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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 000-12477
AMGEN INC.
(Exact name of registrant as specified in its charter)
Delaware 95-3540776
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Amgen Center Drive, Thousand Oaks, California 91320-1799
(Address of principal executive offices) (Zip Code)
(805) 447-1000
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(g) of the Act:
Common stock, $0.0001 par value; preferred share purchase rights;
Contractual contingent payment rights
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The approximate aggregate market value of voting and non-voting stock held
by non-affiliates of the registrant was $60,066,301,000 as of February 14, 2002
(A)
1,047,800,052
(Number of shares of common stock outstanding as of February 14, 2002)
Documents incorporated by reference:
Form 10-K
Document Parts
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Definitive 2002 Proxy Statement, to be filed within
120 days of December 31, 2001 (specified portions)....... III
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(A) Excludes 12,174,168 shares of common stock held by directors and officers,
and any stockholders whose ownership exceeds five percent of the shares
outstanding, at February 14, 2002. 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.
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PART I
Item 1. BUSINESS
Overview
Amgen Inc. ("Amgen" or the "Company") is a global biotechnology company that
discovers, develops, manufactures, and markets human therapeutics based on
advances in cellular and molecular biology.
The Company manufactures and markets human therapeutic products including,
EPOGEN(R) (Epoetin alfa), NEUPOGEN(R) (Filgrastim), Aranesp(TM) (darbepoetin
alfa), and Kineret(TM) (anakinra). EPOGEN(R) stimulates the production of red
blood cells and is marketed by Amgen in the United States for the treatment of
anemia associated with chronic renal failure in patients on dialysis.
NEUPOGEN(R) selectively stimulates the production of neutrophils, one type of
white blood cell. The Company markets NEUPOGEN(R) in the United States,
countries of the European Union ("EU"), Canada, and Australia for use in
decreasing the incidence of infection in patients undergoing myelosuppressive
chemotherapy. In addition, NEUPOGEN(R) is marketed in most of these countries
for use in increasing neutrophil counts in various other treatment modalities.
Aranesp(TM) stimulates the production of red blood cells and is marketed in the
United States, most countries in the EU, Australia, and New Zealand for the
treatment of anemia associated with chronic renal failure, including patients
on dialysis and patients not on dialysis. Kineret(TM) blocks the biologic
activity of interleukin-1 ("IL-1"), a substance that mediates inflammatory and
immunological responses. Kineret(TM) is marketed in the United States for the
reduction of the signs and symptoms of moderately to severely active rheumatoid
arthritis, in patients 18 years of age or older who have failed one or more
disease modifying antirheumatic drugs.
The Company focuses its research and development efforts on human
therapeutics delivered in the form of proteins, monoclonal antibodies, and
small molecules in the therapeutic areas of nephrology, cancer, inflammation,
and neurology and metabolism. The Company has research facilities in the United
States, and has clinical development staff in the United States, the EU,
Canada, Australia, and Japan. In addition to internal research and development
efforts, the Company has acquired certain product and technology rights and has
established research and development collaborations.
Amgen operates commercial manufacturing facilities located in the United
States, Puerto Rico, and a packaging and distribution center in The
Netherlands. A sales and marketing force is maintained in the United States,
the EU, Canada, Australia, and New Zealand. In addition, Amgen has entered into
licensing and/or co-promotion agreements to market certain of its products
including EPOGEN(R), NEUPOGEN(R), and Aranesp(TM) in certain geographic areas.
The Company was incorporated in California in 1980 and was merged into a
Delaware corporation in 1987. Amgen's principal executive offices are located
at One Amgen Center Drive, Thousand Oaks, California 91320-1799.
Products
EPOGEN(R) (Epoetin alfa)
EPOGEN(R) (proper name--Epoetin alfa) is Amgen's registered trademark for
its recombinant human erythropoietin product, a protein that stimulates red
blood cell production. Red blood cells transport oxygen to all cells of the
body. Without adequate amounts of erythropoietin, the red blood cell count is
reduced, thereby diminishing the ability of the blood to deliver sufficient
amounts of oxygen to the body, resulting in anemia. People with chronic renal
failure suffer from anemia because they do not produce sufficient amounts of
erythropoietin, which is normally produced in healthy kidneys. Amgen promotes
EPOGEN(R) for the treatment of anemia associated with chronic renal failure for
patients who are on dialysis. EPOGEN(R) 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.
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In the United States, Amgen was granted rights to market recombinant human
erythropoietin under a licensing agreement with Kirin-Amgen, Inc.
("Kirin-Amgen"), a joint venture between Kirin Brewery Company, Limited
("Kirin") and Amgen (see "Joint Ventures and Business Relationships--Kirin
Brewery Company, Limited"). The Company began selling EPOGEN(R) in 1989 when
the U.S. Food and Drug Administration ("FDA") approved its use in the treatment
of anemia associated with chronic renal failure. In November 1999, the FDA
approved EPOGEN(R) for the treatment of anemia in children with chronic renal
failure who are on dialysis.
The Company has retained exclusive rights to market EPOGEN(R) in the United
States for dialysis patients. Amgen has granted Ortho Pharmaceutical
Corporation (which has assigned its rights under the Product License Agreement
to Ortho Biotech Products, L.P.), a subsidiary of Johnson & Johnson, hereafter
referred to as "Johnson & Johnson", a license to commercialize recombinant
human erythropoietin as a human therapeutic in the United States in all markets
other than dialysis. Johnson & Johnson markets recombinant human erythropoietin
under the trademark PROCRIT(R) in the United States (see Note 1 to the
Consolidated Financial Statements, "Summary of significant accounting
policies--Product sales"). In countries other than the United States, the
People's Republic of China, and Japan, Johnson & Johnson was granted rights to
commercialize erythropoietin as a human therapeutic under a licensing agreement
with Kirin-Amgen. Affiliates of Johnson & Johnson manufacture and market
erythropoietin under the trademark EPREX(R) in various countries (see "Joint
Ventures and Business Relationships--Johnson & Johnson").
In Japan and the People's Republic of China, Kirin was granted rights to
market recombinant human erythropoietin under licensing agreements with
Kirin-Amgen (see "Joint Ventures and Business Relationships--Kirin Brewery
Company, Limited"). Kirin manufactures and markets its recombinant human
erythropoietin product under the trademark ESPO(R).
EPOGEN(R) sales for the year ended December 31, 2001 were $2,108.5 million.
For EPOGEN(R) sales information for the years ended December 31, 2000 and 1999,
see Note 10 to the Consolidated Financial Statements.
NEUPOGEN(R) (Filgrastim)
NEUPOGEN(R) (proper name--Filgrastim) is Amgen's registered trademark for
its recombinant-methionyl human granulocyte colony-stimulating factor
("G-CSF"), a protein that selectively stimulates production of certain white
blood cells known as neutrophils. Neutrophils 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 cancer, targets cell
types which grow rapidly, such as tumor cells, neutrophils, and other types of
blood cells. Myelosuppressive chemotherapy can be administered with the intent
to cure cancer (curative setting) or with the intent to reduce pain and other
complications of cancer by managing tumor growth (palliative setting).
NEUPOGEN(R) is prescribed more frequently in the curative setting. Providing
NEUPOGEN(R) as an adjunct to myelosuppressive chemotherapy can reduce the
duration of neutropenia and thereby reduce the potential for infection.
Severe chronic neutropenia is an example of disease-related neutropenia. In
severe chronic neutropenia, the body fails to manufacture sufficient
neutrophils. Chronic administration of NEUPOGEN(R) has been shown to reduce the
incidence and duration of neutropenia-related consequences, such as fever and
infections, in patients with severe chronic neutropenia.
Patients undergoing bone marrow transplantation are treated with NEUPOGEN(R)
to accelerate recovery of neutrophils following chemotherapy and bone marrow
infusion. NEUPOGEN(R) also has been shown to induce immature blood cells
(progenitor cells, sometimes referred to as stem cells) to migrate (mobilize)
from the bone marrow into the blood circulatory system. When these peripheral
blood progenitor cells ("PBPC") are collected from the blood, stored, and
re-infused (transplanted) after high dose chemotherapy, recovery of platelets,
red
3
blood cells, and neutrophils is accelerated. PBPC transplantation may be an
alternative to autologous bone marrow transplantation for some patients.
In the United States, NEUPOGEN(R) was initially indicated to decrease the
incidence of infection as manifested by febrile neutropenia for patients with
non-myeloid malignancies undergoing myelosuppressive chemotherapy.
Subsequently, the FDA approved NEUPOGEN(R) for additional indications: to
reduce the duration of neutropenia for patients with non-myeloid malignancies
undergoing myeloablative therapy followed by bone marrow transplantation; to
reduce the incidence and duration of neutropenia-related consequences in
symptomatic patients with congenital neutropenia, cyclic neutropenia, or
idiopathic neutropenia (collectively, severe chronic neutropenia); for use in
mobilization of PBPC for stem cell transplantation; and to reduce the recovery
time of neutrophils and the duration of fever following chemotherapy treatment
in patients being treated for acute myelogenous leukemia ("AML"). In the EU,
Canada, and Australia, NEUPOGEN(R) is marketed for the same indications. The
Company also markets NEUPOGEN(R) in the EU, Canada, and Australia for the
treatment of neutropenia in HIV patients receiving antiviral and/or other
myelosuppressive medications.
The Company began selling NEUPOGEN(R) in the United States in February 1991
pursuant to a licensing agreement with Kirin-Amgen. Kirin markets GRAN(R), its
G-CSF product, in Japan, the People's Republic of China, Taiwan, and Korea
under licensing agreements with Kirin-Amgen (see "Joint Ventures and Business
Relationships--Kirin Brewery Company, Limited"). In the EU, NEUPOGEN(R) is
commercialized by Amgen and F. Hoffmann-La Roche Ltd ("Roche") under a
co-promotion agreement (see "Joint Ventures and Business Relationships--F.
Hoffmann-La Roche Ltd"). In geographic areas of the world other than those
above, Roche markets NEUPOGEN(R) under licenses from Amgen and Kirin-Amgen (see
"Joint Ventures and Business Relationships--Kirin Brewery Company, Limited" and
"Joint Ventures and Business Relationships--F. Hoffmann-La Roche Ltd").
For NEUPOGEN(R) sales information for the years ended December 31, 2001,
2000, and 1999, see Note 10 to the Consolidated Financial Statements.
Aranesp(TM) (darbepoetin alfa)
Aranesp(TM) (proper name--darbepoetin alfa) is Amgen's trademark for its
erythropoiesis stimulating protein, a protein that stimulates red blood cell
production. A reduced red blood cell count can result in anemia (see
"--EPOGEN(R) (Epoetin alfa)"). Since this protein leaves the body more slowly,
Aranesp(TM) should be administered less frequently than Epoetin alfa, thus
simplifying anemia management for patients and health care providers. In 2001,
the Company received approval to market Aranesp(TM) in the United States
(September 2001), most European countries in the EU, Australia, and New Zealand
for the treatment of anemia associated with chronic renal failure, including
patients on dialysis and patients not on dialysis.
The Company has an agreement with Kirin to jointly develop darbepoetin alfa
through its joint venture, Kirin-Amgen (see "Joint Ventures and Business
Relationships--Kirin Brewery Company, Limited"). Amgen has been granted an
exclusive license by Kirin-Amgen to manufacture and market darbepoetin alfa in
the United States, all European countries, Canada, Australia, New Zealand,
Mexico, and all Central and South American countries. Kirin has been granted
similar rights by Kirin-Amgen for Japan, the People's Republic of China,
Taiwan, Korea, and certain other countries in Southeast Asia.
Aranesp(TM) sales for the year ended December 31, 2001 were $41.5 million.
Neulasta(TM) (pegfilgrastim)
Neulasta(TM) (proper name--pegfilgrastim) is Amgen's trademark for a protein
that selectively stimulates production of certain white blood cells known as
neutrophils and is based on the Filgrastim molecule. A polyethylene glycol
molecule or "PEG" unit is added to enlarge the Filgrastim molecule, thereby
extending its
4
half-life and causing it to be removed more slowly from the body. This allows
for administration as a single dose per chemotherapy cycle compared with
NEUPOGEN(R) which requires more frequent dosing. In January 2002, Neulasta(TM)
was approved by the FDA 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.
Kineret(TM) (anakinra)
Kineret(TM) (proper name--anakinra) is Amgen's trademark for its recombinant
nonglycosylated form of the human interleukin-1 ("IL-1") receptor antagonist.
Kineret(TM) blocks the biologic activity of IL-1 by competitively inhibiting
IL-1 binding to the interleukin-1 type receptor, which is expressed in a wide
variety of tissues. IL-1 production is induced in response to inflammatory
stimuli and mediates various physiologic responses including inflammatory and
immunological responses. Kineret(TM) is a product that was added to the
Company's inflammation research program through the acquisition of Synergen,
Inc. ("Synergen") (see "Joint Ventures and Business Relationships--Other
business relationships").
In November 2001, Amgen received FDA approval and began marketing
Kineret(TM) in the United States for the reduction of the signs and symptoms of
moderately to severely active rheumatoid arthritis, in patients 18 years of age
or older who have failed one or more disease modifying antirheumatic drugs.
Also in November 2001, the Company announced that the European Union Committee
for Proprietary Medicinal Products ("CPMP") recommended granting Kineret(TM) a
marketing authorization for the signs and symptoms of rheumatoid arthritis in
combination with methotrexate, in patients with an inadequate response to
methotrexate alone. The CPMP's recommendation has been forwarded to the
European Commission for their final decision.
Other products
INFERGEN(R) (proper name--Interferon alfacon-1) is Amgen's registered
trademark for its recombinant consensus interferon, a non-naturally occurring
protein that combines structural features of many interferon sub-types.
Interferons are natural proteins produced by the body which stimulate the
immune system to fight viral infections. Hepatitis C viral infection ("HCV") is
a potentially deadly disease that, if not treated, may lead to cirrhosis and
hepatocellular carcinoma, or liver cancer. The Company began selling
INFERGEN(R) in the United States in October 1997 and in Canada in March 1999.
The Company licensed its rights to market INFERGEN(R) in the United States and
Canada to InterMune, Inc. ("InterMune") in June 2001 (see "Joint Ventures and
Business Relationships--Other business relationships").
Previously, Amgen licensed to Yamanouchi Pharmaceutical Co., Ltd. of Japan
("Yamanouchi") the rights to develop, manufacture, and commercialize Interferon
alfacon-1 for all indications around the world except in the United States and
Canada. Yamanouchi granted rights to the Company to co-develop and market
Interferon alfacon-1 in Japan, the People's Republic of China, and Taiwan (see
"Joint Ventures and Business Relationships--Yamanouchi Pharmaceutical Co.,
Ltd.").
Product Candidates
The Company focuses its research and development efforts on human
therapeutics delivered in the form of proteins, monoclonal antibodies, and
small molecules in the therapeutic areas of nephrology, cancer, inflammation,
and neurology and metabolism (see "Factors That May Affect Amgen--Our product
development efforts may not result in commercial products.").
Nephrology
A focus of the Company's effort in nephrology is in the area of
hyperparathyroidism ("HPT"). HPT is a disorder that results from excessive
secretion of parathyroid hormone ("PTH") from the parathyroid gland.
5
Symptoms of HPT include bone loss, muscle weakness, depression, and
forgetfulness. Secondary HPT is commonly seen as a result of kidney failure,
affecting a majority of dialysis patients. Primary HPT primarily afflicts
post-menopausal women. The Company has entered into a license agreement with
NPS Pharmaceuticals, Inc. ("NPS") for Amgen to develop and commercialize NPS's
calcimimetic small molecules based on NPS's proprietary calcium receptor
technology for the treatment of HPT. The Company has conducted separate phase 2
clinical trials for primary and secondary HPT with a second generation
calcimimetic compound. In 2000 and 2001, data from phase 2 studies were
presented demonstrating that treatment with small-molecule calcimimetics
results in dose-dependent decreases in PTH levels and control of elevated
calcium levels. In December 2001, the Company announced it had initiated a
phase 3 clinical study in secondary HPT.
Cancer
In 2001, the Company announced it had submitted a Biologics License
Application Supplement for Aranesp(TM) to the FDA (September) and submitted a
variation application to the European Agency for the Evaluation of Medicinal
Products (October) for the treatment of cancer patients suffering from anemia
associated with certain types of chemotherapy.
Certain tissue growth factors are believed to play a role in tissue
protection, regeneration and/or repair processes. Mucositis is a side effect
often experienced by patients undergoing radiation therapy and chemotherapy and
is characterized as the irritation or ulceration of the lining of the
gastrointestinal tract. Amgen currently is conducting research with
Keratinocyte Growth Factor ("KGF") to prevent and treat mucositis. Early-stage
clinical trials suggest that treatment with KGF may reduce the duration of
severe oral mucositis in cancer patients receiving chemo/radiotherapy. Phase 2
and 3 clinical trials of KGF in cancer patients suffering from mucositis are
ongoing.
In December 2000, the Company acquired the rights from Immunomedics, Inc.
("Immunomedics") to develop and commercialize epratuzumab. Epratuzumab is
currently being evaluated for the treatment of non-Hodgkin's lymphoma ("NHL").
Epratuzumab is a humanized monoclonal antibody. Preliminary research and
early-stage clinical trials showed epratuzumab has some level of anti-tumor
activity, either directly or indirectly, against B-cell malignancies. In July
2001, after refining the phase 3 protocol based on FDA input and adding
clinical sites in Canada and Australia, the Company initiated a phase 3
clinical trial. The phase 3 clinical trial is designed to evaluate epratuzumab
for the treatment of low-grade NHL in patients who failed to respond, or who
responded for less than six months, to rituximab, a monoclonal antibody
approved for the treatment of certain types of NHL (see "Competition--Cancer").
A phase 1/2 clinical trial of epratuzumab in combination with rituximab to
treat low-grade and aggressive NHL also is ongoing. In 2001, the Company
initiated a phase 2 clinical trial of epratuzumab in combination with rituximab
in low-grade NHL patients and a phase 2 clinical trial of epratuzumab in
aggressive NHL patients.
Osteoprotegerin ("OPG") is implicated in the regulation of bone mass. Bone
mass is maintained in the body by the regulation of the competing activities of
bone forming cells (osteoblasts) and bone resorbing cells (osteoclasts). Cancer
metastases (cancers which have spread from their original tumor site) to bone
cause bone destruction, leading to fractures and bone pain. In preclinical
studies, OPG has been shown to inhibit the osteoclast mediated bone destruction
induced by invading cancer cells. The Company completed phase 1 studies with
the initial molecule in its OPG program. Data from these studies validated the
importance of this pathway in the pathology of bone disorders. The Company is
currently assessing the potential of several other pre-clinical and clinical
candidates in this program and plans to conduct additional phase 1 studies
before making the decision to advance into phase 2 studies.
In March 1999, Amgen acquired the rights from PRAECIS PHARMACEUTICALS
INCORPORATED ("Praecis") to develop and commercialize abarelix-depot (see
"Joint Ventures and Business Relationships--PRAECIS PHARMACEUTICALS
INCORPORATED"). Abarelix-depot may confer a therapeutic benefit to patients
with a number of diseases and medical conditions, including prostate cancer and
endometriosis. A
6
regulatory file was submitted to the FDA in December 2000 regarding use of
abarelix-depot in patients with hormonally-responsive prostate cancer. During
2001, the FDA issued a letter indicating this application was inadequate for
approval, and subsequently, Amgen and Praecis announced that they were ending
their agreement to jointly develop and commercialize abarelix-depot for all
indications. Amgen is transitioning all development and commercialization
rights and responsibilities back to Praecis.
Inflammation
The inflammatory response is essential for defense against harmful
microorganisms and for the repair of damaged tissues. The failure of the body's
control mechanisms regulating inflammatory response occurs in conditions such
as rheumatoid arthritis. Tumor necrosis factor binding protein was added to the
Company's inflammation research program through the acquisition of Synergen
(see "Joint Ventures and Business Relationships--Other business
relationships"). The Company is in phase 2 development of a second generation
inhibitor of tumor necrosis factor, soluble tumor necrosis factor-receptor type
I ("sTNF-RI") in patients with rheumatoid arthritis. In 2001, the Company
initiated a phase 2 clinical trial of sTNF-RI in combination with Kineret(TM)
in patients with rheumatoid arthritis.
Neurology and Metabolism
The Company has discovery programs in neurological and metabolism disorders.
The Company has a program to develop leptin, a protein encoded by the obesity
gene. Leptin is a naturally occurring cytokine hormone secreted by fat cells
that may act primarily at the hypothalamus to regulate food intake and energy
expenditure. In 1995, the Rockefeller University granted the Company an
exclusive license that allows the Company to develop products based on the
obesity gene. The Company's clinical trials of leptin failed to show clinical
efficacy in normal obesity and diabetes, and development of this molecule was
subsequently discontinued in these diseases. Amgen continues to support
investigator research in certain exploratory indications.
In 1997, Amgen acquired the rights from Guilford Pharmaceuticals Inc.
("Guilford") for a novel class of small molecule, orally-active, neurotrophic
agents called neuroimmunophilin compounds (see "Joint Ventures and Business
Relationships--Other business relationships"). The Company conducted a phase 2
clinical trial with neuroimmunophilins in patients with Parkinson's disease,
which did not produce a substantial reversal of the motor symptoms of
Parkinson's disease. During 2001, Amgen elected to terminate its agreement with
Guilford and return all rights to the neuroimmunophilin compounds.
Neurotrophic factors are proteins which play a role in nerve cell protection
and regeneration and which may therefore be useful in treating a variety of
neurological disorders, including neurodegenerative diseases of the central and
peripheral nervous systems, nerve injury, and trauma. In January 2001, all
clinical development of brain-derived neurotrophic factor ("BDNF") that was
being developed in collaboration with Regeneron Pharmaceuticals, Inc.
("Regeneron") (see "Joint Ventures and Business Relationships--Other business
relationships") for the potential treatment of amyotrophic lateral sclerosis
("ALS") was discontinued when it was determined that BDNF did not provide a
therapeutic advantage to ALS patients in clinical trials. On behalf of the
collaboration with the Company, Regeneron is currently evaluating the results
of clinical trials of Neurotrophin-3 ("NT-3") for the treatment of chronic
constipation.
Joint Ventures and Business Relationships
The Company generally intends to self-market its products. From time to
time, the Company may enter into joint ventures and other business
relationships to provide additional marketing and product development
capabilities in certain countries. In addition to internal research and
development efforts, the Company has acquired certain product and technology
rights and has established research and development collaborations.
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F. Hoffmann-La Roche Ltd
Amgen and Roche have an agreement providing for the commercialization of
NEUPOGEN(R) (Filgrastim) (known as GRANULOKINE(R) in the EU) and pegfilgrastim.
Under this agreement, the companies collaborate in the EU on the
commercialization and further clinical development of the product, and Amgen
has a majority share in the related costs and profits from sales. Amgen has
substantially all of the responsibilities for marketing, promotion,
distribution, and other key functions relating to product sales, and the
Company primarily distributes the product to EU countries from its European
Logistics Center in Breda, The Netherlands. Amgen and Roche also have an
agreement to commercialize Filgrastim in certain European countries not located
within the EU. Under this agreement, Roche commercializes Filgrastim in these
countries and pays a royalty to Amgen on these sales.
Johnson & Johnson
Amgen granted Johnson & Johnson a license to commercialize recombinant human
erythropoietin as a human therapeutic in the United States in all markets other
than dialysis. In countries other than the United States, the People's Republic
of China, and Japan, Johnson & Johnson was granted rights to commercialize
recombinant human erythropoietin as a human therapeutic for all uses under a
licensing agreement with Kirin-Amgen.
Kirin Brewery Company, Limited
The Company has a 50-50 joint venture (Kirin-Amgen) with Kirin. Kirin-Amgen,
which was formed in 1984, develops and commercializes certain of the Company's
and Kirin's technologies which have been transferred to this joint venture.
Kirin-Amgen has given exclusive licenses to Amgen and Kirin to manufacture and
market erythropoietin in the United States and Japan, respectively. Kirin-Amgen
has licensed to Johnson & Johnson rights to erythropoietin in certain
geographic areas of the world (see "--Johnson & Johnson"). Kirin-Amgen has also
granted Amgen an exclusive license to manufacture and market G-CSF and
pegfilgrastim in the United States, Europe, Canada, Australia, and New Zealand.
Kirin-Amgen has licensed to Kirin similar rights with respect to G-CSF and
pegfilgrastim in Japan, Taiwan and Korea. Kirin markets recombinant human
erythropoietin and recombinant-methionyl human granulocyte colony-stimulating
factor in the People's Republic of China under a separate agreement.
Kirin-Amgen and Roche have an agreement to commercialize Filgrastim in certain
territories not covered by the various Amgen/Roche agreements (see "--F.
Hoffmann-La Roche Ltd"). Under this agreement, Roche markets Filgrastim in
these countries and pays a royalty to Kirin-Amgen on these sales.
In 1996, Kirin-Amgen licensed to Amgen and Kirin the rights to develop and
market darbepoetin alfa. Amgen has been granted an exclusive license by
Kirin-Amgen to manufacture and market darbepoetin alfa in the United States,
all European countries, Canada, Australia, New Zealand, Mexico, all Central and
South American countries, and certain countries in Central Asia, North Africa,
and the Middle East. Kirin has been licensed by Kirin-Amgen with similar rights
for darbepoetin alfa in Japan, the People's Republic of China, Taiwan, Korea,
and certain other countries in Southeast Asia.
Pursuant to the terms of agreements entered into with Kirin-Amgen, the
Company conducts certain research and development activities on behalf of
Kirin-Amgen and is paid for such services at negotiated rates. Included in
"Corporate partner revenues" in the Company's Consolidated Financial Statements
for the years ended December 31, 2001, 2000 and 1999, are $210.1 million,
$221.0 million, and $138.5, respectively, related to these agreements.
In connection with its various license agreements with Kirin-Amgen, the
Company pays Kirin-Amgen royalties based on sales. During the years ended
December 31, 2001, 2000, and 1999, Kirin-Amgen earned royalties from Amgen of
$147.1 million, $140.8 million, and $128.1 million, respectively, under such
agreements, which are included in "Cost of sales" in the Company's Consolidated
Financial Statements.
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Yamanouchi Pharmaceutical Co., Ltd.
In 1996, Amgen licensed to Yamanouchi the rights to develop, manufacture,
and commercialize Interferon alfacon-1 for the treatment of hepatitis C viral
infection and any additional indications around the world except in the United
States and Canada. Amgen has earned certain milestones from Yamanouchi and will
receive royalties on sales. Yamanouchi has granted to Amgen certain
co-development and co-promotion/co-marketing rights in Japan, and certain
co-development and co-promotion rights in the People's Republic of China.
PRAECIS PHARMACEUTICALS INCORPORATED
In March 1999, Amgen entered into a collaboration with Praecis relating to
the exclusive right to develop and commercialize abarelix-depot for all
indications, including prostate cancer and endometriosis in the United States,
Canada, Australia, Japan, and several secondary markets. In December 2001,
Amgen and Praecis terminated their agreement to jointly develop and
commercialize abarelix-depot for all indications.
Other business relationships
In 1990, the Company entered into a collaboration agreement with Regeneron
to co-develop and commercialize BDNF and NT-3 in the United States. To
facilitate this collaboration, the Company and Regeneron formed Amgen-Regeneron
Partners, a 50-50 partnership. In addition, Regeneron licensed these potential
products to Amgen for development in certain other countries.
In 1994, the Company acquired Synergen, a biotechnology company. The
acquisition of Synergen principally added its inflammation program to Amgen's
product candidate pipeline. Synergen Clinical Partners, L.P. ("SCP"), the
general partner of which was a subsidiary of Synergen, was formed to fund
development and commercialization of Kineret(TM) in certain geographic areas.
As a result of the acquisition of Synergen, the general partner of SCP became a
subsidiary of Amgen. In connection with the settlement of certain litigation
relating to Synergen and SCP, Amgen acquired all of the limited partnership
units of SCP. Amgen paid an amount in connection with the FDA approval of
Kineret(TM), and will be required to pay additional amounts to the former
limited partners that were members of the plaintiff class, other members of the
plaintiff class, and their counsel if certain product revenues are realized.
In 1997, Amgen and Guilford entered into an agreement granting Amgen
worldwide rights for Guilford's neuroimmunophilin compounds, a novel class of
small molecule, orally-active, neurotrophic agents. During 2001, Amgen elected
to terminate its agreement with Guilford and return all rights to the
neuroimmunophilin compounds.
In 2000, Amgen licensed epratuzumab, a therapeutic antibody for the
treatment of NHL, from Immunomedics. Under this agreement, Amgen has the rights
to develop and commercialize epratuzumab in North America and Australia. Amgen
has paid and will make additional payments if certain clinical and commercial
milestones are achieved and will make royalty payments based on sales.
In June 2001, Amgen licensed to InterMune the exclusive rights to develop
and commercialize INFERGEN(R), as well as an early stage pegylated interferon
product candidate being developed by Amgen, in the United States and Canada.
Pursuant to the license agreement, Amgen supplies INFERGEN(R) to InterMune.
Proposed Merger with Immunex
In December 2001, the Company signed a definitive agreement to acquire
Immunex Corporation ("Immunex"). Immunex is a biopharmaceutical company
dedicated to developing immune system science to protect human health. The
transaction is expected to close in the second half of 2002, subject to various
conditions, including Federal Trade Commission approval (see "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Proposed Merger with Immunex").
9
Marketing
Amgen uses wholesale distributors of pharmaceutical products as the
principal means of distributing the Company's products to clinics, hospitals,
and pharmacies. The Company monitors the financial condition of its larger
distributors and limits its credit exposure by setting appropriate credit
limits and requiring collateral from certain customers. Sales to three large
wholesalers each accounted for more than 10% of total revenues for the year
ended December 31, 2001. In 2001, sales to AmerisourceBergen Corporation were
$1,470.1 million, sales to Cardinal Distribution were $535.8 million, and sales
to McKesson Corporation were $459.8 million. For the years ended December 31,
2000 and 1999, sales to two wholesalers each accounted for more than 10% of
total revenues. Sales to Bergen Brunswig Corporation were $1,233.4 million and
$1,078.0 million for the years ended December 31, 2000 and 1999, respectively.
Sales to Cardinal Distribution were $445.2 million and $438.2 million for the
years ended December 31, 2000 and 1999, respectively.
Dialysis providers are primarily reimbursed for EPOGEN(R) by the federal
government through the End Stage Renal Disease Program ("ESRD Program") of
Medicare. The ESRD Program reimburses approved providers for 80% of allowed
dialysis costs; the remainder is paid by other sources, including Medicaid,
private insurance, and to a lesser extent, state kidney patient programs. The
ESRD Program reimbursement rate is established by Congress and is monitored by
the Centers for Medicare & Medicaid Services ("CMS"). Changes in coverage and
reimbursement policies could have a material adverse effect on EPOGEN(R) sales
(see "Factors That May Affect Amgen--Our sales depend on payment and
reimbursement from third party payors, and a reduction in the payment rate or
reimbursement could result in decreased use or sales of our products.").
Aranesp(TM) is reimbursed by both private and public payors, and changes in
coverage and reimbursement policies of these payors could have a material
adverse effect on sales of Aranesp(TM) (see "Factors That May Affect Amgen--Our
sales depend on payment and reimbursement from third party payors, and a
reduction in the payment rate or reimbursement could result in decreased use or
sales of our products."). Aranesp(TM) is marketed by the Company in the United
States, Europe, Australia, and New Zealand.
NEUPOGEN(R) is reimbursed by both private and public payors, and changes in
coverage and reimbursement policies of these payors could have a material
adverse effect on sales of NEUPOGEN(R) (see "Factors That May Affect Amgen--Our
sales depend on payment and reimbursement from third party payors, and a
reduction in the payment rate or reimbursement could result in decreased use or
sales of our products.").
In the EU, Amgen and Roche share commercialization responsibilities for
NEUPOGEN(R) under a co-promotion agreement (see "Joint Ventures and Business
Relationships--F. Hoffmann-La Roche Ltd"). NEUPOGEN(R) is principally
distributed to wholesalers and/or hospitals in all EU countries depending upon
the distribution practice for products in each country. Most patients receiving
NEUPOGEN(R) for approved indications are covered by government health care
programs. Generally, the use of NEUPOGEN(R) is affected by EU government
pressures on physician prescribing practices in response to ongoing government
initiatives to reduce health care expenditures, and to a lesser extent,
competition.
Kineret(TM) is sold by the Company in the United States. Kineret(TM) is
reimbursed through both private and public sources, with primary reimbursement
through private payors (see "Factors That May Affect Amgen--Our sales depend on
payment and reimbursement from third party payors, and a reduction in the
payment rate or reimbursement could result in decreased use or sales of our
products.").
Competition
Competition among biotechnology, pharmaceutical, and other companies that
research, develop, manufacture, or market pharmaceuticals is intense and is
expected to increase. See "Factors That May Affect Amgen--We face substantial
competition, and others may discover, develop, acquire or commercialize
products before or more successfully than we do.". Some competitors,
principally large pharmaceutical companies, have
10
greater clinical, research, regulatory, and marketing resources and experience
than the Company, particularly in the area of small molecule therapeutics. In
addition, certain specialized biotechnology firms have entered into cooperative
arrangements with major companies for development and commercialization of
products, creating an additional source of competition. The Company faces
product competition from firms in the United States, countries of the EU,
Canada, Australia, and elsewhere. Additionally, some of the Company's
competitors, including biotechnology and pharmaceutical companies, are actively
engaged in the research and development in areas where the Company is also
developing product candidates, as more fully discussed below.
The introduction of new products or the development of new processes by
competitors or new information about existing products may result in product
replacements or price reductions, even for products protected by patents. In
addition, the timing of entry of a new product into the market can be an
important factor in determining the product's eventual success and
profitability. Early entry may have important advantages in gaining product
acceptance and market share. Accordingly, in some cases, the relative speed
with which the Company can develop products, complete the testing and approval
process, and supply commercial quantities of the product to the market is
expected to be important to Amgen's competitive position. Competition among
pharmaceutical products approved for sale also may be based on, among other
things, patent position, product efficacy, safety, reliability, availability,
and price.
A significant amount of research and development in the biotechnology
industry is conducted by small companies, academic institutions, governmental
agencies, and other public and private research organizations. These entities
may seek patent protection and enter into licensing arrangements to collect
royalties for use of technology or for the sale of products they have
discovered or developed. Amgen also may face competition in its licensing or
acquisition activities from pharmaceutical companies and large biotechnology
companies that also seek to acquire technologies or product candidates from
these entities. Accordingly, the Company may have difficulty acquiring
technologies or product candidates on acceptable terms. Additionally, the
Company competes with these entities and with pharmaceutical and biotechnology
companies to attract and retain qualified scientific and technical personnel.
Nephrology
Any products or technologies that are directly or indirectly successful in
addressing anemia could negatively impact the market for EPOGEN(R) or for
Aranesp(TM). Aranesp(TM) directly competes with other currently marketed
products which treat anemia, including EPOGEN(R) and the recombinant human
erythropoietin product marketed by Johnson & Johnson (see "Products--EPOGEN(R)
(Epoetin alfa)" and "Products--Aranesp(TM) (darbepoetin alfa)"). Aventis
Pharmaceuticals Inc. ("Aventis") is developing gene-activated erythropoietin
for the treatment of anemia (see "Item 3. Legal Proceedings--Transkaryotic
Therapies and Aventis litigation"). Baxter International Inc. is developing
epoetin omega for the treatment of anemia. Roche is developing a pegylated
erythropoietin product for the treatment of anemia.
The calcimimetic program could face competition from products currently
marketed by Abbott Laboratories, Bone Care International, Inc., Genzyme
Corporation, and Roche which treat secondary HPT. In addition, another product
to treat HPT is currently being developed by Chugai Pharmaceuticals Co., Ltd.
("Chugai").
Cancer
Any products or technologies that are directly or indirectly successful in
addressing anemia associated with chemotherapy could negatively impact the
market for Aranesp(TM). Aranesp(TM) would directly compete with other currently
marketed products which treat anemia associated with chemotherapy, the
recombinant human erythropoietin product marketed by Johnson & Johnson (see
"Products--EPOGEN(R) (Epoetin alfa)"). In Europe, Aranesp(TM) would directly
compete with other erythropoietin products marketed by Ortho
Biotech/Janssen-Cilag/Johnson & Johnson and Roche. Aventis is developing
gene-activated erythropoietin for the treatment of anemia (see "Item 3. Legal
Proceedings--Transkaryotic Therapies and Aventis litigation"). Baxter
International Inc. is
11
developing epoetin omega for the treatment of anemia. Roche is developing a
pegylated erythropoietin product for the treatment of anemia.
Any products or technologies that are directly or indirectly successful in
addressing neutropenia associated with chemotherapy could negatively impact the
markets for NEUPOGEN(R) and Neulasta(TM). NEUPOGEN(R) currently faces and
Neulasta(TM) will face (when launched) market competition from a competing CSF
product, granulocyte macrophage colony stimulating factor ("GM-CSF"), and from
the chemoprotectant, amifostine. Potential future sources of competition
include other G-CSF products, GM-CSF products, FLT-3 ligand, myelopoietin,
PGG-glucan, promegapoietin, and progenipoietin, among others. Once launched,
Neulasta(TM) may impact NEUPOGEN(R) sales as health care providers in the U.S.
may transition from administering NEUPOGEN(R) to Neulasta(TM).
Chugai markets a G-CSF product in Japan as an adjunct to chemotherapy and as
a treatment for BMT patients. Chugai and Aventis market a G-CSF product in
certain EU countries as an adjunct to chemotherapy and as a treatment in BMT
settings. Chugai, through its licensee, AMRAD, markets this G-CSF product in
Australia as an adjunct to chemotherapy and as a treatment for BMT patients.
Under an agreement with Amgen, Chugai is precluded from selling its G-CSF
product in the United States, Canada, and Mexico.
Immunex markets GM-CSF under the trademark LEUKINE(R) in the United States
for BMT and PBPC transplant patients and as an adjunct to chemotherapy
treatments for acute non-lymphocytic leukemia ("ANLL") and AML. Immunex is also
pursuing other indications for its GM-CSF product including as an adjunct to
chemotherapy outside the limited settings of ANLL and AML. In connection with
proposed merger between Amgen and Immunex, Immunex intends to divest of
LEUKINE(R) (see "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Proposed Merger with Immunex"). Novartis
AG markets another GM-CSF product for use in BMT patients and as an adjunct to
chemotherapy in the EU and certain other countries. This GM-CSF product is
currently being developed for similar indications in the United States and
Canada. Nartograstim, a modified G-CSF protein, is sold by Kyowa Hakko Kogyo
Co., Ltd. in Japan.
Many companies are developing products that promote wound healing, soft
tissue regeneration, and chemoprotection. Companies such as Human Genome
Sciences, Inc., Genetics Institute, Inc., MedImmune, Inc., and IntraBiotics
Pharmaceuticals, Inc. are currently among many companies that are developing
products which could be potential competitors for KGF.
NHL is primarily treated with standard chemotherapy agents, monoclonal
antibodies, or a combination of the two modalities. Epratuzumab could face
competition from rituximab, another monoclonal antibody marketed jointly by
Genentech, Inc. and Idec Pharmaceuticals Corporation. However, it is also
possible that epratuzumab may be used in combination with rituximab (see
"Product candidates--Cancer"). In addition, other monoclonal antibodies are
being investigated for the treatment of NHL including those in development by
GlaxoSmithKline plc (in collaboration with Beckman Coulter, Inc.) and Idec
Pharmaceuticals Corporation.
The OPG program could face competition from a product currently marketed by
Novartis AG for the treatment of cancer metastases to the bone.
Inflammation
Kineret(TM) and sTNF-RI could face competition in some circumstances from a
number of companies developing or marketing rheumatoid arthritis treatments.
Current anti-arthritic treatments include generic methotrexate and other
products marketed by, among others, Centocor, Inc./Johnson & Johnson,
Immunex/American Home Products Corporation, Merck & Co., Inc., Pharmacia
Corporation, Novartis AG, and Sanofi-Synthelabo. In addition, a number of
companies have cytokine inhibitors in development including Abbott
Laboratories, GlaxoSmithKline plc, Pharmacia Corporation, and Taisho
Pharmaceutical Co., Ltd.
12
Neurology and Metabolism
Many companies currently market or are believed to be developing obesity
treatments that could compete with the leptin program. Potential future
competitors include Millennium Pharmaceuticals, Inc. (in collaboration with
Roche), Neurogen Corporation (in collaboration with Pfizer Inc.), Bristol Myers
Squibb Company, Novartis AG, Eli Lilly and Company, and Merck & Co., Inc.
Abbott Laboratories and Roche currently market obesity treatments in various
countries.
Research and Development
The Company's primary sources of new product candidates are internal
research and acquisition and licensing from third parties. Amgen's internal
research capabilities include an expertise in secreted protein therapeutics.
The Company's discovery program may yield targets that lead to the development
of therapeutics delivered as proteins, small molecules, or monoclonal
antibodies. Amgen has only recently entered the small molecule field. To
supplement its small molecule discovery program, in December 2000, Amgen
acquired Kinetix Pharmaceuticals, Inc. ("Kinetix"), a privately held company
that focused on the discovery of small molecule drugs that inhibit protein
kinases, a key class of biological regulators (see Note 11 to the Consolidated
Financial Statements). Research and development expenses for the years ended
December 31, 2001, 2000, and 1999 were $865.0 million, $845.0 million, and
$822.8 million, respectively. Additionally, the Company recorded a $30.1
million write-off of acquired in-process research and development during the
year ended December 31, 2000 arising from the acquisition of Kinetix (see Note
4 to the Consolidated Financial Statements).
Government Regulation
Regulation by governmental authorities in the United States and other
countries is a significant factor in the production and marketing of the
Company's products and its ongoing research and development activities (see
"Factors That May Affect Amgen--Our 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, Amgen must satisfy mandatory procedures and safety and
effectiveness standards established by various regulatory bodies. In the United
States, the Federal Food, Drug, and Cosmetic Act, as amended, and the
regulations promulgated thereunder, and other federal and state statutes and
regulations govern, among other things, the testing, manufacture, labeling,
storage, record keeping, approval, advertising, and promotion of the Company's
products on a product-by-product basis. Product development and approval within
this regulatory framework takes a number of years and involve the expenditure
of substantial resources. After laboratory analysis and preclinical testing in
animals, an investigational new drug application is filed with the FDA to begin
human testing. Typically, a three-phase human clinical testing program is then
undertaken. In phase 1, small clinical trials are conducted to determine the
safety of the product. In phase 2, clinical trials are conducted to assess
safety, acceptable dose, and gain preliminary evidence of the efficacy of the
product. In phase 3, clinical trials are conducted to provide sufficient data
for the statistically valid proof of safety and efficacy. The time and expense
required to perform this clinical testing can vary and is substantial. No
action can be taken to market any new drug or biologic product in the United
States until an appropriate marketing application has been approved by the FDA.
Even after initial FDA approval has been obtained, further clinical trials may
be required to provide additional data on safety and effectiveness and are
required to gain clearance for the use of a product as a treatment for
indications other than those initially approved. In addition, side effects or
adverse events that are reported during clinical trials can delay, impede, or
prevent marketing approval. Similarly, adverse events that are reported after
marketing approval can result in additional limitations being placed on the
product's use and, potentially, withdrawal of the product from the market. Any
adverse event, either before or after marketing approval, can result in product
liability claims against the Company.
In addition to regulating and auditing human clinical trials, the FDA
regulates and inspects equipment, facilities, and processes used in the
manufacturing of such products prior to providing approval to market a
13
product. If after receiving clearance from the FDA, a material change is made
in manufacturing equipment, location, or process, additional regulatory review
may be required. The Company also must adhere to current Good Manufacturing
Practice and product-specific regulations enforced by the FDA through its
facilities inspection program. The FDA also conducts regular, periodic visits
to re-inspect equipment, facilities, and processes following the initial
approval. If, as a result of these inspections, the FDA determines that the
Company's equipment, facilities, or processes do not comply with applicable FDA
regulations and conditions of product approval, the FDA may seek civil,
criminal, or administrative sanctions and/or remedies against Amgen, including
the suspension of the Company's manufacturing operations.
In the EU countries, Canada, and Australia, regulatory requirements and
approval processes are similar in principle to those in the United States.
Additionally, depending on the type of drug for which approval is sought, there
are currently two potential tracks for marketing approval in the EU countries:
mutual recognition and the centralized procedure. These review mechanisms may
ultimately lead to approval in all EU countries, but each method grants all
participating countries some decision making authority in product approval.
The Company is also subject to various federal and state laws pertaining to
health care "fraud and abuse," including anti-kickback laws and false claims
laws. Anti-kickback laws make it illegal for a prescription drug manufacturer
to solicit, offer, receive, or pay any remuneration in exchange for, or to
induce, the referral of business, including the purchase or prescription of a
particular drug. The federal government has published regulations that identify
"safe harbors" or exemptions for certain payment arrangements that do not
violate the anti-kickback statutes. The Company seeks to comply with the safe
harbors where possible. Due to the breadth of the statutory provisions and the
absence of guidance in the form of regulations or court decisions addressing
some of the Company's practices, it is possible that the Company's practices
might be challenged under anti-kickback or similar laws. False claims laws
prohibit anyone from knowingly and willingly presenting, or causing to be
presented for payment to third party payors (including Medicare and Medicaid)
claims for reimbursed drugs or services that are false or fraudulent, claims
for items or services not provided as claimed, or claims for medically
unnecessary items or services. Amgen's activities relating to the sale and
marketing of its products may be subject to scrutiny under these laws.
Violations of fraud and abuse laws may be punishable by criminal and/or civil
sanctions, including fines and civil monetary penalties, as well as the
possibility of exclusion from federal health care programs (including Medicare
and Medicaid). If the government were to allege against or convict the Company
of violating these laws, there could be a material adverse effect on the
Company, including its stock price. The Company's activities could be subject
to challenge for the reasons discussed above and due to the broad scope of
these laws and the increasing attention being given to them by law enforcement
authorities.
Since 1991, the Company has participated in the Medicaid rebate program
established by the Omnibus Budget Reconciliation Act of 1990, and under
amendments of that law that became effective in 1993, participation has
included extending comparable discounts under the Public Health Service ("PHS")
pharmaceutical pricing program. Under the Medicaid rebate program, the Company
pays a rebate for each unit of its product reimbursed by Medicaid. The amount
of the rebate for each product is set by law as a minimum 15.1% of the average
manufacturer price ("AMP") of that product, or if it is greater, the difference
between AMP and the best price available from the Company to any customer. The
rebate amount also includes an inflation adjustment if AMP increases faster
than inflation. The PHS pricing program extends discounts comparable to the
Medicaid rebate to a variety of community health clinics and other entities
that receive health services grants from the PHS, as well as hospitals that
serve a disproportionate share of poor Medicare and Medicaid beneficiaries. The
rebate amount is recomputed each quarter based on the Company's reports of its
current average manufacturer price and best price for each of its products to
the Health Care Financing Administration ("HCFA"). The terms of the Company's
participation in the program impose an obligation to correct the prices
reported in previous quarters, as may be necessary. Any such corrections could
result in an overage or underage in the Company's rebate liability for past
quarters, depending on the direction of the correction. In addition to
retroactive rebates (and interest, if any), if the Company were found to have
knowingly submitted false information to the government, in addition to other
penalties available to the government, the statute provides for civil monetary
penalties in the amount of $100,000 per item of false information.
14
The Company also makes its products available to authorized users of the
Federal Supply Schedule ("FSS") of the General Services Administration. Since
1993, as a result of the Veterans Health Care Act of 1992 (the "VHC Act"),
federal law has required that product prices for purchases by the Veterans
Administration, the Department of Defense, Coast Guard, and the PHS (including
the Indian Health Service) be discounted by a minimum of 24% off the AMP to
non-federal customers (the non-federal average manufacturer price, "non-FAMP").
The Company's computation and report of non-FAMP is used in establishing the
price, and the accuracy of the reported non-FAMP may be audited by the
government under applicable federal procurement laws. Among the remedies
available to the government for infractions of these laws is recoupment of any
overages paid by FSS users during the audited years. In addition, if the
Company were found to have knowingly reported a false non-FAMP, the VHC Act
provides for civil monetary penalties of $100,000 per item that is incorrect.
Amgen is also subject to regulation under the Occupational Safety and Health
Act, the Toxic Substances Control Act, the Resource Conservation and Recovery
Act, and other current and potential future federal, state, or local
regulations. The Company's research and development activities involve the
controlled use of hazardous materials, chemicals, biological materials, and
various radioactive compounds. The Company believes that its procedures comply
with the standards prescribed by state and federal regulations; however, the
risk of injury or accidental contamination cannot be completely eliminated.
Amgen's research and manufacturing activities also are conducted in voluntary
compliance with the National Institutes of Health Guidelines for Recombinant
DNA Research.
Additionally, the U.S. Foreign Corrupt Practices Act, to which the Company
is subject, prohibits corporations and individuals from engaging in certain
activities to obtain or retain business or to influence a person working in an
official capacity. It is illegal to pay, offer to pay, or authorize the payment
of anything of value to any foreign government official, government staff
member, political party, or political candidate in an attempt to obtain or
retain business or to otherwise influence a person working in an official
capacity. The Company's present and future business has been and will continue
to be subject to various other laws and regulations.
Patents and Trademarks
Patents are very important to the Company in establishing proprietary rights
to the products it has developed or licensed. The patent positions of
pharmaceutical and biotechnology companies, including the Company, can be
uncertain and involve complex legal, scientific, and factual questions. See
"Factors That May Affect Amgen--If our intellectual property positions are
challenged, invalidated or circumvented, or if we fail to prevail in present
and future intellectual property litigation, our business could be adversely
affected.".
The Company has filed applications for a number of patents, has been granted
patents, or has obtained rights relating to its erythropoietin, G-CSF,
darbepoetin alfa, pegfilgrastim, anakinra, consensus interferon and various
potential products. In the United States, the U.S. Patent and Trademark Office
(the "USPTO") has issued to the Company or the Company has obtained rights to
patents relating to erythropoietin that generally cover DNA and host cells
(issued in 1987); processes for making erythropoietin (issued in 1995 and
1997); certain product claims to erythropoietin (issued in 1996 and 1997);
cells that make certain levels of erythropoietin (issued in 1998); and
pharmaceutical compositions of erythropoietin (issued in 1999). These patents
have varying expiration dates, with the latest erythropoietin related patents
expiring in 2015; all other patents expire earlier. The USPTO has also issued
to the Company or the Company has obtained rights to patents relating to
aspects of DNA, vectors, cells, and processes relating to recombinant G-CSF
(issued in 1989); other aspects of DNA, vectors, cells, and processes relating
to recombinant G-CSF (issued in 1991); G-CSF polypeptides (issued in 1996);
methods of treatment using G-CSF polypeptides (issued in 1996); methods of
enhancing bone marrow transplantation and treating burn wounds (issued in
1997); methods for recombinant production of G-CSF (issued in 1998); and
analogs of G-CSF (issued in 1999). The last to issue G-CSF patents expire in
2013; all other patents expire earlier. Additionally, U.S. and EU patents
pertaining to pegylated G-CSF (pegfilgrastim) expire in 2015. The
15
patent relating to erythropoietin for the EU expires in 2004. The patent
relating to G-CSF for the EU expires in 2006. The Company has been granted or
has obtained rights to two patents in the EU relating to darbepoetin alfa and
hyperglycosylated erythropoietic proteins which expire in 2014 and 2010,
respectively. The Company has been granted or has obtained rights to a patent
on DNA encoding anakinra in the United States which expires in 2008 and has
been granted or has obtained rights to patents in the countries adhering to the
European Patent Office on anakinra and the DNA encoding it which expire in
2009; the Company has applied, or plans to apply, for extensions of anakinra
patents.
There can be no assurance that Amgen's patents or licensed patents will
afford legal protection against competitors or provide significant proprietary
protection or competitive advantage. In addition, Amgen's patents or licensed
patents could be held invalid or unenforceable by a court, or infringed or
circumvented by others, or others could obtain patents that the Company would
need to license or circumvent. Competitors or potential competitors may have
filed patent applications or received patents, and may obtain additional
patents and proprietary rights relating to proteins, small molecules,
compounds, or processes competitive with those of the Company. Additionally,
for certain of the Company's product candidates, competitors, or potential
competitors may claim that their existing or pending patents prevent the
Company from commercializing such product candidates in certain territories.
In general, the Company has obtained licenses from various parties which it
deems to be necessary or desirable for the manufacture, use, or sale of its
products. These licenses generally require Amgen to pay royalties to the
parties on product sales. In addition, other companies have filed patent
applications or have been granted patents in areas of interest to the Company.
There can be no assurance any licenses required under such patents will be
available for license on acceptable terms or at all. The Company is engaged in
various legal proceedings relating to certain of its patents. See "Item 3.
Legal Proceedings".
Trade secret protection for its unpatented confidential and proprietary
information is important to Amgen. To protect its trade secrets, the Company
generally requires its employees, material consultants, scientific advisors,
and parties to collaboration and licensing agreements to execute
confidentiality agreements upon the commencement of employment, the consulting
relationship, or the collaboration or licensing arrangement with the Company.
However, others could either develop independently the same or similar
information or obtain access to Amgen's proprietary information.
The Company has obtained U.S. registration of its EPOGEN(R), NEUPOGEN(R),
and INFERGEN(R) trademarks. In addition, these trademarks have been registered
in other countries. The Company also has trademark protection for its product
names Aranesp(TM), Kineret(TM), and Neulasta(TM) and is currently seeking U.S.
registration of these trademarks.
Manufacturing and Raw Materials
Amgen has manufacturing facilities which produce commercial quantities of
Epoetin alfa, NEUPOGEN(R), Aranesp(TM), Kineret(TM), Neulasta(TM), and
INFERGEN(R) (see "Item 2. Properties"). Additionally, the Company supplies
Epoetin alfa to Johnson & Johnson under a supply agreement. There can be no
assurance that the Company will be able to accurately anticipate future demand
for Epoetin alfa, NEUPOGEN(R), Aranesp(TM), Kineret(TM), Neulasta(TM), and
INFERGEN(R) or maintain adequate manufacturing capacity (see "Factors That May
Affect Amgen--We plan to grow rapidly, and if we fail to adequately manage that
growth our business could be adversely impacted.").
Certain raw materials necessary for the Company's commercial manufacturing
of its products are proprietary products of other companies, and in some cases,
such proprietary products are specifically cited in the Company's drug
application with the FDA such that they must be obtained from that specific,
sole source. The Company currently attempts to manage the risk associated with
such sole sourced raw materials by active inventory management and alternate
source development, where feasible. Amgen attempts to remain apprised of
16
the financial condition of its suppliers, their ability to supply the Company's
needs and the market conditions for these raw materials. Also, certain of the
raw materials required in the commercial manufacturing of the Company's
products are derived from biological sources. The Company is investigating
screening procedures with respect to certain biological sources and
alternatives to them. Raw materials may be subject to contamination and/or
recall. A material shortage, contamination, and/or recall could adversely
impact or disrupt Amgen's commercial manufacturing of its products.
Human Resources
As of December 31, 2001, the Company had approximately 7,700 employees,
including approximately 70 part-time employees, of which approximately 3,800
were engaged in research and development, approximately 1,800 were engaged in
sales and marketing, and approximately 2,100 were engaged in other activities.
There can be no assurance that the Company will be able to continue attracting
and retaining qualified personnel in sufficient numbers to meet its needs. None
of the Company's employees are covered by a collective bargaining agreement,
and the Company has experienced no work stoppages. The Company considers its
employee relations to be good.
Executive Officers of the Registrant
The executive officers of the Company, their ages as of February 26, 2002
and positions are as follows:
Mr. Kevin W. Sharer, age 53, has served as a director of the Company since
November 1992. He became Chief Executive Officer and President in May 2000 and
Chairman of the Board in December 2000, having served as President and Chief
Operating Officer from October 1992 to May 2000. From April 1989 to October
1992, Mr. Sharer served as President of the Business Markets Division of MCI
Communications Corporation, a telecommunications company, and from February
1984 to March 1989 served in numerous executive capacities at General Electric
Company. Mr. Sharer also serves as a director of Unocal Corporation and
Minnesota Mining & Manufacturing Co.
Dr. Fabrizio Bonanni, age 55, became Senior Vice President, Quality and
Compliance in April 1999. From December 1997 to April 1999, Dr. Bonanni served
as the Corporate Vice President for Regulatory/Clinical Affairs for Baxter
International Inc. ("Baxter"), a pharmaceutical company, from November 1994 to
December 1997, as Corporate Vice President, Quality System, and beginning in
1974, held a variety of quality, regulatory and manufacturing positions with
Baxter in Europe and in the U.S. Dr. Bonanni currently serves on the Board of
Directors of Aaestrom Biosciences Inc.
Dr. Dennis M. Fenton, age 50, became Executive Vice President in March 2000,
having served as Senior Vice President, Operations, from January 1995 to March
2000, as Senior Vice President, Sales and Marketing from August 1992 to January
1995, and as Vice President, Process Development, Facilities and Manufacturing
Services from July 1991 to August 1992. Dr. Fenton also served as Vice
President, Pilot Plant Operations and Clinical Manufacturing, from October 1988
to July 1991, and as Director, Pilot Plant Operations, from 1985 to October
1988. Dr. Fenton also serves on the Board of Directors of Aviron and is a
member of the Compensation Committee.
Mr. Brian M. McNamee, age 45, 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 July 1988 to November
1999, Mr. McNamee held human resource positions at General Electric, including
serving as Senior Vice President Human Resources for the National Broadcasting
Corporation ("NBC") from 1998 to 1999.
Mr. George J. Morrow, age 49, became Executive Vice President of Worldwide
Sales and Marketing, in January 2001. From January 1999 until December 2000,
Mr. Morrow was President and Chief Executive Officer of
17
Glaxo Wellcome Inc. ("Glaxo"), a subsidiary of GlaxoSmithKline plc. From
January 1997 until December 1998, Mr. Morrow was Managing Director of Glaxo
Wellcome U.K., also a subsidiary of GlaxoSmithKline plc. From May 1993 until
December 1996, Mr. Morrow was Group Vice President for Commercial Operations of
Glaxo.
Mr. Richard D. Nanula, age 41, became Executive Vice President, Finance,
Strategy and Communications in May 2001. He also became 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. Steven M. Odre, age 52, became Senior Vice President, General Counsel
and Secretary in March 2000, having served as Vice President, Intellectual
Property, and Associate General Counsel since October 1988, and as Associate
General Counsel from March 1988 to October 1988. From May 1986 to March 1988,
Mr. Odre served as Director of Intellectual Property.
Dr. Roger M. Perlmutter, age 49, 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 ("Merck"), and from
February 1999 to July 1999 served as Executive Vice President of Merck, and
from February 1997 to January 1999 as Senior Vice President of Merck. 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, and from October 1991 to January 1997, Investigator,
the Howard Hughes Medical Institute at the University of Washington.
Dr. Perlmutter currently serves on the Board of Directors of Stem Cells, Inc.
Mr. Barry D. Schehr, age 46, became Vice President, Financial Operations and
Chief Accounting Officer in May 2000, having served as Vice President,
Accounting and Financial Operations from March 2000 to May 2000 and as Director
of Internal Audit from February 1997 to February 2000. From October 1989 to
January 1997, Mr. Schehr was a partner with Ernst & Young LLP, an accounting
firm.
Dr. Beth C. Seidenberg, age 45, became Senior Vice President, Development of
the Company in January 2002. From September 2001 to December 2001, Dr.
Seidenberg was Senior Vice President, Global Development of Bristol-Myers
Squibb Company ("Bristol-Myers"). From May 2000 to September 2001, Dr.
Seidenberg served as Senior Vice President, Clinical Development & Life Cycle
Management, and from April 2000 to May 2000 as Vice President, Clinical
Immunology/Pulmonary/Dermatology of Bristol-Myers. From July 1998 to March
2000, Dr. Seidenberg was Vice President, Pulmonary-Immunology of Merck Research
Laboratories ("Merck"). From June 1989 to June 1998, Dr. Seidenberg held
several director positions at Merck, including Executive Director.
Geographic Area Financial Information
For financial information concerning the geographic areas in which the
Company operates, see Note 10 to the Consolidated Financial Statements.
Factors That May Affect Amgen
Amgen operates in a rapidly changing environment that involves a number of
risks, some of which are beyond our control. The following discussion
highlights some of these risks and others are discussed elsewhere in this Form
10-K.
18
Our product development efforts may not result in commercial products.
We intend to continue an aggressive product development program. Successful
product development in the biotechnology industry is highly uncertain, and very
few research and development projects produce a commercial product. Product
candidates that appear promising in the early phases of development, such as in
early human clinical trials, may fail to reach the market for a number of
reasons, such as:
-- the product candidate did not demonstrate acceptable clinical trial
results even though it demonstrated positive preclinical trial results
-- the product candidate was not effective in treating a specified
condition or illness
-- the product candidate had harmful side effects on humans
-- the necessary regulatory bodies such as the U.S. Food and Drug
Administration, 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
Several of our product candidates have failed at various stages in the
product development process, including Brain Derived Neurotrophic Factor
("BDNF"), Megakaryocyte Growth and Development Factor ("MGDF") and Glial
Cell-line Derived Neurotrophic Factor ("GDNF"). For example, in 1997, we
announced the failure of BDNF for the treatment of 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. In 1999 we
discontinued development of GDNF after a phase 1/2 trial of GDNF in Parkinson's
disease failed to demonstrate a statistically significant benefit. 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 obtain and maintain
regulatory approval."
Our current products and products in development cannot be sold if we do not
obtain and maintain regulatory approval.
We conduct research, preclinical testing, and clinical trials and we
manufacture our product candidates. We also manufacture, price, sell,
distribute, and market our products for their approved indications. These
activities are subject to extensive regulation by numerous state and federal
governmental authorities in the U.S., such as the FDA and HCFA, as well as by
foreign countries, including the European Union. Currently, we are required in
the U.S. and in foreign countries to obtain approval from those countries'
regulatory authorities before we can market and sell our products in those
countries. In our experience, obtaining regulatory approval is costly and takes
many years, and after it is obtained, it remains costly to maintain. The FDA
and other U.S. and foreign regulatory agencies have substantial discretion to
terminate clinical trials, require additional testing, delay or withhold
registration and marketing approval, and mandate product withdrawals.
EPOGEN(R), Kineret(TM), and Neulasta(TM) are currently approved in the U.S. and
NEUPOGEN(R) and Aranesp(TM) are currently approved in the
19
U.S., the EU, and in some other foreign countries for specific uses. We
currently manufacture EPOGEN(R), NEUPOGEN(R), Aranesp(TM), Kineret(TM),
Neulasta(TM), and INFERGEN(R) and market EPOGEN(R), NEUPOGEN(R), Aranesp(TM),
and Kineret(TM), and we plan to manufacture and market many of our potential
products. Even though we have obtained regulatory approval for EPOGEN(R),
NEUPOGEN(R), Aranesp(TM), Kineret(TM), Neulasta(TM), and INFERGEN(R), these
products and our manufacturing processes are subject to continued review by the
FDA and other regulatory authorities. In addition, later discovery of unknown
problems with our products or manufacturing processes could result in
restrictions on such products or manufacturing processes, including potential
withdrawal of the products from the market. If regulatory authorities determine
that we have violated regulations or if they restrict, suspend, or revoke our
prior approvals, they could prohibit us from manufacturing or selling
EPOGEN(R), NEUPOGEN(R), Aranesp(TM), Kineret(TM), Neulasta(TM), and INFERGEN(R)
until we comply or indefinitely. In addition, if regulatory authorities
determine that we 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 are unable to
market and sell our products or product candidates, our business would 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 concomitant
therapies. Organizations like these have in the past made recommendations about
our products. Recommendations or guidelines that are followed by patients and
health care providers could result in decreased use of our products. In
addition, the perception by the investment community or stockholders that
recommendations or guidelines will result in decreased use of our products
could adversely affect prevailing market prices for our common stock.
Our sales depend on payment and reimbursement from third party payors, and a
reduction in the payment rate or reimbursement could result in decreased use
or sales 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 payors such as
state and federal governments, under programs such as Medicare and Medicaid in
the U.S., and private insurance plans. In certain foreign markets, the pricing
and profitability of our products generally are subject to government controls.
In the U.S., there have been, and we expect there will continue to be, a number
of state and federal proposals that could limit the amount that state or
federal governments will pay to reimburse the cost of drugs. In addition, we
believe the increasing emphasis on managed care in the U.S. has and will
continue to put pressure on the price and usage of our products, which may
adversely impact product sales. Further, when a new therapeutic product is
approved, the availability of governmental and/or private reimbursement for
that product is uncertain, as is the amount for which that product will be
reimbursed. We cannot predict the availability or amount of reimbursement for
our recently approved products or product candidates, including those at a late
stage of development, and current reimbursement policies for existing products
may change at any time. For example, we believe that sales of Aranesp(TM) are
and will be affected by government and private payor reimbursement policies.
If reimbursement for EPOGEN(R) and NEUPOGEN(R) changes adversely or if we
fail to obtain adequate reimbursement for our other current or future products,
health care providers may limit how much or under what circumstances they will
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 U.S. the use of EPOGEN(R) in connection with
treatment for end stage renal disease is funded primarily by the U.S. federal
government. In early 1997, HCFA instituted a reimbursement change for EPOGEN(R)
which adversely affected Amgen's EPOGEN(R) sales, until the
20
policies were revised. Therefore, as in the past, EPOGEN(R) sales could be
adversely affected by future changes in reimbursement rates or the basis for
reimbursement by the federal government for the end stage renal disease program.
If our intellectual property positions are challenged, invalidated or
circumvented, 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 commercialization of products.
We are currently, and in the future may be, involved in patent litigation. For
example, we are involved in ongoing patent infringement lawsuits against
Transkaryotic Therapies, Inc. and Aventis with respect to our erythropoietin
patents. The trial court decided in our favor on January 19, 2001, however,
Transkaryotic Therapies, Inc. and Aventis have appealed the decision. If we
ultimately lose these or other litigations we could be subject to competition
and/or significant liabilities, we could be required to enter into third party
licenses for the infringed product or technology, or we could be required to
cease using the technology or product in dispute. In addition, we cannot
guarantee that such licenses will be available on terms acceptable to us.
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, recombinant G-CSF and our other products and
potential products. We market our erythropoietin and G-CSF products as
EPOGEN(R) and NEUPOGEN(R), respectively. In the United States, we have been
issued or obtained rights to several patents relating to erythropoietin that
generally cover DNA and host cells, processes for making erythropoietin,
various product claims to erythropoietin, cells that make levels of
erythropoietin, and pharmaceutical compositions of erythropoietin. We have also
been issued or obtained rights to U.S. patents relating to G-CSF that cover
aspects of DNA, vectors, cells, processes, polypeptides, methods of treatment
using G-CSF polypeptides, methods of enhancing bone marrow transplantation, and
treating burn wounds, methods for recombinant production of G-CSF and analogs
of G-CSF. We also have been granted or obtained rights to a patent in the EU
relating to erythropoietin and a patent in the EU relating to G-CSF, two
patents in the EU relating to darbepoetin alfa and hyperglycosylated
erythropoietic proteins, and a patent in the U.S. and a patent in the EU
relating to anakinra.
We face substantial competition, and others 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, although we maintain a substantial share of the
chemotherapy induced neutropenia market, NEUPOGEN(R) competes in certain
circumstances against a product marketed by Immunex. EPOGEN(R) faces
competition from other treatments for anemia in end stage renal disease
patients in the U.S. Further, we believe that some of our newly approved
products and late stage product candidates may face competition when and as
they are approved and marketed. For example, Aranesp(TM) competes with an
Epoetin alfa product marketed by Johnson & Johnson in certain anemia markets
and Kineret(TM) competes in certain circumstances with rheumatoid arthritis
products marketed by Immunex/American Home Products Corporation, Centocor
Inc./Johnson & Johnson, and others. Additionally, some of our competitors,
including biotechnology and pharmaceutical companies, market products or are
actively engaged in research and development in areas where we are developing
product candidates. Large pharmaceutical corporations may have
21
greater clinical, research, regulatory, and marketing resources than we do. In
addition, some of our competitors may have technical or competitive advantages
over us for the development of technologies and processes. These resources may
make it difficult for us to compete with them to successfully discover,
develop, and market new 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, 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:
-- lower than expected demand for our products
-- changes in the government's or private payors' reimbursement policies
for our products
-- changes in wholesaler buying patterns
-- increased competition from new or existing products
-- fluctuations in foreign currency exchange rates
-- changes in our product pricing strategies
Of these, we would only have control over changes in our product pricing
strategies and, of course, there may be other factors that affect our revenues
in any given period.
We plan to grow rapidly, and if we fail to adequately manage that growth our
business could be adversely impacted.
We have an aggressive growth plan that includes substantial and increasing
investments in research and development, sales and marketing and facilities.
Our plan has a number of risks, some of which we cannot control. For example:
-- we may 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 may need to attract and assimilate a large number of new employees
-- we may need to manage complexities associated with a larger and faster
growing organization
-- we 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
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 February 25, 2002, the
trading price of our common stock has ranged from a high of $75.06 per share to
a low of $45.44 per share. Our stock price may be affected by such factors as:
-- clinical trial results
-- product development announcements by us or our competitors
22
-- regulatory matters
-- announcements in the scientific and research community
-- intellectual property and legal matters
-- changes in reimbursement policies or medical practices
-- broader industry and market trends unrelated to our performance
In addition, if our revenues or earnings in any period fail to meet the
investment community's expectations, there could be an immediate adverse impact
on our stock price.
The value of our common stock to be issued to Immunex shareholders in the
merger will fluctuate.
In the merger, Immunex shareholders will receive 0.44 of a share of our
stock and $4.50 in cash for each share of Immunex common stock they own. As a
result of Immunex shareholders receiving a portion of the merger consideration
in shares of our stock, the value of the merger consideration to be received by
Immunex shareholders will depend on the market price of our stock at the time
the merger is completed. The market price of our stock at the closing of the
merger will likely vary from time to time. These variations may be caused by a
number of factors, including changes in the businesses, operations or prospects
of Amgen or Immunex, the timing of the merger, regulatory considerations, and
general market and economic conditions. See "--Our stock price is volatile,
which could adversely affect your investment." Additionally, the payment of our
common stock to Immunex shareholders in connection with the merger would dilute
the share ownership of our existing common stockholders and may affect the
value of our common stock. The merger consideration will not be adjusted for
any increase or decrease in the market price of our stock or Immunex common
stock.
We may not realize all of the anticipated benefits of the merger.
The success of the merger will depend, in part, on our ability to realize
the anticipated synergies, cost savings, and growth opportunities from
integrating the businesses of Immunex 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 of Immunex. 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:
-- consolidating research and development and manufacturing operations
-- retaining key employees
-- consolidating corporate and administrative infrastructures
-- coordinating sales and marketing functions
-- preserving our and Immunex's research and development, distribution,
marketing, promotion, and other important relationships
-- minimizing the diversion of management's attention from ongoing business
concerns
-- coordinating geographically separate organizations
We cannot assure you that the integration of Immunex with us will result in
the realization of the full benefits anticipated by us to result from the
merger.
23
Our business and stock price may be adversely affected if the merger with
Immunex is not completed.
Our acquisition of Immunex is subject to several customary conditions,
including obtaining clearance from governmental entities and the approvals of
the transaction by our stockholders and those of Immunex. If our acquisition of
Immunex is not completed, we could be subject to a number of risks that may
adversely affect our business and stock price, including:
-- the diversion of our management's attention from our day-to-day business
and the disruption to our employees and our relationships with customers
and joint venture partners as a result of efforts relating to the
acquisition
-- the market price of shares of our stock may decline to the extent that
the current market price reflects a market assumption that the
acquisition will be completed
-- under certain circumstances, we could be required to pay Immunex a $475
million termination fee
-- we must pay costs related to the merger, such as legal and accounting
fees and a portion of the investment banking fees, and, under certain
circumstances, could be required to reimburse Immunex for up to $15
million of costs
-- we would not realize the benefits we expect by acquiring Immunex
Item 2. PROPERTIES
Amgen's principal executive offices and a majority of its administrative,
manufacturing, and research and development facilities are located in forty
buildings in Thousand Oaks, California. Thirty-six of the buildings are owned
and four are leased. Adjacent to these buildings are facilities that are under
construction and additional property for future expansion. The Thousand Oaks,
California properties include manufacturing facilities licensed by various
regulatory bodies that produce commercial quantities of Epoetin alfa,
NEUPOGEN(R), Aranesp(TM), INFERGEN(R), and Neulasta(TM).
Amgen owns two buildings and leases four buildings in Boulder, Colorado,
housing research facilities and a manufacturing facility capable of producing
commercial quantities of Kineret(TM). The Company has a manufacturing complex
in Longmont, Colorado, that is licensed to produce commercial quantities of
Epoetin alfa. Amgen also plans on using the Longmont facility to produce
commercial quantities of Aranesp(TM). The Company has acquired approximately
159 acres of undeveloped land adjacent to the Longmont site to accommodate
future expansion.
Elsewhere in North America, the Company owns a distribution center in
Louisville, Kentucky, and a research facility in Cambridge, Massachusetts. The
Company leases administrative offices in Washington, D.C. and Canada, and five
regional sales offices in the U.S.
Outside North America, the Company has a manufacturing facility in Juncos,
Puerto Rico, and a European packaging and distribution center in Breda, The
Netherlands, which have been licensed by various regulatory bodies. In 2001,
the Company purchased approximately 76 acres of undeveloped land adjacent to
its current Juncos manufacturing facility to accommodate future expansion. The
Company leases facilities in thirteen European countries, Australia, New
Zealand, Japan, and Taiwan for administration, marketing, and/or research and
development.
Amgen believes that its existing facilities plus anticipated additions are
sufficient to meet its current needs.
24
Item 3. LEGAL PROCEEDINGS
Certain of the Company's legal proceedings are discussed below. While it is
impossible to predict accurately or to determine the eventual outcome of these
matters, the Company believes that the outcome of these proceedings will not
have a material adverse effect on the annual financial statements of the
Company.
Biogen litigation
On March 10, 1995, Biogen, Inc. ("Biogen") filed suit in the United States
District Court for the District of Massachusetts (the "Massachusetts District
Court") alleging infringement by the Company of certain claims of U.S. Patent
No. 4,874,702 (the "'702 Patent"), relating to vectors for expressing cloned
genes. Biogen alleged that Amgen infringed its patent by manufacturing and
selling NEUPOGEN(R). On March 28, 1995, Biogen filed an amended complaint
further alleging that the Company also infringed the claims of two additional
patents allegedly assigned to Biogen, U.S. Patent No. 5,401,642 (the "'642
Patent") and U.S. Patent No. 5,401,658 (the "'658 Patent"), relating to
vectors, methods for making vectors and expressing cloned genes, and host cells.
In a separate matter, on July 30, 1997, Biogen filed a complaint in the
Massachusetts District Court alleging that Amgen infringes claims 9 and 17 of
the '702 Patent and the claims of the '642 and '658 Patents, identified above,
by making and using the claimed subject matter in the United States in the
manufacture of INFERGEN(R). In December 2001, the parties settled both actions.
Pursuant to such settlement, the judge dismissed both actions with prejudice on
December 28, 2001.
Genentech litigation
On October 16, 1996, Genentech, Inc. ("Genentech") filed suit in the United
States District Court for the Northern District of California (the "California
Court") for infringement of U.S. Patent Nos. 4,704,362, 5,221,619, and
4,342,832 (the "'362, '619, and '832 Patents"), relating to vectors for
expressing cloned genes and the methods for such expression. Genentech alleged
that Amgen infringed its patents by manufacturing and selling NEUPOGEN(R). On
February 10, 1997, Genentech served an additional counterclaim asserting U.S.
Patent No. 5,583,013 (the "'013 Patent"), issued December 10, 1996.
At a hearing held on May 29, 1998, the parties stipulated to the dismissal
with prejudice of claims with respect to the '832 Patent. The judge issued a
final claim construction ruling interpreting the '362, '619, and '013 Patent
claims which, among other things, essentially limited the claim term "control
region" to DNA taken from a single operon and not constructed from control
elements derived from various operons. On October 12, 2000, the California
Court entered Final Judgment in the Company's favor on the basis of no
infringement. Genentech filed a notice of appeal. The parties filed briefs
before the Federal Circuit Court of Appeals. Oral arguments were heard on
October 9, 2001. The parties are currently awaiting a decision.
Transkaryotic Therapies and Aventis litigation
On April 15, 1997, Amgen filed suit in the Massachusetts District Court
against Transkaryotic Therapies, Inc. ("TKT") and Hoechst Marion Roussel, Inc.
("HMR"--now Aventis 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. The suit sought
an injunction preventing the Defendants from making, importing, using, or
selling erythropoietin in the U.S. 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
25
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 the '080 Patent, claims 1, 3, 4, and 6 of the '349 Patent and claim 1 of the
'422 Patent were valid, enforceable, and infringed by TKT's EPO product and the
cells used to make such product. The Massachusetts District Court also held
that claim 7 of the '349 patent and claims 1, 2, and 9 of the '933 Patent were
not infringed, and that if infringed the claims of the '933 patent would be
invalid.
On January 26, 2001, TKT and HMR filed a Notice of Appeal and on February
14, 2001, Amgen filed a Notice of Cross-Appeal, to the U.S. Court of Appeals
for the Federal Circuit. On March 22, 2001, Amgen filed an Amended Notice of
Cross-Appeal to include claim 9 of the '698 patent. TKT and HMR filed their
appeal brief on April 23, 2001 and a corrected version of their brief on May
11, 2001. Amgen timely filed its appeal brief on December 28, 2001 and a
corrected version of its brief on January 15, 2002. TKT and HMR filed a reply
brief on February 5, 2002. Amgen filed its reply brief on February 22, 2002.
Oral argument has not yet been scheduled.
Citizens for Consumer Justice, et. al. litigation
A class action complaint in which Amgen and twenty-seven other
pharmaceutical manufacturers are named as defendants has come to Amgen's
attention. The complaint was filed on December 19, 2001 in the Massachusetts
District Court, and it broadly alleges that the defendants' reporting of prices
for certain products had the effect of falsely overstating the Average
Wholesale Price, allegedly inflating reimbursements, including co-payments,
paid to providers who prescribe and administered the products. The complaint
asserts claims under the federal RICO statute and federal antitrust laws. It is
brought on behalf of a putative class of individuals and/or entities who paid
any portion of the 20% co-payment and/or deductible amount under Medicare Part
B for identified drugs manufactured or distributed by the defendants since 1993.
Johnson & Johnson arbitrations
The Company has filed a demand in an arbitration with Johnson & Johnson to
terminate Johnson & Johnson's rights under a license agreement (the "License
Agreement") relating to certain patented technology and know-how of the Company
to sell Epoetin alfa throughout the U.S. for all human uses except dialysis and
diagnostics and to recover damages for breach of the License Agreement based on
the Company's claim that Johnson & Johnson has intentionally sold PROCRIT(R)
(the brand name under which Johnson & Johnson sells Epoetin alfa) into the
Company's exclusive dialysis market. The trial commenced in January 2002.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during
the last quarter of its fiscal year ended December 31, 2001.
26
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock trades on The Nasdaq Stock Market under the
symbol AMGN. As of February 26, 2002, there were approximately 15,000 holders
of record of the Company's common stock. No cash dividends have been paid on
the common stock to date, and the Company currently intends to utilize any
earnings for development of the Company's business and for repurchases of its
common stock.
The following table sets forth, for the fiscal periods indicated, the range
of high and low closing sales prices of the common stock as quoted on The
Nasdaq Stock Market for the years 2001 and 2000:
High Low
------ ------
2001
4th Quarter..... $68.49 $56.03
3rd Quarter..... 65.66 54.01
2nd Quarter..... 70.02 51.51
1st Quarter..... 74.19 54.94
2000
4th Quarter..... $71.38 $54.13
3rd Quarter..... 78.00 64.94
2nd Quarter..... 70.38 51.31
1st Quarter..... 74.69 52.25
27
Item 6. SELECTED FINANCIAL DATA
(in millions, except per share data)
Years ended December 31,
-----------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
Consolidated Statement of Operations Data:
Revenues:
Product sales(1).............................. $3,511.0 $3,202.2 $3,042.8 $2,514.4 $2,219.8
Other revenues................................ 504.7 427.2 297.3 203.8 181.2
Total revenues............................ 4,015.7 3,629.4 3,340.1 2,718.2 2,401.0
Research and development expenses................ 865.0 845.0 822.8 663.3 630.8
Selling, general and administrative expenses..... 970.7 826.9 654.3 515.4 483.8
Other items, net(2).............................. 203.1 (18.8) (49.0) (23.0) 157.0
Net income....................................... 1,119.7 1,138.5 1,096.4 863.2 644.3
Diluted earnings per share(2).................... 1.03 1.05 1.02 0.82 0.59
Cash dividends declared per share................ -- -- -- -- --
At December 31,
-----------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
Consolidated Balance Sheet Data:
Total assets..................................... $6,443.1 $5,399.6 $4,077.6 $3,672.2 $3,110.2
Long-term debt................................... 223.0 223.0 223.0 223.0 229.0
Stockholders' equity............................. 5,217.2 4,314.5 3,023.5 2,562.2 2,139.3
--------
(1) Due to Year 2000 contingency planning in the fourth quarter of 1999, the
Company offered extended payment terms on limited shipments of EPOGEN(R)
and NEUPOGEN(R) to certain wholesalers. These Year 2000-related sales
totaled $45 million, or $0.02 per share, in 1999.
(2) The amount in 2001 is primarily related to the costs of terminating
collaboration agreements with various third parties. The amount in 2000
includes a write-off of acquired in-process research and development of
$30.1 million, a charitable contribution of $25 million to the Amgen
Foundation, and a $73.9 million benefit related to a legal proceeding. The
amounts in other years are comprised of benefits and expenses also related
to this legal proceeding. See Notes 4 and 11 to the Consolidated Financial
Statements for a discussion of the amounts in 2001, 2000, and 1999. In
2001, the amount in other items, net combined with an inventory write-off
of $39.5 million recorded in cost of sales decreased earnings per share by
$0.15. Other items, net increased/(decreased) earnings per share by $0.00
in 2000, $0.03 in 1999, $0.01 in 1998, and ($0.09) in 1997.
28
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Company had cash, cash equivalents, and marketable securities of
$2,662.2 million and $2,028.1 million at December 31, 2001 and 2000,
respectively. Cash provided by operating activities has been and is expected to
continue to be the Company's primary source of funds. Cash provided from
operations was $1,480.2 million and $1,634.6 million in 2001 and 2000,
respectively.
Capital expenditures totaled $441.8 million in 2001 compared with $437.7
million in 2000. The Company anticipates spending approximately $450 million to
$550 million in 2002 on capital projects and equipment to expand its global
operations.
The Company receives cash from the exercise of employee stock options and
proceeds from the sale of stock by Amgen pursuant to the employee stock
purchase plan. Employee stock option exercises and proceeds from the sale of
stock by Amgen pursuant to the employee stock purchase plan provided $277.7
million and $333.7 million of cash in 2001 and 2000, 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 the
Company's stock relative to the exercise price of such options.
The Company has a stock repurchase program primarily to reduce the dilutive
effect of its employee stock option and stock purchase plans. In 2001, the
Company repurchased 12.7 million shares of its common stock at a total cost of
$737.5 million. In 2000, the Company repurchased 12.2 million shares of its
common stock at a total cost of $799.9 million. In December 2000, the Board of
Directors authorized the Company to repurchase up to $2 billion of common stock
between January 1, 2001 and December 31, 2002. The amount the Company spends on
and the number of shares repurchased each quarter varies based on a variety of
factors, including the stock price and blackout periods in which the Company is
restricted from repurchasing shares. As of December 31, 2001, $1,262.5 million
was available for stock repurchases through December 31, 2002.
On February 22, 2002, the Company announced that it has agreed to issue $3.5
billion in aggregate face amount of 30-year zero coupon senior notes (the
"Convertible Notes") that are convertible into shares of the Company's common
stock. The proceeds from the offering, net of estimated issuance costs, are
expected to be approximately $2.45 billion. The Company may raise up to an
additional $321 million upon exercise of an over-allotment option that has been
granted in connection with the offering. The Company expects to use
approximately $650 million of the net proceeds to repurchase shares of its
common stock simultaneously with the issuance of the Convertible Notes, with
the remaining proceeds to be used for general corporate purposes. The terms of
the Convertible Notes include a yield to maturity of 1.125% and an initial
conversion premium of 40%. The issuance of the Convertible Notes is subject to
customary closing conditions and is expected to be completed by March 1, 2002.
To provide for financial flexibility and increased liquidity, the Company
has established several other sources of debt financing. As of December 31,
2001, the Company had $223 million of unsecured long-term debt securities
outstanding. These unsecured long-term debt securities consisted of: 1) $100
million of debt securities that bear interest at a fixed rate of 6.5% and
mature in 2007 under a $500 million debt shelf registration (the "Shelf"), 2)
$100 million of debt securities that bear interest at a fixed rate of 8.1% and
mature in 2097, and 3) $23 million of debt securities that bear interest at a
fixed rate of 6.2% and mature in 2003. As of December 31, 2001, the Company's
outstanding long-term debt was rated A2 by Moody's and A by Standard & Poor's.
Under the Shelf, all of the remaining $400 million of debt securities available
for issuance may be offered under the Company's medium-term note program with
terms to be determined by market conditions.
The Company's sources of debt financing also include a commercial paper
program which provides for unsecured short-term borrowings up to an aggregate
face amount of $200 million. As of December 31, 2001, commercial paper with a
face amount of $100 million was outstanding. These borrowings had maturities of
less
29
than one month and had effective interest rates averaging 1.9%. In addition,
the Company has an unsecured $150 million committed credit facility with five
participating banking institutions that expires on May 28, 2003. This credit
facility supports the Company's commercial paper program. As of December 31,
2001, no amounts were outstanding under this credit facility.
The primary objectives for the Company's fixed income investment portfolio
are liquidity and safety of principal. Investments are made to achieve the
highest rate of return to the Company, consistent with these two objectives.
The Company's investment policy limits investments to certain types of
instruments issued by institutions with investment grade credit ratings and
places restrictions on maturities and concentration by type and issuer.
The Company believes that existing funds, cash generated from operations,
and existing sources of debt financing (including the pending issuance of the
Convertible Notes) are adequate to satisfy its working capital and capital
expenditure requirements for the foreseeable future, as well as to support its
stock repurchase program and the proposed acquisition of Immunex Corporation
("Immunex") (see "Proposed Merger with Immunex"). However, the Company may
raise additional capital from time to time.
Results of Operations
Product sales
Product sales primarily consist of sales of EPOGEN(R) (Epoetin alfa),
Aranesp(TM) (darbepoetin alfa), and NEUPOGEN(R) (Filgrastim). In 2001, product
sales were $3,511.0 million, an increase of $308.8 million or 10% over the
prior year. Product sales were $3,202.2 million in 2000, an increase of $159.4
million or 5% over the prior year. Product sales are influenced by a number of
factors, including underlying demand, wholesaler inventory management
practices, and foreign exchange effects.
EPOGEN(R)/Aranesp(TM)
In 2001, the Company received approval to market Aranesp(TM) in the U.S.
(September 2001), most countries in the European Union ("EU"), Australia, and
New Zealand for the treatment of anemia associated with chronic renal failure,
including patients on dialysis and patients not on dialysis.
Combined EPOGEN(TM) and Aranesp(TM) sales in 2001 were $2,150.0 million, an
increase of $187.1 million or 10% over 2000 EPOGEN(R) sales. This increase was
primarily due to higher EPOGEN(R) demand, which includes the effect of higher
prices and growth in the U.S. dialysis patient population, and to a lesser
extent, the launch of Aranesp(TM) in the U.S. and Europe. The reported sales
growth was negatively impacted to a slight degree by wholesaler inventory
changes. Worldwide Aranesp(TM) sales in 2001 were $41.5 million.
EPOGEN(R) sales in 2000 were $1,962.9 million, an increase of $203.8 million
or 12% over the prior year. This increase was primarily due to higher demand,
which was principally driven by growth in the U.S. dialysis patient population
and to a lesser extent, the effect of higher prices. Sales in 2000 were
adversely impacted by Year 2000-related sales to wholesalers in the fourth
quarter of 1999 for which the Company provided extended payment terms and, the
Company believes, by dialysis provider inventory drawdowns in 2000 of
additional 1999 year-end stockpiling. The Company believes that some of this
dialysis provider stockpiling may have been due to Year 2000 concerns and
year-end contract expirations.
NEUPOGEN(R)
Worldwide NEUPOGEN(R) sales in 2001 were $1,346.4 million, an increase of
$122.7 million or 10% over the prior year. This increase was primarily due to
worldwide demand growth, which includes the effect of higher prices in the U.S.
30
Worldwide NEUPOGEN(R) sales were $1,223.7 million in 2000, a decrease of
$32.9 million or 3% from the prior year. This decrease was primarily due to the
adverse impact of wholesaler buying patterns, including Year 2000-related sales
to wholesalers in the fourth quarter of 1999 for which the Company provided
extended payment terms, as well as adverse foreign exchange effects. The
Company believes these factors were partially offset by a mid-single digit rate
increase in demand, which includes the effect of higher prices in the U.S.
Corporate partner revenues
In 2001, corporate partner revenues were $252.0 million, an increase of $5.8
million or 2% over the prior year. This increase was due to slightly higher
revenues, primarily related to INFERGEN(R), substantially offset by lower
amounts earned from Kirin-Amgen, Inc. In 2000, corporate partner revenues were
$246.2 million, an increase of $84.8 million or 53% over the prior year. This
increase was primarily due to amounts earned from Kirin-Amgen, Inc. related to
the development program for Aranesp(TM).
Royalty income
In 2001, royalty income was $252.7 million, an increase of 40% over the
prior year. In 2000, royalty income was $181.0 million, an increase of 33% over
the prior year. These increases were primarily due to higher royalties from
Johnson & Johnson relating to their sales of Epoetin alfa.
Cost of sales
Cost of sales as a percentage of product sales was 12.6%, 12.8%, and 13.2%
for 2001, 2000, and 1999, respectively. The decrease in 2001 was primarily due
to reduced royalty obligations, substantially offset by the impact of the $39.5
million write-off of certain inventory in the fourth quarter of 2001. The
decrease in 2000 was primarily due to increased manufacturing efficiencies.
Research and development
In 2001, research and development expenses increased $20.0 million or 2%
over the prior year. This increase was primarily due to higher staff-related
costs necessary to support ongoing research and product development activities,
partially offset by lower clinical manufacturing and product licensing-related
costs.
In 2000, research and development expenses increased $22.2 million or 3%
over the prior year. This increase was primarily due to higher staff-related
costs necessary to support ongoing research and product development activities
and higher clinical trial costs. These increases were substantially offset by a
reduction in clinical manufacturing and product licensing-related costs.
Selling, general and administrative
In 2001, selling, general and administrative ("SG&A") expenses increased
$143.8 million or 17% over the prior year. This increase was primarily due to
higher outside marketing expenses, staff-related costs, and consulting expenses
as support for new product launches was increased.
In 2000, SG&A expenses increased $172.6 million or 26% over the prior year.
This increase was primarily due to higher staff-related costs and outside
marketing expenses as the Company continued to support its existing products
and prepared for anticipated new product launches.
Other items, net
In 2001, other items, net primarily consisted of costs associated with the
termination of collaboration agreements with various third parties, including
PRAECIS PHARMACEUTICALS INCORPORATED and certain
31
academic institutions. In 2000, other items, net consisted of three items: 1)
legal award associated with the spillover arbitration with Johnson & Johnson,
2) a write-off of acquired in-process research and development associated with
the acquisition of Kinetix Pharmaceuticals, Inc., and 3) a charitable
contribution to the Amgen Foundation. In 1999, other items, net consisted of a
reduction in liabilities related to the spillover arbitration with Johnson &
Johnson. See Note 4 to the Consolidated Financial Statements for a discussion
of the 2001, 2000, and 1999 items.
Interest and other income, net
In 2001, interest and other income, net increased $22.5 million or 15% over
the prior year. This increase was due to higher interest income generated from
the Company's investment portfolio as a result of higher average cash balances,
partially offset by lower interest rates in 2001 and higher gains on the sale
of equity investments that occurred in 2000.
In 2000, interest and other income, net increased $57.9 million or 66% over
the prior year. This increase was primarily due to gains realized on the sale
of certain equity securities in the Company's portfolio and higher interest
income generated from the Company's investment portfolio as a result of higher
average cash balances and higher interest rates.
Income taxes
The Company's effective tax rate was 33.6%, 32.0%, and 30.0% for 2001, 2000,
and 1999, respectively. The Company's tax rate in 2001 has increased, in part,
due to the absence of capital loss carryforwards that benefited 2000. The tax
rate in all three years reflected the tax benefits from the sale of products
manufactured in the Company's Puerto Rico manufacturing facility. In addition,
the 2001 and 2000 tax rates increased as a result of increased taxable income
combined with a provision in the federal tax law that caps tax benefits
associated with the Company's Puerto Rico operations at the 1995 income level.
The 2000 tax rate increased also as a result of the write-off of acquired
in-process research and development, which is not deductible for tax purposes.
Proposed Merger with Immunex
On December 16, 2001, the Company signed a definitive agreement to acquire
Immunex Corporation ("Immunex") in a transaction to be accounted for as a
purchase. Immunex is a biopharmaceutical company dedicated to developing immune
system science to protect human health. Under the terms of the agreement, each
share of Immunex common stock outstanding at the closing of the merger, other
than shares as to which dissenters' rights have been validly exercised, will be
converted into 0.44 of a share of Amgen common stock and $4.50 cash. In
addition, at the closing of the merger each option outstanding to purchase a
share of Immunex common stock will be assumed by Amgen and exchanged into an
option to purchase Amgen common stock based on the terms of the merger
agreement. The estimated purchase price is approximately $17.6 billion, which
includes the cash portion of the merger consideration, the estimated fair
values of Amgen stock issued and options to be exchanged, and the direct
transaction costs. The final purchase price will be determined based upon the
number of Immunex shares and options outstanding at the closing date. The
transaction is expected to close in the second half of 2002, subject to
approval by shareholders of both companies, customary regulatory approvals, as
well as other customary closing conditions. More information about this
transaction is available in Amgen's Current Report on Form 8-K filed with the
SEC on December 17, 2001 which is incorporated herein by reference. Unless
otherwise indicated, the discussions in this document relate to Amgen as a
stand-alone entity and do not reflect the impact of the proposed merger with
Immunex.
Financial Outlook
In the future, the Company expects the growth of its anemia business to be
driven primarily by Aranesp(TM) sales in new markets. The Company expects
growth in its U.S. dialysis business to come primarily from patient
32
population growth and inflation-related price increases. Patients receiving
treatment for end stage renal disease are covered primarily under medical
programs provided by the federal government. Therefore, EPOGEN(R) sales may
also be affected by future changes in reimbursement rates or a change in the
basis for reimbursement by the federal government. Worldwide Aranesp(TM) sales
will be dependent in part upon such factors as the effects of competitive
pressures, penetration of existing and new market opportunities, the
availability and extent of reimbursement by third-party payors including
governments and private insurance plans, and changes in foreign currency
exchange rates.
Future NEUPOGEN(R) demand is dependent primarily upon penetration of
existing markets, inflation-related price increases, and the effects of
competitive products. In addition, chemotherapy treatments that are less
myelosuppressive may require less NEUPOGEN(R). NEUPOGEN(R) usage is expected to
continue to be affected by cost containment pressures from governments and
private insurers on health care providers worldwide. In addition, reported
NEUPOGEN(R) sales will continue to be affected by changes in foreign currency
exchange rates. In both domestic and foreign markets, sales of NEUPOGEN(R) are
dependent, in part, on the availability of reimbursement from third-party
payors such as governments (for example, Medicare and Medicaid programs in the
U.S.) and private insurance plans. Therefore, NEUPOGEN(R) sales may also be
affected by future changes in reimbursement rates or changes in the bases for
reimbursement.
In January 2002, the Company received regulatory approval to market
Neulasta(TM), its new white blood cell booster, in the U.S. Neulasta(TM),
administered as a single fixed dose per chemotherapy cycle, is indicated for
decreasing the incidence of infection, as manifested by febrile neutropenia in
patients with non-myeloid malignancies receiving myelosuppressive anti-cancer
drugs associated with clinically significant incidence of febrile neutropenia.
The Company expects to launch Neulasta(TM) in April 2002. Once launched,
Neulasta may impact NEUPOGEN(R) sales as health care providers in the U.S. may
transition from administering NEUPOGEN(R) to Neulasta(TM).
In November 2001, the Company received regulatory approval to market
Kineret(TM) (anakinra) in the U.S. for the reduction in signs and symptoms of
moderately to severely active rheumatoid arthritis in adult patients who have
failed one or more disease modifying antirheumatic drugs.
The Company is providing this information as of the filing date of the
Company's Annual Report on Form 10-K for the year ended December 31, 2001, and
does not plan to update this information and expressly disclaims any duty to
update the information contained in this filing, except as required by law.
Except for the historical information contained herein, the matters
discussed herein are by their nature forward-looking. Investors are cautioned
that forward-looking statements or projections made by the Company, including
those made in this document, are subject to risks and uncertainties that may
cause actual results to differ materially from those projected. Reference is
made in particular to forward-looking statements regarding product sales,
expenses, liquidity and the Convertible Notes, and the proposed merger with
Immunex. Amgen operates in a rapidly changing environment that involves a
number of risks, some of which are beyond the Company's control. Future
operating results and the Company's stock price may be affected by a number of
factors, including, without limitation: (i) the results of preclinical and
clinical trials; (ii) regulatory approvals of product candidates, new
indications, and manufacturing facilities; (iii) health care guidelines and
policies relating to Amgen's products; (iv) reimbursement for Amgen's products
by governments and private payors; (v) intellectual property matters (patents)
and the results of litigation; (vi) competition; (vii) fluctuations in
operating results; and (viii) rapid growth of the Company. The proposed merger
with Immunex may fail to close or the terms of the merger may need to be
modified to achieve regulatory approval. Depending on the timing of the merger,
and other factors, Amgen may not realize all of the anticipated benefits of the
merger, including the anticipated synergies, cost savings, and growth
opportunities from integrating the businesses of Immunex with the businesses of
Amgen. Additionally, the value of the Amgen common stock to be issued to the
Immunex
33
shareholders in connection with the merger will fluctuate. These factors and
others are discussed herein and in the sections appearing under the heading
"Business--Factors That May Affect Amgen" and in Amgen's other filings with the
Securities and Exchange Commission, which sections are incorporated herein by
reference.
Summary of Critical Accounting Policies
EPOGEN(R) revenue recognition
The Company has the exclusive right to sell Epoetin alfa for dialysis,
certain diagnostics, and all non-human, non-research uses in the United States.
Amgen has 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, the Company and Johnson & Johnson are required to
compensate each other for Epoetin alfa sales that either party makes into the
other party's exclusive market, sometimes referred to as "spillover" sales.
Accordingly, Amgen does not recognize product sales it makes into the exclusive
market of Johnson & Johnson and does recognize the product sales made by
Johnson & Johnson into Amgen's exclusive market. Sales in Amgen's exclusive
market are derived from the Company's sales to its customers, as adjusted for
any spillover sales. The Company is employing an arbitrated audit methodology
to measure each party's spillover sales 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 recognized spillover sales. The
Company initially recognizes spillover sales based on estimates of shipments to
end users and their usage, utilizing historical third-party data and
subsequently adjusts such amounts based on revised third-party data as
received. Differences between initially estimated spillover sales and amounts
based on revised third-party data could produce materially different amounts
for recognized EPOGEN(R) sales. However, such differences to date have not been
material.
Inventory capitalization
The Company capitalizes inventory costs associated with certain product
candidates prior to regulatory approval, based on management's judgment of
probable future commercialization. The Company would be required to expense
previously capitalized costs related to pre-approval inventory upon a change in
such judgment, due to, among other factors, a decision denying approval of the
product candidate by the necessary regulatory bodies. At December 31, 2001,
capitalized inventory related to the product candidate Neulasta(TM) totaled
$8.8 million. In January 2002, the Company received regulatory approval to
market Neulasta(TM) in the U.S.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest income earned on the Company's investment portfolio is affected by
changes in the general level of U.S. interest rates. In 2001, the Company
entered into interest rate swap agreements on a portion of its
available-for-sale investment portfolio, effectively converting these fixed
income investments to variable income investments. The Company's short-term
borrowings effectively bear interest at variable rates and therefore, changes
in U.S. interest rates affect interest expense incurred thereon. Changes in
interest rates do not affect interest expense incurred on the Company's
long-term borrowings because they all bear interest at fixed rates. The
following tables provide information about the Company's financial instruments
that are sensitive to changes in interest rates. For the Company's investment
portfolio and debt obligations, the tables present principal cash flows and
related weighted-average interest rates by expected maturity dates.
Additionally, the Company has assumed its available-for-sale debt securities,
comprised primarily of corporate debt instruments and treasury securities, are
similar enough to aggregate those securities for presentation purposes. For the
interest rate swaps, the 2001 table presents the notional amount and
weighted-average interest rates by contractual maturity date. The notional
amount is used to calculate the contractual cash flows to be exchanged under
the contract.
34
Interest Rate Sensitivity
Principal Amount by Expected Maturity as of December 31, 2001
(Dollars in millions)
Average Interest Rate
Fair Value
2002 2003 2004 2005 2006 Thereafter Total 12/31/01
-------- ------ ------ ------ ------ ---------- -------- ----------
Available-for-sale debt
securities.................. $1,466.9 $362.9 $390.6 $163.9 $115.0 -- $2,499.3 $2,568.0
Interest rate................. 4.4% 6.6% 5.8% 7.0% 5.1% --
Commercial paper obligations.. $ 100.0 -- -- -- -- -- $ 100.0 $ 100.0
Interest rate................. 1.9% -- -- -- -- --
Long-term debt................ -- $ 23.0 -- -- -- $200.0 $ 223.0 $ 244.9
Interest rate................. -- 6.2% -- -- -- 7.3%
Interest rate swaps related to
available-for-sale debt
securities:
Pay fixed/receive variable.... -- $153.7 $144.2 $120.0 $ 40.0 -- $ 457.9 $ 1.4
Average pay rate.............. -- 2.9% 3.8% 4.2% 4.5% --
Average receive rate.......... -- 2.0% 2.0% 2.0% 2.0% --
Interest Rate Sensitivity
Principal Amount by Expected Maturity as of December 31, 2000
(Dollars in millions)
Average Interest Rate
Fair Value
2001 2002 2003 2004 2005 Thereafter Total 12/31/00
------ ------ ------ ------ ----- ---------- -------- ----------
Available-for-sale debt
securities.................. $780.4 $740.6 $232.3 $118.5 $60.0 -- $1,931.8 $1,950.2
Interest rate................. 6.6% 6.7% 7.0% 6.5% 7.0% --
Commercial paper obligations.. $100.0 -- -- -- -- -- $ 100.0 $ 100.0
Interest rate................. 6.7% -- -- -- -- --
Long-term debt................ -- -- $ 23.0 -- -- $200.0 $ 223.0 $ 222.0
Interest rate................. -- -- 6.2% -- -- 7.3%
The Company is exposed to equity price risks on the marketable portion of
equity securities included in its portfolio of investments entered into for the
promotion of business and strategic objectives. These investments are generally
in small capitalization stocks in the biotechnology industry sector. In 2001,
the Company entered into equity forward contracts to hedge against changes in
the fair market value of a portion of its equity investment portfolio. At
December 31, 2001 and 2000, the fair value of the unhedged portion of its
equity securities was $133.4 million and $223.0 million, respectively. For the
years ended December 31, 2001 and 2000, an adverse change in equity prices of
45% and 80%, respectively, would result in a decrease of approximately $60.0
million and $178.4 million, respectively, in the fair value of the unhedged
portion of the Company's equity securities. Price volatility for equity
investments is based on the volatility of a relevant market index for small
capitalization stocks in the biotechnology sector.
35
The Company did not have material exposures to changes in foreign currency
exchange rates related to its foreign currency forward contracts outstanding as
of December 31, 2001 and 2000.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated herein by reference to
the financial statements listed in Item 14(a) of Part IV of this Form 10-K
Annual Report.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
36
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the directors of the Company is incorporated by
reference to the section entitled "Election of Directors" in the Company's
definitive Proxy Statement with respect to the Company's 2002 Annual Meeting to
be filed with the Securities and Exchange Commission within 120 days of
December 31, 2001 (the "Proxy Statement"). For information concerning the
executive officers of the Company, see "Item 1. Business--Executive Officers of
the Registrant".
Item 11. EXECUTIVE COMPENSATION
The section labeled "Executive Compensation" appearing in the Company's
Proxy Statement is incorporated herein by reference, except for such
information as need not be incorporated by reference under rules promulgated by
the Securities and Exchange Commission.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The section labeled "Security Ownership of Directors and Executive Officers
and Certain Beneficial Owners" appearing in the Company's Proxy Statement is
incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section labeled "Certain Transactions" appearing in the Company's Proxy
Statement is incorporated herein by reference.
37
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)1. Index to Financial Statements
The following Financial Statements are included herein:
Page
Number
----------
Report of Ernst & Young LLP, Independent Auditors............................................... F-1
Consolidated Statements of Operations for each of the three years in the period ended
December 31, 2001............................................................................. F-2
Consolidated Balance Sheets at December 31, 2001 and 2000....................................... F-3
Consolidated Statements of Stockholders' Equity for each of the three years in the period ended
December 31, 2001............................................................................. F-4
Consolidated Statements of Cash Flows for each of the three years in the period ended
December 31, 2001............................................................................. F-5
Notes to Consolidated Financial Statements...................................................... F-6 - F-24
(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-25
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
------- -----------
2.1 Agreement and Plan of Merger, dated as of December 16, 2001, by and among Amgen Inc.,
AMS Acquisition Inc., and Immunex Corporation. (26)
3.1 Restated Certificate of Incorporation as amended. (10)
3.2* Amended and Restated Bylaws of Amgen Inc. (as amended January 7, 2002).
3.3 Certificate of Amendment of Restated Certificate of Incorporation. (19)
3.4 Certificate of Designations of Series A Junior Participating Preferred Stock. (22)
4.1 Indenture dated January 1, 1992 between the Company and Citibank N.A., as trustee. (4)
4.2 First Supplement to Indenture, dated February 26, 1997 between the Company and Citibank N.A.,
as trustee. (7)
4.3 Officer's Certificate pursuant to Sections 2.1 and 2.3 of the Indenture, as supplemented, establishing a
series of securities "8 1/8% Debentures due April 1, 2097." (9)
4.4 8 1/8% Debentures due April 1, 2097. (9)
4.5 Form of stock certificate for the common stock, par value $.0001 of the Company. (10)
4.6 Officer's Certificate pursuant to Sections 2.1 and 2.3 of the Indenture, dated as of January 1, 1992, as
supplemented by the First supplemental Indenture, dated as of February 26, 1997, each between the
Company and Citibank, N.A., as Trustee, establishing a series of securities entitled "6.50% Notes
Due December 1, 2007". (12)
38
Exhibit
No. Description
------- -----------
4.7 6.50% Notes Due December 1, 2007 described in Exhibit 4.6. (12)
4.8 Corporate Commercial Paper--Master Note between and among Amgen Inc., as Issuer, Cede & Co.,
as nominee of The Depository Trust Company and Citibank, N.A. as Paying Agent. (14)
4.9 Stockholders' Rights Agreement dated as of December 16, 2001, by and among Amgen Inc.,
American Home Products Corporation, MDP Holdings, Inc., and Lederle Parenterals, Inc. (27)
10.1*+ Company's Amended and Restated 1991 Equity Incentive Plan, effective December 11, 2001.
10.2*+ Company's Amended and Restated 1997 Special Non-Officer Equity Incentive Plan, effective
December 11, 2001.
10.3 Shareholder's Agreement of Kirin-Amgen, Inc., dated May 11, 1984, between the Company and
Kirin Brewery Company, Limited. (22)
10.4 Amendment Nos. 1, 2, and 3, dated March 19, 1985, July 29, 1985 and December 19, 1985,
respectively, to the Shareholder's Agreement of Kirin-Amgen, Inc., dated May 11, 1984. (19)
10.5 Product License Agreement, dated September 30, 1985, and Technology License Agreement, dated,
September 30, 1985 between the Company and Ortho Pharmaceutical Corporation. (19)
10.6 Product License Agreement, dated September 30, 1985, and Technology License Agreement, dated
September 30, 1985 between Kirin-Amgen, Inc. and Ortho Pharmaceutical Corporation. (19)
10.7+ Company's Amended and Restated Employee Stock Purchase Plan. (19)
10.8 Research, Development Technology Disclosure and License Agreement PPO, dated January 20,
1986, by and between the Company and Kirin Brewery Co., Ltd. (1)
10.9 Amendment Nos. 4 and 5, dated October 16, 1986 (effective July 1, 1986) and December 6, 1986
(effective July 1, 1986), respectively, to the Shareholders Agreement of Kirin-Amgen, Inc. dated
May 11, 1984. (22)
10.10 Assignment and License Agreement, dated October 16, 1986, between the Company and Kirin-
Amgen, Inc. (22)
10.11 G-CSF European License Agreement, dated December 30, 1986, between Kirin-Amgen, Inc. and the
Company. (22)
10.12+ Company's Retirement and Savings Plan (as amended and restated effective October 23, 2000). (22)
10.13+ Company's Amended and Restated 1988 Stock Option Plan. (6)
10.14+ First Amendment to the Company's Retirement and Savings Plan (as amended and restated effective
October 23, 2000). (22)
10.15 Amendment, dated June 30, 1988, to Research, Development, Technology Disclosure and License
Agreement: GM-CSF dated March 31, 1987, between Kirin Brewery Company, Limited and the
Company. (2)
10.16 Agreement on G-CSF in Certain European Countries, dated January 1, 1989, between Amgen Inc.
and F. Hoffmann-La Roche & Co. Limited Company (with certain confidential information
deleted therefrom). (3)
10.17 Partnership Purchase Agreement, dated March 12, 1993, between the Company, Amgen Clinical
Partners, L.P., Amgen Development Corporation, the Class A limited partners and the Class B
limited partner. (5)
10.18+ Amgen Inc. Supplemental Retirement Plan (As Amended and Restated Effective
November 1, 1999). (18)
10.19+ First Amendment to Amgen Inc. Change of Control Severance Plan. (19)
10.20+ Amended and Restated Amgen Performance Based Management Incentive Plan. (17)
39
Exhibit
No. Description
------- -----------
10.21 Credit Agreement, dated as of May 28, 1998, among Amgen Inc., the Borrowing Subsidiaries named
therein, the Banks named therein, Citibank, N.A., as Issuing Bank, and Citicorp USA, Inc., as
Administrative Agent. (15)
10.22 G-CSF United States License Agreement dated June 1, 1987 (effective July 1, 1986) between Kirin-
Amgen, Inc. and the Company. (22)
10.23 Amendment No. 1 dated October 20, 1988 to Kirin-Amgen, Inc./Amgen G-CSF United States
License Agreement dated June 1, 1987 (effective July 1, 1986). (22)
10.24 Amendment No. 2 dated October 17, 1991 (effective November 13, 1990) to Kirin-Amgen, Inc./
Amgen G-CSF United States License Agreement dated June 1, 1987 (effective July 1, 1986). (22)
10.25 Amendment No. 10 dated March 1, 1996 to the Shareholders' Agreement of Kirin-Amgen, Inc. dated
May 11, 1984. (22)
10.26+ Amgen Inc. Change of Control Severance Plan effective as of October 20, 1998. (16)
10.27 Preferred Share Rights Agreement, dated as of December 12, 2000, between Amgen Inc. and
American Stock Transfer and Trust Company, as Rights Agent. (21)
10.28+ First Amendment, effective January 1, 1998, to the Company's Amended and Restated Employee
Stock Purchase Plan. (11)
10.29 Amendment No. 11 dated March 20, 2000 to the Shareholders' Agreement of Kirin-Amgen, Inc.
dated May 11, 1984. (22)
10.30+ Agreement between Amgen Inc. and Dr. Fabrizio Bonanni, dated March 3, 1999. (18)
10.31 Amendment No. 1 dated June 1, 1987 to Kirin-Amgen, Inc./Amgen G-CSF European License
Agreement dated December 30, 1986. (22)
10.32 Amendment No. 2 dated March 15, 1988 to Kirin-Amgen, Inc./Amgen G-CSF European License
Agreement dated December 30, 1986. (22)
10.33 Amendment No. 3 dated October 20, 1988 to Kirin-Amgen, Inc./Amgen G-CSF European License
Agreement dated December 30, 1986. (22)
10.34 Amendment No. 4 dated December 29, 1989 to Kirin-Amgen, Inc./Amgen G-CSF European License
Agreement dated December 30, 1986. (22)
10.35+ Company's Amended and Restated 1987 Directors' Stock Option Plan. (8)
10.36 Amended and Restated Agreement on G-CSF in the EU between Amgen Inc. and F. Hoffmann-La
Roche Ltd (with certain confidential information deleted therefrom). (14)
10.37 Collaboration and License Agreement, dated December 15, 1997, between the Company, GPI NIL
Holdings, Inc. and Guilford Pharmaceuticals Inc. (with certain confidential information deleted
therefrom). (13)
10.38+ Promissory Note of Dr. Fabrizio Bonanni, dated August 7, 1999. (18)
10.39+ Promissory Note of Dr. Fabrizio Bonanni, dated October 29, 1999. (18)
10.40+ Company's Amended and Restated 1997 Equity Incentive Plan. (25)
10.41+ Agreement between Amgen Inc. and Mr. Gordon M. Binder, dated May 10, 2000. (19)
10.42 Amendment No. 6 dated May 11, 1984 to the Shareholders' Agreement of Kirin-Amgen, Inc. dated
May 11, 1984. (22)
10.43 Amendment No. 7 dated July 17, 1987 (effective April 1, 1987) to the Shareholders' Agreement of
Kirin-Amgen, Inc. dated May 11, 1984. (22)
10.44 Amendment No. 8 dated May 28, 1993 (effective November 13, 1990) to the Shareholders'
Agreement of Kirin-Amgen, Inc. dated May 11, 1984. (22)
40
Exhibit
No. Description
------- -----------
10.45 Amendment No. 9 dated December 9, 1994 (effective June 14, 1994) to the Shareholders'
Agreement of Kirin-Amgen, Inc. dated May 11, 1984. (22)
10.46+ Agreement between Amgen Inc. and Mr. George J. Morrow, dated March 3, 2001. (23)
10.47+ Promissory Note of Mr. George J. Morrow, dated March 11, 2001. (23)
10.48+ Agreement between Amgen Inc. and Dr. Roger M. Perlmutter, M.D., Ph.D., dated March 5, 2001.
(23)
10.49+ Agreement between Amgen Inc. and Mr. Brian McNamee, dated May 5, 2001. (24)
10.50+ Agreement between Amgen Inc. and Mr. Richard Nanula, dated May 15, 2001. (24)
10.51+ Promissory Note of Mr. Richard Nanula, dated June 27, 2001. (24)
10.52+ Promissory Note of Dr. Roger M. Perlmutter, dated June 29, 2001. (24)
10.53+ Second Amendment to the Amgen Retirement and Savings Plan as amended and restated effective
October 23, 2000. (25)
10.54+ Second Amendment to the Amgen Inc. Change of Control Severance Plan. (25)
10.55+ First Amendment to the Amgen Supplemental Retirement Plan as amended and restated effective
November 1, 1999. (25)
10.56+ Agreement between Amgen Inc. and Dr. George Morstyn, dated July 19, 2001. (25)
10.57+ Promissory Note of Mr. Brian McNamee, dated May 30, 2001. (25)
10.58+ Restricted Stock Purchase Agreement between Amgen Inc. and Mr. Richard Nanula, dated
May 16, 2001. (25)
10.59+ Restricted Stock Purchase Agreement between Amgen Inc. and Dr. Roger M. Perlmutter, dated
January 8, 2001. (25)
10.60*+ Agreement between Amgen Inc. and Dr. Beth C. Seidenberg, dated December 21, 2001.
10.61*+ Amendment to Agreement between Amgen Inc. and Dr. Beth C. Seidenberg, dated
December 21, 2001.
10.62*+ Second Amendment to the Amgen Supplemental Retirement Plan (As Amended and Restated
Effective November 1, 1999), effective January 1, 2002.
10.63*+ Third Amendment to the Amgen Retirement and Savings Plan (as amended and restated effective
October 23, 2000), effective February 1, 2002.
10.64*+ Amgen Inc. Executive Nonqualified Retirement Plan, effective January 1, 2001.
10.65*+ Nonqualified Deferred Compensation Plan, effective January 1, 2002.
10.66 Shareholder voting agreement dated as of December 16, 2001 by and among Amgen Inc., American
Home Products Corporation, MDP Holdings, Inc., and Lederle Parenterals, Inc. (26)
21* Subsidiaries of the Company.
23 Consent of Ernst & Young LLP, Independent Auditors. The consent set forth on page 46 is
incorporated herein by reference.
24 Power of Attorney. The Power of Attorney set forth on page 45 is incorporated herein by reference.
--------
* Filed herewith.
+ Management contract or compensatory plan or arrangement.
(1) Filed as an exhibit to Amendment No. 1 to Form S-1 Registration Statement
(Registration No. 33-3069) on March 11, 1986 and incorporated herein by
reference.
41
(2) Filed as an exhibit to Form 8 amending the Quarterly Report on Form 10-Q
for the quarter ended June 30, 1988 on August 25, 1988 and incorporated
herein by reference.
(3) Filed as an exhibit to the Form 8 dated November 8, 1989, amending the
Annual Report on Form 10-K for the year ended March 31, 1989 on June 28,
1989 and incorporated herein by reference.
(4) Filed as an exhibit to Form S-3 Registration Statement dated December 19,
1991 and incorporated herein by reference.
(5) Filed as an exhibit to the Form 8-A dated March 31, 1993 and incorporated
herein by reference.
(6) Filed as an exhibit to the Form 10-Q for the quarter ended September 30,
1996 on November 5, 1996 and incorporated herein by reference.
(7) Filed as an exhibit to the Form 8-K Current Report dated March 14, 1997 on
March 14, 1997 and incorporated herein by reference.
(8) Filed as an exhibit to the Annual Report on Form 10-K for the year ended
December 31, 1996 on March 24, 1997 and incorporated herein by reference.
(9) Filed as an exhibit to the Form 8-K Current Report dated April 8, 1997 on
April 8, 1997 and incorporated herein by reference.
(10) Filed as an exhibit to the Form 10-Q for the quarter ended March 31, 1997
on May 13, 1997 and incorporated herein by reference.
(11) Filed as an exhibit to the Form 10-Q for the quarter ended June 30, 1997
on August 12, 1997 and incorporated herein by reference.
(12) Filed as an exhibit to the Form 8-K Current Report dated and filed on
December 5, 1997 and incorporated herein by reference.
(13) Filed as Exhibit 10.40 to the Guilford Pharmaceuticals Inc. Form 10-K for
the year ended December 31, 1997 on March 27, 1998 and incorporated herein
by reference.
(14) Filed as an exhibit to the Form 10-Q for the quarter ended March 31, 1998
on May 13, 1998 and incorporated herein by reference.
(15) Filed as an exhibit to the Form 10-Q for the quarter ended June 30, 1998
on August 14, 1998 and incorporated herein by reference.
(16) Filed as an exhibit to the Annual Report on Form 10-K for the year ended
December 31, 1998 on March 16, 1999 and incorporated herein by reference.
(17) Filed as an exhibit to the Form 10-Q for the quarter ended June 30, 1999
on August 3, 1999 and incorporated herein by reference.
(18) Filed as an exhibit to the Annual Report on Form 10-K for the year ended
December 31, 1999 on March 7, 2000 and incorporated herein by reference.
(19) Filed as an exhibit to the Form 10-Q for the quarter ended June 30, 2000
on August 1, 2000 and incorporated herein by reference.
(20) Filed as an exhibit to the Form 10-Q for the quarter ended September 30,
2000 on November 14, 2000 and incorporated herein by reference.
(21) Filed as an exhibit to the Form 8-K Current Report dated December 13, 2000
on December 18, 2000 and incorporated herein by reference.
(22) 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.
42
(23) 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.
(24) 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.
(25) 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.
(26) Filed as an exhibit to the Form 8-K Current Report dated December 16, 2001
on December 17, 2001 and incorporated herein by reference.
(27) Filed as an exhibit to the Form S-4 Registration Statement dated January
31, 2002 and incorporated herein by reference.
(b) Reports on Form 8-K
The Company filed one Current Report on Form 8-K during the three months
ended December 31, 2001. The report filed on December 17, 2001 reported under
Item 5 that on December 16, 2001, the Company entered into an Agreement and
Plan of Merger, dated December 16, 2001 (the "Merger Agreement"). Under the
terms of the Merger Agreement, each outstanding share of Immunex common stock
will be converted into the right to receive 0.44 of a share of Amgen common
stock and $4.50 in cash. The merger is intended to qualify as a tax-free
reorganization under Section 368(a) of the Internal Revenue Code of 1986, as
amended. Also on December 16, 2001, the Company entered into a Shareholder
Voting Agreement (the "Voting Agreement") with American Home Products
Corporation and two of its wholly-owned subsidiaries (collectively "AHP").
Pursuant to the Voting Agreement, AHP has agreed to vote in favor of the merger
and the Merger Agreement.
43
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Annual Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMGEN INC.
(Registrant)
Date: 2/26/02 By: /S/ RICHARD D. NANULA
-----------------------------
Richard D. Nanula
Executive Vice President,
Finance,
Strategy and Communications,
and Chief Financial Officer
44
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 Barry D. Schehr,
or either of them, his or her attorney-in-fact, each with the power of
substitution, for him or her in any and all capacities, to sign any amendments
to this Report, and to file the same, with exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his or her
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/S/ KEVIN W. SHARER Chairman of the Board, Chief 2/26/02
----------------------------- Executive Officer and
Kevin W. Sharer President, and Director
(Principal Executive
Officer)
/S/ RICHARD D. NANULA Executive Vice President, 2/26/02
----------------------------- Finance, Strategy and
Richard D. Nanula Communications, and Chief
Financial Officer
/S/ BARRY D. SCHEHR Vice President, Financial 2/26/02
----------------------------- Operations, and Chief
Barry D. Schehr Accounting Officer
/S/ DAVID BALTIMORE Director 2/26/02
-----------------------------
David Baltimore
/S/ FRANK J. BIONDI, JR. Director 2/26/02
-----------------------------
Frank J. Biondi, Jr.
/S/ WILLIAM K. BOWES, JR. Director 2/26/02
-----------------------------
William K. Bowes, Jr.
/S/ JERRY D. CHOATE Director 2/26/02
-----------------------------
Jerry D. Choate
/S/ FREDERICK W. GLUCK Director 2/26/02
-----------------------------
Frederick W. Gluck
/S/ FRANKLIN P. JOHNSON, JR. Director 2/26/02
-----------------------------
Franklin P. Johnson, Jr.
/S/ STEVEN LAZARUS Director 2/26/02
-----------------------------
Steven Lazarus
/S/ GILBERT S. OMENN Director 2/26/02
-----------------------------
Gilbert S. Omenn
/S/ JUDITH C. PELHAM Director 2/26/02
-----------------------------
Judith C. Pelham
/S/ J. PAUL REASON Director 2/26/02
-----------------------------
J. Paul Reason
/S/ DONALD B. RICE Director 2/26/02
-----------------------------
Donald B. Rice
/S/ PATRICIA C. SUELTZ Director 2/26/02
-----------------------------
Patricia C. Sueltz
45
EXHIBIT 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-5111) pertaining to the 1984 Stock Option Plan, 1981 Incentive
Stock Option Plan and Nonqualified Stock Option Plan of Amgen Inc., in the
Registration Statement (Form S-8 No. 33-24013) pertaining to the Amended and
Restated 1988 Stock Option Plan of Amgen Inc., in the Registration Statement
(Form S-8 No. 33-39183) pertaining to the Amended and Restated Employee Stock
Purchase Plan, in the Registration Statement (Form S-8 No. 33-39104) pertaining
to the Amended and Restated Amgen Retirement and Savings Plan, in the
Registration Statements (Form S-3/S-8 No. 33-29791 and Form S-8 No. 33-42501)
pertaining to the Amended and Restated 1987 Directors' Stock Option Plan, in
the Registration Statement (Form S-8 No. 33-42072) pertaining to the Amgen Inc.
Amended and Restated 1991 Equity Incentive Plan, in the Registration Statement
(Form S-8 No. 33-47605) pertaining to the Retirement and Savings Plan for Amgen
Puerto Rico, Inc., in the Registration Statement (Form S-8 No. 333-44727)
pertaining to the Amgen Inc. 1997 Special Non-Officer Equity Incentive Plan, in
the Registration Statement (Form S-3 No. 333-19931) of Amgen Inc., in the
Registration Statement (Form S-3 No. 333-40405) of Amgen Inc., in the
Registration Statement (Form S-8 No. 333-62735) pertaining to the Amgen Inc.
Amended and Restated 1997 Special Non-Officer Equity Incentive Plan, in the
Registration Statement (Form S-3 No. 333-53929) pertaining to the Amgen Inc.
1997 Special Non-Officer Equity Incentive Plan, the Amgen Inc. Amended and
Restated 1991 Equity Incentive Plan, the Amended and Restated 1988 Stock Option
Plan of Amgen Inc. and the Amended and Restated 1987 Directors' Stock Option
Plan, 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, and 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, and in the related Prospectuses of our report
dated January 22, 2002, with respect to the consolidated financial statements
and financial statement schedule of Amgen Inc. included in this Annual Report
(Form 10-K) for the year ended December 31, 2001.
/s/ Ernst & Young LLP
Los Angeles, California
February 26, 2002
46
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders of Amgen Inc.
We have audited the accompanying consolidated balance sheets of Amgen Inc.
as of December 31, 2001 and 2000, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 2001. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Amgen Inc. as
of December 31, 2001 and 2000, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December 31,
2001, in accordance with accounting principles generally accepted in the United
States. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ Ernst & Young LLP
Los Angeles, California
January 22, 2002
F-1
AMGEN INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 2001, 2000, and 1999
(In millions, except per share data)
2001 2000 1999
-------- -------- --------
Revenues:
Product sales................................. $3,511.0 $3,202.2 $3,042.8
Corporate partner revenues.................... 252.0 246.2 161.4
Royalty income................................ 252.7 181.0 135.9
-------- -------- --------
Total revenues............................ 4,015.7 3,629.4 3,340.1
-------- -------- --------
Operating expenses:
Cost of sales................................. 443.0 408.4 402.1
Research and development...................... 865.0 845.0 822.8
Selling, general and administrative........... 970.7 826.9 654.3
Loss of affiliates, net....................... 2.7 23.9 16.8
Other items, net.............................. 203.1 (18.8) (49.0)
-------- -------- --------
Total operating expenses ................. 2,484.5 2,085.4 1,847.0
-------- -------- --------
Operating income . .............................. 1,531.2 1,544.0 1,493.1
Other income (expense):
Interest and other income, net................ 168.7 146.2 88.3
Interest expense, net......................... (13.6) (15.9) (15.2)
-------- -------- --------
Total other income . ..................... 155.1 130.3 73.1
-------- -------- --------
Income before income taxes ...................... 1,686.3 1,674.3 1,566.2
Provision for income taxes....................... 566.6 535.8 469.8
-------- -------- --------
Net income....................................... $1,119.7 $1,138.5 $1,096.4
======== ======== ========
Earnings per share:
Basic......................................... $ 1.07 $ 1.11 $ 1.07
Diluted ...................................... $ 1.03 $ 1.05 $ 1.02
Shares used in calculation of earnings per share:
Basic . ...................................... 1,045.5 1,029.6 1,021.7
Diluted....................................... 1,084.4 1,084.7 1,078.3
See accompanying notes.
F-2
AMGEN INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2001 and 2000
(In millions, except per share data)
2001 2000
-------- --------
ASSETS
Current assets:
Cash and cash equivalents ..................................................... $ 689.1 $ 226.5
Marketable securities.......................................................... 1,973.1 1,801.6
Trade receivables, net of allowance for doubtful accounts of
$21.4 in 2001 and $21.2 in 2000 ............................................. 497.2 389.2
Inventories.................................................................... 355.6 305.2
Other current assets .......................................................... 343.6 214.6
-------- --------
Total current assets ...................................................... 3,858.6 2,937.1
Property, plant, and equipment at cost, net . .................................... 1,946.1 1,781.5
Other assets...................................................................... 638.4 681.0
-------- --------
$6,443.1 $5,399.6
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................... $ 136.7 $ 143.2
Commercial paper............................................................... 99.9 99.7
Accrued liabilities ........................................................... 766.3 619.2
-------- --------
Total current liabilities ................................................. 1,002.9 862.1
Long-term debt.................................................................... 223.0 223.0
Stockholders' equity:
Preferred stock; $0.0001 par value; 5.0 shares authorized; none issued or
outstanding ................................................................. -- --
Common stock and additional paid-in capital; $0.0001 par value; 2,750.0 shares
authorized; outstanding--1,045.8 shares in 2001 and 1,037.4 shares in 2000... 3,474.1 2,947.3
Retained earnings ............................................................. 1,686.8 1,304.6
Accumulated other comprehensive income ........................................ 56.3 62.6
-------- --------
Total stockholders' equity................................................. 5,217.2 4,314.5
-------- --------
$6,443.1 $5,399.6
======== ========
See accompanying notes.
F-3
AMGEN INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 2001, 2000, and 1999
(In millions)
Common Accumulated
stock and other
Number additional comprehensive
of paid-in Retained income
shares capital earnings (loss) Total
------- ---------- --------- ------------- ---------
Balance at December 31, 1998........................... 1,018.5 $1,671.9 $ 894.3 $ (4.0) $ 2,562.2
Comprehensive Income:
Net income.......................................... -- -- 1,096.4 -- 1,096.4
Other comprehensive loss, net of tax:
Unrealized gains on securities,
net of reclassification adjustments............ -- -- -- 7.3 7.3
Foreign currency translation adjustments ........ -- -- -- (18.1) (18.1)
---------
Total other comprehensive loss............... -- -- -- -- (10.8)
---------
Comprehensive income .................................. -- -- -- -- 1,085.6
Issuance of common stock upon the exercise of
employee stock options .............................. 26.5 248.8 -- -- 248.8
Tax benefits related to employee stock options......... -- 151.6 -- -- 151.6
Repurchases of common stock............................ (27.1) -- (1,024.7) -- (1,024.7)
------- -------- --------- ------ ---------
Balance at December 31, 1999........................... 1,017.9 2,072.3 966.0 (14.8) 3,023.5
Comprehensive Income:
Net income.......................................... -- -- 1,138.5 -- 1,138.5
Other comprehensive income, net of tax:
Unrealized gains on securities, net of
reclassification adjustments................... -- -- -- 99.0 99.0
Foreign currency translation adjustments ........ -- -- -- (21.6) (21.6)
---------
Total other comprehensive income............. -- -- -- -- 77.4
---------
Comprehensive income .................................. -- -- -- -- 1,215.9
Issuance of common stock upon the exercise of
employee stock options and in connection with an
employee stock purchase plan ........................ 29.1 333.7 -- -- 333.7
Tax benefits related to employee stock options......... -- 376.6 -- -- 376.6
Issuance of common stock for the acquisition of Kinetix
Pharmaceuticals, Inc................................. 2.6 164.7 -- -- 164.7
Repurchases of common stock............................ (12.2) -- (799.9) -- (799.9)
------- -------- --------- ------ ---------
Balance at December 31, 2000........................... 1,037.4 2,947.3 1,304.6 62.6 4,314.5
Comprehensive Income:
Net income.......................................... -- -- 1,119.7 -- 1,119.7
Other comprehensive loss, net of tax:
Unrealized losses on securities,
net of reclassification adjustments............ -- -- -- (6.7) (6.7)
Foreign currency translation adjustments ........ -- -- -- 0.4 0.4
---------
Total other comprehensive loss............... -- -- -- -- (6.3)
---------
Comprehensive income .................................. -- -- -- -- 1,113.4
Issuance of common stock upon the exercise of
employee stock options and in connection
with an employee stock purchase plan................. 21.1 282.3 -- -- 282.3
Tax benefits related to employee stock options......... -- 244.5 -- -- 244.5
Repurchases of common stock............................ (12.7) -- (737.5) -- (737.5)
------- -------- --------- ------ ---------
Balance at December 31, 2001........................... 1,045.8 $3,474.1 $ 1,686.8 $ 56.3 $ 5,217.2
======= ======== ========= ====== =========
See accompanying notes.
F-4
AMGEN INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2001, 2000, and 1999
(In millions)
2001 2000 1999
-------- --------- ---------
Cash flows from operating activities:
Net income........................................................ $1,119.7 $ 1,138.5 $ 1,096.4
Depreciation and amortization..................................... 265.9 211.8 176.8
Tax benefits related to employee stock options ................... 244.5 376.6 151.6
Loss/(gain) on equity investments ................................ 7.4 (31.8) --
Other non-cash expenses .......................................... 87.7 29.7 --
Deferred income taxes............................................. (148.3) 6.6 9.8
Loss of affiliates, net........................................... 2.7 23.9 16.8
Cash provided by (used in):
Trade receivables, net ....................................... (123.0) 23.0 (92.3)
Inventories................................................... (85.5) (120.9) (73.5)
Other current assets.......................................... (31.5) (51.4) (9.0)
Accounts payable.............................................. (6.5) 59.8 (38.2)
Accrued liabilities........................................... 147.1 (31.2) (11.5)
-------- --------- ---------
Net cash provided by operating activities.................. 1,480.2 1,634.6 1,226.9
-------- --------- ---------
Cash flows from investing activities:
Purchases of property, plant, and equipment....................... (441.8) (437.7) (304.2)
Proceeds from maturities of marketable securities ................ 490.3 -- 40.0
Proceeds from sales of marketable securities...................... 301.7 1,067.8 843.5
Purchases of marketable securities ............................... (918.2) (1,638.7) (1,032.7)
Other............................................................. 28.4 (27.7) (10.1)
-------- --------- ---------
Net cash used in investing activities...................... (539.6) (1,036.3) (463.5)
-------- --------- ---------
Cash flows from financing activities:
Net proceeds from issuance of common stock upon the exercise of
employee stock options and in connection with an employee stock
purchase plan................................................... 277.7 333.7 248.8
Repurchases of common stock....................................... (737.5) (799.9) (1,024.7)
Other ............................................................ (18.2) (36.5) (57.7)
-------- --------- ---------
Net cash used in financing activities...................... (478.0) (502.7) (833.6)
-------- --------- ---------
Increase (decrease) in cash and cash equivalents..................... 462.6 95.6 (70.2)
Cash and cash equivalents at beginning of period .................... 226.5 130.9 201.1
-------- --------- ---------
Cash and cash equivalents at end of period .......................... $ 689.1 $ 226.5 $ 130.9
======== ========= =========
See accompanying notes.
F-5
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
1. Summary of significant accounting policies
Business
Amgen Inc. ("Amgen" or the "Company") is a global biotechnology company that
discovers, develops, manufactures, and markets human therapeutics based on
advances in cellular and molecular biology.
Principles of consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries as well as affiliated companies in which the
Company has a controlling financial interest and exercises control over their
operations ("majority controlled affiliates"). All material intercompany
transactions and balances have been eliminated in consolidation. Investments in
affiliated companies which are 50% or less owned and where the Company
exercises significant influence over operations are accounted for using the
equity method. All other equity investments are accounted for under the cost
method. The caption "Loss of affiliates, net" includes Amgen's equity in the
operating results of affiliated companies and the minority interest others hold
in the operating results of Amgen's majority controlled affiliates.
Cash and cash equivalents
The Company considers cash equivalents to be only those investments which
are highly liquid, readily convertible to cash, and which mature within three
months from date of purchase.
Available-for-sale securities
The Company considers its investment portfolio and marketable equity
investments available-for-sale as defined in Statement of Financial Accounting
Standards ("SFAS") No. 115 and, accordingly, these investments are recorded at
fair value (see Note 9, "Fair values of financial instruments"). Realized gains
totaled $13.3 million, $32.4 million, and $2.8 million for the years ended
December 31, 2001, 2000, and 1999, respectively. Realized losses totaled $21.7
million, $2.5 million, and $6.6 million for the years ended December 31, 2001,
2000, and 1999, 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, 2001 cost gains losses value
----------------- --------- ---------- ---------- ---------
Type of security:
Corporate debt securities .................................. $1,207.7 $ 50.8 $(1.4) $1,257.1
U.S. Treasury securities and obligations of U.S. government
agencies.................................................. 601.3 12.1 (0.2) 613.2
Other interest bearing securities........................... 697.6 1.1 (1.0) 697.7
-------- ------ ----- --------
Total debt securities .................................. 2,506.6 64.0 (2.6) 2,568.0
Equity securities........................................... 58.3 117.9 (0.3) 175.9
-------- ------ ----- --------
$2,564.9 $181.9 $(2.9) $2,743.9
======== ====== ===== ========
F-6
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Gross Gross Estimated
Amortized unrealized unrealized fair
December 31, 2000 cost gains losses value
----------------- --------- ---------- ---------- ---------
Type of security:
Corporate debt securities .................................. $1,054.7 $ 11.3 $(1.4) $1,064.6
U.S. Treasury securities and obligations of U.S. government
agencies.................................................. 663.6 5.9 -- 669.5
Other interest bearing securities........................... 215.8 0.4 (0.1) 216.1
-------- ------ ----- --------
Total debt securities .................................. 1,934.1 17.6 (1.5) 1,950.2
Equity securities........................................... 73.1 179.2 (7.0) 245.3
-------- ------ ----- --------
$2,007.2 $196.8 $(8.5) $2,195.5
======== ====== ===== ========
December 31,
------------------
2001 2000
-------- --------
Contractual maturity:
Maturing in one year or less ........................... $1,480.1 $ 783.6
Maturing after one year through three years............. 785.2 986.1
Maturing after three years ............................. 302.7 180.5
-------- --------
Total debt securities............................... 2,568.0 1,950.2
Equity securities....................................... 175.9 245.3
-------- --------
$2,743.9 $2,195.5
======== ========
Classification in balance sheets:
Cash and cash equivalents .............................. $ 689.1 $ 226.5
Marketable securities................................... 1,973.1 1,801.6
Other assets--noncurrent................................ 215.9 285.3
-------- --------
2,878.1 2,313.4
Less cash .............................................. (134.2) (117.9)
-------- --------
$2,743.9 $2,195.5
======== ========
The primary objectives for the Company's fixed income investment portfolio
are liquidity and safety of principal. Investments are made to achieve the
highest rate of return to the Company, consistent with these two objectives.
The Company's investment policy limits investments to certain types of
instruments issued by institutions with investment grade credit ratings and
places restrictions on maturities and concentration by type and issuer.
F-7
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Inventories
Inventories are stated at the lower of cost or market. Cost is determined in
a manner which approximates the first-in, first-out (FIFO) method. Inventories
consist of currently marketed products and product candidates which the Company
expects to commercialize. The inventory balance of such product candidates
totaled $8.8 million and $112.7 million as of December 31, 2001 and 2000,
respectively. Inventories are shown net of applicable reserves and allowances.
Inventories consisted of the following (in millions):
December 31,
-------------
2001 2000
------ ------
Raw materials.............................................. $ 21.9 $ 29.4
Work in process ........................................... 266.7 238.7
Finished goods ............................................ 67.0 37.1
------ ------
$355.6 $305.2
====== ======
In the fourth quarter of 2001, the Company recorded a charge of
$39.5 million, included in cost of sales, to write-off certain inventory deemed
not recoverable.
Depreciation and amortization
Depreciation of buildings and equipment is provided over their estimated
useful lives on a straight-line basis. Leasehold improvements are amortized on
a straight-line basis over the shorter of their estimated useful lives or lease
terms. Useful lives by asset category were as follows:
Asset category Years
-------------- -----
Buildings and building improvements................................. 10-30
Manufacturing equipment............................................. 5-10
Laboratory equipment................................................ 5-10
Furniture and office equipment...................................... 3-10
Long-lived assets
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable.
Product sales
Product sales primarily consist of sales of EPOGEN(R) (Epoetin alfa),
Aranesp(TM) (darbepoetin alfa), and NEUPOGEN(R) (Filgrastim) (see Note 10,
"Segment information").
The Company has the exclusive right to sell Epoetin alfa for dialysis,
certain diagnostics and all non-human, non-research uses in the United States.
The Company sells Epoetin alfa under the brand name EPOGEN(R). Amgen has
granted to Ortho Pharmaceutical Corporation (which has assigned its rights
under the product license agreement to Ortho Biotech Products, L.P.), a
subsidiary of Johnson & Johnson ("Johnson & Johnson"), a license relating to
Epoetin alfa for sales in the United States for all human uses except dialysis
and diagnostics. Pursuant to this license, the Company and Johnson & Johnson
are required to compensate each other for Epoetin alfa sales that either party
makes into the other party's exclusive market, sometimes referred to as
"spillover" sales. Accordingly, Amgen does not recognize product sales it makes
into the exclusive market of Johnson & Johnson and does recognize the product
sales made by Johnson & Johnson into Amgen's exclusive market. Sales in
F-8
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Amgen's exclusive market are derived from the Company's sales to its customers,
as adjusted for any spillover sales. The Company is employing an arbitrated
audit methodology to measure each party's spillover sales based on estimates of
and subsequent adjustments thereto of third-party data on shipments to end
users and their usage. Sales of the Company's other products are recognized
when shipped and title has passed.
Research and development costs
Research and development expenses are comprised of the following types of
costs incurred in performing research and development activities: salaries and
benefits, allocated overhead and occupancy costs, clinical trial and related
clinical manufacturing costs, contract services and other outside costs, and
costs to acquire in-process research and development projects and technologies
which have no alternative future use (see Note 11, "Kinetix acquisition").
Research and development expenses also include such costs related to activities
performed on behalf of corporate partners. Research and development costs are
expensed as incurred.
Derivative instruments
The Company adopted SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities", as amended, on January 1, 2001 and its adoption has not
had a material effect on the Company's financial statements. SFAS No. 133
requires companies to recognize all of its derivative instruments as either
assets or liabilities in the balance sheet at fair value. 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.
Derivatives that are not hedges must be adjusted to fair value through current
earnings.
To protect against possible changes in values of certain anticipated foreign
currency cash flows, primarily resulting from sales outside the U.S., the
Company enters into foreign currency forward contracts which qualify and are
designated as cash flow hedges. These foreign currency forward contracts cover
anticipated foreign currency cash flows for up to the succeeding twelve months.
No portions of these foreign currency forward contracts are excluded from the
assessment of hedge effectiveness, and there are no ineffective portions of
these hedging instruments. The gains and losses on these forward 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. At December 31, 2001, amounts in accumulated
other comprehensive income related to cash flow hedges were not material.
To protect against possible reductions in value of certain of its
available-for-sale marketable equity securities, the Company has entered into
equity forward contracts during 2001 which qualify and are designated as fair
value hedges. The gains and losses on these 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 year ended
December 31, 2001, 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. In addition, to protect against
possible reductions in value of certain available-for-sale fixed income
investments, the Company entered into interest rate swap agreements during 2001
which qualify and are designated as fair value hedges. The terms of the
interest rate swap agreements correspond to the related hedged investments. As
a result, there is no hedge ineffectiveness. During the year ended December 31,
2001, gains and losses on these interest rate swap agreements were fully offset
by the losses and gains on the hedged investments.
The Company has additional foreign currency forward contracts to reduce
exposures to foreign currency fluctuations of certain assets and liabilities
denominated in foreign currencies. However, these contracts have not been
designated as hedges under SFAS No. 133. Accordingly, gains and losses on these
foreign currency forward
F-9
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
contracts are recognized in interest and other income, net in the current
period. During the year ended December 31, 2001, gains and losses on these
foreign currency forward contracts were not material.
Prior to the adoption of SFAS No. 133, all of the Company's foreign exchange
forward contracts were adjusted to fair value through current earnings. Foreign
exchange option contracts that hedged anticipated foreign currency transactions
were deferred and recognized in the same period as the hedged transaction. In
addition, derivatives that hedged against possible reductions in the fair
values of available-for-sale equity securities were included in the basis of
the hedged securities and adjusted to fair value through other comprehensive
income.
Interest
Interest costs are expensed as incurred, except to the extent such interest
is related to construction in progress, in which case interest is capitalized.
Interest costs capitalized for the years ended December 31, 2001, 2000, and
1999, were $12.7 million, $12.3 million, and $11.6 million, respectively.
Employee stock option and stock purchase plans
The Company's employee stock option and stock purchase plans are accounted
for under Accounting Principles Board Opinion ("APB") No. 25, "Accounting for
Stock Issued to Employees" (see Note 7, "Employee stock option, stock purchase,
and defined contribution plans").
Earnings per share
Basic earnings per share is based upon the weighted-average number of common
shares outstanding. Diluted earnings per share is based upon the
weighted-average number of common shares and dilutive potential common shares
outstanding. Dilutive potential common shares are outstanding options under the
Company's employee stock option plans, restricted stock, and potential
issuances of stock under the employee stock purchase plan (collectively
"Dilutive Securities") which are included under the treasury stock method.
The following table sets forth the computation for basic and diluted
earnings per share (in millions, except per share information):
Years ended December 31,
--------------------------
2001 2000 1999
-------- -------- --------
Numerator for basic and diluted earnings per share--net income........... $1,119.7 $1,138.5 $1,096.4
======== ======== ========
Denominator:
Denominator for basic earnings per share--weighted-average shares..... 1,045.5 1,029.6 1,021.7
Effect of Dilutive Securities......................................... 38.9 55.1 56.6
-------- -------- --------
Denominator for diluted earnings per share--adjusted weighted-average
shares.............................................................. 1,084.4 1,084.7 1,078.3
======== ======== ========
Basic earnings per share................................................. $ 1.07 $ 1.11 $ 1.07
======== ======== ========
Diluted earnings per share............................................... $ 1.03 $ 1.05 $ 1.02
======== ======== ========
Options to purchase 17.3 million, 10.6 million, and 1.6 million shares with
exercise prices greater than the annual average market prices of common stock
were outstanding at December 31, 2001, 2000, and 1999, respectively. These
options were excluded from the respective computations of diluted earnings per
share because their effect would be anti-dilutive.
F-10
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Use of estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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.
Recent accounting pronouncements
In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible
Assets" effective for fiscal years beginning after December 15, 2001. Under the
new rules, goodwill will no longer be amortized but will be subject to annual
impairment tests. Other intangible assets will continue to be amortized over
their estimated useful lives. The Company will apply the new rules on
accounting for goodwill and other intangible assets beginning in the first
quarter of 2002. The impact of adoption of the new standards will not have a
material impact on the results of operations or financial position of the
Company.
Reclassification
Certain prior year amounts have been reclassified to conform to the current
year presentation.
2. Related party transactions
The Company owns a 50% interest in Kirin-Amgen, Inc. ("Kirin-Amgen"), a
corporation formed in 1984 with Kirin Brewery Company, Limited ("Kirin") for
the development and commercialization of certain products based on advanced
biotechnology. Kirin-Amgen has given exclusive licenses to Amgen to manufacture
and market certain products including erythropoietin, granulocyte
colony-stimulating factor ("G-CSF"), darbepoetin alfa, and pegfilgrastim in
certain geographic areas of the world. The Company currently markets certain of
these products under the brand names EPOGEN(R) (erythropoietin), NEUPOGEN(R)
(G-CSF), and Aranesp(TM) (darbepoetin alfa). Kirin-Amgen's revenues primarily
consist of royalty income related to its licensed technology rights.
Kirin-Amgen receives royalty income from Amgen, as well as Kirin, Johnson &
Johnson, Roche, and others under separate product license agreements for
certain geographic areas outside of the United States. During the years ended
December 31, 2001, 2000, and 1999, Kirin-Amgen earned royalties from Amgen of
$147.1 million, $140.8 million, and $128.1 million, respectively, which are
included in "Cost of sales" in the accompanying consolidated statements of
operations.
Kirin-Amgen's expenses primarily consist of costs related to research and
development activities conducted on its behalf by Amgen and Kirin. Kirin-Amgen
pays Amgen and Kirin for such services at negotiated rates. During the years
ended December 31, 2001, 2000, and 1999, Amgen earned revenues from Kirin-Amgen
of $210.1 million, $221.0 million, and $138.5 million, respectively, for
certain research and development activities performed on Kirin-Amgen's behalf,
which are included in "Corporate partner revenues" in the accompanying
consolidated statements of operations.
At December 31, 2001, Amgen's share of Kirin-Amgen's undistributed retained
earnings was approximately $85.5 million.
3. Debt
The Company has a commercial paper program which provides for unsecured
short-term borrowings up to an aggregate of $200 million. As of December 31,
2001, commercial paper with a face amount of $100 million
F-11
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
was outstanding. These borrowings had maturities of less than one month and had
effective interest rates averaging 1.9%. Commercial paper with a face amount of
$100 million and with effective interest rates averaging 6.7% was outstanding
at December 31, 2000.
The Company has established a $500 million debt shelf registration
statement. In December 1997, pursuant to this registration statement, the
Company issued $100 million of debt securities that bear interest at a fixed
rate of 6.5% and mature in 2007 (the "Notes") and established a $400 million
medium-term note program. The Company may offer and issue medium-term notes
from time to time with terms to be determined by market conditions.
The Company had $100 million of debt securities outstanding at December 31,
2001 and 2000 that bear interest at a fixed rate of 8.1% and mature in 2097
(the "Century Notes"). These securities may be redeemed in whole or in part at
the Company's option at any time for a redemption price equal to the greater of
the principal amount to be redeemed or the sum of the present values of the
principal and remaining interest payments discounted at a determined rate plus,
in each case, accrued interest.
In addition to the Notes and the Century Notes, debt securities outstanding
at December 31, 2001 and 2000 include $23 million of debt securities that bear
interest at a fixed rate of 6.2% and mature in 2003. The terms of the debt
securities require the Company to meet certain debt to tangible net asset
ratios and place limitations on liens and sale/leaseback transactions and,
except with respect to the Notes and the Century Notes, place limitations on
subsidiary indebtedness.
The Company has an unsecured committed credit facility (the "credit
facility") with five participating banking institutions that includes a
commitment expiring on May 28, 2003 for up to $150 million of borrowings under
a revolving line of credit (the "revolving line commitment"). This credit
facility supports the Company's commercial paper program. As of December 31,
2001, $150 million was available under the revolving line commitment for
borrowing. Borrowings under the revolving line commitment bear interest at
various rates which are a function of, at the Company's option, either the
prime rate of a major bank, the federal funds rate, or a Eurodollar base rate.
Under the terms of the credit facility, the Company is required to meet a
minimum interest coverage ratio and maintain a minimum level of tangible net
worth. In addition, the credit facility contains limitations on investments,
liens, and sale/leaseback transactions.
The aggregate stated maturities of all long-term obligations due subsequent
to December 31, 2001, are as follows: none in 2002; $23 million in 2003; none
in 2004, 2005, and 2006; and $200 million after 2006.
4. Other items, net
Other items, net in the accompanying consolidated statements of operations
consists of the following expense/(income) items (in millions):
Years ended December 31,
-----------------------
2001 2000 1999
------ ------ ------
Termination of collaboration agreements................................ $203.1 $ -- $ --
Legal award, net....................................................... -- (73.9) (49.0)
Write-off of acquired in-process research and development (see Note 11,
"Kinetix acquisition") . ............................................ -- 30.1 --
Amgen Foundation contribution.......................................... -- 25.0 --
------ ------ ------
$203.1 $(18.8) $(49.0)
====== ====== ======
F-12
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Termination of collaboration agreements
In 2001, the Company recorded a charge of $203.1 million primarily related
to the costs of terminating collaboration agreements with various third
parties, including PRAECIS PHARMACEUTICALS INCORPORATED ("Praecis") and certain
academic institutions. These costs include $102.4 million primarily with
respect to amounts previously capitalized related to these agreements, and
$100.7 million with respect to amounts to be paid to third parties in
connection with the termination of these relationships.
Legal award, net
In September 1985, the Company granted Johnson & Johnson's affiliate, Ortho
Pharmaceutical Corporation, a license relating to certain patented technology
and know-how of the Company to sell a genetically engineered form of
recombinant human erythropoietin, called Epoetin alfa, throughout the United
States for all human uses except dialysis and diagnostics. A number of disputes
have arisen between Amgen and Johnson & Johnson as to their respective rights
and obligations under the various agreements between them, including the
agreement granting the license (the "License Agreement").
A dispute between Amgen and Johnson & Johnson that had been the subject of
an arbitration proceeding related to the audit methodology currently employed
by the Company to account for Epoetin alfa sales. Under the License Agreement,
the Company and Johnson & Johnson are required to compensate each other for
Epoetin alfa sales that either party makes into the other party's exclusive
market, sometimes described as "spillover" sales. The Company has established
and is employing an audit methodology to measure each party's spillover sales
and to allocate the net profits from those sales to the appropriate party. The
arbitrator in this dispute (the "Arbitrator") issued a final order adopting the
Company's audit methodology with certain adjustments and also found that the
Company was the successful party in the arbitration. Pursuant to the final
order in the arbitration, an independent panel was formed principally (i) to
address ongoing challenges to the survey results for the years 1995 through
1999 and (ii) to refine the procedures for measuring the erythropoietin market
as may be necessary. As a result of decisions made by this independent panel
regarding certain challenges by Johnson & Johnson as well as other reduced
uncertainties, the Company reduced amounts previously provided for potential
spillover liabilities by $49 million in the third quarter of 1999.
Because the Arbitrator ruled that the Company was the successful party in
the arbitration, Johnson & Johnson was ordered to pay to the Company all costs
and expenses, including reasonable attorneys' fees, that the Company incurred
in the arbitration as well as one-half of the audit costs. On July 17, 2000,
the Arbitrator issued a final order awarding the Company approximately $78
million in costs and expenses, including reasonable attorneys' fees, that the
Company incurred in the arbitration as well as one-half of the audit costs (the
"Fee Award"). As a result, the Company recorded a net $73.9 million legal
award, which represents the Fee Award reduced by minor amounts related to other
miscellaneous disputes with Johnson & Johnson, in the third quarter of 2000.
Amgen Foundation contribution
In 2000, the Company contributed $25.0 million to the Amgen Foundation. This
contribution will allow the Amgen Foundation to increase its support of
non-profit organizations that focus on issues in health and medicine, science
education, and other activities that strengthen local communities over the next
several years.
F-13
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. Income taxes
The provision for income taxes includes the following (in millions):
Years ended December 31,
------------------------
2001 2000 1999
------- ------ ------
Current provision:
Federal (including U.S. possessions) .......... $ 636.6 $481.7 $422.8
State ......................................... 78.3 47.5 37.2
------- ------ ------
Total current provision.................... 714.9 529.2 460.0
------- ------ ------
Deferred (benefit) provision:
Federal (including U.S. possessions)........... (104.3) 9.6 5.3
State ......................................... (44.0) (3.0) 4.5
------- ------ ------
Total deferred (benefit) provision......... (148.3) 6.6 9.8
------- ------ ------
$ 566.6 $535.8 $469.8
======= ====== ======
Deferred income taxes reflect the net tax effects of net operating loss and
credit carryforwards and temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes. Significant components of the Company's deferred tax
assets and liabilities are as follows (in millions):
December 31,
----------------
2001 2000
------- -------
Deferred tax assets:
Expense accruals...................................... $ 105.2 $ 32.9
Expenses capitalized for tax purposes................. 70.6 58.9
Acquired net operating loss and credit carryforwards.. 45.4 66.0
Credit carryforwards.................................. 39.4 15.0
Fixed assets.......................................... 29.3 46.0
Other................................................. 54.2 16.4
------- -------
Total deferred tax assets......................... 344.1 235.2
Valuation allowance................................... (19.6) (25.4)
------- -------
Net deferred tax assets........................... 324.5 209.8
------- -------
Deferred tax liabilities:
Purchase of technology rights......................... (85.9) (95.9)
Marketable securities and investments................. (70.4) (74.0)
Other................................................. (12.5) (39.3)
------- -------
Total deferred tax liabilities.................... (168.8) (209.2)
------- -------
$ 155.7 $ 0.6
======= =======
At December 31, 2001, the Company had operating loss carryforwards of $99.3
million available to reduce future federal taxable income which will begin
expiring in 2008. The Company also had $10.6 million of credit carryforwards
against which a partial valuation allowance was established. These operating
loss and credit carryforwards relate to the acquisition of companies.
F-14
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The provision for income taxes varies from income taxes provided based on
the federal statutory rate as follows:
Years ended December 31,
----------------------
2001 2000 1999
----- ----- -----
Statutory rate applied to income before income taxes................... 35.0 % 35.0 % 35.0 %
Benefit of Puerto Rico operations, net of Puerto Rico income taxes..... (1.7)% (2.0)% (2.3)%
Utilization of tax credits, primarily research and experimentation..... (1.3)% (1.4)% (2.1)%
Other, net............................................................. 1.6 % 0.4 % (0.6)%
---- ---- ----
33.6 % 32.0 % 30.0 %
==== ==== ====
Income taxes paid during the years ended December 31, 2001, 2000, and 1999,
totaled $516.2 million, $141.3 million, and $318.7 million, respectively.
6. Stockholders' equity
Stockholder Rights Agreement
On February 18, 1997, the Board of Directors of the Company redeemed the
rights under the Company's former common stock rights plan and declared a
dividend of one preferred share purchase right (a "Right") for each then
outstanding share of common stock of the Company and authorized the
distribution of one Right with respect to each subsequently issued share of
common stock. The Rights were distributed to stockholders of record on March
21, 1997. On December 12, 2000, the Board of Directors of the Company amended
and restated the preferred stock rights plan governing the Rights (the "Amended
and Restated Rights Plan") to, among other things: (i) provide that, as a
result of two-for-one splits of the Company's common stock effected in February
and November 1999 (the "Stock Splits"), each Right shall represent the right to
purchase one four-thousandth of a share of Series A Junior Participating
Preferred Stock ("Series A Preferred Stock") of the Company (which
one four-thousandth gives effect to the Stock Splits); (ii) increase the
exercise price of each Right to $350.00 from $56.25 (as adjusted for the Stock
Splits); (iii) extend the term of the rights agreement to December 12, 2010
from March 21, 2007, and (iv) amend the definition of "Outside Director".
Pursuant to the Amended and Restated Rights Plan, each share of common stock
outstanding has attached to it one whole Right. One Right represents the right
to purchase one four-thousandth (1/4000) of a share of Series A Preferred Stock
of the Company at $350.00. The Rights will expire on December 12, 2010.
Under certain circumstances, if an acquiring person or group acquires 10% or
more of the Company's outstanding common stock, an exercisable Right will
entitle its holder (other than the acquirer) to buy shares of common stock of
the Company having a market value of two times the exercise price of one Right.
However, in limited circumstances approved by the outside directors of the
Board of Directors, a stockholder who enters into an acceptable standstill
agreement may acquire up to 20% of the outstanding shares without triggering
the Rights. If an acquirer acquires at least 10%, but less than 50%, of the
Company's common stock, the Board of Directors may exchange each Right (other
than those of the acquirer) for one share of common stock per Right. In
addition, under certain circumstances, if the Company is involved in a merger
or other business combination where it is not the surviving corporation, an
exercisable Right will entitle its holder to buy shares of common stock of the
acquiring company having a market value of two times the exercise price of one
Right. The Company may redeem the Rights at $0.00025 per Right at any time
prior to the public announcement that a 10% position has been acquired.
F-15
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Stock repurchase program
The Company has a stock repurchase program primarily to reduce the dilutive
effect of its employee stock option and stock purchase plans. Stock repurchased
under the program is intended to be retired. The amount the Company spends on
and the number of shares repurchased varies based on a variety of factors,
including the stock price and blackout periods in which the Company is
restricted from repurchasing shares. In December 2000, the Board of Directors
authorized the Company to repurchase up to $2 billion of common stock between
January 1, 2001 and December 31, 2002. As of December 31, 2001, $1,262.5
million was available for stock repurchases through December 31, 2002.
Other comprehensive income/(loss)
SFAS No. 130, "Reporting Comprehensive Income", requires unrealized gains
and losses on the Company's available-for-sale securities and foreign currency
forward contracts which qualify and are designated as cash flow hedges, and
foreign currency translation adjustments to be included in other comprehensive
income.
Information regarding the components of accumulated other comprehensive
income/(loss) are as follows (in millions):
Accumulated
Unrealized Foreign other
gains on currency comprehensive
securities translation income
---------- ----------- -------------
Balance at December 31, 2000..................... $114.3 $(51.7) $62.6
Current year other comprehensive (loss)/income... (6.7) 0.4 (6.3)
------ ------ -----
Balance at December 31, 2001..................... $107.6 $(51.3) $56.3
====== ====== =====
F-16
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information regarding the income tax effects for items of other
comprehensive income/(loss) is as follows (in millions):
Tax
Before-tax benefit/ After-tax
amount (expense) amount
---------- --------- ---------
For the year ended December 31, 1999:
Unrealized gains on available-for-sale securities......................... $ 12.0 $ (5.3) $ 6.7
Less: Reclassification adjustments for losses realized in net income...... (1.0) 0.4 (0.6)
------ ------ ------
Net unrealized gains on available-for-sale securities..................... 13.0 (5.7) 7.3
Foreign currency translation adjustments.................................. (18.1) -- (18.1)
------ ------ ------
Other comprehensive loss.................................................. $ (5.1) $ (5.7) $(10.8)
====== ====== ======
For the year ended December 31, 2000:
Unrealized gains on available-for-sale securities......................... $193.0 $(75.8) $117.2
Less: Reclassification adjustments for gains realized in net income....... 30.0 (11.8) 18.2
------ ------ ------
Net unrealized gains on available-for-sale securities..................... 163.0 (64.0) 99.0
Foreign currency translation adjustments.................................. (21.6) -- (21.6)
------ ------ ------
Other comprehensive income................................................ $141.4 $(64.0) $ 77.4
====== ====== ======
For the year ended December 31, 2001:
Unrealized losses on available-for-sale securities........................ $(18.4) $ 7.0 $(11.4)
Less: Reclassification adjustments for losses realized in net income...... (8.0) 3.3 (4.7)
------ ------ ------
Net unrealized losses on available-for-sale securities.................... (10.4) 3.7 (6.7)
Foreign currency translation adjustments.................................. 0.4 -- 0.4
------ ------ ------
Other comprehensive loss.................................................. $(10.0) $ 3.7 $ (6.3)
====== ====== ======
Other
In addition to common stock, the Company's authorized capital includes 5.0
million shares of preferred stock, $0.0001 par value, of which 0.7 million
shares have been designated Series A Preferred Stock. At December 31, 2001 and
2000, no shares of preferred stock were issued or outstanding.
At December 31, 2001, the Company had reserved 166.7 million shares of its
common stock which may be issued through its employee stock option and stock
purchase plans and had reserved 0.7 million shares of Series A Preferred Stock.
7. Employee stock option, stock purchase, and defined contribution plans
Employee stock option plans
The Company's employee stock option plans provide for option grants
designated as either nonqualified or incentive stock options. Option grants to
employees generally vest over a three to five year period and expire seven
years from the date of grant. Most employees are eligible to receive a grant of
stock options periodically with the number of shares generally determined by
the employee's salary grade, performance level, and the stock price. In
addition, certain management and professional level employees normally receive
a stock option grant upon hire. In 2001, most employees received stock option
grants, totaling 5.2 million shares, in which all shares vest upon the earlier
of: (i) five years from the date of grant or (ii) the date on which the closing
price of Amgen
F-17
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
stock equals or exceeds $100.00 per share. As of December 31, 2001, the Company
had 56.3 million shares of common stock available for future grant under its
employee stock option plans.
Stock option information with respect to all of the Company's employee stock
option plans is as follows (shares in millions):
Exercise price
-----------------------
Weighted-
Shares Low High average
------ ------ ------ ---------
Balance unexercised at December 31, 1998.... 126.2 $ 0.66 $26.22 $12.18
Granted ................................. 19.0 $26.25 $57.69 $31.48
Exercised ............................... (26.9) $ 0.66 $39.44 $ 9.45
Forfeited................................ (2.5) $ 5.48 $44.97 $17.76
-----
Balance unexercised at December 31, 1999.... 115.8 $ 0.92 $57.69 $15.88
Granted ................................. 13.1 $51.31 $78.00 $67.40
Exercised ............................... (28.2) $ 0.92 $72.75 $11.03
Forfeited................................ (2.0) $ 4.48 $74.86 $26.02
-----
Balance unexercised at December 31, 2000.... 98.7 $ 2.55 $78.00 $23.89
Granted ................................. 18.6 $51.51 $74.19 $63.47
Exercised ............................... (20.6) $ 2.55 $70.38 $13.12
Forfeited................................ (2.3) $ 5.48 $78.00 $41.43
-----
Balance unexercised at December 31, 2001.... 94.4 $ 6.19 $78.00 $33.62
=====
At December 31, 2001, 2000, and 1999, employee stock options to purchase
53.4 million, 55.5 million, and 61.7 million shares were exercisable at
weighted-average prices of $20.81, $15.35, and $11.80, respectively.
During the years ended December 31, 2001 and 2000, the Company issued 0.2
million and 0.1 million shares of restricted common stock, respectively.
Fair value disclosures of employee stock options
Employee stock option grants are set at the closing price of the Company's
common stock on the date of grant and the related number of shares granted is
fixed at that point in time. Therefore, under the principles of APB No. 25, the
Company does not recognize compensation expense associated with the grant of
employee stock options. SFAS No. 123, "Accounting for Stock-Based
Compensation," requires the use of option valuation models to provide
supplemental information regarding options granted after 1994. Pro forma
information regarding net income and earnings per share shown below was
determined as if the Company had accounted for its employee stock options and
shares sold under its employee stock purchase plan under the fair value method
of that statement.
The fair value of the options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 2001, 2000, and 1999, respectively: risk-free interest rates of
4.7%, 5.9%, and 5.8%; dividend yields of 0%, 0%, and 0%; volatility factors of
the expected market price of the Company's common stock of 50%, 45%, and 38%;
and expected life of the options of 3.7 years, 3.4 years, and 3.4 years. These
assumptions resulted in weighted-average fair values of $26.74, $25.87, and
$10.55 per share for employee stock options granted in 2001, 2000, and 1999,
respectively.
F-18
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options. The Company's employee stock options have
characteristics significantly different from those of traded options such as
vesting restrictions and extremely limited transferability. In addition, the
assumptions used in option valuation models (see above) are highly subjective,
particularly the expected stock price volatility of the underlying stock.
Because changes in these subjective input assumptions can materially affect the
fair value estimate, in management's opinion, existing valuation models do not
provide a reliable single measure of the fair value of its employee stock
options.
For purposes of pro forma disclosures, the estimated fair values of the
options are amortized over the options' vesting periods. The Company's pro
forma information is as follows (in millions, except per share information):
Years ended December 31,
------------------------
2001 2000 1999
------ -------- --------
Pro forma net income............................. $930.6 $1,035.4 $1,030.0
Pro forma earnings per share:
Basic ........................................ $ 0.89 $ 1.01 $ 1.01
Diluted....................................... $ 0.86 $ 0.95 $ 0.95
Information regarding employee stock options outstanding as of December 31,
2001 is as follows (shares in millions):
Options outstanding Options exercisable
---------------------------- -------------------
Weighted-
Weighted- average Weighted-
average remaining average
exercise contractual exercise
Price range Shares price life Shares price
----------- ------ --------- ----------- ------ ---------
$10.00 and under ............ 4.1 $ 9.66 0.6 years 4.1 $ 9.66
Over $10.00 to $15.00........ 24.4 $13.77 2.4 years 23.2 $13.75
Over $15.00 to $30.00........ 20.6 $17.01 3.6 years 14.6 $17.11
Over $30.00 to $60.00........ 17.1 $35.04 4.6 years 8.1 $33.37
Over $60.00 ................. 28.2 $65.56 6.1 years 3.4 $68.11
Employee stock purchase plan
The Company has an employee stock purchase plan whereby, in accordance with
Section 423 of the Internal Revenue Code, eligible employees may authorize
payroll deductions of up to 10% of their salary to purchase shares of the
Company's common stock at the lower of 85% of the fair market value of common
stock on the first or last day of the offering period. During the years ended
December 31, 2001 and 2000, employees purchased 0.6 million and 1.3 million
shares at weighted-average prices of approximately $47.97 and $30.33 per share,
respectively. No shares were purchased under the employee stock purchase plan
during 1999 because the Company had a 15 month offering period which extended
from January 1, 1999 to March 31, 2000. At December 31, 2001, the Company had
15.6 million shares available for future issuance under this plan.
Defined contribution plans
The Company has defined contribution plans covering substantially all
employees in the U.S. and its possessions. Under these plans, the Company makes
certain amounts of matching contributions for those employees who elect to
contribute to the plans and makes additional contributions based upon the
compensation
F-19
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
of eligible employees regardless of whether or not the employees contribute to
the plans. In addition, the Company has other defined contribution plans
covering certain employees of the Company and employees of its foreign
affiliates. The Company's expense for its defined contribution plans totaled
$45.2 million, $42.6 million, and $34.3 million for the years ended December
31, 2001, 2000, and 1999, respectively.
8. Balance sheet accounts
Property, plant, and equipment consisted of the following (in millions):
December 31,
-------------------
2001 2000
--------- --------
Land.................................................. $ 207.7 $ 120.0
Buildings and building improvements................... 980.1 901.7
Manufacturing equipment............................... 356.5 287.6
Laboratory equipment.................................. 394.3 338.1
Furniture and office equipment........................ 894.8 672.6
Leasehold improvements................................ 67.0 53.7
Construction in progress.............................. 209.5 345.5
--------- --------
3,109.9 2,719.2
Less accumulated depreciation and amortization........ (1,163.8) (937.7)
--------- --------
$ 1,946.1 $1,781.5
========= ========
Accrued liabilities consisted of the following (in millions):
December 31,
-------------
2001 2000
------ ------
Employee compensation and benefits.............................................. $147.2 $151.9
Sales incentives, royalties, and allowances .................................... 124.7 107.6
Obligations from terminating collaboration agreements (see Note 4, "Other items,
net")......................................................................... 100.7 --
Due to affiliated companies and corporate partners.............................. 97.6 92.8
Income taxes ................................................................... 92.6 116.7
Clinical development costs...................................................... 56.0 50.5
Other........................................................................... 147.5 99.7
------ ------
$766.3 $619.2
====== ======
9. Fair values of financial instruments
The carrying amounts of cash, cash equivalents, marketable securities, and
marketable equity investments approximated their fair values. Fair values of
cash equivalents, marketable securities, and marketable equity investments are
based on quoted market prices.
The carrying amount of commercial paper approximated its fair value as of
December 31, 2001 and 2000. The fair values of long-term debt at December 31,
2001 and 2000 totaled approximately $244.9 million and $222.0 million,
respectively. The fair values of commercial paper and long-term debt were
estimated based on quoted market rates for instruments with similar terms and
remaining maturities.
F-20
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The carrying amounts of derivative instruments approximated their fair
values. At December 31, 2001 and 2000, the fair values of derivative
instruments were not material.
10. Segment information
The company operates 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.
Revenues
Revenues consisted of the following (in millions):
Years ended December 31,
--------------------------
2001 2000 1999
-------- -------- --------
EPOGEN(R)/Aranesp(TM)....................... $2,150.0 $1,962.9 $1,759.1
NEUPOGEN(R) ................................ 1,346.4 1,223.7 1,256.6
Other product sales......................... 14.6 15.6 27.1
-------- -------- --------
Total product sales......................... 3,511.0 3,202.2 3,042.8
Other revenues.............................. 504.7 427.2 297.3
-------- -------- --------
Total revenues........................... $4,015.7 $3,629.4 $3,340.1
======== ======== ========
Geographic information
Outside the U.S., the Company sells NEUPOGEN(R) in the European Union
("EU"), Canada, and Australia. Outside the U.S., the Company sells Aranesp(TM)
in most countries in the EU, Australia, and New Zealand. 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,
--------------------------
2001 2000 1999
-------- -------- --------
Revenues:
U.S. and possessions..................... $3,688.5 $3,343.0 $3,024.5
Foreign countries........................ 327.2 286.4 315.6
-------- -------- --------
Total revenues ...................... $4,015.7 $3,629.4 $3,340.1
======== ======== ========
December 31,
--------------------------
2001 2000 1999
-------- -------- --------
Long-lived assets:
U.S. and possessions..................... $1,861.0 $1,706.5 $1,475.7
Foreign countries........................ 85.1 75.0 77.9
-------- -------- --------
Total long-lived assets ............. $1,946.1 $1,781.5 $1,553.6
======== ======== ========
F-21
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Major customers
Amgen uses wholesale distributors of pharmaceutical products as the
principal means of distributing the Company's products to clinics, hospitals,
and pharmacies. The Company monitors the financial condition of its larger
distributors and limits its credit exposure by setting appropriate credit
limits and requiring collateral from certain customers.
For the year ended December 31, 2001, sales to three large wholesalers each
accounted for more than 10% of total revenues. Sales to these three wholesalers
were $1,470.1 million, $535.8 million, and $459.8 million. For the years ended
December 31, 2000 and 1999, sales to two large wholesalers each accounted for
more than 10% of total revenues. Sales to these wholesalers were $1,233.4
million and $445.2 million, respectively, for the year ended December 31, 2000.
Sales to these two wholesalers were $1,078.0 million and $438.2 million,
respectively, for the year ended December 31, 1999.
At December 31, 2001, amounts due from three large wholesalers each exceeded
10% of gross trade receivables, and accounted for 64% of gross trade
receivables on a combined basis. At December 31, 2000, amounts due from four
large wholesalers each exceeded 10% of gross trade receivables, and accounted
for 51% of gross trade receivables on a combined basis.
11. Kinetix acquisition
On December 14, 2000, Amgen acquired all of the outstanding shares of
Kinetix Pharmaceuticals, Inc. ("Kinetix"), a privately held company, in a
tax-free exchange for 2.6 million shares of Amgen common stock. The acquisition
was accounted for under the purchase method of accounting, and accordingly, the
operating results of Kinetix are included in the accompanying consolidated
financial statements starting from December 14, 2000. The acquisition was
valued at $172.2 million, including $1.0 million of related acquisition costs
and $6.5 million of Amgen restricted common stock issued in exchange for
Kinetix restricted common stock held by employees retained from Kinetix. The
$6.5 million is being recognized as compensation expense over the vesting
period of the restricted common stock.
The purchase price was allocated among identifiable tangible and intangible
assets and liabilities of Kinetix based upon their fair values. A discounted,
risk-adjusted cash flow analysis was performed to value the technology platform
of Kinetix expected to generate future molecules that may be developed into
human therapeutics, as well as in-process research projects. The analysis
resulted in valuing the acquired base technology at $36.6 million, which was
capitalized and will be amortized on a straight-line basis over a 15 year
period. Additionally, $30.1 million of value was assigned to acquired
in-process research and development, and was expensed on the acquisition date
in accordance with generally accepted accounting principles. The excess of the
purchase price over the fair values of assets and liabilities acquired of
$103.3 million was allocated to goodwill, which was amortized through December
31, 2001 using a 15 year useful life. Goodwill amortization ceased beginning
January 1, 2002 (see Note 1, "Summary of significant accounting
policies--Recent accounting pronouncements").
12. Proposed merger with Immunex
On December 16, 2001, the Company signed a definitive agreement to acquire
Immunex Corporation ("Immunex") in a transaction to be accounted for as a
purchase. Immunex is a biopharmaceutical company dedicated to developing immune
system science to protect human health. Under the terms of the agreement, each
share of Immunex common stock outstanding at the closing of the merger, other
than shares as to which dissenters' rights have been validly exercised, will be
converted into 0.44 of a share of Amgen common stock
F-22
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
and $4.50 cash. In addition, at the closing of the merger each option
outstanding to purchase a share of Immunex common stock will be assumed by
Amgen and exchanged into an option to purchase Amgen common stock based on the
terms of the merger agreement. The estimated purchase price is approximately
$17.6 billion, which includes the cash portion of the merger consideration, the
estimated fair values of Amgen stock issued and options to be exchanged, and
the direct transaction costs. The final purchase price will be determined based
upon the number of Immunex shares and options outstanding at the closing date.
The transaction is expected to close in the second half of 2002, subject to
approval by shareholders of both companies, customary regulatory approvals, as
well as other customary closing conditions.
13. Quarterly financial data (unaudited)
(in millions, except per share data)
2001 Quarter Ended Dec. 31(1) Sept. 30 June 30 Mar. 31
------------------ ----------- ------------ ------- -----------
Product sales..................... $974.1 $879.6 $858.9 $798.4
Gross margin from product sales... 821.6 776.9 760.5 709.0
Net income........................ 163.0 329.9 321.9 304.9
Earnings per share:...............
Basic.......................... $ 0.16 $ 0.31 $ 0.31 $ 0.29
Diluted........................ $ 0.15 $ 0.30 $ 0.30 $ 0.28
2000 Quarter Ended Dec. 31 (2) Sept. 30 (3) June 30 Mar. 31 (4)
------------------ ----------- ------------ ------- -----------
Product sales..................... $846.8 $851.0 $806.8 $697.6
Gross margin from product sales... 735.3 741.5 705.1 611.9
Net income........................ 210.8 358.9 302.6 266.2
Earnings per share:...............
Basic.......................... $ 0.20 $ 0.35 $ 0.29 $ 0.26
Diluted........................ $ 0.19 $ 0.33 $ 0.28 $ 0.25
--------
(1) During the fourth quarter of 2001, the Company recorded a charge of $203.1
million, primarily related to the costs of terminating collaboration
agreements with various third parties, including Praecis and certain
academic institutions (see Note 4, "Other items, net--Termination of
collaboration agreements"). In addition, Amgen recorded a charge of $39.5
million, included in cost of sales, to write-off certain inventory deemed
not recoverable (see Note 1, "Summary of significant accounting
policies--Inventories"). After applicable tax effects, the impact of these
items on net income was $0.15 per share for the year ended December 31,
2001.
(2) During the fourth quarter of 2000, the Company recorded an after-tax charge
of $30.1 million to write-off acquired in-process research and development
related to the acquisition of Kinetix (see Note 11, "Kinetix acquisition").
In addition, the Company made a contribution of $25 million to the Amgen
Foundation (see Note 4, "Other items, net--Amgen Foundation contribution").
After applicable tax effects, these amounts combined with the legal award
discussed in item 3 below had no impact on net income for the year ended
December 31, 2000.
(3) During the third quarter of 2000, the Company recorded a net legal award of
$73.9 million, which primarily represents an award for certain costs and
expenses, including attorney's fees, associated with the spillover
arbitration with Johnson & Johnson (see Note 4, "Other items, net--Legal
award, net").
(4) During the first quarter of 2000, sales were adversely impacted by Year
2000-related sales totaling $45 million. In addition, the Company believes
sales were adversely impacted by additional 1999 year-end stockpiling of
EPOGEN(R) by dialysis providers and by wholesalers reducing their
inventories of NEUPOGEN(R).
F-23
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
14. Subsequent event (unaudited)
On February 22, 2002, the Company announced that it has agreed to issue $3.5
billion in aggregate face amount of 30-year zero coupon senior notes (the
"Convertible Notes") that are convertible into shares of the Company's common
stock. The proceeds from the offering, net of estimated issuance costs, are
expected to be approximately $2.45 billion. The Company may raise up to an
additional $321 million upon exercise of an over-allotment option that has been
granted in connection with the offering. The Company expects to use
approximately $650 million of the net proceeds to repurchase shares of its
common stock simultaneously with the issuance of the Convertible Notes, with
the remaining proceeds to be used for general corporate purposes.
The terms of the Convertible Notes include a yield to maturity of 1.125% and
an initial conversion premium of 40%. Amgen may not call the Convertible Notes
for redemption until five years from the date of issuance, after which they are
redeemable by Amgen at the accreted value. The holders of the Convertible Notes
will have the option to require the Company to purchase their Convertible Notes
at the accreted value on specific dates in years three, five, ten, and fifteen.
The Company may choose to pay the redemption purchase price in cash and/or
shares of common stock. In addition, starting the day after the fifth
anniversary of issuance, the Company will be obligated to make contingent
interest payments if the market price of the Convertible Notes exceeds certain
thresholds.
The issuance of the Convertible Notes is subject to customary closing
conditions and is expected to be completed by March 1, 2002.
F-24
SCHEDULE II
AMGEN INC.
VALUATION ACCOUNTS
Years ended December 31, 2001, 2000, and 1999
(In millions)
Additions
Balance at charged to Balance
beginning costs and at end
of period expenses Deductions of period
---------- ---------- ---------- ---------
Year ended December 31, 2001:
Allowance for doubtful accounts. $21.2 $ 0.3 $0.1 $21.4
Year ended December 31, 2000:......
Allowance for doubtful accounts. $26.0 $ 0.1 $4.9 $21.2
Year ended December 31, 1999:......
Allowance for doubtful accounts. $17.1 $10.1 $1.2 $26.0
F-25