |
/s/ Judith C. Pelham
Judith
C. Pelham |
|
Director |
|
3/9/05 |
| |
/s/ J. Paul Reason
J.
Paul Reason |
|
Director |
|
3/9/05 |
| |
/s/ Donald B. Rice
Donald
B. Rice |
|
Director |
|
3/9/05 |
| |
/s/ Leonard D.
Schaeffer
Leonard
D. Schaeffer |
|
Director |
|
3/9/05 |
89
EXHIBIT 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT
REGISTERED
PUBLIC ACCOUNTING FIRM
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, in the
Registration Statement (Form S-8 No. 333-74585)
pertaining to the Amgen Limited Sharesave Plan, in the
Registration Statement (Form S-8 No. 333-81284)
pertaining to the Amgen Nonqualified Deferred Compensation Plan,
in the Registration Statement (Form S-8 No. 333-56672)
pertaining to the Amended and Restated 1997 Special Non-Officer
Equity Incentive Plan, in the Registration Statement
(Form S-3 No. 333-56664 and Amendment No. 1
thereto) 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, in the Registration
Statement (Form S-8 No. 333-83824) pertaining to the
Amgen Inc. Amended and Restated 1997 Special Non-Officer Equity
Incentive Plan, in the Registration Statement (Form S-3
No. 333-88834) pertaining to Amgen Inc.’s Liquid Yield
Optiontm
Notes, in the Registration Statement (Form S-3
No. 333-92450 and Amendment No. 1 thereto) pertaining
to Amgen Inc.’s Common Stock, in the Registration Statement
(Form S-8 No. 333-92424 and Amendment No. 1
thereto) pertaining to the Amgen Inc. Amended and Restated 1993
Equity Incentive Plan (formerly known as the Immunex Corporation
1993 Stock Option Plan), the Amgen Inc. Amended and Restated
1999 Equity Incentive Plan (formerly known as the Immunex
Corporation 1999 Stock Option Plan), the Amgen Inc. Amended and
Restated 1999 Employee Stock Purchase Plan (formerly known as
the Immunex Corporation 1999 Employee Stock Purchase Plan), the
Immunex Corporation Stock Option Plan for Nonemployee Directors,
and the Amgen Inc. Profit Sharing 401(k) Plan and Trust
(formerly known as the Immunex Corporation Profit Sharing 401(k)
Plan and Trust), in the Registration Statement (Form S-3
No. 333-107639 and Amendment 1 thereto) relating to debt
securities, common stock and associated preferred share
repurchase rights, preferred stock, warrants to purchase debt
securities, common stock or preferred stock, securities purchase
contracts, securities purchase units and depositary shares of
Amgen Inc. and in the related Prospectuses, and in the
Registration Statement (Form S-8 No. 333-118254)
pertaining to the Amgen Inc. Amended and Restated 1997 Equity
Incentive Plan (formerly known as the Tularik Inc. 1997 Equity
Incentive Plan, as amended), the Tularik Inc. 1991 Stock Plan,
as amended, the Tularik Inc. Amended and Restated 1997
Non-Employee Directors’ Stock Option Plan, as amended, the
Amgen Salary Savings Plan (formerly known as Tularik Salary
Savings Plan), and a Nonstatutory Stock Option Agreement of our
reports dated March 4, 2005, with respect to the
consolidated financial statements and schedule of Amgen Inc.,
Amgen Inc. management’s assessment of the effectiveness of
internal control over financial reporting, and the effectiveness
of internal control over financial reporting of Amgen Inc.,
included in this Annual Report (Form 10-K) for the year
ended December 31, 2004.
Los Angeles, California
March 8, 2005
90
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON THE FINANCIAL STATEMENTS
The Board of Directors and Stockholders of Amgen Inc.
We have audited the accompanying consolidated balance sheets of
Amgen Inc. (the “Company”) as of December 31,
2004 and 2003, and the related consolidated statements of
operations, stockholders’ equity, and cash flows for each
of the three years in the period ended December 31, 2004.
Our audits also included the financial statement schedule listed
in the Index at Item 15(a)2. These financial statements and
schedule are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (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. at December 31, 2004 and
2003, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended
December 31, 2004, in conformity with U.S. generally
accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set
forth therein.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of Amgen Inc.’s internal control over
financial reporting as of December 31, 2004, based on
criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated March 4, 2005
expressed an unqualified opinion thereon.
Los Angeles, California
March 4, 2005
F-1
AMGEN INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 2004, 2003, and 2002
(In millions, except per share data)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Product sales
|
|
$ |
9,977 |
|
|
$ |
7,868 |
|
|
$ |
4,991 |
|
| |
Other revenues
|
|
|
573 |
|
|
|
488 |
|
|
|
532 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total revenues
|
|
|
10,550 |
|
|
|
8,356 |
|
|
|
5,523 |
|
| |
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cost of sales (excludes amortization of acquired intangible
assets presented below)
|
|
|
1,731 |
|
|
|
1,341 |
|
|
|
736 |
|
| |
Research and development
|
|
|
2,028 |
|
|
|
1,655 |
|
|
|
1,117 |
|
| |
Write-off of acquired in-process research and development
|
|
|
554 |
|
|
|
— |
|
|
|
2,992 |
|
| |
Selling, general and administrative
|
|
|
2,556 |
|
|
|
1,957 |
|
|
|
1,449 |
|
| |
Amortization of acquired intangible assets
|
|
|
333 |
|
|
|
336 |
|
|
|
155 |
|
| |
Other items, net
|
|
|
— |
|
|
|
(24 |
) |
|
|
(141 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
Total operating expenses
|
|
|
7,202 |
|
|
|
5,265 |
|
|
|
6,308 |
|
| |
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
3,348 |
|
|
|
3,091 |
|
|
|
(785 |
) |
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Interest and other income, net
|
|
|
85 |
|
|
|
113 |
|
|
|
144 |
|
| |
Interest expense, net
|
|
|
(38 |
) |
|
|
(31 |
) |
|
|
(44 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
Total other income
|
|
|
47 |
|
|
|
82 |
|
|
|
100 |
|
| |
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
3,395 |
|
|
|
3,173 |
|
|
|
(685 |
) |
|
Provision for income taxes
|
|
|
1,032 |
|
|
|
914 |
|
|
|
707 |
|
| |
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
2,363 |
|
|
$ |
2,259 |
|
|
$ |
(1,392 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Earnings (loss)per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
$ |
1.86 |
|
|
$ |
1.75 |
|
|
$ |
(1.21 |
) |
| |
Diluted
|
|
$ |
1.81 |
|
|
$ |
1.69 |
|
|
$ |
(1.21 |
) |
|
Shares used in calculation of earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
|
1,271 |
|
|
|
1,288 |
|
|
|
1,154 |
|
| |
Diluted
|
|
|
1,320 |
|
|
|
1,346 |
|
|
|
1,154 |
|
See accompanying notes.
F-2
AMGEN INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2004 and 2003
(In millions, except per share data)
| |
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
ASSETS |
|
Current assets:
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents
|
|
$ |
1,526 |
|
|
$ |
837 |
|
| |
Marketable securities
|
|
|
4,282 |
|
|
|
4,286 |
|
| |
Trade receivables, net of allowance for doubtful accounts of $29
in 2004 and $27 in 2003
|
|
|
1,461 |
|
|
|
1,008 |
|
| |
Inventories
|
|
|
888 |
|
|
|
713 |
|
| |
Other current assets
|
|
|
1,013 |
|
|
|
558 |
|
| |
|
|
|
|
|
|
| |
|
Total current assets
|
|
|
9,170 |
|
|
|
7,402 |
|
|
Property, plant, and equipment, net
|
|
|
4,712 |
|
|
|
3,799 |
|
|
Intangible assets, net
|
|
|
4,033 |
|
|
|
4,288 |
|
|
Goodwill
|
|
|
10,525 |
|
|
|
9,820 |
|
|
Other assets
|
|
|
781 |
|
|
|
804 |
|
| |
|
|
|
|
|
|
| |
|
$ |
29,221 |
|
|
$ |
26,113 |
|
| |
|
|
|
|
|
|
| |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
Current liabilities:
|
|
|
|
|
|
|
|
|
| |
Accounts payable
|
|
$ |
507 |
|
|
$ |
327 |
|
| |
Accrued liabilities
|
|
|
2,477 |
|
|
|
2,129 |
|
| |
Convertible notes
|
|
|
1,173 |
|
|
|
— |
|
| |
|
|
|
|
|
|
| |
|
Total current liabilities
|
|
|
4,157 |
|
|
|
2,456 |
|
|
Deferred tax liabilities
|
|
|
1,294 |
|
|
|
1,146 |
|
|
Convertible notes
|
|
|
1,739 |
|
|
|
2,880 |
|
|
Other long-term debt
|
|
|
2,198 |
|
|
|
200 |
|
|
Other non-current liabilities
|
|
|
128 |
|
|
|
42 |
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
| |
Preferred stock; $0.0001 par value; 5 shares
authorized; none issued or outstanding
|
|
|
— |
|
|
|
— |
|
| |
Common stock and additional paid-in capital; $0.0001 par
value; 2,750 shares authorized;
outstanding-1,260 shares in 2004 and 1,284 shares in
2003
|
|
|
22,078 |
|
|
|
19,995 |
|
| |
Accumulated deficit
|
|
|
(2,376 |
) |
|
|
(667 |
) |
| |
Accumulated other comprehensive income
|
|
|
3 |
|
|
|
61 |
|
| |
|
|
|
|
|
|
| |
|
Total stockholders’ equity
|
|
|
19,705 |
|
|
|
19,389 |
|
| |
|
|
|
|
|
|
| |
|
$ |
29,221 |
|
|
$ |
26,113 |
|
| |
|
|
|
|
|
|
See accompanying notes.
F-3
AMGEN INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Years Ended December 31, 2004, 2003, and 2002
(In millions)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Common | |
|
|
|
Accumulated | |
|
|
| |
|
|
|
Stock and | |
|
(Accumulated | |
|
Other | |
|
|
| |
|
Number | |
|
Additional | |
|
Deficit)/ Retained | |
|
Comprehensive | |
|
|
| |
|
of Shares | |
|
Paid-in Capital | |
|
Earnings | |
|
Income | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Balance at December 31, 2001
|
|
|
1,046 |
|
|
$ |
3,474 |
|
|
$ |
1,687 |
|
|
$ |
56 |
|
|
$ |
5,217 |
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
— |
|
|
|
— |
|
|
|
(1,392 |
) |
|
|
— |
|
|
|
(1,392 |
) |
| |
Other comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Unrealized losses on securities, net of reclassification
adjustments
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(17 |
) |
|
|
(17 |
) |
| |
|
Foreign currency translation adjustments
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
28 |
|
|
|
28 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Total other comprehensive income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
11 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,381 |
) |
|
Issuance of common stock for the acquisition of Immunex
Corporation
|
|
|
244 |
|
|
|
14,313 |
|
|
|
— |
|
|
|
— |
|
|
|
14,313 |
|
|
Fair value of options assumed from Immunex
|
|
|
— |
|
|
|
870 |
|
|
|
— |
|
|
|
— |
|
|
|
870 |
|
|
Issuance of common stock upon the exercise of employee stock
options and in connection with an employee stock purchase plan
|
|
|
27 |
|
|
|
435 |
|
|
|
— |
|
|
|
— |
|
|
|
435 |
|
|
Tax benefits related to employee stock options
|
|
|
— |
|
|
|
252 |
|
|
|
— |
|
|
|
— |
|
|
|
252 |
|
|
Repurchases of common stock
|
|
|
(28 |
) |
|
|
— |
|
|
|
(1,420 |
) |
|
|
— |
|
|
|
(1,420 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2002
|
|
|
1,289 |
|
|
|
19,344 |
|
|
|
(1,125 |
) |
|
|
67 |
|
|
|
18,286 |
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
— |
|
|
|
— |
|
|
|
2,259 |
|
|
|
— |
|
|
|
2,259 |
|
| |
Other comprehensive loss, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Unrealized losses on securities, net of reclassification
adjustments
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(57 |
) |
|
|
(57 |
) |
| |
|
Foreign currency translation adjustments
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
51 |
|
|
|
51 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Total other comprehensive loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(6 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,253 |
|
|
Issuance of common stock upon the exercise of employee stock
options and in connection with an employee stock purchase plan
|
|
|
25 |
|
|
|
538 |
|
|
|
— |
|
|
|
— |
|
|
|
538 |
|
|
Tax benefits related to employee stock options
|
|
|
— |
|
|
|
113 |
|
|
|
— |
|
|
|
— |
|
|
|
113 |
|
|
Repurchases of common stock
|
|
|
(30 |
) |
|
|
— |
|
|
|
(1,801 |
) |
|
|
— |
|
|
|
(1,801 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003
|
|
|
1,284 |
|
|
|
19,995 |
|
|
|
(667 |
) |
|
|
61 |
|
|
|
19,389 |
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
— |
|
|
|
— |
|
|
|
2,363 |
|
|
|
— |
|
|
|
2,363 |
|
| |
Other comprehensive loss, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Unrealized losses on securities, net of reclassification
adjustments
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(82 |
) |
|
|
(82 |
) |
| |
|
Foreign currency translation adjustments
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
24 |
|
|
|
24 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Total other comprehensive loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(58 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,305 |
|
|
Issuance of common stock for the acquisition of Tularik
Inc.
|
|
|
24 |
|
|
|
1,332 |
|
|
|
— |
|
|
|
— |
|
|
|
1,332 |
|
|
Fair value of options assumed from Tularik
|
|
|
— |
|
|
|
71 |
|
|
|
— |
|
|
|
— |
|
|
|
71 |
|
|
Issuance of common stock upon the exercise of employee stock
options and in connection with an employee stock purchase plan
|
|
|
21 |
|
|
|
513 |
|
|
|
— |
|
|
|
— |
|
|
|
513 |
|
|
Tax benefits related to employee stock options
|
|
|
— |
|
|
|
167 |
|
|
|
— |
|
|
|
— |
|
|
|
167 |
|
|
Repurchases of common stock
|
|
|
(69 |
) |
|
|
— |
|
|
|
(4,072 |
) |
|
|
— |
|
|
|
(4,072 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
|
1,260 |
|
|
$ |
22,078 |
|
|
$ |
(2,376 |
) |
|
$ |
3 |
|
|
$ |
19,705 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-4
AMGEN INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2004, 2003, and 2002
(In millions)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income (loss)
|
|
$ |
2,363 |
|
|
$ |
2,259 |
|
|
$ |
(1,392 |
) |
| |
Write-off of acquired in-process research and development
|
|
|
554 |
|
|
|
— |
|
|
|
2,992 |
|
| |
Depreciation and amortization
|
|
|
734 |
|
|
|
687 |
|
|
|
447 |
|
| |
Tax benefits related to employee stock options
|
|
|
203 |
|
|
|
269 |
|
|
|
252 |
|
| |
Deferred income taxes
|
|
|
57 |
|
|
|
(442 |
) |
|
|
175 |
|
| |
Other non-cash expenses
|
|
|
161 |
|
|
|
100 |
|
|
|
25 |
|
| |
Cash provided by (used in) changes in operating assets and
liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Trade receivables, net
|
|
|
(453 |
) |
|
|
(256 |
) |
|
|
(122 |
) |
| |
|
Inventories
|
|
|
(175 |
) |
|
|
(168 |
) |
|
|
(102 |
) |
| |
|
Other current assets
|
|
|
(85 |
) |
|
|
(33 |
) |
|
|
(5 |
) |
| |
|
Accounts payable
|
|
|
179 |
|
|
|
74 |
|
|
|
11 |
|
| |
|
Accrued income taxes
|
|
|
(318 |
) |
|
|
683 |
|
|
|
(103 |
) |
| |
|
Other accrued liabilities
|
|
|
477 |
|
|
|
394 |
|
|
|
71 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Net cash provided by operating activities
|
|
|
3,697 |
|
|
|
3,567 |
|
|
|
2,249 |
|
| |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Purchases of property, plant, and equipment
|
|
|
(1,336 |
) |
|
|
(1,357 |
) |
|
|
(659 |
) |
| |
Purchases of marketable securities
|
|
|
(21,488 |
) |
|
|
(5,320 |
) |
|
|
(2,953 |
) |
| |
Proceeds from sales of marketable securities
|
|
|
13,079 |
|
|
|
3,339 |
|
|
|
1,622 |
|
| |
Proceeds from maturities of marketable securities
|
|
|
8,354 |
|
|
|
371 |
|
|
|
778 |
|
| |
Cash paid for acquisitions, net of cash acquired
|
|
|
115 |
|
|
|
— |
|
|
|
(1,899 |
) |
| |
Other
|
|
|
(123 |
) |
|
|
(243 |
) |
|
|
247 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Net cash used in investing activities
|
|
|
(1,399 |
) |
|
|
(3,210 |
) |
|
|
(2,864 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Issuance of debt, net of issuance costs
|
|
|
1,989 |
|
|
|
— |
|
|
|
2,765 |
|
| |
Repayment of debt
|
|
|
— |
|
|
|
(123 |
) |
|
|
— |
|
| |
Net proceeds from issuance of common stock upon the exercise of
employee stock options and in connection with an employee stock
purchase plan
|
|
|
453 |
|
|
|
529 |
|
|
|
428 |
|
| |
Repurchases of common stock
|
|
|
(4,072 |
) |
|
|
(1,801 |
) |
|
|
(1,420 |
) |
| |
Other
|
|
|
21 |
|
|
|
23 |
|
|
|
5 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Net cash (used in) provided by financing activities
|
|
|
(1,609 |
) |
|
|
(1,372 |
) |
|
|
1,778 |
|
| |
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
689 |
|
|
|
(1,015 |
) |
|
|
1,163 |
|
|
Cash and cash equivalents at beginning of period
|
|
|
837 |
|
|
|
1,852 |
|
|
|
689 |
|
| |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$ |
1,526 |
|
|
$ |
837 |
|
|
$ |
1,852 |
|
| |
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-5
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
|
|
| 1. |
Summary of significant accounting policies |
Amgen Inc., including its subsidiaries, (“Amgen”) 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
Amgen as well as its wholly owned subsidiaries and
majority-owned affiliates (affiliated companies in which we have
a majority ownership interest and exercise control over its
operations) that are not considered variable interest entities.
We do not have any significant interests in any variable
interest entities. All material intercompany transactions and
balances have been eliminated in consolidation.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
(“GAAP”) 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.
We consider 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.
|
|
|
Available-for-sale securities |
We consider our investment portfolio and marketable equity
investments available-for-sale as defined in Statement of
Financial Accounting Standards (“SFAS”) No. 115,
“Accounting for Certain Investments in Debt and Equity
Securities.” Accordingly, these investments are recorded at
fair value, which is based on quoted market prices. For the
years ended December 31, 2004, 2003, and 2002, realized
gains totaled $23 million, $28 million, and
$19 million, respectively, and realized losses totaled
$27 million, $16 million, and $14 million,
respectively. The cost of securities sold is based on the
specific identification method. The fair values 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, 2004 |
|
Cost | |
|
Gains | |
|
Losses | |
|
Value | |
| |
|
| |
|
| |
|
| |
|
| |
|
Type of security:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
$ |
2,181 |
|
|
$ |
4 |
|
|
$ |
(11 |
) |
|
$ |
2,174 |
|
|
U.S. Treasury securities and obligations of
U.S. government agencies
|
|
|
2,328 |
|
|
|
2 |
|
|
|
(7 |
) |
|
|
2,323 |
|
|
Other interest bearing securities
|
|
|
893 |
|
|
|
— |
|
|
|
— |
|
|
|
893 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total debt securities
|
|
|
5,402 |
|
|
|
6 |
|
|
|
(18 |
) |
|
|
5,390 |
|
|
Equity securities
|
|
|
119 |
|
|
|
26 |
|
|
|
— |
|
|
|
145 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
5,521 |
|
|
$ |
32 |
|
|
$ |
(18 |
) |
|
$ |
5,535 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
F-6
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Gross | |
|
Gross | |
|
Estimated | |
| |
|
Amortized | |
|
Unrealized | |
|
Unrealized | |
|
Fair | |
| December 31, 2003 |
|
Cost | |
|
Gains | |
|
Losses | |
|
Value | |
| |
|
| |
|
| |
|
| |
|
| |
|
Type of security:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
$ |
2,468 |
|
|
$ |
24 |
|
|
$ |
(8 |
) |
|
$ |
2,484 |
|
|
U.S. Treasury securities and obligations of
U.S. government agencies
|
|
|
1,816 |
|
|
|
6 |
|
|
|
(7 |
) |
|
|
1,815 |
|
|
Other interest bearing securities
|
|
|
583 |
|
|
|
— |
|
|
|
— |
|
|
|
583 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total debt securities
|
|
|
4,867 |
|
|
|
30 |
|
|
|
(15 |
) |
|
|
4,882 |
|
|
Equity securities
|
|
|
101 |
|
|
|
55 |
|
|
|
— |
|
|
|
156 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
4,968 |
|
|
$ |
85 |
|
|
$ |
(15 |
) |
|
$ |
5,038 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| Contractual Maturity: |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Maturing in one year or less
|
|
$ |
2,374 |
|
|
$ |
1,051 |
|
|
Maturing after one year through three years
|
|
|
1,429 |
|
|
|
1,997 |
|
|
Maturing after three years
|
|
|
1,587 |
|
|
|
1,834 |
|
| |
|
|
|
|
|
|
| |
Total debt securities
|
|
|
5,390 |
|
|
|
4,882 |
|
|
Equity securities
|
|
|
145 |
|
|
|
156 |
|
| |
|
|
|
|
|
|
| |
|
$ |
5,535 |
|
|
$ |
5,038 |
|
| |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| Classification in Balance Sheets: |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Cash and cash equivalents
|
|
$ |
1,526 |
|
|
$ |
837 |
|
|
Marketable securities
|
|
|
4,282 |
|
|
|
4,286 |
|
|
Other assets-non current
|
|
|
167 |
|
|
|
196 |
|
| |
|
|
|
|
|
|
| |
|
|
5,975 |
|
|
|
5,319 |
|
|
Less cash
|
|
|
(440 |
) |
|
|
(281 |
) |
| |
|
|
|
|
|
|
| |
|
$ |
5,535 |
|
|
$ |
5,038 |
|
| |
|
|
|
|
|
|
The primary objectives for our fixed income investment portfolio
are liquidity and safety of principal. Investments are made with
the objective of achieving the highest rate of return consistent
with these two objectives. Our investment policy limits
investments to certain types of instruments issued by
institutions primarily 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 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 consisted of the
following (in millions):
| |
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Raw materials
|
|
$ |
117 |
|
|
$ |
125 |
|
|
Work in process
|
|
|
565 |
|
|
|
452 |
|
|
Finished goods
|
|
|
206 |
|
|
|
136 |
|
| |
|
|
|
|
|
|
| |
|
$ |
888 |
|
|
$ |
713 |
|
| |
|
|
|
|
|
|
Depreciation of buildings, equipment, furniture, and fixtures 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. Useful lives by asset category are as follows:
| |
|
|
|
|
| Asset Category |
|
Years | |
| |
|
| |
|
Buildings and improvements
|
|
|
10-40 |
|
|
Manufacturing equipment
|
|
|
5-12 |
|
|
Laboratory equipment
|
|
|
5-15 |
|
|
Furniture, fixtures, and office equipment
|
|
|
3-12 |
|
|
|
|
Property, plant, and equipment |
Property, plant, and equipment consisted of the following (in
millions):
| |
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Land
|
|
$ |
285 |
|
|
$ |
217 |
|
|
Buildings and improvements
|
|
|
2,096 |
|
|
|
1,783 |
|
|
Manufacturing equipment
|
|
|
641 |
|
|
|
609 |
|
|
Laboratory equipment
|
|
|
684 |
|
|
|
555 |
|
|
Furniture, fixtures, and office equipment
|
|
|
1,784 |
|
|
|
1,344 |
|
|
Construction in progress
|
|
|
1,302 |
|
|
|
1,018 |
|
| |
|
|
|
|
|
|
| |
|
|
6,792 |
|
|
|
5,526 |
|
|
Less accumulated depreciation and amortization
|
|
|
(2,080 |
) |
|
|
(1,727 |
) |
| |
|
|
|
|
|
|
| |
|
$ |
4,712 |
|
|
$ |
3,799 |
|
| |
|
|
|
|
|
|
We review our property, plant and equipment assets for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
|
|
|
Intangible assets and goodwill |
Intangible assets are recorded at cost, less accumulated
amortization. Amortization of intangible assets is provided over
their estimated useful lives ranging from 7 to 15 years on
a straight-line basis (weighted average
F-8
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
amortization period of 14.6 years at December 31,
2004). As of December 31, 2004, intangible assets consisted
of the following (dollars in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
December 31, | |
| |
|
Weighted Average | |
|
| |
| Intangible Assets Subject to Amortization |
|
Amortization Period | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
|
Acquired product technology rights:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Developed product technology
|
|
|
14.5 years |
|
|
$ |
3,077 |
|
|
$ |
3,077 |
|
| |
Core technology
|
|
|
15 years |
|
|
|
1,348 |
|
|
|
1,348 |
|
| |
Trade name
|
|
|
15 years |
|
|
|
190 |
|
|
|
190 |
|
|
Other intangible assets
|
|
|
13.3 years |
|
|
|
252 |
|
|
|
165 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
4,867 |
|
|
|
4,780 |
|
|
Less accumulated amortization
|
|
|
|
|
|
|
(834 |
) |
|
|
(492 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
$ |
4,033 |
|
|
$ |
4,288 |
|
| |
|
|
|
|
|
|
|
|
|
Acquired product technology rights relate to the identifiable
intangible assets acquired in connection with the Immunex
Corporation (“Immunex”) acquisition in July 2002.
Amortization of acquired product technology rights is included
in “Amortization of acquired intangible assets” in the
accompanying consolidated statements of operations. Amortization
of other intangible assets is principally included in
“Selling, general and administrative” expense in the
accompanying consolidated statements of operations. We review
our intangible assets for impairment periodically and whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable.
We had $10,525 million and $9,820 million of goodwill
at December 31, 2004 and 2003, respectively, which
primarily relates to the acquisition of Immunex. The increase in
goodwill from the prior year is primarily due to
$752 million related to the Tularik Inc.
(“Tularik”) acquisition (see Note 7,
“Acquisitions”) partially offset by a tax benefit
realized upon exercise of Immunex related stock options. We
perform an impairment test annually and whenever events or
changes in circumstances indicate that the carrying amount of
goodwill may not be recoverable.
Product sales primarily consist of sales of EPOGEN®
(Epoetin alfa), Aranesp® (darbepoetin alfa), ENBREL®
(etanercept), Neulasta® (pegfilgrastim), and NEUPOGEN®
(Filgrastim).
We have the exclusive right to sell Epoetin alfa for dialysis,
certain diagnostics and all non-human, non-research uses in the
United States. We sell Epoetin alfa under the brand name
EPOGEN®. We have 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. The license agreement, which is perpetual, can be
terminated upon mutual agreement of the parties, or default.
Pursuant to this license, Amgen 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 referred to as “spillover”.
Accordingly, we do not recognize product sales we make into the
exclusive market of Johnson & Johnson and do recognize
the product sales made by Johnson & Johnson into our
exclusive market. Sales in our exclusive market are derived from
our sales to our customers, as adjusted for spillover. We are
employing an arbitrated audit methodology to measure each
party’s spillover based on estimates of and subsequent
adjustments thereto of third-party data on shipments to end
users and their usage.
F-9
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Sales of our other products are recognized when shipped and
title and risk of loss have passed. Product sales are recorded
net of accruals for estimated rebates (including Medicaid),
discounts, and other incentives (collectively “sales
incentives”) and returns.
Other revenues consist of royalty income and corporate partner
revenues. Royalties from licensees are based on third-party
sales of licensed products and are recorded in accordance with
contract terms when third-party results are reliably measurable
and collectibility is reasonably assured. Royalty estimates are
made in advance of amounts collected using historical and
forecasted trends. Pursuant to the license agreement with
Johnson & Johnson, noted above, the Company earns a 10%
royalty on sales of Epoetin alfa by Johnson & Johnson
in the United States. Corporate partner revenues are primarily
comprised of amounts earned from Kirin-Amgen, Inc.
(“KA”) for certain research and development
(“R&D”) activities and are generally earned as the
R&D activities are performed and the amounts become due (see
Note 2, “Related party transactions”). In
addition, corporate partner revenues include license fees and
milestone payments associated with collaborations with third
parties. Revenue from non-refundable, upfront license fees where
the Company has continuing involvement is recognized ratably
over the development or agreement period. Revenue associated
with performance milestones is recognized based upon the
achievement of the milestones, as defined in the respective
agreements. The Company’s collaboration agreements with
third parties are performed on a “best efforts” basis
with no guarantee of either technological or commercial success.
|
|
|
Research and development costs |
R&D costs, which are expensed as incurred, are primarily
comprised of the following types of costs incurred in performing
R&D activities: salaries and benefits, overhead and
occupancy costs, clinical trial and related clinical
manufacturing costs, contract services, and other outside costs.
R&D expenses also include such costs related to activities
performed on behalf of corporate partners.
|
|
|
Acquired in-process research and development |
The fair value of acquired in-process research and development
(“IPR&D”) projects and technologies which have no
alternative future use and which have not reached technological
feasibility at the date of acquisition are expensed as incurred
(see Note 7, “Acquisitions”). Acquired IPR&D
is considered part of total R&D expense.
|
|
|
Selling, general and administrative costs |
Selling, general and administrative expenses are primarily
comprised of salaries and benefits associated with sales and
marketing, finance, legal, and other administrative personnel;
outside marketing expenses; overhead and occupancy costs; and
other general and administrative costs.
We have a co-promotion agreement with Wyeth. Under the terms of
this agreement, Amgen and Wyeth market and sell ENBREL® in
the United States and Canada and develop certain future
indications of ENBREL® for use in these geographic
territories. Wyeth is paid a share of the resulting profits on
sales of ENBREL®, after deducting the applicable costs of
sales, including manufacturing costs and royalties paid to third
parties, and expenses associated with R&D and sales and
marketing. Such amounts paid to Wyeth are included in
“Selling, general and administrative” expense in the
accompanying consolidated statements of operations. The rights
to market ENBREL® outside of the United States and Canada
are reserved to Wyeth. We also have a global supply agreement
with Wyeth related to the manufacture, supply, inventory, and
allocation of supplies of ENBREL®.
F-10
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Advertising costs are expensed as incurred. For the years ended
December 31, 2004, 2003, and 2002, advertising costs were
$73 million, $56 million, and $49 million,
respectively.
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, 2004, 2003, and 2002, were
$20 million, $24 million, and $8 million,
respectively. Interest paid during the years ended
December 31, 2004, 2003, and 2002, totaled
$24 million, $21 million, and $24 million,
respectively.
|
|
|
Earnings (loss) per share |
Basic earnings (loss) per share is based upon the
weighted-average number of common shares outstanding. Diluted
earnings (loss) per share is based upon the weighted-average
number of common shares and dilutive potential common shares
outstanding. Potential common shares outstanding include stock
options under our employee stock option plans and potential
issuances of stock under equity incentive plans utilizing the
treasury stock method (collectively “Dilutive
Securities”). Common shares to be issued under the assumed
conversion of the outstanding 30-year, zero-coupon senior
convertible notes (the “Convertible Notes”) (see
Note 4, “Financing arrangements —
Convertible notes”) are included under the if-converted
method when dilutive.
The following table sets forth the computation for basic and
diluted earnings (loss) per share (in millions, except per share
information):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Income(Loss)(Numerator):
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income(loss) for basic EPS
|
|
$ |
2,363 |
|
|
$ |
2,259 |
|
|
$ |
(1,392 |
) |
| |
Adjustment for interest expense on Convertible Notes, net of tax
|
|
|
21 |
|
|
|
21 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
Income (loss) for diluted EPS, after assumed conversion of
Convertible Notes
|
|
$ |
2,384 |
|
|
$ |
2,280 |
|
|
$ |
(1,392 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Shares(Denominator):
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Weighted-average shares for basic EPS
|
|
|
1,271 |
|
|
|
1,288 |
|
|
|
1,154 |
|
| |
Effect of Dilutive Securities
|
|
|
14 |
|
|
|
23 |
|
|
|
— |
|
| |
Effect of Convertible Notes, after assumed conversion of
Convertible Notes
|
|
|
35 |
|
|
|
35 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
Adjusted weighted-average shares for diluted EPS
|
|
|
1,320 |
|
|
|
1,346 |
|
|
|
1,154 |
|
| |
|
|
|
|
|
|
|
|
|
|
Basic earnings(loss) per share
|
|
$ |
1.86 |
|
|
$ |
1.75 |
|
|
$ |
(1.21 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Diluted earnings(loss) per share
|
|
$ |
1.81 |
|
|
$ |
1.69 |
|
|
$ |
(1.21 |
) |
| |
|
|
|
|
|
|
|
|
|
In 2004 and 2003, options to purchase 51 million and
38 million shares, respectively, with exercise prices
greater than the average market prices of common stock were
excluded from the computation of diluted earnings per share
because their effect was anti-dilutive. In 2002, options to
purchase 103 million shares were outstanding. The
weighted average impact of these options and common shares to be
issued under the assumed conversion of the outstanding
Convertible Notes was excluded from the computation of diluted
earnings per share in 2002 because their effect was
anti-dilutive as a result of the net loss.
F-11
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
We account for our employee stock options under the recognition
and measurement principles of Accounting Principles Board
Opinion (“APB”) No. 25, “Accounting for
Stock Issued to Employees,” and related Interpretations,
which generally results in no stock option expense. We grant our
employee stock options at exercise prices equal to the market
value of the underlying common stock on the date of grant and
the related number of shares granted is fixed at that point in
time resulting in no employee stock option expense reflected in
net income (loss).
The following table illustrates the effect on net income (loss)
and earnings (loss) per share if we had applied the fair value
recognition provisions of SFAS No. 123,
“Accounting for Stock-Based Compensation” (see
Note 6, “Employee stock options”)(in millions,
except per share information):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Net income(loss)
|
|
$ |
2,363 |
|
|
$ |
2,259 |
|
|
$ |
(1,392 |
) |
|
Stock based compensation, net of tax
|
|
|
292 |
|
|
|
198 |
|
|
|
190 |
|
| |
|
|
|
|
|
|
|
|
|
|
Pro forma net income(loss)
|
|
$ |
2,071 |
|
|
$ |
2,061 |
|
|
$ |
(1,582 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Earnings(loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
$ |
1.86 |
|
|
$ |
1.75 |
|
|
$ |
(1.21 |
) |
| |
Impact of stock option expense
|
|
|
(0.23 |
) |
|
|
(0.15 |
) |
|
|
(0.16 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
Basic — pro forma
|
|
$ |
1.63 |
|
|
$ |
1.60 |
|
|
$ |
(1.37 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
Diluted
|
|
$ |
1.81 |
|
|
$ |
1.69 |
|
|
$ |
(1.21 |
) |
| |
Impact of stock option expense
|
|
|
(0.23 |
) |
|
|
(0.14 |
) |
|
|
(0.16 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
Diluted — pro forma
|
|
$ |
1.58 |
|
|
$ |
1.55 |
|
|
$ |
(1.37 |
) |
| |
|
|
|
|
|
|
|
|
|
In December 2004, the Financial Accounting Standards Board
issued SFAS No. 123R, “Share-Based Payment”.
SFAS No. 123R will require us to account for our stock
options using a fair-value-based method as described in such
statement and recognize the resulting compensation expense in
our financial statements. We plan to adopt
SFAS No. 123R using the modified-retrospective
transition method on July 1, 2005 and we do not plan
to restate our financial statements for periods ending prior to
January 1, 2005. We expect that our after tax expense for
stock options for the full twelve months in 2005 will range
between $170 million to $220 million, or $0.13 to
$0.17 per share. The estimated after tax expense for 2005
is less than the corresponding pro forma expense amount for 2004
($292 million) principally due to a reduction in the
estimated number of stock options to be granted in 2005 and a
reduction in the estimated fair value of our stock options,
which is primarily due to a lower estimated future volatility of
our stock price, reflecting the consideration of implied
volatility in our publicly traded equity instruments. However,
the actual annual expense in 2005 is dependent on a number of
factors including the number of stock options granted, our
common stock price and related expected volatility, and other
inputs utilized in estimating the fair value of the stock
options at the time of grant. Accordingly, the adoption in 2005
of SFAS No. 123R will have a material impact on our
results of operations. Additionally, SFAS No. 123R
requires the benefits of tax deductions in excess of recognized
compensation cost to be reported as a financing cash flow,
rather than as an operating cash flow as required under current
literature. This requirement will reduce net operating cash
flows and increase net financing cash flows in periods after
adoption.
F-12
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
We use financial instruments, including foreign currency
forward, foreign currency option, equity forward, and interest
rate swap contracts to manage our exposures to movements in
foreign exchange rates, equity market price fluctuations, and
interest rates. The use of these financial instruments modifies
the exposure of these risks with the intent to reduce the risk
or cost to us. We do not use derivatives for trading purposes
and are not a party to leveraged derivatives.
We recognize all of our derivative instruments as either assets
or liabilities at fair value in our consolidated balance sheet.
Fair value is determined based on quoted market prices. The
accounting for changes in the fair value (i.e., unrealized gains
or losses) of a derivative instrument depends on whether it has
been designated and qualifies as part of a hedging relationship
and further, on the type of hedging relationship. We also
formally assess, both at inception and periodically thereafter,
whether the hedging derivatives are highly effective in
offsetting changes in either the fair value or cash flows of the
hedged item. Our derivatives that are not designated and qualify
as hedges are adjusted to fair value through current earnings.
Periodically, we enter into foreign currency forward and option
contracts to protect against possible changes in values of
certain anticipated foreign currency cash flows, primarily
resulting from sales outside the United States. These contracts
are designated as cash flow hedges and accordingly, the gains
and losses on these forward and option contracts are reported as
a component of other comprehensive income and reclassified into
interest and other income, net in the same periods during which
the hedged transactions affect earnings. No portions of these
foreign currency forward and option contracts are excluded from
the assessment of hedge effectiveness, and there are no material
ineffective portions of these hedging instruments. At
December 31, 2004 and 2003, amounts in accumulated other
comprehensive income related to cash flow hedges were not
material. We also enter into foreign currency forward contracts
to reduce exposures to foreign currency fluctuations of certain
assets and liabilities denominated in foreign currencies. These
forward contracts have not been designated as hedges and
accordingly, gains and losses on these foreign currency forward
contracts are recognized in interest and other income, net in
the current period. During the years ended December 31,
2004, 2003 and 2002, gains and losses on these foreign currency
forward contracts were not material.
To protect against possible reductions in value of certain of
its available-for-sale marketable equity securities and certain
available-for-sale fixed income investments, we have entered
into equity forward contracts and interest rate swap agreements
which qualify and are designated as fair value hedges. The gains
and (losses) on the equity forward contracts as well as the
offsetting losses and gains on the hedged equity securities are
recognized in interest and other income, net in the current
period. During the years ended December 31, 2004, 2003, and
2002, gains and losses on the portions of these forwards
excluded from the assessment of hedge effectiveness and the
ineffective portions of these hedging instruments were not
material. The terms of the interest rate swap agreements
correspond to the related hedged investments. As a result, there
is no hedge ineffectiveness. During the years ended
December 31, 2004, 2003, and 2002, gains and losses on
these interest rate swap agreements were fully offset by the
losses and gains on the hedged investments.
The Company has interest rate swap agreements, which qualify and
are designated as fair value hedges, to protect against possible
increases in value of certain debt instruments. The terms of the
interest rate swap agreements correspond to the related hedged
debt instruments. As a result, there is no hedge
ineffectiveness. During the years ended December 31, 2004
and 2003, gains and losses on these interest rate swap
agreements were not material and were fully offset by the losses
and gains on the hedged debt instruments.
F-13
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Certain prior year amounts have been reclassified to conform to
the current year presentation.
|
|
| 2. |
Related party transactions |
We own a 50% interest in KA, a corporation formed in 1984 with
Kirin Brewery Company, Limited (“Kirin”) for the
development and commercialization of certain products based on
advanced biotechnology. We account for our interest in KA under
the equity method and include our share of KA’s profits or
losses in “Selling, general and administrative” in the
consolidated statements of operations. For the years ended
December 31, 2004, 2003, and 2002, our share of KA’s
profits or losses were $25 million, ($2) million, and
$11 million, respectively. KA’s revenues consist of
royalty income related to its licensed technology rights. All of
our rights to manufacture and market certain products including
erythropoietin, granulocyte colony-stimulating factor
(“G-CSF”), darbepoetin alfa, and pegfilgrastim are
pursuant to exclusive licenses from KA. We currently market
certain of these products under the brand names EPOGEN®
(erythropoietin), NEUPOGEN® (G-CSF), Aranesp®
(darbepoetin alfa), and Neulasta® (pegfilgrastim). KA
receives royalty income from us, as well as Kirin,
Johnson & Johnson, F. Hoffmann-La Roche Ltd, and
others under separate product license agreements for certain
geographic areas outside of the United States. During the years
ended December 31, 2004, 2003, and 2002, KA earned
royalties from us of $266 million, $216 million, and
$168 million, respectively, which are included in
“Cost of sales (excludes amortization of acquired
intangible assets)” in the consolidated statements of
operations.
KA’s expenses primarily consist of costs related to
research and development activities conducted on its behalf by
Amgen and Kirin. KA pays Amgen and Kirin for such services at
negotiated rates. During the years ended December 31, 2004,
2003, and 2002, we earned revenues from KA of $187 million,
$68 million, and $175 million, respectively, for
certain research and development activities performed on
KA’s behalf, which are included in “Other
revenues” in the accompanying consolidated statements of
operations.
In August 2003, we paid a legal settlement to Genentech, Inc.
(“Genentech”) in connection with settling a patent
litigation relating to our processes for producing
NEUPOGEN® and Neulasta®. Pursuant to the terms of the
license agreement with KA, KA indemnified us for the payment
made to Genentech. During the year ended December 31, 2003,
we recorded $47 million as our share of the loss incurred
by KA, net of tax, in “Selling, general and
administrative” in the accompanying consolidated statements
of operations. In July 2004, KA received third-party
reimbursement for a portion of the legal settlement paid to
Genentech. During the year ended December 31, 2004, we
recorded $11 million, net of tax, as our share of the
reimbursement received by KA in “Selling, general and
administrative” in the accompanying consolidated statements
of operations.
F-14
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The provision for income taxes includes the following (in
millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Current provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Federal(including U.S. possessions)
|
|
$ |
809 |
|
|
$ |
1,155 |
|
|
$ |
456 |
|
| |
State
|
|
|
88 |
|
|
|
93 |
|
|
|
16 |
|
| |
Foreign
|
|
|
78 |
|
|
|
108 |
|
|
|
60 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total current provision
|
|
|
975 |
|
|
|
1,356 |
|
|
|
532 |
|
| |
|
|
|
|
|
|
|
|
|
|
Deferred(benefit) provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Federal(including U.S. possessions)
|
|
|
52 |
|
|
|
(402 |
) |
|
|
146 |
|
| |
State
|
|
|
14 |
|
|
|
(40 |
) |
|
|
29 |
|
| |
Foreign
|
|
|
(9 |
) |
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total deferred provision (benefit)
|
|
|
57 |
|
|
|
(442 |
) |
|
|
175 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
1,032 |
|
|
$ |
914 |
|
|
$ |
707 |
|
| |
|
|
|
|
|
|
|
|
|
Deferred income taxes reflect the temporary differences between
the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes
and the net tax effects of net operating loss and credit
carryforwards. Significant components of our deferred tax assets
and liabilities are as follows (in millions):
| |
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
| |
Intercompany inventory related items
|
|
$ |
449 |
|
|
$ |
487 |
|
| |
Fixed assets
|
|
|
4 |
|
|
|
220 |
|
| |
Expense accruals
|
|
|
208 |
|
|
|
94 |
|
| |
Acquired net operating loss and credit carryforwards
|
|
|
233 |
|
|
|
71 |
|
| |
Other
|
|
|
159 |
|
|
|
98 |
|
| |
|
|
|
|
|
|
| |
|
Total deferred tax assets
|
|
|
1,053 |
|
|
|
970 |
|
| |
Valuation allowance
|
|
|
(57 |
) |
|
|
(48 |
) |
| |
|
|
|
|
|
|
| |
|
Net deferred tax assets
|
|
|
996 |
|
|
|
922 |
|
| |
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
| |
Acquired intangibles
|
|
|
(1,486 |
) |
|
|
(1,611 |
) |
| |
Financing debt instrument
|
|
|
(147 |
) |
|
|
(93 |
) |
| |
Other
|
|
|
(38 |
) |
|
|
(78 |
) |
| |
|
Total deferred tax liabilities
|
|
|
(1,671 |
) |
|
|
(1,782 |
) |
| |
|
|
|
|
|
|
| |
|
$ |
(675 |
) |
|
$ |
(860 |
) |
| |
|
|
|
|
|
|
At December 31, 2004, we had net current deferred tax
assets of $618 million, primarily composed of temporary
differences related to inventory, accrued liabilities, and
financing debt instruments, as well as acquired net operating
losses and credits. At December 31, 2003, our net current
deferred tax assets were $286 million.
F-15
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
At December 31, 2004, we had operating loss carryforwards
of $403 million available to reduce future federal taxable
income, which begin expiring in 2007. In addition, we had
operating loss carryforwards of $323 million available to
reduce future taxable income in various state taxing
jurisdictions. We have provided a valuation allowance against
$214 million of the state operating loss carryforwards. The
state operating loss carryforwards will begin expiring in 2005.
The reconciliation between the Company’s effective tax rate
and the federal statutory rate is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Tax Rate for the | |
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Statutory rate applied to income before income taxes
|
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
Acquired IPR&D
|
|
|
5.7 |
% |
|
|
0.0 |
% |
|
|
(153.0 |
)% |
|
Foreign earnings including permanently reinvested amounts
|
|
|
(12.8 |
)% |
|
|
(7.5 |
)% |
|
|
15.5 |
% |
|
Benefit of Puerto Rico operations, net of Puerto Rico income
taxes
|
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
2.5 |
% |
|
State taxes
|
|
|
3.0 |
% |
|
|
1.7 |
% |
|
|
(6.5 |
)% |
|
Utilization of tax credits, primarily research and
experimentation
|
|
|
(0.5 |
)% |
|
|
(0.6 |
)% |
|
|
4.9 |
% |
|
Other, net
|
|
|
0.0 |
% |
|
|
0.2 |
% |
|
|
(1.7 |
)% |
| |
|
|
|
|
|
|
|
|
|
| |
|
|
30.4 |
% |
|
|
28.8 |
% |
|
|
(103.3 |
)% |
| |
|
|
|
|
|
|
|
|
|
We do not provide for U.S. income taxes on undistributed
earnings of our foreign operations that are intended to be
invested indefinitely outside the United States. At
December 31, 2004, these earnings amounted to approximately
$2,487 million. If these earnings were repatriated to the
United States, we would be required to accrue and pay
approximately $905 million of additional taxes based on the
current tax rates in effect. For the years ended
December 31, 2004, 2003, and 2002, our total foreign
profits before income taxes were approximately
$1,443 million, $956 million, and $360 million,
respectively.
On October 22, 2004, the President of the United States
signed the American Jobs Creation Act of 2004 (the “Jobs
Act”). The Jobs Act creates a temporary incentive for
U.S. corporations to repatriate accumulated income earned
abroad by providing an 85 percent dividends received
deduction for certain dividends from controlled foreign
corporations. The deduction is subject to a number of
limitations. The Internal Revenue Service (“IRS”)
issued its first guidance on the domestic reinvestment plans on
January 13, 2005. However, uncertainty remains as to how to
interpret numerous provisions in the Jobs Act. As such, we are
currently evaluating the repatriation provisions of the Jobs Act
and our 2004 results of operations do not reflect any impact
relating to such repatriation provisions. Based on our
preliminary analysis to date, we are limited under the Jobs Act
to repatriate up to $500 million in foreign profits, and we
estimate the tax liability to be approximately $30 to
$40 million if we repatriate the full $500 million.
Our income tax returns are routinely audited by the Internal
Revenue Service and various state and foreign tax authorities.
Significant disputes may arise with these tax authorities
involving issues of the timing and amount of deductions and
allocations of income among various tax jurisdictions because of
differing interpretations of tax laws and regulations. We
periodically evaluate our exposures associated with tax filing
positions. While we believe our positions comply with applicable
laws, we record liabilities based upon estimates of the ultimate
outcomes of these matters.
Income taxes paid during the years ended December 31, 2004,
2003, and 2002, totaled $1,138 million, $397 million,
and $438 million, respectively.
F-16
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
| 4. |
Financing arrangements |
As of December 31, 2004 and 2003, we had Convertible Notes
(30-year, zero-coupon senior convertible notes) with an accreted
value of $2.9 billion outstanding and having an aggregate
face amount of $3.95 billion ($1,000 face amount per note)
and yield to maturity of 1.125%. The original issue discount of
$1.13 billion (or $285.77 per note) is being accreted
to the balance of the Convertible Notes and recognized as
interest expense over the life of the Convertible Notes using
the effective interest method.
Holders of the Convertible Notes may convert each of their notes
into 8.8601 shares of common stock of Amgen (the
“conversion rate”) at any time on or before the
maturity date. The conversion price per share at issuance was
$80.61. The conversion price per share as of any day will equal
the original issuance price plus the accrued original issue
discount to that day, divided by the conversion rate, or
$83.22 per share as of December 31, 2004. The holders
of the Convertible Notes may require us to purchase all or a
portion of their notes on March 1, 2005, March 1,
2007, March 1, 2012, and March 1, 2017 at a price
equal to the original issuance price plus the accrued original
issue discount to the purchase dates. In such event, under the
terms of the Convertible Notes, we have the right to pay the
purchase price in cash and/or shares of common stock, which
would be issued at the then current market price.
On March 2, 2005, as a result of certain holders of the
Convertible Notes exercising their March 1, 2005 put
option, we repurchased $1,175 million, or approximately
40%, of the outstanding Convertible Notes at their then-accreted
value for cash. Upon the repurchase of such Convertible Notes, a
pro rata portion, $20 million, of the related debt issuance
costs were immediately charged to interest expense in the
quarter ending March 31, 2005. We made an aggregate cash
payment of $22 million to the holders of the Convertible
Notes who did not exercise the put option and continued to hold
outstanding Convertible Notes subsequent to March 1, 2005.
This payment is approximately equal to 1.25% of each Convertible
Note’s then-accreted value and will be amortized to
interest expense over the life of the remaining outstanding
Convertible Notes using the effective interest method.
Concurrently, we amended the terms of the Convertible Notes to
add an additional put date in order to permit the remaining
holders, at their option, to cause us to repurchase the
Convertible Notes on March 1, 2006 at the then-accreted
value. In such event, we have the right to pay the purchase
price in cash and/or shares of common stock, which would be
issued at the then current market price. Accordingly, the
portion of the Convertible Notes outstanding at
December 31, 2004 not repurchased on March 2, 2005 was
classified as long-term debt in the accompanying consolidated
balance sheet.
We may redeem all or a portion of the Convertible Notes for cash
at any time on or after March 1, 2007 at the original
issuance price plus accrued original issue discount as of the
redemption date. In addition, we will pay contingent cash
interest during any six-month period commencing on or after
March 2, 2007 if the average market price of a note for a
five trading day measurement period preceding the applicable
six-month period equals 120% or more of the sum of the original
issuance price and accrued original issue discount for such
note. The contingent cash interest in respect of any quarterly
period will equal the greater of 1) the amount of regular
cash dividends paid by us per share multiplied by the number of
shares of common stock deliverable upon conversion of the
Convertible Notes at the then applicable conversion rate or
2) 0.0625% of the average market price of a note for a five
trading day measurement period preceding the applicable
six-month period provided, that if we do not pay cash dividends
during a semiannual period we will pay contingent interest
semiannually at a rate of 0.125% of the average market price of
a note for a five trading day measurement period.
|
|
|
Medium and long-term notes |
In November 2004, we issued $1.0 billion aggregate
principal amount of 4.00% senior notes due 2009 (the
“2009 Notes”) and $1.0 billion aggregate
principal amount of 4.85% senior notes due 2014 (the
“2014
F-17
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Notes”). The net proceeds of $1,989 million are
intended to be used for purchases of shares under our stock
repurchase program and for general corporate purposes, including
capital expenditures and working capital.
We had $100 million of debt securities outstanding at
December 31, 2004 and 2003 with a fixed rate of 6.5% that
mature in 2007 (the “2007 Notes”), which were issued
under our $500 million debt shelf registration statement
(the “500 Million Shelf”) which was established
in 1997. See below for additional information on the
$500 Million Shelf.
We had $100 million of debt securities outstanding at
December 31, 2004 and 2003 with a fixed interest rate of
8.1% that mature in 2097 (the “Century Notes”). These
securities may be redeemed in whole or in part at our 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.
|
|
|
Shelf registrations and other facilities |
In July 2004, we established a $1.0 billion five-year
unsecured revolving credit facility to be used for general
corporate purposes, including commercial paper support.
Additionally, we increased the size of our commercial paper
authorization by $1.0 billion to $1.2 billion. No
amounts were outstanding under the credit facility or commercial
paper program as of December 31, 2004.
In October 2003, we established a $1.0 billion shelf
registration (the “$1 Billion Shelf”) to provide for
financial flexibility. The $1 Billion Shelf allows us to issue
debt securities, common stock, and associated preferred share
purchase rights, preferred stock, warrants to purchase debt
securities, common stock or preferred stock, securities purchase
contracts, securities purchase units and depositary shares.
Under the $1 Billion Shelf, all of the securities available for
issuance may be offered from time to time with terms to be
determined at the time of issuance. As of December 31,
2004, no securities had been issued under the $1 Billion Shelf.
In 1997, pursuant to the $500 Million Shelf, we established
a $400 million medium-term note program. All of the
$400 million of debt securities available for issuance may
be offered from time to time under our medium-term note program
with terms to be determined at the time of issuance. As of
December 31, 2004, no securities were outstanding under the
$400 million medium-term note program.
Certain of our financing arrangements contain non-financial
covenants and as of December 31, 2004, we are in compliance
with all applicable covenants.
F-18
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
Contractual maturities of long-term debt obligations |
The aggregate contractual maturities of all long-term debt
obligations due subsequent to December 31, 2004, are as
follows (in millions):
| |
|
|
|
|
| Maturity Date |
|
Amount | |
| |
|
| |
|
2005(1)
|
|
$ |
1,175 |
|
|
2006(1)
|
|
|
1,762 |
|
|
2007
|
|
|
100 |
|
|
2008
|
|
|
— |
|
|
2009
|
|
|
1,000 |
|
|
After 2009
|
|
|
1,100 |
|
| |
|
|
|
| |
|
$ |
5,137 |
|
| |
|
|
|
|
|
| (1) |
The amounts above reflect the Convertible Notes’ accreted
value repurchased on March 1, 2005 and the remaining
Convertible Notes’ accreted value on March 1, 2006,
the next put date (see Convertible notes above). |
|
|
|
Stockholder Rights Agreement |
We have an amended and restated preferred stock rights plan
effective through December 12, 2010 pursuant to which each
share of common stock outstanding and each subsequently issued
share have attached to them one whole preferred share purchase
right (a “Right”). The Right represents the right to
purchase one four-thousandth (1/4000) of a share of
Series A Junior Participating Preferred Stock of Amgen at
$350.00. These Rights expire on December 12, 2010.
Under certain circumstances, if an acquiring person or group
acquires 10% or more of our outstanding common stock, an
exercisable Right will entitle its holder (other than the
acquirer) to buy shares of common stock of Amgen 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 our 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 we are involved in a merger or
other business combination where we are 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. We may
redeem the Rights at $0.00025 per Right at any time prior
to the public announcement that a 10% position has been acquired.
In December 2003, the Board of Directors (the “Board”)
authorized us to repurchase up to $5.0 billion of common
stock. Additionally, in December 2004, the Board authorized us
to repurchase up to an additional $5.0 billion of common
stock. As of December 31, 2004, $5,969 million was
available for stock repurchases under these two authorizations.
The amount we spend and the number of shares repurchased varies
based on a variety of factors including the stock price and
blackout periods in which we are restricted from repurchasing
shares.
F-19
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
A summary of our repurchase activity for the years ended
December 31, 2004 and 2003 is as follows (amounts in
millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
Shares | |
|
Dollars | |
|
Shares | |
|
Dollars | |
| |
|
| |
|
| |
|
| |
|
| |
|
First quarter
|
|
|
10 |
|
|
$ |
650 |
|
|
|
8 |
|
|
$ |
451 |
|
|
Second quarter
|
|
|
17 |
|
|
|
1,000 |
|
|
|
7 |
|
|
|
449 |
|
|
Third quarter
|
|
|
24 |
|
|
|
1,398 |
|
|
|
5 |
|
|
|
324 |
|
|
Fourth quarter
|
|
|
18 |
|
|
|
1,024 |
|
|
|
10 |
|
|
|
577 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total
|
|
|
69 |
|
|
$ |
4,072 |
|
|
|
30 |
|
|
$ |
1,801 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income/(loss) |
Information regarding the components of accumulated other
comprehensive income/(loss) are as follows (in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Accumulated | |
| |
|
Unrealized | |
|
Foreign | |
|
Other | |
| |
|
Gains/(Losses) | |
|
Currency | |
|
Comprehensive | |
| |
|
on Securities | |
|
Translation | |
|
Income | |
| |
|
| |
|
| |
|
| |
|
Balance at December 31, 2003
|
|
$ |
33 |
|
|
$ |
28 |
|
|
$ |
61 |
|
|
Current year other comprehensive(loss)/income
|
|
|
(82 |
) |
|
|
24 |
|
|
|
(58 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
$ |
(49 |
) |
|
$ |
52 |
|
|
$ |
3 |
|
| |
|
|
|
|
|
|
|
|
|
In addition to common stock, our authorized capital includes
5 million shares of preferred stock, $0.0001 par
value, of which 0.7 million shares have been reserved and
designated Series A Preferred Stock. At December 31,
2004 and 2003, no shares of preferred stock were issued or
outstanding.
At December 31, 2004, we had reserved 185 million
shares of our common stock, which may be issued through our
employee stock option and stock purchase plans and through
conversion of our Convertible Notes.
|
|
| 6. |
Employee stock options |
|
|
|
Employee stock option plans |
Our 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
annually with the number of shares generally determined by the
employee’s salary grade and performance level. In addition,
certain management and professional level employees typically
receive a stock option grant upon commencement of employment.
F-20
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
As of December 31, 2004, we had 48 million shares of
common stock available for future grant under our employee stock
option plans. Stock option information with respect to all of
our employee stock option plans is as follows (shares in
millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Exercise Price | |
| |
|
|
|
| |
| |
|
|
|
|
|
Weighted- | |
| |
|
Shares | |
|
Low | |
|
High | |
|
Average | |
| |
|
| |
|
| |
|
| |
|
| |
|
Balance unexercised at December 31, 2001
|
|
|
94 |
|
|
$ |
6.19 |
|
|
$ |
78.00 |
|
|
$ |
33.62 |
|
| |
Granted
|
|
|
18 |
|
|
$ |
31.07 |
|
|
$ |
62.48 |
|
|
$ |
40.61 |
|
| |
Assumed from Immunex Corporation (including 19 million
vested options)
|
|
|
22 |
|
|
$ |
1.97 |
|
|
$ |
72.00 |
|
|
$ |
23.66 |
|
| |
Exercised
|
|
|
(26 |
) |
|
$ |
2.00 |
|
|
$ |
60.36 |
|
|
$ |
15.90 |
|
| |
Forfeited
|
|
|
(5 |
) |
|
$ |
8.50 |
|
|
$ |
76.44 |
|
|
$ |
52.01 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance unexercised at December 31, 2002
|
|
|
103 |
|
|
$ |
1.97 |
|
|
$ |
78.00 |
|
|
$ |
36.25 |
|
| |
Granted
|
|
|
19 |
|
|
$ |
48.88 |
|
|
$ |
71.54 |
|
|
$ |
64.44 |
|
| |
Exercised
|
|
|
(23 |
) |
|
$ |
2.09 |
|
|
$ |
69.31 |
|
|
$ |
20.98 |
|
| |
Forfeited
|
|
|
(4 |
) |
|
$ |
5.05 |
|
|
$ |
78.00 |
|
|
$ |
55.59 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance unexercised at December 31, 2003
|
|
|
95 |
|
|
$ |
1.97 |
|
|
$ |
78.00 |
|
|
$ |
44.68 |
|
| |
Granted
|
|
|
16 |
|
|
$ |
37.68 |
|
|
$ |
66.23 |
|
|
$ |
59.32 |
|
| |
Assumed from Tularik Inc. (including 2 million vested
options)
|
|
|
4 |
|
|
$ |
1.11 |
|
|
$ |
129.16 |
|
|
$ |
23.15 |
|
| |
Exercised
|
|
|
(20 |
) |
|
$ |
2.00 |
|
|
$ |
64.56 |
|
|
$ |
20.42 |
|
| |
Forfeited
|
|
|
(6 |
) |
|
$ |
12.67 |
|
|
$ |
78.00 |
|
|
$ |
59.93 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance unexercised at December 31,2004
|
|
|
89 |
|
|
$ |
1.11 |
|
|
$ |
129.16 |
|
|
$ |
50.82 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2004, 2003, and 2002, employee stock
options to purchase 47 million, 52 million, and
62 million shares were exercisable at weighted-average
prices of $44.69, $34.38, and $27.03, respectively.
Information regarding employee stock options outstanding as of
December 31, 2004 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 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Over $0.00 to $30.00
|
|
|
12 |
|
|
$ |
16.84 |
|
|
|
2.8 |
|
|
|
11 |
|
|
$ |
16.63 |
|
|
Over $30.00 to $60.00
|
|
|
40 |
|
|
$ |
47.53 |
|
|
|
4.7 |
|
|
|
17 |
|
|
$ |
40.34 |
|
|
Over $60.00
|
|
|
37 |
|
|
$ |
65.51 |
|
|
|
4.2 |
|
|
|
19 |
|
|
$ |
65.58 |
|
|
|
|
Fair value disclosures of employee stock options |
The exercise price of employee stock option grants is set at the
closing price of our common stock on the date of grant and the
related number of shares granted is fixed at that point in time.
Therefore, under the principles of APB No. 25, we do not
recognize compensation expense associated with the grant of
employee stock options. SFAS No. 123 requires the use
of option valuation models to provide supplemental information
regarding options granted after 1994.
F-21
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The weighted average fair value of common stock and stock
options on the date of grant, and the assumptions used to
estimate the fair value of the stock options using the
Black-Scholes option valuation model, were as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Weighted average fair value of common stock
|
|
$ |
59.32 |
|
|
$ |
64.44 |
|
|
$ |
40.61 |
|
|
Weighted average fair value of stock options granted
|
|
|
22.90 |
|
|
|
26.04 |
|
|
|
16.66 |
|
|
Risk-free interest rate
|
|
|
2.6 |
% |
|
|
2.4 |
% |
|
|
3.6 |
% |
|
Expected life (in years)
|
|
|
4.3 |
|
|
|
4.0 |
|
|
|
3.9 |
|
|
Expected volatility
|
|
|
44.0 |
% |
|
|
50.0 |
% |
|
|
50.0 |
% |
|
Expected dividend yield
|
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
The Black-Scholes option valuation model was developed for use
in estimating the fair value of traded options. Our employee
stock options have characteristics significantly different from
those of traded options such as extremely limited
transferability and, in most cases, vesting restrictions. In
addition, the assumptions used in option valuation models (see
above) are highly subjective, particularly the expected stock
price volatility of the underlying stock. Changes in these
subjective input assumptions can materially affect the fair
value estimate of our employee stock options. For purposes of
pro forma disclosures, the estimated fair values of the options
are amortized over the options’ vesting periods. See
Note 1, “Summary of significant accounting
policies — Employee stock option and stock purchase
plans” for a detailed computation of pro forma net income
(loss) and earnings (loss) per share.
On August 13, 2004, we acquired all of the outstanding
common stock of Tularik in a transaction accounted for as a
business combination. Tularik was a company engaged in drug
discovery related to cell signaling and the control of gene
expression. We issued 24 million shares in the acquisition.
Additionally, we issued 4 million stock options in exchange
for Tularik stock options assumed in the acquisition. The
purchase price of $1.5 billion, which included the carrying
value of our existing ownership interest in Tularik of
approximately 21% or $82 million, was preliminarily
allocated to goodwill of $752 million, IPR&D of
$554 million (see Note 1, “Summary of significant
accounting policies — Acquired in-process research and
development”), and other net assets acquired of
$191 million. The amount allocated to IPR&D was
immediately expensed in the consolidated statement of operations
during the three months ended September 30, 2004. The
estimated fair value of these R&D projects was determined
through the assistance of an independent valuation firm and was
based on discounted cash flows. The final determination of the
purchase price allocation is expected to be completed as soon as
practicable after the consummation of the acquisition. The
results of Tularik’s operations have been included in the
consolidated financial statements commencing
August 14, 2004. Pro forma results of operations for
the year ended December 31, 2004 assuming the acquisition
of Tularik had taken place at the beginning of 2004 would not
differ significantly from actual reported results. The merger
was structured to qualify as a tax-free reorganization within
the meaning of Section 368(a) of the Internal Revenue Code.
On July 15, 2002, we acquired all of the outstanding common
stock of Immunex in a transaction accounted for as a business
combination. The purchase price of the acquisition was
$17.8 billion and was primarily allocated to goodwill,
intangible assets (see Note 1, “Summary of significant
accounting policies — Intangible assets and
goodwill”), and IPR&D (see Note 1, “Summary
of significant accounting policies — Acquired
in-process research and development”) based on their
estimated fair values at the acquisition date.
F-22
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The amount allocated to IPR&D, $2,992 million, was
immediately expensed in the consolidated statement of operations
during the three months ended September 30, 2002. The
estimated fair value of these R&D projects was determined
through the assistance of an independent valuation firm and was
based on discounted cash flows. The results of Immunex’s
operations have been included in the consolidated financial
statements commencing July 16, 2002. The merger was
structured to qualify as a tax-free reorganization within the
meaning of Section 368(a) of the Internal Revenue Code.
The following unaudited pro forma information presents a summary
of our consolidated results of operations as if the Immunex
acquisition had taken place at the beginning of 2002 (in
millions, except per share information):
| |
|
|
|
|
|
| |
|
Year Ended | |
| |
|
December 31, | |
| |
|
2002 | |
| |
|
| |
|
Product sales
|
|
$ |
5,539 |
|
|
Total revenues
|
|
|
6,078 |
|
|
Net income
|
|
|
1,487 |
|
|
Pro forma earnings per share:
|
|
|
|
|
| |
Basic
|
|
$ |
1.16 |
|
| |
Diluted
|
|
$ |
1.12 |
|
The pro forma net income and earnings per share for 2002 exclude
the acquired IPR&D charge noted above. The pro forma
information is not necessarily indicative of results that would
have occurred had the acquisition been in effect for the periods
presented or indicative of results that may be achieved in the
future.
|
|
| 8. |
Commitments and contingencies |
We lease certain administrative and laboratory facilities under
non-cancelable operating leases that expire through December
2021. The following table summarizes the minimum future rental
commitments under non-cancelable operating leases at
December 31, 2004 (in millions):
| |
|
|
|
|
|
| |
|
Lease | |
| Year Ended December 31, |
|
Payments | |
| |
|
| |
|
2005
|
|
$ |
81 |
|
|
2006
|
|
|
70 |
|
|
2007
|
|
|
61 |
|
|
2008
|
|
|
51 |
|
|
2009
|
|
|
45 |
|
|
Thereafter
|
|
|
348 |
|
| |
|
|
|
| |
Total
|
|
|
656 |
|
|
Less income from subleases
|
|
|
62 |
|
| |
|
|
|
| |
Net minimum operating lease payments
|
|
$ |
594 |
|
| |
|
|
|
Rental expense on operating leases for the years ended
December 31, 2004, 2003, and 2002 was $45 million,
$30 million, and $26 million, respectively. Sublease
income for the years ended December 31, 2004, 2003, and
2002 was not material.
We are under supply agreements with various contract
manufacturers for the production, vialing, and packaging of
ENBREL®. Under the terms of the various contracts, we are
required to purchase certain
F-23
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
minimum quantities of ENBREL® each year through 2010. The
following table summarizes the minimum contractual inventory
commitments from third-party contract manufacturers at
December 31, 2004 (in millions):
| |
|
|
|
|
|
| |
|
Inventory | |
| Year Ended December 31, |
|
Commitments | |
| |
|
| |
|
2005
|
|
$ |
313 |
|
|
2006
|
|
|
121 |
|
|
2007
|
|
|
123 |
|
|
2008
|
|
|
123 |
|
|
2009
|
|
|
123 |
|
|
Thereafter
|
|
|
373 |
|
| |
|
|
|
| |
Total contractual purchases
|
|
$ |
1,176 |
|
| |
|
|
|
The amounts above primarily relate to our long-term supply
agreement with Boehringer Ingelheim Pharma KG (“BI
Pharma”) for the manufacture of commercial quantities of
ENBREL®. Amounts owed to BI Pharma are based on firm
commitments for the purchase of production capacity for
ENBREL® and reflect certain estimates such as production
run success rates and bulk drug yields achieved.
Amounts purchased under contractual inventory commitments from
third-party contract manufacturers for the years ended
December 31, 2004 and 2003 were $268 million and
$282 million, respectively.
In the ordinary course of business, we are involved in various
legal proceedings and other matters, including tax-related.
While it is not possible to accurately predict or determine the
eventual outcome of these items, we do not believe any such
items currently pending will have a material adverse effect on
our annual consolidated financial statements, although an
adverse resolution in any quarterly reporting period of one or
more of these items could have a material impact on the results
of operations for that period.
We operate in one business segment — human
therapeutics. Therefore, results of operations are reported on a
consolidated basis for purposes of segment reporting.
Enterprise-wide disclosures about revenues by product, revenues
and long-lived assets by geographic area, and revenues from
major customers are presented below.
F-24
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Revenues
Revenues consisted of the following (in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Product sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
EPOGEN®
|
|
$ |
2,601 |
|
|
$ |
2,435 |
|
|
$ |
2,261 |
|
| |
Aranesp®
|
|
|
2,473 |
|
|
|
1,544 |
|
|
|
416 |
|
| |
ENBREL®
|
|
|
1,900 |
|
|
|
1,300 |
|
|
|
362 |
|
| |
Neulasta®
|
|
|
1,740 |
|
|
|
1,255 |
|
|
|
464 |
|
| |
NEUPOGEN®
|
|
|
1,175 |
|
|
|
1,267 |
|
|
|
1,380 |
|
| |
Other
|
|
|
88 |
|
|
|
67 |
|
|
|
108 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total product sales
|
|
|
9,977 |
|
|
|
7,868 |
|
|
|
4,991 |
|
|
Other revenues
|
|
|
573 |
|
|
|
488 |
|
|
|
532 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total revenues
|
|
$ |
10,550 |
|
|
$ |
8,356 |
|
|
$ |
5,523 |
|
| |
|
|
|
|
|
|
|
|
|
Outside the United States, we principally sell: 1) Aranesp®
in most countries in Europe, Canada, and Australia,
2) Neulasta® in certain countries in Europe commencing
with the January 2003 launch, Canada, and Australia,
3) NEUPOGEN® in most countries in Europe, Canada, and
Australia, and 4) ENBREL® in Canada commencing
July 16, 2002. 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, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
United States
|
|
$ |
8,847 |
|
|
$ |
7,246 |
|
|
$ |
5,026 |
|
| |
Foreign countries
|
|
|
1,703 |
|
|
|
1,110 |
|
|
|
497 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total revenues
|
|
$ |
10,550 |
|
|
$ |
8,356 |
|
|
$ |
5,523 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Long-lived assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
United States
|
|
$ |
3,647 |
|
|
$ |
3,086 |
|
|
$ |
2,474 |
|
| |
Foreign countries
|
|
|
1,065 |
|
|
|
713 |
|
|
|
340 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total long-lived assets
|
|
$ |
4,712 |
|
|
$ |
3,799 |
|
|
$ |
2,814 |
|
| |
|
|
|
|
|
|
|
|
|
In the United States, we sell primarily to wholesale
distributors of pharmaceutical products. With the exception of
ENBREL®, we utilize these wholesale distributors as the
principal means of distributing our principal products to
healthcare providers such as clinics, hospitals, and pharmacies.
With respect to
F-25
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
ENBREL®, we primarily drop-ship wholesaler orders directly
to pharmacies for end-users. We monitor the financial condition
of our larger distributors and limit our credit exposure by
setting appropriate credit limits and requiring collateral from
certain customers.
For the years ended December 31, 2004, 2003 and 2002, sales
to three large wholesalers each accounted for more than 10% of
total revenues. Net product sales to these three wholesalers
were $3,406 million, $1,809 million, and
$1,683 million, respectively for the year ended
December 31, 2004. Sales to these three wholesalers were
$2,686 million, $1,340 million, and
$1,596 million, respectively, for the year ended
December 31, 2003. Sales to these three wholesalers were
$2,084 million, $844 million, and $989 million,
respectively, for the year ended December 31, 2002.
At December 31, 2004 and 2003, amounts due from these three
large wholesalers each exceeded 10% of gross trade receivables,
and accounted for 52% and 53%, respectively, of net trade
receivables on a combined basis. At December 31, 2004 and
2003, 38% and 37%, respectively, of trade receivables, net were
due from customers located outside the United States, primarily
in Europe.
Accrued liabilities consisted of the following (in millions):
| |
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Employee compensation and benefits
|
|
$ |
610 |
|
|
$ |
445 |
|
|
Sales incentives and allowances
|
|
|
589 |
|
|
|
358 |
|
|
Income taxes
|
|
|
355 |
|
|
|
673 |
|
|
Accrued royalties
|
|
|
146 |
|
|
|
133 |
|
|
Other
|
|
|
777 |
|
|
|
520 |
|
| |
|
|
|
|
|
|
| |
|
$ |
2,477 |
|
|
$ |
2,129 |
|
| |
|
|
|
|
|
|
|
|
| 11. |
Fair values of financial instruments |
|
|
|
Short-term assets and liabilities |
The fair values of cash equivalents, accounts receivable, and
accounts payable approximate their carrying value due to the
short-term nature of these financial instruments.
The fair values of our equity method investments at
December 31, 2004 and 2003 were approximately
$238 million and $413 million, respectively, based on
quoted market prices to the extent available. Certain of our
equity method investments do not have readily available fair
values and therefore the carrying values are considered to
approximate their fair values. At December 31, 2004 and
2003, the carrying values of our equity method investments were
$238 million and $283 million, respectively, and are
included in non-current other assets in the accompanying
consolidated balance sheets.
The fair value of the Convertible Notes at December 31,
2004 and 2003 were approximately $2,933 million and
$2,979 million, respectively. The Convertible Notes are
registered with the Securities and Exchange Commission and
traded on the open market. The fair value of the Convertible
Notes was based on the quoted market prices at December 31,
2004 and 2003.
F-26
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The fair value of the 2009 Notes and the 2014 Notes at
December 31, 2004 was $2,000 million. The fair values
of the 2007 Notes and Century Notes at December 31, 2004
and 2003 were approximately $242 million and
$249 million, respectively. The fair values for medium and
long–term notes were estimated based on quoted market rates
for instruments with similar terms and remaining maturities.
Other items, net in the accompanying consolidated statements of
operations consists of the following expense/(income) items (in
millions):
| |
|
|
|
|
|
|
|
|
| |
|
Years Ended | |
| |
|
December 31, | |
| |
|
| |
| |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
License Agreement arbitration
|
|
$ |
(74 |
) |
|
$ |
(151 |
) |
|
Amgen Foundation contribution
|
|
|
50 |
|
|
|
50 |
|
|
Termination of collaboration agreements
|
|
|
— |
|
|
|
(40 |
) |
| |
|
|
|
|
|
|
| |
|
$ |
(24 |
) |
|
$ |
(141 |
) |
| |
|
|
|
|
|
|
|
|
|
License Agreement arbitration |
In September 1985, we granted Johnson & Johnson’s
affiliate, Ortho Pharmaceutical Corporation, a license relating
to certain patented technology and know-how of Amgen to sell
Epoetin alfa throughout the United States for all human uses
except dialysis and diagnostics. A number of disputes arose
between Amgen and Johnson & Johnson as to their
respective rights and obligations under the various agreements
between them, including the agreement granting the license (the
“License Agreement”). These disputes between Amgen and
Johnson & Johnson have been resolved through binding
arbitration. One of these disputes related to the alleged
violation of the License Agreement by Johnson &
Johnson. In October 2002, the Arbitrator issued a final order
awarding us $150 million for Johnson &
Johnson’s breach of the License Agreement. The legal award
of $151 million, which included interest, was recorded in
the fourth quarter of 2002. In January 2003, we were awarded
reimbursement of our costs and expenses, as the successful party
in the arbitration. In May 2003, the Arbitrator issued a final
order awarding us $74 million in such costs and expenses,
which were recorded in the second quarter of 2003.
|
|
|
Amgen Foundation contribution |
In each of 2003 and 2002, we contributed $50 million to the
Amgen Foundation. These contributions will allow the Amgen
Foundation to continue its support of non-profit organizations
that focus on issues in health and medicine, science education,
and other activities that strengthen local communities.
|
|
|
Termination of collaboration agreements |
During the year ended December 31, 2002, we recorded a
benefit of $40 million related to the finalization of the
termination of certain collaboration agreements which resulted
in the recovery of certain expenses accrued in the fourth
quarter of 2001. The benefit principally related to the
settlement of the PRAECIS PHARMACEUTICALS INCORPORATED
collaboration agreement. At December 31, 2002,
substantially all amounts had been paid to the respective third
parties.
F-27
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
| 13. |
Quarterly financial data (unaudited) |
(In millions, except per share data)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2004 Quarter Ended |
|
Dec. 31 | |
|
Sept. 30(1) | |
|
June 30 | |
|
Mar. 31 | |
| |
|
| |
|
| |
|
| |
|
| |
|
Product sales
|
|
$ |
2,778 |
|
|
$ |
2,560 |
|
|
$ |
2,431 |
|
|
$ |
2,208 |
|
|
Gross profit from product sales
|
|
|
2,302 |
|
|
|
2,113 |
|
|
|
1,996 |
|
|
|
1,835 |
|
|
Net income
|
|
|
689 |
|
|
|
236 |
|
|
|
748 |
|
|
|
690 |
|
|
Earnings per share(4):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
$ |
0.55 |
|
|
$ |
0.19 |
|
|
$ |
0.59 |
|
|
$ |
0.54 |
|
| |
Diluted
|
|
$ |
0.53 |
|
|
$ |
0.18 |
|
|
$ |
0.57 |
|
|
$ |
0.52 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2003 Quarter Ended |
|
Dec. 31(2) | |
|
Sept. 30(3) | |
|
June 30 | |
|
Mar. 31 | |
| |
|
| |
|
| |
|
| |
|
| |
|
Product sales
|
|
$ |
2,238 |
|
|
$ |
2,078 |
|
|
$ |
1,916 |
|
|
$ |
1,636 |
|
|
Gross profit from product sales
|
|
|
1,849 |
|
|
|
1,738 |
|
|
|
1,587 |
|
|
|
1,353 |
|
|
Net income
|
|
|
547 |
|
|
|
612 |
|
|
|
607 |
|
|
|
493 |
|
|
Earnings per share(4):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
$ |
0.43 |
|
|
$ |
0.47 |
|
|
$ |
0.47 |
|
|
$ |
0.38 |
|
| |
Diluted
|
|
$ |
0.41 |
|
|
$ |
0.46 |
|
|
$ |
0.45 |
|
|
$ |
0.37 |
|
|
|
| (1) |
In the third quarter of 2004, we recorded: 1) a charge of
$554 million related to the write-off of IPR&D related
to the Tularik acquisition and 2) a benefit of $11 million
for the reimbursement of certain amounts paid to Genentech for
the legal settlement. |
| |
| (2) |
In the fourth quarter of 2003, we recorded a charge of
$87 million for the upfront fee paid to Biovitrum AB
(“Biovitrum”), related to the multifaceted agreement
under which we received exclusive rights to develop and
commercialize certain of Biovitrum’s small molecules for
the treatment of metabolic diseases and certain other medical
disorders. |
| |
| (3) |
In the third quarter of 2003, we recorded: 1) a charge of
$47 million related to the legal settlement paid to
Genentech, 2) a gain from a legal award related to our
arbitration with Johnson & Johnson of $74 million,
and 3) a contribution of $50 million to the Amgen
Foundation. |
| |
| (4) |
Earnings per share are computed independently for each of the
quarters presented. Therefore, the sum of the quarterly earnings
per share information may not equal annual earnings per share. |
See Notes 2, 7, and 12 for further discussion of the
items described above.
F-28
SCHEDULE II
AMGEN INC.
VALUATION ACCOUNTS
Years Ended December 31, 2004, 2003, and 2002
(In millions)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Additions | |
|
|
|
|
|
|
| |
|
Balance at | |
|
Charged to | |
|
|
|
|
|
Balance | |
| |
|
Beginning | |
|
Costs and | |
|
Other | |
|
|
|
at End | |
| |
|
of Period | |
|
Expense | |
|
Additions(1) | |
|
Deductions |
|
of Period | |
| |
|
| |
|
| |
|
| |
|
|
|
| |
|
Year ended December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Allowance for doubtful accounts
|
|
$ |
27 |
|
|
$ |
2 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
29 |
|
|
Year ended December 31, 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Allowance for doubtful accounts
|
|
$ |
23 |
|
|
$ |
4 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
27 |
|
|
Year ended December 31, 2002:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Allowance for doubtful accounts
|
|
$ |
21 |
|
|
$ |
1 |
|
|
$ |
1 |
|
|
$ |
— |
|
|
$ |
23 |
|
|
|
| (1) |
In connection with the Immunex acquisition, we recorded an
additional allowance for doubtful accounts of $1 million as
of the acquisition date. |
F-29