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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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-12477
AMGEN INC.
(Exact name of registrant as specified in its charter)
Delaware 95-3540776
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Amgen Center Drive, Thousand Oaks, California 91320-1789
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 805-447-1000
Securities registered pursuant to Section 12(g) of the Act:
Common stock, $.0001 par value, Common shares purchase rights,
Contractual contingent payment rights
(Title of class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. [X]
The approximate aggregate market value of voting and non-voting stock
held by non-affiliates of the registrant was $13,380,017,000 as of
February 28, 1998 (A)
255,754,703
(Number of shares of common stock outstanding as of February 28, 1998)
Documents incorporated by reference:
Document Form 10-K Parts
Definitive 1998 Proxy Statement, to be filed within
120 days of December 31, 1997 (specified portions) III
(A) Excludes 3,895,561 shares of common stock held by directors and
officers, and any stockholders whose ownership exceeds five percent
of the shares outstanding, at February 28, 1998. Exclusion of
shares held by any person should not be construed to indicate that
such person possesses the power, directly or indirectly, to direct
or cause the direction of the management or policies of the
registrant, or that such person is controlled by or under common
control with the registrant.
PART I
Item 1. BUSINESS
Overview
Amgen Inc. ("Amgen" or the "Company") is a global biotechnology
company that discovers, develops, manufactures and markets human
therapeutics based on advances in cellular and molecular biology.
The Company manufactures and markets three human therapeutic
products, NEUPOGEN(R) (Filgrastim), EPOGEN(R) (Epoetin alfa) and
INFERGEN(R) (Interferon alfacon-1). NEUPOGEN(R) selectively
stimulates the production of neutrophils, one type of white blood
cell. The Company markets NEUPOGEN(R) in the United States, countries
of the European Union ("EU"), Canada and Australia for use in
decreasing the incidence of infection in patients undergoing
myelosuppressive chemotherapy. In addition, NEUPOGEN(R) is marketed
in most of these countries for use in reducing the duration of
neutropenia for patients undergoing myeloablative therapy followed by
bone marrow transplantation, for reducing symptoms in patients with
severe chronic neutropenia and to support peripheral blood progenitor
cell ("PBPC") transplantations. In 1997, regulatory authorities in
Australia and Canada approved NEUPOGEN(R) to treat neutropenia in HIV
patients receiving antiviral and/or other myelosuppressive
medications. 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.
INFERGEN(R) is a non-naturally occurring type-1 interferon which
stimulates the immune system to fight viral infections. The Company
began marketing INFERGEN(R) in the United States in October 1997 for
the treatment of chronic hepatitis C viral infection.
The Company focuses its research efforts on secreted protein
therapeutics, neuroscience and cancer therapeutics and its development
efforts on human therapeutics in the areas of hematology, oncology,
infectious disease, neurobiology, endocrinology, and inflammation.
The Company has research facilities in the United States and Canada
and has clinical development staff in the United States, the EU,
Canada, Australia, Japan, Hong Kong and the People's Republic of
China. To augment internal research and development efforts, the
Company has established external research collaborations and has
acquired certain product and technology rights.
Amgen operates commercial manufacturing facilities located in the
United States, Puerto Rico and The Netherlands. A sales and marketing
force is maintained in the United States, the EU, Canada and
Australia. In addition, Amgen has entered into licensing and co-
promotion agreements to market NEUPOGEN(R), EPOGEN(R) and INFERGEN(R)
in certain geographic areas.
The Company was incorporated in California in 1980 and was merged
into a Delaware corporation in 1987. Amgen's principal executive
offices are located at One Amgen Center Drive, Thousand Oaks,
California 91320-1789.
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Products
Recombinant human granulocyte colony-stimulating factor
NEUPOGEN(R) (proper name - Filgrastim) is Amgen's registered
trademark for its recombinant human methionyl granulocyte colony-
stimulating factor ("G-CSF"), a protein that selectively stimulates
production of certain white blood cells known as neutrophils.
Neutrophils are the body's first defense against infection.
Treatments for various diseases and diseases themselves can result in
extremely low numbers of neutrophils, a condition called neutropenia.
Myelosuppressive chemotherapy, one treatment option for individuals
with cancer, targets cell types which grow rapidly, such as tumor
cells, neutrophils and other types of blood cells. 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) to migrate
(mobilize) from the bone marrow into the blood circulatory system.
When these progenitor cells (PBPC) are collected from the blood,
stored and re-infused after high dose chemotherapy (transplanted),
recovery of platelets, red blood cells and neutrophils is accelerated.
PBPC transplantation is becoming 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 U.S. Food and Drug
Administration ("FDA") approved NEUPOGEN(R) for three additional
indications: (1) to reduce the duration of neutropenia for patients
with non-myeloid malignancies undergoing myeloablative therapy
followed by bone marrow transplantation; (2) 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); and (3) for
use in mobilization of PBPC for stem cell transplantation. In the EU,
Canada and Australia, NEUPOGEN(R) is marketed for these same four
indications. Also, in 1997, regulatory authorities in Australia and
Canada approved NEUPOGEN(R) to treat neutropenia in HIV patients
receiving antiviral and/or other myelosuppressive medications.
The Company is pursuing additional indications with NEUPOGEN(R).
Clinical trials were completed examining NEUPOGEN(R) as an adjunct to
chemotherapy in patients with acute myelogenous leukemia ("AML").
License applications for approval of this supplemental indication were
submitted to the U.S., EU, Canadian and Australian regulatory
3
authorities in 1996. The Company is in discussions with the FDA
regarding this submission. In addition, a trial for the treatment of
neutropenia in HIV infected patients was completed and a supplemental
licensing application for approval of this indication was submitted to
the FDA in 1996. The FDA has raised concerns about whether this
submission is approvable; the Company is in discussions with the FDA
and cannot predict the outcome of these discussions. Later stage
trials examining NEUPOGEN(R) as an adjunct to dose-intensified
chemotherapy in patients with various tumor types are ongoing. The
Company is also continuing to investigate the potential benefits of
NEUPOGEN(R) for patients in severe pneumonia settings.
In March 1996, NEUPOGEN(R) was approved for use in the United
Kingdom (the "UK") as a supportive therapy to treat neutropenia in
people with advanced HIV infection. The initial submission to the UK
was made as part of the EU mutual recognition procedure that enables
companies to seek approvals in other EU countries. Due to the
completion of a randomized trial in 1996 that served as the basis for
an FDA submission in this indication, the Company intends to
supplement the original filing in Europe by submitting these
additional data. To facilitate this procedure, it was necessary for
the Company to request in February 1997 the withdrawal of the original
approval in the UK.
The Company began selling NEUPOGEN(R) in the United States in
February 1991 pursuant to a licensing agreement with Kirin-Amgen, Inc.
("Kirin-Amgen"), a joint venture between Kirin Brewery Company,
Limited ("Kirin") and 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. Hoffman-La Roche Ltd
("Roche") under a co-promotion agreement (see "Joint Ventures and
Business Relationships - F. Hoffman-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. Hoffman La Roche Ltd").
For the years ended December 31, 1997, 1996 and 1995, sales of
NEUPOGEN(R) accounted for approximately 44%, 45% and 48%,
respectively, of total revenues.
Recombinant human erythropoietin
EPOGEN(R) (proper name - Epoetin alfa) is Amgen's registered
trademark for its recombinant human erythropoietin product, a protein
that stimulates red blood cell production. Red blood cells transport
oxygen to all cells of the body. Without adequate amounts of
erythropoietin, the red blood cell count is reduced, thereby
diminishing the ability of the blood to deliver sufficient amounts of
oxygen to the body, resulting in anemia. People with chronic renal
failure suffer from anemia because they do not produce sufficient
amounts of erythropoietin, which is normally produced in healthy
kidneys. EPOGEN(R) is effective in the treatment of anemia associated
with chronic renal failure for patients on dialysis and is indicated
to elevate or maintain the red blood cell level (as manifested by
4
hematocrit or hemoglobin determinations) and to decrease the need for
blood transfusions in these patients.
In the United States, Amgen was granted rights to market
recombinant human erythropoietin under a licensing agreement with
Kirin-Amgen (see "Joint Ventures and Business Relationships - Kirin
Brewery Company, Limited"). The Company began selling EPOGEN(R) in
1989 when the FDA approved its use in the treatment of anemia
associated with chronic renal failure. In 1994, the FDA cleared a
supplement to the Epoetin alfa product license which included an
expanded target hematocrit range for patients with chronic renal
failure. The target hematocrit, or percentage of red blood cells, was
expanded to a range of 30 to 36 percent from the previously indicated
range of 30 to 33 percent.
The Company has retained exclusive rights to market EPOGEN(R) in
the United States for dialysis patients. Amgen has granted Ortho
Pharmaceutical Corporation, a subsidiary of Johnson & Johnson,
hereafter referred to as "Johnson & Johnson", a license to pursue
commercialization of recombinant human erythropoietin as a human
therapeutic in the United States in all markets other than dialysis
and diagnostics. See Note 1 to the Consolidated Financial Statements,
"Summary of significant accounting policies - Product sales" and Note
4 to the Consolidated Financial Statements, "Contingencies - Johnson &
Johnson arbitrations". In countries other than the United States
(except as described above), the People's Republic of China and Japan,
Johnson & Johnson was granted rights to pursue the commercialization
of erythropoietin as a human therapeutic under a licensing agreement
with Kirin-Amgen. Affiliates of Johnson & Johnson manufacture and
market erythropoietin for treatment of anemia associated with chronic
renal failure under the trademark EPREX(R) in several 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 a licensing
agreement with Kirin-Amgen (see "Joint Ventures and Business
Relationships - Kirin Brewery Company, Limited"). Kirin markets its
recombinant human erythropoietin product under the trademark ESPO(R).
For the years ended December 31, 1997, 1996 and 1995, sales of
EPOGEN(R) accounted for approximately 48%, 48% and 46%, respectively,
of total revenues.
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 is a potentially deadly disease that, if
not treated, may lead to cirrhosis and hepatocellular carcinoma, or
liver cancer. In October 1997, Amgen received FDA approval and
launched INFERGEN(R) for the 24-week treatment of chronic hepatitis C
virus. The 24-week treatment includes newly diagnosed hepatitis C
virus patients as well as patients whose prior treatment with
interferon failed and are candidates for subsequent treatment.
Results from a 48-week retreatment trial with INFERGEN(R) have been
5
submitted and are under review by the FDA. Retreatment is an
important part of interferon therapy since many hepatitis C virus
patients fail initial treatment with interferon therapies. Amgen also
filed a license application with Canadian regulatory authorities
requesting clearance for marketing INFERGEN(R) for treatment of
hepatitis C virus. In 1996, Amgen licensed to Yamanouchi
Pharmaceutical Co., Ltd. of Tokyo ("Yamanouchi") the rights to
develop, manufacture and commercialize Amgen's consensus interferon
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,
Hong Kong and Taiwan (see "Joint Ventures and Business Relationships -
Yamanouchi Pharmaceutical Co., Ltd.").
Product Candidates
Hematology/Oncology/Infectious disease
Hematopoietic growth factors are proteins which influence growth,
migration, and maturation of certain types of blood cells. STEMGEN(R)
(proper name - Ancestim), one of the Company's hematopoietic growth
factors, has been shown to influence the production, mobilization, and
maturation of progenitor cells. Human clinical trials have been
completed which investigated the utility of STEMGEN(R) in combination
with NEUPOGEN(R) for improved mobilization of progenitor cells prior
to PBPC transplantation in patients with breast cancer. License
applications for marketing clearance of STEMGEN(R) in this indication
were submitted to the U.S., EU, Canadian and Australian regulatory
authorities in 1997. The Company expects to launch STEMGEN(R) if
approved by regulatory authorities.
The Company is developing a sustained duration version of G-CSF
to provide less frequent, potentially once-per-cycle, dosing and
thereby potentially improve compliance and patient satisfaction. In
1997, Amgen began a human clinical trial of this second generation G-
CSF product; this trial is ongoing.
The Company's novel platelet growth factor, Megakaryocyte Growth
and Development Factor ("MGDF"), another hematopoietic growth factor,
has been shown in preclinical and early clinical research to be a
promising agent for ameliorating the thrombocytopenia caused by
intensive chemotherapy or irradiation. Thrombocytopenia, or severely
depressed platelet numbers, can result in severe internal bleeding. In
1997, Amgen began a phase 3 clinical trial to treat thrombocytopenia
resulting from bone marrow transplant procedures in the breast cancer
treatment setting. In addition, the Company is currently
investigating MGDF in several other cancer-support treatment settings
and in a setting where normal platelet donors receive MGDF before
platelet donation. The Company is collaborating in the development of
MGDF with Kirin (see "Joint Ventures and Business Relationships -
Kirin Brewery Company, Limited"). In 1995, Amgen, Kirin, and Kirin-
Amgen signed agreements with Novo Nordisk A/S and certain of its
subsidiaries (including ZymoGenetics, Inc.) for rights to
thrombopoietin, a protein hormone that stimulates the production of
platelets. The acquisition of these rights complements the
development of MGDF.
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Another hematopoietic growth factor in development at Amgen is
novel erythropoiesis stimulating protein ("NESP"). Human clinical
trials for NESP in the treatment of anemia in patients with chronic
renal failure began in January 1997 and are currently ongoing. Early
clinical data suggests that NESP may permit less frequent dosing than
Epoetin alfa. The Company has entered into an agreement with Kirin to
jointly develop and market NESP through its joint venture, Kirin-Amgen
(see "Joint Ventures and Business Relationships - Kirin Brewery
Company, Limited" and Note 4 to the Consolidated Financial Statements
- "Contingencies - Johnson & Johnson arbitrations").
Soft tissue growth factors are believed to play a role in
accelerating or improving tissue regeneration and wound healing. In
some cases, these agents may also protect tissues from injuries such
as those associated with irradiation and chemotherapy. Amgen
currently is conducting research on keratinocyte growth factor
("KGF"). Human clinical trials for KGF for the treatment of
mucositis, a side effect often experienced by patients undergoing
radiation therapy and chemotherapy, are ongoing. Mucositis is
characterized as the irritation or ulceration of the lining of the
gastrointestinal tract.
In 1997, Amgen announced that it had ceased active participation
in further device development with AmCell, Inc. ("AmCell"), although
the Company continues to have an interest in cell selection technology
by AmCell and other companies operating in the field. See "Joint
Ventures and Business Relationships - Other business relationships".
Endocrinology/Neurobiology
The Company has discovery programs in endocrinology and
neurological disorders. In the area of endocrinology, the Company is
currently developing leptin. Leptin is the protein produced by the
obesity gene. Leptin is made in fat cells and is believed to help
regulate the amount of fat stored by the body. This protein has been
shown in some preclinical animal models to produce a reduction in body
weight and body fat. In 1995, The Rockefeller University granted to
the Company an exclusive license which allows the Company to develop
products based on the obesity gene. In 1996, Amgen commenced clinical
trials with leptin and in June 1997, announced that early, preliminary
data suggested that there was a dose range at which leptin had an
acceptable safety profile and induced weight loss. Additional studies
will be required before these conclusions can be confirmed. Ongoing
clinical trials are evaluating the effect of leptin in patients with
non-insulin dependent type II diabetes and obesity. To address the
poor solubility of leptin seen at higher doses, Amgen has begun
development of second-generation alternate leptin molecules. In 1998,
a clinical trial with a second-generation leptin molecule commenced.
Additionally, Amgen entered into a license agreement with Progenitor,
Inc. which grants the Company certain exclusive rights for the
development and commercialization of products using Progenitor's
leptin receptor technology.
Another focus of the Company's effort in endocrinology is in the
area of hyperparathyroidism. Primary hyperparathyroidism ("HPT") is a
disorder that causes excessive secretion of parathyroid hormone from
the parathyroid gland, leading to elevated serum calcium, called
hypercalcemia. This disorder currently lacks effective treatment
7
other than surgery. Secondary HPT is commonly seen as a result of
kidney failure, affecting as many as 80 percent of dialysis patients.
Symptoms of hyperparathyroidism include bone loss, muscle weakness,
depression and forgetfulness. 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. In
1997, Amgen completed a clinical trial in secondary HPT with the
initial calcimimetic product candidate, R-568. As a result of more
favorable metabolic and kinetic profiles, second generation
calcimimetic compounds were screened and evaluated. A clinical trial
in normal volunteers with a second generation calcimimetic compound
began in 1997 and is ongoing.
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. Glial cell-line derived
neurotrophic factor ("GDNF") is in clinical studies for possible use
in the treatment of Parkinson's disease. GDNF was added to the
Company's neurobiology research program through the acquisition of
Synergen, Inc. ("Synergen") (see "Joint Ventures and Business
Relationships - Other business relationships").
Human clinical testing of brain-derived neurotrophic factor
("BDNF"), is currently being conducted in collaboration with Regeneron
Pharmaceuticals, Inc. ("Regeneron") (see "Joint Ventures and Business
Relationships - Regeneron Pharmaceuticals, Inc."). A small, early
stage clinical trial of BDNF investigating intrathecal administration
for amyotrophic lateral sclerosis ("ALS" or Lou Gehrig's disease) is
currently in progress. A Phase 3 clinical trial of BDNF with
subcutaneous delivery for the treatment of ALS did not demonstrate
clinical efficacy in the endpoints measured in patients with this
disease. Regeneron continues to investigate BDNF in ALS patients on
behalf of the collaboration with the Company. On behalf of the
collaboration with the Company, Regeneron will undertake a number of
small clinical studies with Neurotrophin-3 ("NT-3"). During 1997,
Amgen announced the collaboration will not pursue additional trials of
NT-3 in diabetic neuropathy or chemotherapy-induced neuropathy because
initial results were not sufficiently promising.
In 1997, Amgen acquired the rights from Guilford Pharmaceuticals
Inc. ("Guilford") for a novel class of small molecule, orally-active,
neurotrophic agents called FKBP-neuroimmunophilin compounds (see
"Joint Ventures and Business Relationships - Other business
relationships"). The FKBP-neuroimmunophilin compounds are being
developed to promote nerve regeneration and repair in
neurodegenerative disorders. In preclinical models, FKBP-
neuroimmunophilin compounds have been shown to promote recovery in
models of nerve injury and Parkinson's disease.
Inflammation
The inflammatory response is essential for defense against
harmful micro-organisms and for the repair of damaged tissues. The
failure of the body's control mechanisms regulating inflammatory
response occurs in conditions such as rheumatoid arthritis, acute
8
respiratory distress syndrome and asthma. Tumor necrosis factor
binding protein ("TNFbp") and interleukin-1 receptor antagonist ("IL-
1ra") were two product candidates added to the Company's inflammation
research program through the acquisition of Synergen (see "Joint
Ventures and Business Relationships - Other business relationships").
First generation molecules of TNFbp and Il-1ra have been in human
clinical trials. A human clinical trial for TNFbp was completed for
possible use in the treatment of rheumatoid arthritis. Because of
potential issues with immunogenicity, a second generation molecule is
being developed, and the Company does not intend to pursue further
development of the first generation TNFbp. The second generation
molecule of TNFbp, known as soluble tumor necrosis factor receptor 1,
is in preclinical studies. A human clinical trial for IL_1ra in
combination with methotrexate for treatment of rheumatoid arthritis is
ongoing. The Company is developing second generation molecules as a
sustained delivery formulation for IL-1ra, which have demonstrated
some additional benefit in preclinical studies over the first
generation product candidate. The Company is also conducting research
to discover and develop other molecules for the treatment of
inflammatory diseases. In 1997, Amgen announced that it is seeking a
corporate partner for its inflammation research and development
program (see "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Financial Outlook").
Joint Ventures and Business Relationships
The Company generally intends to self-market its products. From
time to time it may supplement this effort by using joint ventures and
other business relationships to provide additional marketing and
product development capabilities. The Company also supplements its
internal research and development efforts with acquisitions of product
and technology rights and external research collaborations. Amgen has
established the relationships described below and may establish others
in the future.
F. Hoffman-La Roche Ltd
Amgen and Roche have entered into a long term agreement providing
for the commercialization of NEUPOGEN(R) (Filgrastim) in the EU.
Under this agreement, the companies collaborate in the EU on the
commercialization and further clinical development of the product and
share in related costs and profits from sales. Amgen has recently
assumed from Roche most of the responsibilities for marketing,
promotion, distribution and other key functions relating to product
sales, and the Company is now distributing the product in most EU
countries from its European Logistics Center. Amgen and Roche will
also collaborate on the development of a second generation G-CSF
product for the EU.
Amgen and Roche have also entered into an agreement to
commercialize NEUPOGEN(R) in certain European countries not located
within the EU. Under this agreement, Roche markets NEUPOGEN(R) in
these countries and pays a royalty to Amgen on these sales.
Johnson & Johnson
Amgen granted Johnson & Johnson a license to pursue
commercialization of recombinant human erythropoietin as a human
9
therapeutic in the United States in all markets other than dialysis
and diagnostics. The Company is engaged in arbitration proceedings
regarding this license. For a complete discussion of this matter see
Note 4 to the Consolidated Financial Statements, "Contingencies -
Johnson & Johnson arbitrations". In countries other than the United
States (except as described above), the People's Republic of China and
Japan, Johnson & Johnson was granted rights to pursue the
commercialization of human erythropoietin as a therapeutic 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 licensed
Johnson & Johnson rights to erythropoietin in certain geographic areas
of the world (see "- Johnson & Johnson"). Kirin-Amgen has also
granted Amgen an exclusive license to manufacture and market G-CSF in
the United States, Europe, Canada, Australia and New Zealand. Kirin-
Amgen has licensed Kirin similar rights with respect to G-CSF in
Japan, Taiwan and Korea. Kirin markets recombinant human granulocyte
colony-stimulating factor and recombinant human erythropoietin in the
People's Republic of China under a separate agreement. Kirin-Amgen
and Roche have entered into an agreement to commercialize NEUPOGEN(R)
in certain territories not covered by the various Amgen/Roche
agreements (see "- F. Hoffman-La Roche Ltd"). Under this agreement,
Roche markets NEUPOGEN(R) in these countries and pays a royalty to
Kirin-Amgen on these sales.
In 1994, Kirin-Amgen licensed to Amgen and Kirin the rights to
develop and market MGDF, and in 1996, to develop and market NESP (see
Note 4 to the Consolidated Financial Statements - "Johnson & Johnson
arbitrations"). Amgen has been granted an exclusive license by Kirin-
Amgen to manufacture and market these two product candidates in the
United States, all European countries, Canada, Australia, Mexico and
New Zealand. In addition, with respect to NESP, Amgen's license
extends to all Central and South American countries. Kirin has been
licensed by Kirin-Amgen with similar rights for these two product
candidates 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 revenues from corporate partners in the
Company's Consolidated Financial Statements for the years ended
December 31, 1997, 1996 and 1995, are $87.9 million, $79.9 million and
$72.6 million, respectively, related to these agreements.
In connection with its various agreements with Kirin-Amgen, the
Company has been granted sole and exclusive licenses for the
manufacture and sale of certain products in specified geographic areas
of the world. In return for such licenses, the Company paid Kirin-
Amgen stated amounts upon the receipt of the licenses and/or pays
Kirin-Amgen royalties based on sales. During the years ended December
10
31, 1997, 1996 and 1995, Kirin-Amgen earned royalties from Amgen of
$91.4 million, $86.2 million and $74.2 million, respectively, under
such agreements.
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 and any additional indications around the world except
in the United States and Canada. Amgen markets Interferon alfacon-1
under the trademark INFERGEN(R) in the United States. Amgen has
earned and will earn additional amounts if certain milestones are
achieved by Yamanouchi and will receive royalties on sales.
Yamanouchi has granted to Amgen K.K., the Company's Japanese
subsidiary, certain co-development and co-promotion/co-marketing
rights in Japan and has granted to Amgen Greater China, Ltd., Amgen's
subsidiary in Hong Kong, certain co-development and co-promotion
rights in the People's Republic of China, Hong Kong and Taiwan.
Regeneron Pharmaceuticals, Inc.
In 1990, the Company entered into a collaboration agreement with
Regeneron to co-develop and commercialize BDNF and NT-3 in the United
States. 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.
Other business relationships
In 1994, Amgen acquired an equity interest in AmCell, a company
which plans to manufacture cell selection and characterization devices
based on the technology of Miltenyi Biotec GmbH. In 1997, Amgen
ceased active participation in further device development with AmCell.
AmCell has full responsibility for the commercialization of the device
and may be required to make certain royalty payments to Amgen.
In December 1994, the Company acquired Synergen, a biotechnology
company engaged in the discovery and development of protein-based
pharmaceuticals. With the acquisition of Synergen, Amgen principally
added GDNF and Synergen's inflammation program to its 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 IL-1ra in certain geographic areas. As a result
of the acquisition of Synergen, the general partner of SCP is a
subsidiary of Amgen. In connection with the settlement of certain
litigation relating to Synergen and SCP, Amgen acquired all the
limited partnership units of SCP and, under the terms of the
settlement, Amgen may be required to pay future additional amounts to
the former limited partners that are members of the plaintiff class,
other members of the plaintiff class and their counsel if the FDA
should grant approval to market IL-1ra (as more specifically defined
in the related settlement agreement) and certain product revenues are
realized. See "Item 3. Legal Proceedings - Synergen ANTRIL(TM)
litigation".
11
In 1997, Amgen and Guilford entered into an agreement granting
Amgen worldwide rights for Guilford's FKBP-neuroimmunophilin
compounds, a novel class of small molecule neurotrophic agents that
may represent a new approach in the treatment of neurodegenerative
disorders. Under the terms of the agreement, Amgen will receive
worldwide rights to FKBP-neuroimmunophilin compounds for all human
therapeutic and diagnostic applications. Amgen will conduct and pay
for all clinical development and manufacturing of products, market
products worldwide and pay royalties to Guilford on such sales. Also,
in connection with this agreement, Amgen made a $20 million equity
investment in Guilford.
In December 1997, Amgen and SangStat entered into a licensing
agreement for the registration, marketing, and distribution of
SangStat's proprietary CYCLOSPORINE product candidate, an
immunosuppressive drug used in transplantation to prevent graft
rejection. Under the terms of the agreement, Amgen will have
exclusive rights to market CYCLOSPORINE, under SangStat's trademark in
Australia, New Zealand, Hong Kong, the People's Republic of China and
Taiwan.
Marketing
In the United States, the Company's sales force markets its
products to physicians and pharmacists primarily in hospitals,
dialysis centers and clinics. The Company has chosen to use major
wholesale distributors of pharmaceutical products as the principal
means of distributing EPOGEN(R) (Epoetin alfa), NEUPOGEN(R)
(Filgrastim), and INFERGEN(R) (Interferon alfacon-1) to clinics,
hospitals and pharmacies. Sales to Bergen Brunswig Corporation and
Cardinal Distribution, two major distributors of these products,
accounted for 24% and 14%, 24% and 14%, and 21% and 15%, respectively,
of total revenues for the years ended December 31, 1997, 1996 and
1995, respectively.
Dialysis providers are primarily reimbursed for EPOGEN(R) by the
federal government through the End Stage Renal Disease Program ("ESRD
Program") of Medicare. The ESRD Program reimburses approved providers
for 80% of allowed dialysis costs; the remainder is paid by other
sources, including Medicaid, private insurance, and to a lesser
extent, state kidney patient programs. The ESRD Program reimbursement
rate is established by Congress and is monitored by the Health Care
Financing Administration ("HCFA"). In 1997, HCFA implemented
reimbursement changes that affected what reimbursement claims would be
paid to dialysis providers by fiscal intermediaries under contract
with HCFA. These changes had an adverse impact on EPOGEN(R) sales.
See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Results of Operation - Product
sales - EPOGEN(R) (Epoetin alfa)". In March 1998, HCFA announced the
easing of restrictions on reimbursement that had been implemented in
1997. HCFA issued two revisions to the 1997 policy in a program
memorandum. The first revision provides that, for a month in which
the three month "rolling average" hematocrit exceeds 36.5 percent,
HCFA will pay the lower of 100% of the actual dosage billed for that
month, or 80% of the prior month's allowable EPOGEN(R) dosage. The
second revision reestablishes authorization to make payment for
EPOGEN(R) when a patient's hematocrit exceeds 36 percent when
accompanied by documentation establishing medical necessity. The
12
Company cannot currently predict what effect the changes will have on
EPOGEN(R) sales. As previously announced, in 1997, the Office of the
Inspector General issued a report recommending a 10% reduction in the
Medicare reimbursement rate for EPOGEN(R). The Company believes the
recommendation would primarily affect dialysis providers and that it
is difficult to predict the impact on Amgen. The reimbursement rate
for EPOGEN(R) is subject to yearly review. Changes in coverage and
reimbursement policies could have a material adverse effect on
EPOGEN(R) sales.
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).
Except for purchases pursuant to a contract with the Department
of Veterans Affairs, including purchases by Veterans Administration
hospitals and the Department of Defense, the Company does not receive
any payments directly from the federal government, nor does it have
any significant supply contracts with the federal government.
However, the use of NEUPOGEN(R) and EPOGEN(R) by hospitals, clinics,
and physicians may be impacted by the amount and methods of
reimbursement that they receive from the federal government.
In the EU, Amgen and Roche share 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
of hospital products in each country. Most patients receiving
NEUPOGEN(R) for approved indications are covered by government health
care programs. The use of NEUPOGEN(R) is affected by EU government
pressures on physician prescribing practices in response to ongoing
government initiatives to reduce health care expenditures, and to a
lesser extent, competition.
In Canada and Australia, NEUPOGEN(R) is marketed by the Company
directly to hospitals, pharmacies and medical practitioners.
Distribution is handled by third party contractors.
INFERGEN(R) reimbursement is through both private and public
sources, with primary reimbursement through private payors. The
current coverage and reimbursement for interferons has evolved with
health care reform and is based upon the payor's experience. Since
INFERGEN(R) is a new type of interferon, private and public payors may
take time to evaluate the clinical efficacy, dosing regimen and cost
of the drug in order to formulate coverage and reimbursement policies.
For payors with formularies, formulary committees may take up to six
months to evaluate new products before formulary acceptance or
approval.
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 the Company - Competition". Some competitors,
principally large pharmaceutical corporations, have greater clinical,
research, regulatory and marketing resources and experience than the
13
Company. 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 competition with respect to
products which it manufactures and markets 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 of products 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, 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 biotechnology
is conducted by small biotechnology 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
they have 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 from
these entities. Accordingly, the Company may have difficulty
acquiring technology on acceptable terms. Additionally, the Company
competes with these entities and pharmaceutical and biotechnology
companies with respect to attracting and retaining qualified
scientific and technical personnel.
Any products or technologies that are directly or indirectly
successful in addressing anemia could negatively impact the market for
recombinant human erythropoietin or NESP. Hoechst Marion Roussel is
currently conducting clinical trials on gene-activated erythropoietin
for the treatment of anemia (see "Item 3. Legal Proceedings -
Transkaryotic Therapies and Hoechst litigation").
Similarly, any products or technologies that are directly or
indirectly successful in addressing the causes or incidence of low
levels of neutrophils could negatively impact the market for G-CSF.
These include products that could receive approval for indications
similar to those for which NEUPOGEN(R) (Filgrastim) has been approved,
development of chemotherapy treatments that are less myelosuppressive
than existing treatments and the development of anti-cancer modalities
that reduce the need for myelosuppressive chemotherapy. NEUPOGEN(R)
currently faces market competition from a competing CSF product,
granulocyte macrophage colony-stimulating factor ("GM-CSF") and from
the chemoprotectant, amifostine. Potential future sources of
14
competition include other GM-CSF products, PGG-glucan, FLT-3 ligand,
lisofylline, IL-11, myelopoietin, promegapoietin, and progenipoietin,
among others.
Chugai Pharmaceuticals Co., Ltd. ("Chugai") markets a G-CSF
product in Japan as an adjunct to chemotherapy and as a treatment for
bone marrow transplant patients. In early 1994, Chugai and Rhone-
Poulenc Rorer Inc. began marketing a G-CSF product in certain EU
countries as an adjunct to chemotherapy and as a treatment in bone
marrow transplant settings. Chugai, through its licensee, AMRAD,
markets this G-CSF product in Australia as an adjunct to chemotherapy
and as a treatment for patients receiving bone marrow transplants.
Under an agreement with Amgen, Chugai is precluded from selling its G-
CSF product in the United States, Canada and Mexico.
Immunex Corp. markets two formulations of GM-CSF in the United
States for bone marrow transplant and PBPC transplant patients and as
an adjunct to chemotherapy treatments for acute non-lymphocytic
leukemia ("ANLL") and AML. Immunex Corp. is also pursuing other
indications for its GM-CSF product including use in treating HIV-
infected patients, other infectious diseases and as an adjunct to
chemotherapy outside the limited setting of ANLL. Novartis markets
another GM-CSF product for use in bone marrow transplant patients, as
an adjunct to chemotherapy and as an adjunct to gancyclovir treatment
of HIV-infected patients in the EU and certain other countries. This
GM-CSF product is currently being developed for similar indications in
the United States and Canada.
Other products which address potential markets for G-CSF may be
identified and developed by competitors in the future. Such products
could also present competition in potential markets for STEMGEN(R) and
a sustained duration version of G-CSF. Research and development of
other hematopoietic growth factors, including those that may compete
with MGDF, is being conducted by several companies including
Genentech, Inc. (in collaboration with Pharmacia & Upjohn, Inc.),
Immunex Corp., Novartis, G.D. Searle & Co. (a subsidiary of Monsanto
Company), U.S. Bioscience, Inc. and Genetics Institute, Inc.
Although not approved or promoted for use in the United States,
the Company believes that approximately 10% of its worldwide
NEUPOGEN(R) sales are from off-label use as supportive therapy for
various AIDS-related treatments. Changes in AIDS treatments,
including therapies that may be less myelosuppressive, may affect such
sales.
INFERGEN(R) faces competition from other interferons and related
products, several of which are in development or on the market.
Schering-Plough Corp. and Roche are major suppliers of interferons.
Interferon Sciences, Inc. could be a potential competitor in this
arena. (See "Item 3. Legal Proceedings - INFERGEN(R) litigation").
Many companies are developing products that promote wound
healing, soft tissue regeneration, and chemoprotection. Companies
such as Human Genome Sciences, Inc., Cell Therapeutics, Inc. and
Genetics Institute, Inc. are currently among many companies that are
developing products which could be potential competitors for KGF.
15
Many companies currently market or are believed to be developing
obesity treatments. Potential future competitors of the Company with
respect to leptin include Millennium Pharmaceuticals, Inc. (in
collaboration with Roche), Progenitor, Inc. (a subsidiary of
Interneuron Pharmaceuticals Inc.), Neurogen Inc. (in collaboration
with Pfizer Inc.), Bristol Myers Squibb Company, Novartis, Eli Lilly
and Company and Merck & Co., Inc. Knoll/BASF and Roche launched a new
therapeutic for obesity in 1997.
Calcimimetic small molecules would face competition from a
product currently marketed by Abbott Laboratories which treats
secondary HPT. In addition, other products to treat primary and
secondary HPT are currently being developed by Abbott Laboratories,
Lunar Corporation, GelTex Pharmaceuticals, Inc. and Chugai.
Several companies are developing neurotrophic factors including
Cephalon Inc., Genentech, Inc. and Regeneron.
The Company would face competition from a number of companies in
the inflammation disease arena, particularly for rheumatoid arthritis
treatments. Current anti-arthritic treatments include generic
methotrexate and other products marketed by Sanofi-Winthrop and
Novartis. In addition, a number of companies have cytokine inhibitors
in development including Immunex Corp., Centocor, Inc. and Roche.
Research and Development
The Company's two primary sources of new product candidates are
internal research and development and acquisition and licensing from
third parties. Amgen's internal research capabilities include an
expertise in secreted protein therapeutics whereby cloned genes are
inserted into living cells to investigate therapeutic utility of the
proteins produced. Additionally, the Company has emerging small
molecule capabilities that include combinatorial chemistry and the use
of high throughput screening to potentially develop novel, orally
available therapeutic product candidates. Amgen's capabilities in
these areas complement its human genome program. The Company's human
genome program may yield genes that both lead to the development of
secreted protein therapeutics and provide targets for diseases
requiring orally available small molecules. Research and development
expense, which includes technology license fees paid to third parties,
for the years ended December 31, 1997, 1996 and 1995 were $630.8
million, $528.3 million and $451.7 million, respectively.
Government Regulation
Regulation by governmental authorities in the United States and
other countries is a significant factor in the production and
marketing of the Company's products and its ongoing research and
development activities.
In order to clinically test, manufacture and market products for
therapeutic use, Amgen must satisfy mandatory procedures and safety
standards established by various regulatory bodies. In the United
States, the 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
16
and promotion of the Company's products on a product-by-product basis.
Product development and approval within this regulatory framework take
a number of years and involve the expenditure of substantial
resources. After preclinical manufacturing, laboratory analysis and
testing in animals, an investigational new drug application is filed
with the FDA to begin human testing. A three-phase human clinical
testing program must then be undertaken. In Phase 1, studies are
conducted to determine the safety for administration of the product.
In Phase 2, studies are conducted to assess safety, acceptable dose
and gain preliminary evidence of the efficacy of the product. In
Phase 3, studies are conducted to provide sufficient data for the
statistical proof of safety and efficacy. The time and expense
required to perform this clinical testing can vary and can be
substantial. No action can be taken to market any therapeutic product
in the United States until an appropriate license application has been
approved by the FDA. Even after initial FDA approval has been
obtained, further studies may be required to provide additional data
on safety and would be required to gain clearance for the use of a
product as a treatment for clinical indications other than those
initially approved. In addition, use of products during testing and
after initial marketing could reveal side effects that could delay,
impede or prevent marketing approval, limit uses or expose the Company
to product liability claims.
In addition to regulating clinical testing in humans, the FDA
inspects equipment and facilities used in the manufacturing of such
products prior to providing approval to market a product. If after
receiving clearance from the FDA, a material change is made in
manufacturing equipment, location or process, additional regulatory
review may be required. The Company also must adhere to current Good
Manufacturing Practices and biologics-specific regulations enforced by
the FDA through its facilities inspection program. The FDA conducts
regular, periodic visits to re-inspect equipment and facilities
following the initial approval. If, as a result of these inspections,
the FDA determines that the Company's equipment and facilities do not
comply with applicable FDA regulations, the FDA may impose penalties
on Amgen, including suspending the Company's manufacturing operations.
In the EU countries, Canada and Australia regulatory requirements
and approval processes are substantially similar in principle to those
in the United States. Additionally, in the EU, the registration
procedure for biotechnology products is through a "centralized
procedure". This procedure leads to the granting of a single license
that is valid for the entire EU but requires that all EU countries
approve the submission first.
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
17
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. The Company believes its sales, marketing and other
activities comply with all such laws although there can be no
assurance that the Company's activities will not 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 Public Health Service, as well as
hospitals that serve a disproportionate share of poor Medicare and
Medicaid beneficiaries. The rebate amount payable to Medicaid is
recomputed each quarter based on the Company's reports of its current
average manufacturer price and best price for each of its products to
HCFA. The terms of the Company's participation in the program impose
an obligation to correct the prices reported in previous quarters, as
may be necessary. Any such corrections could result in an overage or
underage in the Company's rebate liability for past quarters,
depending on the direction of the correction. In addition to
retroactive rebates (and interest, if any), if the Company were found
to have knowingly submitted false information to the government, in
addition to other penalties available to the government, the statute
provides for civil monetary penalties in the amount of $100,000 per
item of false information.
The Company also makes its products available to authorized users
of the Federal Supply Schedule ("FSS") of the General Services
Administration. Since 1993, as a result of the Veterans Health Care
Act of 1992 (the "VHC Act"), federal law has required that FSS prices
available for purchased by the Veterans Administration, the Department
of Defense, Coast Guard and the Public Health Service (including the
Indian Health Service) be discounted by a minimum of 24 percent off
the average manufacturer price 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
18
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 or 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 also 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. 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 the Company -
Intellectual property and legal matters".
The Company has filed applications for a number of patents and
has been granted patents relating to its erythropoietin, G-CSF,
consensus interferon and various potential products. In the United
States, the U.S. Patent and Trademark Office (the "USPTO") has issued
to the Company patents relating to erythropoietin that cover DNA and
host cells (issued 1987); processes for making erythropoietin (issued
1995 and 1997); and certain product rights to erythropoietin (issued
1996 and 1997). The last to issue erythropoietin patents expire in
2013; all other patents expire prior to then. The USPTO has also
issued to the Company patents relating to aspects of DNAs, vectors,
cells and processes relating to recombinant G-CSF (issued 1989); other
aspects of DNAs, vectors, cells and processes relating to recombinant
G-CSF (issued 1991); G-CSF polypeptides (issued 1996); and methods of
treatment using G-CSF polypeptides (issued 1996). The last to issue
G-CSF patents expire in 2013; all other patents expire prior to then.
There can be no assurance that Amgen's patents will afford legal
protection against competitors or provide significant proprietary
19
protection or competitive advantage. In addition, there can be no
assurance that Amgen's patents will not be held invalid or
unenforceable by a court, infringed or circumvented by others or that
others will not 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, compounds or
processes competitive with those of the Company.
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 licenses 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, and material
consultants, scientific advisors or 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. There can be
no assurance, however, that others will not either develop
independently the same or similar information or obtain access to
Amgen's proprietary information.
The Company has obtained U.S. registration of its EPOGEN(R),
NEUPOGEN(R), INFERGEN(R) and STEMGEN(R) trademarks. In addition,
these trademarks have been registered in several other countries.
Raw Materials
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. Amgen
attempts to remain apprised of the financial condition of its
suppliers, their ability to supply the Company's needs and the market
conditions for these raw materials. Also, certain of the raw
materials required in the commercial manufacturing of the Company's
products are derived from biological sources. Biological sources may
be subject to contamination and/or recall. The Company is
investigating screening procedures with respect to certain biological
sources and alternatives to them. However, a material shortage,
contamination and/or recall could adversely impact or disrupt Amgen's
commercial manufacturing of its products.
20
Human Resources
As of December 31, 1997, the Company had 5,308 employees of which
2,888 were engaged in research and development, 999 were engaged in
sales and marketing and 1,421 were engaged in other areas. 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
28, 1998 and positions are as follows:
Mr. Gordon M. Binder, age 62, has served as a director of the
Company since October 1988. He joined the Company in 1982 as Vice
President-Finance and was named Senior Vice President-Finance in
February 1986. Mr. Binder was elected Chief Executive Officer in
October 1988 and Chairman of the Board in July 1990.
Mr. Kevin W. Sharer, age 49, has served as a director of the
Company since November 1992. He also has served as President and
Chief Operating Officer since October 1992. Prior to joining the
Company, Mr. Sharer served as President of the Business Markets
Division of MCI Communications Corporation, a telecommunications
company, from April 1989 to October 1992, and served in numerous
executive capacities at General Electric Company from February 1984 to
March 1989. Mr. Sharer also serves as a director of Unocal
Corporation.
Dr. N. Kirby Alton, age 47, became Senior Vice President,
Development, in August 1992, having served as Vice President,
Therapeutic Product Development, Responsible Head, from October 1988
to August 1992. Dr. Alton previously served as Director, Therapeutic
Product Development, from February 1986 to October 1988.
Mr. Robert S. Attiyeh, age 63, has served as Senior Vice
President, Finance and Corporate Development, since joining the
Company in July 1994. Prior to joining the Company, Mr. Attiyeh
served as a director of McKinsey & Company, a consulting firm, in its
Los Angeles, Japan and Scandinavian offices from 1967 to 1994.
Mr. Stanley M. Benson, age 46, has served as Senior Vice
President, Sales and Marketing, since joining the Company in June
1995. Prior to joining the Company, Mr. Benson held a number of
executive management positions at Pfizer Inc., a pharmaceutical
company, from 1987 to 1995.
Ms. Kathryn E. Falberg, age 37, became Vice President, Corporate
Controller and Chief Accounting Officer in June 1997, having served as
Vice President and Treasurer since December 1996, and having served as
Treasurer from January 1995 to December 1996. Prior to joining the
Company, Ms. Falberg had been Vice President, Chief Financial Officer
and Treasurer for Applied Magnetics Corporation, since May 1993 and
had been its Treasurer from 1991 to May 1993.
21
Dr. Dennis M. Fenton, age 46, became Senior Vice President,
Operations, in January 1995, having served as Senior Vice President,
Sales and Marketing, since August 1992, and having served as Vice
President, Process Development, Facilities and Manufacturing Services,
from July 1991 to August 1992. Dr. Fenton previously had served as
Vice President, Pilot Plant Operations and Clinical Manufacturing,
from October 1988 to July 1991, and as Director, Pilot Plant
Operations, from 1985 to October 1988.
Mr. Edward F. Garnett, age 50, became Vice President, Human
Resources, in October 1994, having served as Director, Sales and
Marketing Operations, since March 1994. Previously, Mr. Garnett had
served as Director, Logistics, from April 1990 to March 1994.
Mr. Daryl D. Hill, age 52, became Senior Vice President, Quality
and Compliance, in January 1997, having served as Senior Vice
President, Asia Pacific, from January 1994 to January 1997. Mr. Hill
previously had served as Vice President, Quality Assurance, from
October 1988 to January 1994, and as Director of Quality Assurance
from January 1984 to October 1988.
Dr. George Morstyn, age 47, became Vice President, Clinical
Development and Chief Medical Officer in September 1993, having served
as Vice President, Clinical and Medical Affairs from July 1991 to
September 1993.
Mr. Steven M. Odre, age 48, became Vice President, Intellectual
Property, and Associate General Counsel, in October 1988, having
served as Associate General Counsel since March 1988. From May 1986
to March 1988, he served as Director of Intellectual Property.
Dr. Lawrence M. Souza, age 44, became Senior Vice President,
Research, in May 1997, having served as Vice President, Exploratory
Research, since October 1988. Previously, Dr. Souza had served as
Director, Exploratory Research, from February 1986 to October 1988.
Mr. George A. Vandeman, age 58, has served as Senior Vice
President, General Counsel and Secretary since joining the Company in
June 1995. Prior to joining the Company, Mr. Vandeman was a partner
of Latham & Watkins, an international law firm, from June 1966 to July
1995.
Geographic Area Financial Information
For financial information concerning the geographic areas in
which the Company operates see Note 11 to the Consolidated Financial
Statements.
Factors That May Affect the Company
Amgen operates in a rapidly changing environment that involves a
number of risks, some of which are beyond the Company's control. The
following discussion highlights some of these risks and others are
discussed elsewhere herein.
22
Product development
The Company intends to continue an aggressive product development
program. Successful product development in the biotechnology industry
is highly uncertain, and only a small minority of research and
development programs ultimately result in the commercialization of a
product. Of the candidates that are selected for product development,
all will not be successfully commercialized. Product candidates that
appear promising in the early phases of development may fail to reach
the market for numerous reasons, including, without limitation,
results indicating lack of effectiveness or harmful side effects in
clinical or preclinical testing, failure to receive necessary
regulatory approvals, uneconomical manufacturing costs, the existence
of third party proprietary rights, failure to be cost effective in
light of existing therapeutics, or other factors. There can be no
assurance that the Company will be able to produce future products
that have commercial potential. Additionally, success in preclinical
and early clinical trials does not ensure that large scale clinical
trials will be successful. For example, the Company has previously
announced product development failures in connection with BDNF (for
subcutaneous injection for ALS), a product candidate that did not
produce acceptable clinical results in a specific indication with a
specific route of administration after a Phase III trial; although
this product candidate had demonstrated acceptable preclinical and
earlier clinical trial results sufficient to warrant advancement to a
later stage clinical trial. Further, clinical results are frequently
susceptible to varying interpretations which may delay, limit or
prevent further clinical development or regulatory approvals. The
length of time necessary to complete clinical trials and receive
approval for product marketing by regulatory authorities varies
significantly by product and indication and is often difficult to
predict. See "- Regulatory approvals".
Regulatory approvals
The Company's research and development, preclinical testing,
clinical trials, facilities, manufacturing, pricing, and sales and
marketing of its products are subject to extensive regulation by
numerous state and federal governmental authorities in the U.S., such
as the FDA, HCFA, as well as by foreign countries, including the EU.
The success of the Company's current products and future product
candidates will depend in part upon obtaining and maintaining
regulatory approval to market products in approved indications. The
regulatory approval process can be both a long and complex process,
both in the U.S. and in foreign countries, including countries in the
EU. Even if regulatory approval is obtained, a marketed product and
its manufacturer are subject to continued review. Later discovery of
previously unknown problems with a product or manufacturer may result
in restrictions on such product or manufacturer, including withdrawal
of the product from the market. Failure to obtain necessary
approvals, or the restriction, suspension or revocation of any
approvals or the failure to comply with regulatory requirements could
have a material adverse effect on the Company.
Reimbursement; Third party payors
In both domestic and foreign markets, sales of the Company's
products are dependent in part on the availability of reimbursement
23
from third party payors such as state and federal governments (for
example, under Medicare and Medicaid programs in the United States)
and private insurance plans. In certain foreign markets, pricing and
profitability of prescription pharmaceuticals are subject to
government controls. In the United States, there have been, and the
Company expects there to continue to be, a number of state and federal
proposals to implement price controls. In addition, an increasing
emphasis on managed care in the United States has and will continue to
increase the pressure on pharmaceutical pricing and usage. Further,
significant uncertainties exist as to the reimbursement status of
newly approved therapeutic products and current reimbursement policies
for existing products may change. Changes in reimbursement or failure
to obtain reimbursement may reduce the demand for, or the price of,
the Company's products which could have a material adverse effect on
the Company including results of operations. For example, patients in
the U.S. receiving EPOGEN(R) in connection with treatment for end
stage renal disease are covered primarily under medical programs
provided by the federal government. Therefore, EPOGEN(R) sales may be
affected by future changes in reimbursement rates or the basis for
reimbursement by the federal government. As the Company previously
announced, in early 1997, HCFA instituted a reimbursement change for
EPOGEN(R) which has adversely affected the Company's EPOGEN(R) sales.
See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Results of Operations - Product
Sales - EPOGEN(R) (Epoetin alfa)".
Guidelines
In addition to government agencies that promulgate regulations
and guidelines directly applicable to the Company and its products,
professional societies, practice management groups, private
health/science foundations and organizations involved in various
diseases may also publish, from time to time, guidelines or
recommendations to the health care and patient communities. These
organizations may make recommendations that affect the usage of
certain therapies, drugs or procedures, including the Company's
products. Such recommendations may relate to such matters as usage,
dosage, route of administration and use of concomitant therapies.
Recommendations or guidelines that are followed by patients and health
care providers and that result in, among other things, decreased use
of the Company's products could have a material adverse effect on the
Company's results of operations. In addition, the perception that
such recommendations or guidelines will be followed could adversely
affect prevailing market prices for the Company's common stock.
Intellectual property and legal matters
The patent positions of pharmaceutical and biotechnology
companies can be highly uncertain and often involve complex legal,
scientific and factual questions. To date, there has emerged no
consistent policy regarding breadth of claims allowed in such
companies' patents. Accordingly, there can be no assurance that
patents and patent applications relating to the Company's products and
technologies will not be challenged, invalidated or circumvented or
will afford protection against competitors with similar products or
technology. Patent disputes are frequent and can preclude
commercialization of products. The Company currently is, and may in
the future be, involved in patent litigation. Such litigation, if
24
decided adversely, could subject the Company to competition and/or
significant liabilities, could require the Company to enter into third
party licenses or could cause the Company to cease using the
technology or product in dispute. In addition, there can be no
assurance that such licenses will be available on terms acceptable to
the Company, or at all.
The Company is currently involved in arbitration proceedings with
Ortho Pharmaceutical Corporation, a subsidiary of Johnson & Johnson
("Johnson & Johnson"), relating to a license granted by the Company to
Johnson & Johnson for sales of Epoetin alfa in the United States for
all human uses except dialysis and diagnostics. See Note 4 to the
Consolidated Financial Statements, "Contingencies - Johnson & Johnson
arbitrations".
Competition
Amgen operates in a highly competitive environment. The Company
competes with pharmaceutical and biotechnology companies, some of
which may have technical or competitive advantages for, among other
things, the development of technologies and processes and the
acquisition of technology from academic institutions, government
agencies and other private and public research organizations. There
can be no assurance that the Company will be able to produce or
acquire rights to products that have commercial potential. Even if
the Company achieves product commercialization, there can be no
assurance that one or more of the Company's competitors will not
achieve product commercialization earlier than the Company, receive
patent protection that dominates or adversely affects the Company's
activities, or have significantly greater marketing capabilities.
Fluctuations in operating results
The Company's operating results may fluctuate from period to
period for a number of reasons. Historically the Company has planned
its operating expenses, many of which are relatively fixed in the
short term, on the basis that revenues will continue to grow.
Accordingly, even a relatively small revenue shortfall may cause a
period's results to be below Company expectations. Such a revenue
shortfall could arise from any number of factors, including, without
limitation, lower than expected demand, changes in wholesaler buying
patterns, changes in product pricing strategies, increased competition
from new and existing products, fluctuations in foreign currency
exchange rates, changes in government or private reimbursement,
transit interruptions, overall economic conditions or natural
disasters (including earthquakes).
Rapid growth
The Company has adopted an aggressive growth plan that includes
substantial and increased investments in research and development and
investments in facilities that will be required to support significant
growth. This plan carries with it a number of risks, including a
higher level of operating expenses and the complexities associated
with managing a larger and faster growing organization.
25
Stock price volatility
The Company's stock price, like that of other biotechnology
companies, is subject to significant volatility. The stock price may
be affected by, among other things, clinical trial results and other
product development related announcements by Amgen or its competitors,
regulatory matters, announcements in the scientific and research
community, intellectual property and legal matters, changes in
reimbursement policies or medical practices or broader industry and
market trends unrelated to the Company's performance. In addition, if
revenues or earnings in any period fail to meet the investment
community's expectations, there could be an immediate adverse impact
on the Company's stock price.
Item 2. PROPERTIES
Amgen's principal executive offices and a majority of its
administrative, manufacturing and research and development facilities
are located in 36 buildings in Thousand Oaks, California. Thirty-one
of the buildings are owned and five are leased. Adjacent to these
buildings are five facilities that are under construction and other
property acquired in anticipation of future expansion. The Thousand
Oaks, California facilities include manufacturing plants licensed by
various regulatory bodies that produce commercial quantities of
Epoetin alfa, NEUPOGEN(R) (Filgrastim) and INFERGEN (Interferon
alfacon-1).
Elsewhere in North America, Amgen owns eight buildings in
Boulder, Colorado housing research facilities and a pilot plant. The
Company also owns a distribution center in Louisville, Kentucky and
leases a research facility and administrative offices in Toronto,
Canada, an administrative office in Washington, D.C. and five regional
sales offices in the U.S. Amgen is building a new EPOGEN(R)
manufacturing plant, utility plant and a research and administrative
facility on a site in Longmont, Colorado. In 1997, the Company
entered into an agreement to acquire approximately 159 acres of
undeveloped land adjacent to this site to accommodate future
expansion. The Company also owns land in Cambridge, Massachusetts
which can accommodate the construction of a research facility.
Outside North America, the Company has a formulation, fill-and-
finish facility in Juncos, Puerto Rico and a European packaging and
distribution center in Breda, The Netherlands which have been licensed
by various regulatory bodies. The Company leases facilities in
thirteen European countries, Australia, Japan, Taiwan, Hong Kong and
the People's Republic of China for administration, marketing and
research and development.
Amgen believes that its current facilities plus anticipated
additions are sufficient to meet its needs for the next several years.
Item 3. LEGAL PROCEEDINGS
Certain of the Company's legal proceedings are discussed below
and in the Note 4 to the Consolidated Financial Statements,
"Contingencies". While it is impossible to predict accurately or to
26
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.
Elanex Pharmaceuticals litigation
In October 1993, the Company filed a complaint for patent
infringement against defendants Elanex Pharmaceuticals, Inc.
("Elanex"), Laboratorios Elanex De Costa Rica, S.A., Bio Sidus S.A.,
Merckle GmbH, Biosintetica S.A. and other unknown defendants. The
complaint, filed in the United States District Court for the Western
District of Washington in Seattle, seeks injunctive relief and damages
for Elanex's infringement of the Company's patent for DNA sequences
and host cells useful in producing recombinant erythropoietin. The
complaint also alleges that the foreign defendants entered into
agreements with Elanex relating to the production or sale of
recombinant erythropoietin and thereby have induced Elanex's
infringement.
In December 1993, Elanex responded to the complaint denying the
material allegations thereof, and filed a counterclaim seeking a
declaratory judgment that the Company's patent is invalid and that
Elanex's recombinant erythropoietin technology does not infringe any
valid claims of the Company's patent. The counterclaim also seeks an
award of reasonable attorneys' fees and other costs of defense but
does not seek damages against the Company. The case is currently in
discovery. In February 1996, Merckle GmbH was dismissed from the
case.
Biogen litigation
On March 10, 1995, Biogen Inc. ("Biogen"), filed suit in the
United States District Court for the District of Massachusetts
alleging infringement by the Company of certain claims of U.S. Patent
4,874,702 (the "`702 Patent"), relating to vectors for expressing
cloned genes. Biogen alleges that Amgen has infringed its patent by
manufacturing and selling NEUPOGEN(R). On March 28, 1995, Biogen
filed an amended complaint further alleging that the Company is also
infringing the claims of two additional patents allegedly assigned to
Biogen, U.S. Patent 5,401,642 (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. The amended complaint
seeks injunctive relief, unspecified compensatory damages and treble
damages. On April 24, 1995, the Company answered Biogen's amended
complaint, denying its material allegations and pleading
counterclaims for declaratory judgment of non-infringement, patent
invalidity and unenforceability. On January 19, 1996, the Court
decided, upon Biogen's motion to dismiss certain of Amgen's
counterclaims, that it will exert jurisdiction over claims 9 and 17
of the `702 Patent, and dismissed all claims and counterclaims
relating to any other claims of the `702 Patent. Amgen moved for
summary judgment of invalidity of claim 9 of the `702 Patent. On
July 7, 1997, the Company's summary judgment motion was denied. On
August 14, 1997, Amgen filed a Motion for Reconsideration of the
Courts ruling on invalidity of claim 9 of the `702 patent. On
October 20, 1997, the Motion for Reconsideration was also denied.
These denials are not dispositive of the case, and the effect of the
ruling is to reserve certain issues for trial. On October 22, 1997,
27
Amgen moved for summary judgment of invalidity of the certain claims
of the `702 and `658 Patents based on prior public uses of the
claimed subject matter. Amgen concurrently moved for a partial
interpretation of the claims at issue. In addition, on October 24,
1997, Amgen filed a motion for summary judgment of invalidity of
particular claims of the patents-in-suit based on abandonment of the
invention. Amgen also concurrently filed a motion to dismiss the
lawsuit in its entirety based on Biogen's lack of standing to bring
the lawsuit in view of Biogen's lack of ownership of the patents-in-
suit. Both parties have submitted claim construction briefs with the
court. On January 15, 1998, Amgen filed a second motion to dismiss
for lack of subject matter jurisdiction and standing in view of
Biogen's lack of necessary ownership rights in the patents-in-suit.
On March 20, 1998, the court held a claim construction hearing. The
court heard oral argument and took the submission under advisement;
no decision has been issued yet. Discovery in the case is
substantially completed. A trial date has not been set.
In a separate matter, on July 30, 1997, Biogen filed a complaint
in the United States District Court for the District of Massachusetts
in Boston alleging that Amgen infringes claims 9 and 17 of the `702
Patent, and the `642 Patent and `658 Patent by making and using the
claimed subject matter in the United States in the manufacture of
INFERGEN(R), the Company's consensus interferon product. On
September 17, 1997, Amgen responded to the Complaint by filing a
motion to dismiss the case in its entirety due to Biogen's lack of
standing to bring the lawsuit in view of Biogen's lack of ownership
of the patents-in-suit. Amgen also filed a motion for summary
judgment of patent invalidity of particular claims of the patents-in-
suit due to abandonment of the invention. Biogen moved to
consolidate this case with above-described case pertaining to
NEUPOGEN(R); on November 16, 1997 the Court denied Biogen's motion to
consolidate. The Court has ordered the Company to file an answer to
Biogen's complaint but has stayed all discovery in this matter until
certain discovery in the NEUPOGEN(R) matter described above is
completed. The Company has filed a motion to dismiss the complaint
on the grounds that the Court lacks jurisdiction over the matter as
Biogen lacks the necessary ownership rights to afford it standing. A
trial date has not been set.
INFERGEN(R) litigation
On June 15, 1994, Biogen filed suit in the Tokyo District Court
in Japan, against Amgen K.K., a subsidiary of the Company, seeking
injunctive relief for the alleged infringement of two Japanese patents
relating to alpha-interferon by the clinical use of INFERGEN(R), the
Company's consensus interferon product. Amgen K.K. has answered the
complaint and has denied the allegations of infringement. On January
30, 1998, Biogen withdrew its complaint thereby terminating the
action.
On December 20, 1995, Roche Holding A.G., parent corporation of
F. Hoffmann-La Roche and Company, filed suit in the Tokyo District
Court in Japan, against Amgen K.K., a subsidiary of the Company,
seeking injunctive relief for the alleged infringement of a patent
relating to alpha-interferon by the clinical use of INFERGEN(R). The
Company subsequently answered the complaint, denying allegations of
infringement. On February 9, 1998, the Tokyo District Court issued
28
its decision to dismiss the action due to a lack of legal or factual
basis supporting the requested relief.
On December 3, 1996, Schering Corporation filed suit in the U.S.
District Court for the District of Delaware (the "Delaware Court")
against the Company alleging infringement of U.S. Patent No. 4,530,901
(the "`901 Patent") by the manufacture and use of INFERGEN(R). The
complaint seeks unspecified damages and injunctive relief. The
Company filed a motion to dismiss (the "Motion to Dismiss") the action
on January 24, 1997. On January 22, 1997, the Company filed an action
for declaratory relief in the United States District Court for the
Central District of California in Los Angeles naming Biogen Inc. and
Schering Corporation as parties. The action seeks a declaration that
the `901 Patent is not infringed by the Company's use of INFERGEN(R)
and/or that the `901 Patent is invalid. By agreement between the
parties, the Motion to Dismiss was withdrawn and a motion to transfer
the case to California was filed on March 10, 1997. On June 24, 1997,
the Delaware Court denied Amgen's motion to transfer and the case is
now proceeding in Delaware. Pursuant to an agreement between the
parties, Amgen withdrew its complaint filed in California. Biogen has
been added as a plaintiff in the Delaware action. The action is
ongoing and is in the discovery phase.
See, also, "Biogen litigation", above.
Genentech litigation
On October 16, 1996, Genentech, Inc. filed suit in the United
States District Court for the Northern District of California seeking
an unspecified amount of compensatory damages, treble damages and
injunctive relief on its U.S. Patents 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, Inc. alleges that Amgen has infringed its patents by
manufacturing and selling NEUPOGEN(R). On December 2, 1996, Amgen
was served with this lawsuit. On January 21, 1997, the Company
answered the complaint and asserted counterclaims relating to
invalidity and non-infringement of the patents-in-suit. On February
10, 1997, Genentech, Inc. served Amgen with a reply to the
counterclaim and an additional counterclaim asserting U.S. Patent
5,583,013 (the "`013 Patent"), issued December 10, 1996, seeking
relief similar to that sought for the `362, `619 and `832 Patents.
On March 31, 1997, Amgen answered this pleading and asserted
counterclaims relating to invalidity and non-infringement of the `013
Patent. Discovery is currently ongoing. The parties are in the
process of exchanging papers pertaining to interpretation of the
patent claims.
Transkaryotic Therapies and Hoechst litigation
On April 15, 1997, Amgen filed suit in the United States District
Court in Boston Massachusetts against Transkaryotic Therapies Inc.
("TKT") and Hoechst Marion Roussel alleging infringement of several
U.S. patents owned by Amgen that claim an erythropoietin product and
processes for making erythropoietin. The suit seeks an injunction
preventing the defendants from making, importing, using or selling
erythropoietin in the U.S. On July 9, 1997, the Court denied TKT's
motion to dismiss the lawsuit on the pleadings. On January 27, 1998,
29
a hearing was held on the defendants' motion for summary judgment to
dismiss the lawsuit based on the clinical trial exemption; also
pending before the court was Amgen's summary judgment motion for
infringement. The court heard oral argument and took the submission
under advisement; no decision has been issued yet. Discovery in the
case is ongoing.
FoxMeyer Health Corporation
On January 10, 1997, FoxMeyer Health Corporation, now known as
Avatex Corporation ("Avatex"), filed suit (the "FoxMeyer Lawsuit") in
the District Court of Dallas County, Dallas, Texas, alleging that
defendant McKesson Corporation ("McKesson") defrauded Avatex, misused
confidential information received from Avatex about subsidiaries of
Avatex (FoxMeyer Corporation and FoxMeyer Drug Corporation,
collectively the "FoxMeyer Subsidiaries"), and attempted to
monopolize the market for pharmaceutical and health care product
distribution by attempting to injure or destroy the FoxMeyer
Subsidiaries. The Company is named as one of twelve "Manufacturer
Defendants" alleged to have conspired with McKesson Corporation in
doing, among other things, the above and (i) inducing Avatex to
refrain from seeking other suitable purchasers for the FoxMeyer
Subsidiaries and (ii) causing Avatex to believe that McKesson was
serious about purchasing Avatex's assets at fair value, when, in
fact, McKesson was not. The Manufacturer Defendants and McKesson are
also alleged to have intentionally and tortiously interfered with a
number of business expectancies and opportunities. The complaint
seeks from the Manufacturer Defendants and McKesson compensatory
damages of at least $400 million and punitive damages in an
unspecified amount, as well as Avatex's costs and attorney's fees.
The Company has filed an answer denying Avatex's allegations. The
matter has been transferred to the Federal Bankruptcy Court in
Dallas, Texas (the "Texas Bankruptcy Court"). The Manufacturer
Defendants subsequently sought to transfer the matter to the Federal
Bankruptcy Court in Delaware (the "Delaware Bankruptcy Court"), where
the FoxMeyer Subsidiaries' Chapter 7 bankruptcy action is pending.
On August 27, 1997, the Texas Bankruptcy Court denied the motion to
transfer venue to the Delaware Bankruptcy Court, but decided that it
would adhere to any decision made by the Delaware Bankruptcy Court
regarding, among other things, ownership of claims asserted by
Avatex, as described below. McKesson and the Manufacturer Defendants
have intervened in an action brought by the Chapter 7 trustee in the
Delaware Bankruptcy Court that seeks to enjoin the FoxMeyer Lawsuit
and have moved for partial summary judgment in that proceeding,
asserting that Avatex is not the owner of the alleged causes of
action. On November 3, 1997, McKesson and the Manufacturer
Defendants moved for summary judgment in the Delaware Bankruptcy
Court to preclude Avatex and the Chapter 7 trustee from litigating in
Delaware the claims brought in the Texas Bankruptcy Court. This
motion has been fully briefed in the Delaware Bankruptcy Court and is
awaiting decision. On January 9, 1998, the Delaware Bankruptcy Court
judge informed the parties that she will not rule on this pending
summary judgment motion before she retires from the bench and that
the motion will have to be reassigned; since then, an interim judge
has been appointed. To date, no discovery has occurred in either the
Texas Bankruptcy Court adversary proceedings or the Delaware
Bankruptcy Court adversary proceedings.
30
Synergen ANTRIL(TM) litigation
Johnson v. Amgen Boulder Inc. (formerly Synergen Inc.), et al.,
began as two suits filed in February 1995 in the Superior Court for
the State of Washington, King County and in the United States
District Court for the Western District of Washington (the "Court")
related to the development of ANTRIL(TM) (Synergen Inc.'s trade name
for IL-1ra) for the treatment of sepsis in which the plaintiffs seek
rescission of certain payments made to one of the defendants (or
unspecified compensatory damages not less than $52 million) and
treble damages. The two cases were consolidated into one case in
Court and the consolidated case was certified as a class action
lawsuit. Plaintiff, a limited partner of defendant Synergen Clinical
Partners, L.P. (the "Partnership"), represents a class of other
limited partners. The consolidated complaint, and as subsequently
amended, alleges violations of federal and state securities laws,
violations of other federal and state statutes, fraud,
misrepresentation and breach of fiduciary duty. The defendants
include Amgen Boulder Inc., the Partnership, Amgen Boulder
Development Corporation (formerly Synergen Development Corporation)
and certain officers and directors of the former Synergen Inc.
Defendants answered the complaint, as amended, denying plaintiffs'
claims and asserting various affirmative defenses. In August and
September 1996, the parties filed cross motions for summary judgment.
The Court heard arguments on November 1, 1996, but did not rule. On
February 7, 1997, the Court preliminarily approved a settlement
between the class and the defendants. Following an objection to the
settlement by a member of the class, on December 2, 1997, the class
and the defendants entered into a supplement to the settlement. The
settlement, as supplemented, provides that the plaintiff class, which
includes certain of the limited partners of the Partnership, will
receive an initial cash payment of $16.5 million (including up to $3
million as payment to plaintiffs' counsel) in exchange for the
transfer of ownership of their partnership units, dismissal of the
suit with prejudice and the exchange by the parties of mutual
releases. In addition, if the FDA should grant approval to market
IL-1ra (as more specifically defined in the related settlement
agreement) in the U.S., up to an additional $10 million will be
payable to the class (including up to $1 million as payment to
plaintiffs' counsel), and if product revenues for IL-1ra (as more
specifically defined in the related settlement agreement) exceed $650
million by December 31, 2020, up to an additional $55 million will be
payable to the class (including up to $5 million as payment to
plaintiffs' counsel). On January 16, 1998, the Court granted final
approval of the settlement and entered judgment dismissing the
action. That judgment and the settlement have become final.
Johnson & Johnson arbitrations
The Company is engaged in arbitration proceedings with one of its
licensees. See Note 4 to the Consolidated Financial Statements,
"Contingencies - Johnson & Johnson arbitrations".
31
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,
1997.
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 March 11, 1998, there were approximately
14,000 holders of record of the Company's common stock. No cash
dividends have been paid on the common stock to date, and the Company
currently intends to retain any earnings for development of the
Company's business and for repurchases of its common stock.
The following table sets forth, for the fiscal periods indicated,
the range of high and low closing sales prices of the common stock as
quoted on The Nasdaq Stock Market for the years 1997 and 1996:
High Low
------- --------
1997
4th Quarter ................. $54-1/8 $45-15/16
3rd Quarter ................. 61-3/4 46-15/16
2nd Quarter ................. 68-3/8 55-7/8
1st Quarter ................. 63 53
1996
4th Quarter ................. $64 $54-3/8
3rd Quarter ................. 63-3/8 51-1/2
2nd Quarter ................. 61 52-3/8
1st Quarter ................. 65-1/2 52-3/4
32
Item 6. SELECTED FINANCIAL DATA
(in million, except per share data)
Years ended December 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Consolidated Statement
of Operations Data:
Revenues:
Product sales .......$2,219.8 $2,088.2 $1,818.6 $1,549.6 $1,306.3
Other revenues ...... 181.2 151.6 121.3 98.3 67.5
Total revenues ........ 2,401.0 2,239.8 1,939.9 1,647.9 1,373.8
Research and
development expenses 630.8 528.3 451.7 323.6 255.3
Write-off of in-
process technology
purchased ........... - - - 116.4 -
Marketing and selling
expenses ............ 302.0 310.1 272.9 236.9 214.1
General and admini-
strative expenses ... 181.8 160.5 145.5 122.9 114.3
Legal
assessment(award) ... 157.0 - - - (13.9)
Net income(1) ......... 644.3 679.8 537.7 319.7 383.3
Diluted earnings per
share(1) ............ 2.35 2.42 1.92 1.14 1.33
Cash dividends
declared per share .. - - - - -
At December 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Consolidated Balance
Sheet Data:
Total assets ..........$3,110.2 $2,765.6 $2,432.8 $1,994.1 $1,765.5
Long-term debt ........ 229.0 59.0 177.2 183.4 181.2
Stockholders' equity .. 2,139.3 1,906.3 1,671.8 1,274.3 1,172.0
(1) Includes a legal assessment of $157 million, or $.35 per share,
related to arbitration proceedings with Johnson & Johnson in 1997
(see Note 4 to the Consolidated Financial Statements). Also
includes the write-off of in-process technology purchased of
$116.4 million, or $.42 per share, associated with the
acquisition of Synergen in 1994. Also includes an increase to
net income of $8.7 million, or $.03 per share, to reflect the
cumulative effect of a change in accounting principle to adopt
Statement of Financial Accounting Standards No. 109 in 1993.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RES