Edgar Filing: AMGEN INC

AMGN-2015.3.31-10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)



þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2015



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 000-12477

Amgen Inc.

(Exact name of registrant as specified in its charter)



Delaware		95-3540776
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

One Amgen Center Drive, Thousand Oaks, California		91320-1799
(Address of principal executive offices)		(Zip Code)

(805) 447-1000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or Section 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer þ	Accelerated filer ¨	Non-accelerated filer ¨ (Do not check if a smaller reporting company)	Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes ¨ No þ

As of April 20, 2015, the registrant had 760,323,664 shares of common stock, $0.0001 par value, outstanding.

AMGEN INC.

INDEX



		Page No.
PART I - FINANCIAL INFORMATION		1
Item 1.	FINANCIAL STATEMENTS	1
	CONDENSED CONSOLIDATED STATEMENTS OF INCOME	1
	CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME	2
	CONDENSED CONSOLIDATED BALANCE SHEETS	3
	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS	4
	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	5
Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	21
Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	30
Item 4.	CONTROLS AND PROCEDURES	31
PART II - OTHER INFORMATION		31
Item 1.	LEGAL PROCEEDINGS	31
Item 1A.	RISK FACTORS	31
Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	32
Item 6.	EXHIBITS	32
SIGNATURES		33
INDEX TO EXHIBITS		34

PART I — FINANCIAL INFORMATION



Item 1.	FINANCIAL STATEMENTS

AMGEN INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In millions, except per share data)

(Unaudited)



	Three months ended
	March 31,
	2015		2014
Revenues:
Product sales	$	4,874	$	4,356
Other revenues	159		165
Total revenues	5,033		4,521

Operating expenses:
Cost of sales	1,033		1,090
Research and development	894		1,027
Selling, general and administrative	1,026		1,023
Other	58		17
Total operating expenses	3,011		3,157

Operating income	2,022		1,364

Interest expense, net	252		259
Interest and other income, net	106		99

Income before income taxes	1,876		1,204

Provision for income taxes	253		131

Net income	$	1,623	$	1,073

Earnings per share:
Basic	$	2.13	$	1.42
Diluted	$	2.11	$	1.40

Shares used in calculation of earnings per share:
Basic	761		757
Diluted	770		768

Dividends paid per share	$	0.79	$	0.61

See accompanying notes.

AMGEN INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)



	Three months ended
	March 31,
	2015			2014
Net income	$	1,623		$	1,073
Other comprehensive income (loss), net of reclassification adjustments and taxes:
Foreign currency translation losses	(173		)	(8		)
Effective portion of cash flow hedges	178			2
Net unrealized gains on available-for-sale securities	140			40
Other	—			1
Other comprehensive income, net of tax	145			35
Comprehensive income	$	1,768		$	1,108

See accompanying notes.

AMGEN INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except per share data)

(Unaudited)



	March 31, 2015			December 31, 2014
ASSETS
Current assets:
Cash and cash equivalents	$	2,864		$	3,731
Marketable securities	24,254			23,295
Trade receivables, net	2,548			2,546
Inventories	2,686			2,647
Other current assets	2,712			2,494
Total current assets	35,064			34,713

Property, plant and equipment, net	5,123			5,223
Intangible assets, net	12,265			12,693
Goodwill	14,721			14,788
Other assets	1,779			1,592
Total assets	$	68,952		$	69,009

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	888		$	1,212
Accrued liabilities	4,948			5,296
Current portion of long-term debt	500			500
Total current liabilities	6,336			7,008

Long-term debt	29,841			30,215
Long-term deferred tax liability	3,330			3,461
Other noncurrent liabilities	2,939			2,547

Contingencies and commitments

Stockholders’ equity:
Common stock and additional paid-in capital; $0.0001 par value; 2,750.0 shares authorized; outstanding - 760.4 shares in 2015 and 760.4 shares in 2014	30,420			30,410
Accumulated deficit	(4,051		)	(4,624		)
Accumulated other comprehensive gain/(loss)	137			(8		)
Total stockholders’ equity	26,506			25,778
Total liabilities and stockholders’ equity	$	68,952		$	69,009

See accompanying notes.

AMGEN INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)



	Three months ended
	March 31,
	2015			2014
Cash flows from operating activities:
Net income	$	1,623		$	1,073
Depreciation and amortization	524			518
Stock-based compensation expense	70			87
Other items, net	(241		)	(8		)
Changes in operating assets and liabilities, net of acquisitions:
Trade receivables, net	(9		)	180
Inventories	51			(3		)
Other assets	(139		)	(181		)
Accounts payable	(312		)	92
Accrued income taxes	85			(48		)
Other liabilities	(323		)	(568		)
Net cash provided by operating activities	1,329			1,142
Cash flows from investing activities:
Purchases of property, plant and equipment	(118		)	(172		)
Cash paid for acquisitions, net of cash acquired	—			(104		)
Purchases of marketable securities	(6,931		)	(2,884		)
Proceeds from sales of marketable securities	4,999			1,811
Proceeds from maturities of marketable securities	1,201			957
Change in restricted investments	—			(329		)
Other	(103		)	(44		)
Net cash used in investing activities	(952		)	(765		)
Cash flows from financing activities:
Repayment of debt	(125		)	(125		)
Repurchases of common stock	(464		)	—
Dividends paid	(599		)	(460		)
Net proceeds from issuance of common stock in connection with the Company’s equity award programs	18			38
Settlement of contingent consideration obligation	(225		)	—
Other	151			52
Net cash used in financing activities	(1,244		)	(495		)
Decrease in cash and cash equivalents	(867		)	(118		)
Cash and cash equivalents at beginning of period	3,731			3,805
Cash and cash equivalents at end of period	$	2,864		$	3,687

See accompanying notes.

AMGEN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2015

(Unaudited)

1. Summary of significant accounting policies

Business

Amgen Inc. (including its subsidiaries, referred to as “Amgen,” “the Company,” “we,” “our” or “us”) is a global biotechnology pioneer that discovers, develops, manufactures and delivers innovative human therapeutics. We operate in one business segment: human therapeutics.

Basis of presentation

The financial information for the three months ended March 31, 2015 and 2014, is unaudited but includes all adjustments (consisting of only normal recurring adjustments, unless otherwise indicated), which Amgen considers necessary for a fair presentation of its condensed consolidated results of operations for those periods. Interim results are not necessarily indicative of results for the full fiscal year.

The condensed consolidated financial statements should be read in conjunction with our consolidated financial statements and the notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2014.

Principles of consolidation

The condensed consolidated financial statements include the accounts of Amgen as well as its majority-owned subsidiaries. We do not have any significant interests in any variable interest entities. All material intercompany transactions and balances have been eliminated in consolidation.

Use of estimates

The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results may differ from those estimates.

Property, plant and equipment, net

Property, plant and equipment is recorded at historical cost, net of accumulated depreciation and amortization of $7.2 billion and $7.0 billion as of March 31, 2015, and December 31, 2014, respectively.

Recent accounting pronouncements

In May 2014, a new accounting standard was issued that amends the guidance for the recognition of revenue from contracts with customers to transfer goods and services. This new standard will be effective for interim and annual periods beginning January 1, 2017, and is required to be adopted using either a full retrospective or a modified retrospective approach, and early adoption is not permitted. We are currently evaluating the impact that this new standard will have on our financial statements.

In April 2015, a new accounting standard was issued that amends the presentation for debt issuance costs. Upon adoption, such costs shall be presented on our consolidated balance sheets as a direct deduction from the carrying amount of the related debt liability and not as a deferred charge presented in Other assets on our consolidated balance sheets. This new standard will be effective for interim and annual periods beginning on January 1, 2016, and is required to be retrospectively adopted. Adoption of this new standard is not expected to have a material impact on our consolidated balance sheets or related disclosures.

2. Restructuring

During the second half of 2014, we initiated a restructuring plan to invest in continuing innovation and the launch of our new pipeline molecules, while improving our cost structure. As part of the plan, we stated that we would reduce our staff by 3,500 to 4,000 by the end of 2015, close our facilities in Washington state and Colorado and reduce the number of buildings at our headquarters in Thousand Oaks, California.

We continue to estimate that $935 million to $1,035 million of pre-tax restructuring charges will be incurred in connection with the implementation of our restructuring plan, of which $650 million has been incurred through March 31, 2015. Included in these amounts are: (i) separation costs of $535 million to $585 million with respect to the staff reductions, and (ii) asset-related

charges of $400 million to $450 million consisting primarily of asset impairments, accelerated depreciation and other related costs resulting from the consolidation of our worldwide facilities.

During the three months ended March 31, 2015, we incurred $92 million of restructuring costs. We expect that substantially all remaining restructuring actions and related estimated costs, as discussed above, will be incurred during the remainder of 2015 to support our ongoing transformation and process improvement efforts.

The following table summarizes the charges recorded related to the restructuring plan by type of activity and the locations recognized within the Condensed Consolidated Statement of Income (in millions):



	During the three months ended March 31, 2015
	Separation costs		Asset impairments		Accelerated depreciation		Other		Total
Cost of sales	$	—	$	—	$	13	$	1	$	14
Research and development	—		—		14		3		17
Selling, general and administrative	—		—		1		3		4
Other	48		—		—		9		57
Total	$	48	$	—	$	28	$	16	$	92

Asset impairment and accelerated depreciation charges were recognized in connection with our decision to exit Boulder and Longmont, Colorado, Bothell and Seattle, Washington and the consolidation of facilities in Thousand Oaks, California. The decision to accelerate the closure of these manufacturing and research and development (R&D) facilities was principally based on optimizing the utilization of our sites in the United States, which includes an expansion of our presence in the key U.S. biotechnology hubs of South San Francisco, California and Cambridge, Massachusetts.

The following table summarizes the charges and spending related to the restructuring plan (in millions):



	During the three months ended March 31, 2015
	Separation costs			Other			Total
Restructuring liabilities as of December 31, 2014	$	221		$	23		$	244
Expense	48			9			57
Payments	(99		)	(10		)	(109		)
Restructuring liabilities as of March 31, 2015	$	170		$	22		$	192

3. Income taxes

The effective tax rate for the three months ended March 31, 2015, was 13.5% compared with 10.9% for the corresponding period of the prior year. The effective rates are different from the federal statutory rates primarily as a result of indefinitely reinvested earnings of our foreign operations. We do not provide for U.S. income taxes on undistributed earnings of our foreign operations that are intended to be invested indefinitely outside of the United States. In addition, the effective tax rates for both periods were reduced by foreign tax credits associated with the Puerto Rico excise tax described below.

The increase in our effective tax rate for the three months ended March 31, 2015, was due primarily to the unfavorable tax impact of changes in the jurisdictional mix of income and expenses, offset partially by a state tax audit settlement in the three months ended March 31, 2015.

Puerto Rico imposes an excise tax on the gross intercompany purchase price of goods and services from our manufacturing subsidiary in Puerto Rico. The rate is 4.0% effective July 1, 2013 through December 31, 2017. We account for the excise tax as a manufacturing cost that is capitalized in inventory and expensed in cost of sales when the related products are sold. For U.S. income tax purposes, the excise tax results in foreign tax credits that are generally recognized in our provision for income taxes when the excise tax is incurred.

One or more of our legal entities file income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions and certain foreign jurisdictions. Our income tax returns are routinely audited by the tax authorities in those jurisdictions. Significant disputes may arise with these tax authorities involving issues of the timing and amount of income and deductions, the use of tax credits and allocations of income among various tax jurisdictions because of differing interpretations of tax laws and regulations. We are no longer subject to U.S. federal income tax examinations for years ended on or before December 31, 2009, or to California state income tax examinations for years ended on or before December 31, 2008.

During the three months ended March 31, 2015, the gross amount of our unrecognized tax benefits (UTBs) increased by approximately $100 million as a result of tax positions taken during the current year. The UTB balance decreased by approximately $70 million during the first quarter of 2015 due to a state tax audit settlement. Substantially all of the UTBs as of March 31, 2015, if recognized, would affect our effective tax rate.

4. Earnings per share

The computation of basic earnings per share (EPS) is based on the weighted-average number of our common shares outstanding. The computation of diluted EPS is based on the weighted-average number of our common shares outstanding and dilutive potential common shares, which include principally shares that may be issued under our stock option awards and restricted stock and performance unit awards, determined using the treasury stock method (collectively “dilutive securities”).

The computation for basic and diluted EPS was as follows (in millions, except per share data):



	Three months ended
	March 31,
	2015		2014
Income (Numerator):
Net income for basic and diluted EPS	$	1,623	$	1,073

Shares (Denominator):
Weighted-average shares for basic EPS	761		757
Effect of dilutive securities	9		11
Weighted-average shares for diluted EPS	770		768

Basic EPS	$	2.13	$	1.42
Diluted EPS	$	2.11	$	1.40

For the three months ended March 31, 2015 and 2014, the number of anti-dilutive employee stock-based awards excluded from the computation of diluted EPS was not significant.

5. Available-for-sale investments

The amortized cost, gross unrealized gains, gross unrealized losses and estimated fair values of available-for-sale investments by type of security were as follows (in millions):



Type of security as of March 31, 2015	Amortized cost		Gross unrealized gains		Gross unrealized losses			Estimated fair value
U.S. Treasury securities	$	3,246	$	39	$	(1	)	$	3,284
Other government-related debt securities:
U.S.	516		2		—			518
Foreign and other	1,690		41		(6		)	1,725
Corporate debt securities:
Financial	6,525		56		(5		)	6,576
Industrial	6,872		60		(30		)	6,902
Other	672		7		(1		)	678
Residential mortgage-backed securities	1,600		10		(6		)	1,604
Other mortgage- and asset-backed securities	1,708		3		(37		)	1,674
Money market mutual funds	2,035		—		—			2,035
Other short-term interest-bearing securities	1,520		—		—			1,520
Total interest-bearing securities	26,384		218		(86		)	26,516
Equity securities	98		62		(2		)	158
Total available-for-sale investments	$	26,482	$	280	$	(88	)	$	26,674



Type of security as of December 31, 2014	Amortized cost		Gross unrealized gains		Gross unrealized losses			Estimated fair value
U.S. Treasury securities	$	3,632	$	22	$	(8	)	$	3,646
Other government-related debt securities:
U.S.	530		1		(3		)	528
Foreign and other	1,572		21		(24		)	1,569
Corporate debt securities:
Financial	6,036		21		(16		)	6,041
Industrial	6,394		23		(66		)	6,351
Other	650		3		(4		)	649
Residential mortgage-backed securities	1,708		4		(10		)	1,702
Other mortgage- and asset-backed securities	1,837		—		(41		)	1,796
Money market mutual funds	3,004		—		—			3,004
Other short-term interest-bearing securities	1,302		—		—			1,302
Total interest-bearing securities	26,665		95		(172		)	26,588
Equity securities	98		48		(2		)	144
Total available-for-sale investments	$	26,763	$	143	$	(174	)	$	26,732

The fair values of available-for-sale investments by classification in the Condensed Consolidated Balance Sheets were as follows (in millions):



Classification in the Condensed Consolidated Balance Sheets	March 31, 2015		December 31, 2014
Cash and cash equivalents	$	2,262	$	3,293
Marketable securities	24,254		23,295
Other assets — noncurrent	158		144
Total available-for-sale investments	$	26,674	$	26,732

Cash and cash equivalents in the table above excludes cash of $602 million and $438 million as of March 31, 2015, and December 31, 2014, respectively.

The fair values of available-for-sale interest-bearing security investments by contractual maturity, except for mortgage- and asset-backed securities that do not have a single maturity date, were as follows (in millions):



Contractual maturity	March 31, 2015		December 31, 2014
Maturing in one year or less	$	4,015	$	4,936
Maturing after one year through three years	7,428		6,829
Maturing after three years through five years	8,146		7,840
Maturing after five years through ten years	3,471		3,267
Maturing after ten years	178		218
Mortgage- and asset-backed securities	3,278		3,498
Total interest-bearing securities	$	26,516	$	26,588

For the three months ended March 31, 2015 and 2014, realized gains totaled $36 million and $28 million, respectively, and realized losses totaled $71 million and $26 million, respectively. The cost of securities sold is based on the specific identification method.

The unrealized losses on available-for-sale investments and their related fair values were as follows (in millions):



	Less than 12 months					12 months or greater
Type of security as of March 31, 2015	Fair value		Unrealized losses			Fair value		Unrealized losses
U.S. Treasury securities	$	635	$	(1	)	$	30	$	—
Other government-related debt securities:
U.S.	86		—			35		—
Foreign and other	281		(4		)	71		(2		)
Corporate debt securities:
Financial	859		(4		)	65		(1		)
Industrial	2,188		(27		)	170		(2		)
Other	159		(2		)	—		—
Residential mortgage-backed securities	320		(2		)	277		(4		)
Other mortgage- and asset-backed securities	462		(7		)	456		(30		)
Equity securities	5		(2		)	—		—
Total	$	4,995	$	(49	)	$	1,104	$	(39	)



	Less than 12 months					12 months or greater
Type of security as of December 31, 2014	Fair value		Unrealized losses			Fair value		Unrealized losses
U.S. Treasury securities	$	1,770	$	(7	)	$	171	$	(1	)
Other government-related debt securities:
U.S.	160		—			178		(3		)
Foreign and other	514		(14		)	159		(10		)
Corporate debt securities:
Financial	3,150		(14		)	158		(2		)
Industrial	3,931		(62		)	222		(4		)
Other	354		(4		)	5		—
Residential mortgage-backed securities	614		(4		)	413		(6		)
Other mortgage- and asset-backed securities	1,071		(8		)	561		(33		)
Equity securities	5		(2		)	—		—
Total	$	11,569	$	(115	)	$	1,867	$	(59	)

The primary objective of our investment portfolio is to enhance overall returns in an efficient manner while maintaining safety of principal, prudent levels of liquidity and acceptable levels of risk. Our investment policy limits interest-bearing security investments to certain types of debt and money market instruments issued by institutions with primarily investment grade credit ratings and places restrictions on maturities and concentration by asset class and issuer.

We review our available-for-sale investments for other-than-temporary declines in fair value below our cost basis each quarter and whenever events or changes in circumstances indicate that the cost basis of an asset may not be recoverable. This evaluation is based on a number of factors, including the length of time and the extent to which the fair value has been below our cost basis and adverse conditions related specifically to the security, including any changes to the credit rating of the security, and the intent to sell, or whether we will more likely than not be required to sell, the security before recovery of its amortized cost basis. Our assessment of whether a security is other-than-temporarily impaired could change in the future due to new developments or changes in assumptions related to any particular security. As of March 31, 2015, and December 31, 2014, we believe the cost bases for our available-for-sale investments were recoverable in all material respects.

6. Inventories

Inventories consisted of the following (in millions):



	March 31, 2015		December 31, 2014
Raw materials	$	212	$	198
Work in process	1,282		1,551
Finished goods	1,192		898
Total inventories	$	2,686	$	2,647

7. Goodwill and other intangible assets

Goodwill

The changes in the carrying amounts of goodwill were as follows (in millions):



	Three months ended March 31,
	2015			2014
Beginning balance	$	14,788		$	14,968
Goodwill related to acquisitions of businesses⁽¹⁾	—			(130		)
Currency translation and other adjustments	(67		)	(6		)
Ending balance	$	14,721		$	14,832


⁽¹⁾	Composed of goodwill recognized on the acquisition dates of business combinations and subsequent adjustments to these amounts resulting from changes to the acquisition date fair values of net assets acquired in the business combinations recorded during their respective measurement periods.

Identifiable intangible assets

Identifiable intangible assets consisted of the following (in millions):



	March 31, 2015							December 31, 2014
	Gross carrying amount		Accumulated amortization			Intangible assets, net		Gross carrying amount		Accumulated amortization			Intangible assets, net
Finite-lived intangible assets:
Developed product technology rights	$	10,786	$	(4,361	)	$	6,425	$	10,826	$	(4,155	)	$	6,671
Licensing rights	3,232		(770		)	2,462		3,236		(696		)	2,540
R&D technology rights	1,136		(577		)	559		1,167		(569		)	598
Marketing-related rights	1,223		(544		)	679		1,241		(512		)	729
Total finite-lived intangible assets	16,377		(6,252		)	10,125		16,470		(5,932		)	10,538
Indefinite-lived intangible assets:
In-process research and development (IPR&D)	2,140		—			2,140		2,155		—			2,155
Total identifiable intangible assets	$	18,517	$	(6,252	)	$	12,265	$	18,625	$	(5,932	)	$	12,693

Developed product technology rights consist of rights related to marketed products acquired in business combinations. Licensing rights are composed primarily of contractual rights acquired in business combinations to receive future milestones, royalties and profit sharing payments, capitalized payments to third parties for milestones related to regulatory approvals to commercialize products and up-front payments associated with royalty obligations for marketed products. R&D technology rights consist of technology used in R&D with alternative future uses. Marketing-related intangible assets are composed primarily of rights related to the sale and distribution of marketed products.

IPR&D consists of R&D projects acquired in a business combination which are not complete due to remaining technological risks and/or lack of receipt of the required regulatory approvals. These projects include Kyprolis^® (carfilzomib) for Injection and oprozomib acquired in the acquisition of Onyx Pharmaceuticals, Inc. (Onyx), AMG 416 acquired in the acquisition of KAI Pharmaceuticals and talimogene laherparepvec acquired in the acquisition of BioVex Group, Inc. (BioVex).

In February 2015, we announced that the Cellular, Tissue and Gene Therapies Advisory Committee (CTGTAC) and the Oncologic Drugs Advisory Committee (ODAC) of the U.S. Food and Drug Administration (FDA) will jointly review our talimogene laherparepvec Biologics License Application (BLA) at a meeting on April 29, 2015. The FDA will consider the advisory committees' recommendations in its review of our talimogene laherparepvec BLA for the treatment of patients with injectable regionally or distantly metastatic melanoma. As of March 31, 2015, the carrying value of the IPR&D for talimogene laherparepvec was $675 million.

For all IPR&D projects, there are major risks and uncertainties associated with the timely and successful completion of development and commercialization of these product candidates, including our ability to confirm their safety and efficacy based on data from clinical trials, our ability to obtain necessary regulatory approvals and our ability to successfully complete these tasks within budgeted costs. We are not able to market a human therapeutic without obtaining regulatory approvals, and such approvals require completing clinical trials that demonstrate a product candidate is safe and effective. In addition, the availability and extent of coverage and reimbursement from third-party payers, including government healthcare programs and private insurance plans, impact the revenues a product can generate. Consequently, the eventual realized value, if any, of these acquired IPR&D projects may vary from their estimated fair values. IPR&D projects are reviewed annually for impairment and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. For example, if the BLA for talimogene laherparepvec is not approved for treatment of patients with injectable regionally or distantly metastatic melanoma, we would be required to test the talimogene laherparepvec IPR&D asset for impairment again.

During the three months ended March 31, 2015 and 2014, we recognized amortization charges associated with our finite-lived intangible assets of $341 million and $357 million, respectively. The total estimated amortization charges for our finite-lived intangible assets for the nine months ending December 31, 2015, and the years ending December 31, 2016, 2017, 2018, 2019 and 2020, are $1.0 billion, $1.3 billion, $1.2 billion, $1.0 billion, $939 million and $891 million, respectively.

8. Financing arrangements

The carrying values and the fixed contractual coupon rates, as applicable, of our long-term borrowings were as follows (in millions):



	March 31, 2015			December 31, 2014
2.30% notes due 2016 (2.30% 2016 Notes)	$	750		$	749
2.50% notes due 2016 (2.50% 2016 Notes)	1,000			1,000
Floating Rate Notes due 2017	600			600
1.25% notes due 2017 (1.25% 2017 Notes)	849			849
2.125% notes due 2017 (2.125% 2017 Notes)	1,249			1,249
5.85% notes due 2017 (5.85% 2017 Notes)	1,100			1,100
6.15% notes due 2018 (6.15% 2018 Notes)	500			500
Term Loan due 2018	4,250			4,375
4.375% euro-denominated notes due 2018 (4.375% 2018 euro Notes)	599			668
Floating Rate Notes due 2019	250			250
2.20% notes due 2019 (2.20% 2019 Notes)	1,398			1,398
5.70% notes due 2019 (5.70% 2019 Notes)	999			999
2.125% euro-denominated notes due 2019 (2.125% 2019 euro Notes)	722			814
4.50% notes due 2020 (4.50% 2020 Notes)	300			300
3.45% notes due 2020 (3.45% 2020 Notes)	898			898
4.10% notes due 2021 (4.10% 2021 Notes)	998			998
3.875% notes due 2021 (3.875% 2021 Notes)	1,747			1,747
3.625% notes due 2022 (3.625% 2022 Notes)	747			747
3.625% notes due 2024 (3.625% 2024 Notes)	1,398			1,398
5.50% pound-sterling-denominated notes due 2026 (5.50% 2026 pound sterling Notes)	699			735
4.00% pound-sterling-denominated notes due 2029 (4.00% 2029 pound sterling Notes)	1,023			1,076
6.375% notes due 2037 (6.375% 2037 Notes)	899			899
6.90% notes due 2038 (6.90% 2038 Notes)	499			499
6.40% notes due 2039 (6.40% 2039 Notes)	996			996
5.75% notes due 2040 (5.75% 2040 Notes)	697			697
4.95% notes due 2041 (4.95% 2041 Notes)	596			596
5.15% notes due 2041 (5.15% 2041 Notes)	2,233			2,233
5.65% notes due 2042 (5.65% 2042 Notes)	1,245			1,245
5.375% notes due 2043 (5.375% 2043 Notes)	1,000			1,000
Other notes	100			100
Total debt	30,341			30,715
Less current portion	(500		)	(500		)
Total noncurrent debt	$	29,841		$	30,215

Debt repayments

During the three months ended March 31, 2015, we repaid $125 million of principal on our Term Loan Credit Facility.

9. Stockholders’ equity

Stock repurchase program

Activity under our stock repurchase program was as follows (in millions):



	2015			2014
	Shares	Dollars		Shares	Dollars
First quarter	2.9	$	451	—	$	—

As of March 31, 2015, $3.4 billion remained available under our stock repurchase program.

Dividends

On December 17, 2014, the Board of Directors declared a quarterly cash dividend of $0.79 per share of common stock, which was paid on March 6, 2015. On March 4, 2015, the Board of Directors declared a quarterly cash dividend of $0.79 per share of common stock, which will be paid on June 5, 2015, to all stockholders of record as of the close of business on May 14, 2015.

Accumulated other comprehensive income

The components of accumulated other comprehensive income (AOCI) were as follows (in millions):



	Foreign currency translation			Cash flow hedges			Available-for-sale securities			Other			AOCI
Balance as of December 31, 2014	$	(264	)	$	290		$	(19	)	$	(15	)	$	(8	)
Foreign currency translation adjustments	(184		)	—			—			—			(184		)
Unrealized gains	—			168			188			—			356
Reclassification adjustments to income	—			114			35			—			149
Income taxes	11			(104		)	(83		)	—			(176		)
Balance as of March 31, 2015	$	(437	)	$	468		$	121		$	(15	)	$	137

The reclassifications out of AOCI to earnings were as follows (in millions):



	Amounts reclassified out of AOCI
Components of AOCI	Three months ended March 31, 2015			Three months ended March 31, 2014			Line item affected in the Statements of Income
Cash flow hedges:
Foreign currency contract gains	$	69		$	—		Product sales
Cross-currency swap contract (losses) gains	(183		)	14			Interest and other income, net
	(114		)	14			Total before income tax
	41			(5		)	Tax benefit/(expense)
	$	(73	)	$	9		Net of taxes
Available-for-sale securities:
Net realized (losses) gains	$	(35	)	$	2		Interest and other income, net
	13			(1		)	Tax benefit/(expense)
	$	(22	)	$	1		Net of taxes

10. Fair value measurement

To estimate the fair value of our financial assets and liabilities we use valuation approaches within a hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances. The fair value hierarchy is divided into three levels based on the source of inputs as follows:



Level 1	—	Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access
Level 2	—	Valuations for which all significant inputs are observable, either directly or indirectly, other than level 1 inputs
Level 3	—	Valuations based on inputs that are unobservable and significant to the overall fair value measurement

The availability of observable inputs can vary among the various types of financial assets and liabilities. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used for measuring fair value may fall into different levels of the fair value hierarchy. In such cases, for financial statement disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is categorized is based on the lowest level of input used that is significant to the overall fair value measurement.

The fair value of each major class of the Company’s financial assets and liabilities measured at fair value on a recurring basis was as follows (in millions):



	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Fair value measurement
as of March 31, 2015, using:							Total
Assets:
Available-for-sale investments:
U.S. Treasury securities	$	3,284	$	—	$	—	$	3,284
Other government-related debt securities:
U.S.	—		518		—		518
Foreign and other	—		1,725		—		1,725
Corporate debt securities:
Financial	—		6,576		—		6,576
Industrial	—		6,902		—		6,902
Other	—		678		—		678
Residential mortgage-backed securities	—		1,604		—		1,604
Other mortgage- and asset-backed securities	—		1,674		—		1,674
Money market mutual funds	2,035		—		—		2,035
Other short-term interest-bearing securities	—		1,520		—		1,520
Equity securities	158		—		—		158
Derivatives:
Foreign currency contracts	—		679		—		679
Interest rate swap contracts	—		109		—		109
Total assets	$	5,477	$	21,985	$	—	$	27,462

Liabilities:
Derivatives:
Foreign currency contracts	$	—	$	12	$	—	$	12
Cross-currency swap contracts	—		197		—		197
Contingent consideration obligations in connection with business combinations	—		—		215		215
Total liabilities	$	—	$	209	$	215	$	424



	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Fair value measurement
as of December 31, 2014, using:							Total
Assets:
Available-for-sale investments:
U.S. Treasury securities	$	3,646	$	—	$	—	$	3,646
Other government-related debt securities:
U.S.	—		528		—		528
Foreign and other	—		1,569		—		1,569
Corporate debt securities:
Financial	—		6,041		—		6,041
Industrial	—		6,351		—		6,351
Other	—		649		—		649
Residential mortgage-backed securities	—		1,702		—		1,702
Other mortgage- and asset-backed securities	—		1,796		—		1,796
Money market mutual funds	3,004		—		—		3,004
Other short-term interest-bearing securities	—		1,302		—		1,302
Equity securities	144		—		—		144
Derivatives:
Foreign currency contracts	—		360		—		360
Cross-currency swap contracts	—		32		—		32
Interest rate swap contracts	—		46		—		46
Total assets	$	6,794	$	20,376	$	—	$	27,170

Liabilities:
Derivatives:
Foreign currency contracts	$	—	$	4	$	—	$	4
Cross-currency swap contracts	—		12		—		12
Interest rate swap contracts	—		26		—		26
Contingent consideration obligations in connection with business combinations	—		—		215		215
Total liabilities	$	—	$	42	$	215	$	257

The fair values of our U.S. Treasury securities, money market mutual funds and equity securities are based on quoted market prices in active markets with no valuation adjustment.

Most of our other government-related and corporate debt securities are investment grade with maturity dates of five years or less from the balance sheet date. Our other government-related debt securities portfolio is composed of securities with weighted-average credit ratings of A- or equivalent by Standard & Poor's Financial Services LLC (S&P) or Fitch, Inc. (Fitch), A by Moody's Investor Service, Inc. (Moody's); and our corporate debt securities portfolio has a weighted-average credit rating of BBB+ or equivalent by S&P or Moody's, and A- by Fitch. We estimate the fair values of these securities by taking into consideration valuations obtained from third-party pricing services. The pricing services utilize industry standard valuation models, including both income- and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar securities; issuer credit spreads; benchmark securities; and other observable inputs.

Our residential mortgage-, other mortgage- and asset-backed securities portfolio is composed entirely of senior tranches, with credit ratings of AAA or equivalent by S&P, Moody's or Fitch. We estimate the fair values of these securities by taking into consideration valuations obtained from third-party pricing services. The pricing services utilize industry standard valuation models, including both income- and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar securities; issuer credit spreads; benchmark securities; prepayment/default projections based on historical data; and other observable inputs.

We value our other short-term interest-bearing securities at amortized cost, which approximates fair value given their near term maturity dates.

All of our foreign currency forward and option derivatives contracts have maturities of three years or less and all are with counterparties that have minimum credit ratings of A- or equivalent by S&P, Moody’s or Fitch. We estimated the fair values of these contracts by taking into consideration valuations obtained from a third-party valuation service that utilizes an income-based industry standard valuation model for which all significant inputs are observable, either directly or indirectly. These inputs include foreign currency rates, London Interbank Offered Rates (LIBOR) cash and swap rates and obligor credit default swap rates. In addition, inputs for our foreign currency option contracts also include implied volatility measures. These inputs, where applicable, are at commonly quoted intervals. See Note 11, Derivative instruments.

Our cross-currency swap contracts are with counterparties that have minimum credit ratings of A- or equivalent by S&P, Moody’s or Fitch. We estimated the fair values of these contracts by taking into consideration valuations obtained from a third-party valuation service that utilizes an income-based industry standard valuation model for which all significant inputs are observable either directly or indirectly. These inputs include foreign currency exchange rates, LIBOR, swap rates, obligor credit default swap rates and cross-currency basis swap spreads. See Note 11, Derivative instruments.

Our interest rate swap contracts are with counterparties that have minimum credit ratings of A- or equivalent by S&P, Moody’s or Fitch. We estimated the fair values of these contracts by using an income-based industry standard valuation model for which all significant inputs were observable either directly or indirectly. These inputs included LIBOR, swap rates and obligor credit default swap rates.

Contingent consideration obligations

We have incurred contingent consideration obligations as a result of our acquisition of a business and upon the assumption of contingent consideration obligations incurred by an acquired company discussed below. These contingent consideration obligations are recorded at their estimated fair values, and we revalue these obligations each reporting period until the related contingencies are resolved. The fair value measurements of these obligations are based on significant unobservable inputs related to product candidates acquired in the business combinations and are reviewed quarterly by management in our R&D and commercial sales organizations. These inputs include, as applicable, estimated probabilities and timing of achieving specified regulatory and commercial milestones and estimated annual sales. Significant changes which increase or decrease the probabilities of achieving the related regulatory and commercial events, shorten or lengthen the time required to achieve such events, or increase or decrease estimated annual sales would result in corresponding increases or decreases in the fair values of these obligations, as applicable. Changes in fair values of contingent consideration obligations are recognized in Other operating expenses in the Condensed Consolidated Statements of Income.

The changes in carrying amounts of contingent consideration obligations were as follows (in millions):



	Three months ended March 31,
	2015		2014
Beginning balance	$	215	$	595
Net changes in valuation	—		1
Ending balance	$	215	$	596

As a result of our acquisition of BioVex in March 2011, we are obligated to pay its former shareholders up to $575 million of additional consideration contingent upon achieving separate regulatory and sales-related milestones with regard to talimogene laherparepvec, which was acquired in the acquisition. As a result of filing the BLA in the United States, we made a milestone payment of $125 million to the former BioVex shareholders during 2014. The remaining potential milestone payments include: (i) $125 million upon the first commercial sale in the United States following receipt of marketing approval for use of the product in specified patient populations, (ii) $125 million upon achievement of an agreed level of worldwide sales within a specified period of time and (iii) up to $200 million of additional consideration of varying amounts upon achievement of certain other regulatory and sales-related milestones.

We estimate the fair values of the obligations to the former shareholders of BioVex by using probability-adjusted discounted cash flows. As a result of our quarterly review of the key assumptions, there was no change in the estimated aggregate fair value of the contingent consideration during the three months ended March 31, 2015 and 2014, respectively.

We assumed contingent consideration obligations upon the acquisition of Onyx arising from Onyx's 2009 acquisition of Proteolix, Inc. These contingent consideration obligations were comprised of two separate milestone payments of $150 million each payable if Kyprolis^® received specified marketing approvals for relapsed multiple myeloma on or before March 31, 2016, by each of the FDA and the European Medicines Agency (EMA). In December 2014, we renegotiated the terms of these milestones

and settled the contingent consideration obligations with the former shareholders of Proteolix, Inc. by agreeing to make a single payment of $225 million. This amount was paid during the first quarter of 2015.

There have been no transfers of assets or liabilities between the fair value measurement levels, and there were no material remeasurements to fair value during the three months ended March 31, 2015 and 2014, of assets and liabilities that are not measured at fair value on a recurring basis.

Summary of the fair value of other financial instruments

Cash equivalents

The estimated fair values of cash equivalents approximate their carrying values due to the short-term nature of these financial instruments.

Borrowings

We estimated the fair value of our long-term debt (Level 2) by taking into consideration indicative prices obtained from a third-party financial institution that utilizes industry standard valuation models, including both income- and market-based approaches, for which all significant inputs are observable either directly or indirectly. These inputs include reported trades of and broker/dealer quotes on the same or similar securities; credit spreads; benchmark yields; foreign currency exchange rates, as applicable; and other observable inputs. As of March 31, 2015, and December 31, 2014, the aggregate fair values of our long-term debt were $33.5 billion and $33.6 billion, respectively, and the carrying values were $30.3 billion and $30.7 billion, respectively.

11. Derivative instruments

The Company is exposed to foreign currency exchange rate and interest rate risks related to its business operations. To reduce our risks related to these exposures, we utilize or have utilized certain derivative instruments, including foreign currency forward, foreign currency option, cross-currency swap, forward interest rate and interest rate swap contracts. We do not use derivatives for speculative trading purposes.

Cash flow hedges

We are exposed to possible changes in the values of certain anticipated foreign currency cash flows resulting from changes in foreign currency exchange rates, associated primarily with our euro-denominated international product sales. Increases and decreases in the cash flows associated with our international product sales due to movements in foreign currency exchange rates are offset partially by the corresponding increases and decreases in our international operating expenses resulting from these foreign currency exchange rate movements. To further reduce our exposure to foreign currency exchange rate fluctuations on our international product sales, we enter into foreign currency forward and option contracts to hedge a portion of our projected international product sales primarily over a three-year time horizon, with, at any given point in time, a higher percentage of nearer-term projected product sales being hedged than in successive periods. As of March 31, 2015, and December 31, 2014, we had open foreign currency forward contracts with notional amounts of $3.7 billion and $3.8 billion, respectively, and open foreign currency option contracts with notional amounts of $352 million and $271 million, respectively. These foreign currency forward and option contracts, primarily euro based, have been designated as cash flow hedges, and accordingly, the effective portions of the unrealized gains and losses on these contracts are reported in AOCI in the Condensed Consolidated Balance Sheets and reclassified to earnings in the same periods during which the hedged transactions affect earnings.

To hedge our exposure to foreign currency exchange rate risk associated with certain of our long-term notes denominated in foreign currencies, we entered into cross-currency swap contracts. Under the terms of these contracts, we paid euros/pounds sterling and received U.S. dollars for the notional amounts at the inception of the contracts, and we exchange interest payments based on these notional amounts at fixed rates over the lives of the contracts in which we pay U.S. dollars and receive euros/pounds sterling. In addition, we will pay U.S. dollars to and receive euros/pounds sterling from the counterparties at the maturities of the contracts for these same notional amounts. The terms of these contracts correspond to the related hedged notes, effectively converting the interest payments and principal repayment on these notes from euros/pounds sterling to U.S. dollars. These cross-currency swap contracts have been designated as cash flow hedges, and accordingly, the effective portions of the unrealized gains and losses on these contracts are reported in AOCI in the Condensed Consolidated Balance Sheets and reclassified to earnings in the same periods during which the hedged debt affects earnings.

The notional amounts and interest rates of our cross-currency swaps are as follows (notional amounts in millions):



	Foreign currency				U.S. dollars
Hedged notes	Notional amount		Interest rate		Notional amount		Interest rate
2.125% 2019 euro Notes	€	675	2.125	%	$	864	2.6	%
5.50% 2026 pound sterling Notes	£	475	5.50	%	$	747	6.0	%
4.00% 2029 pound sterling Notes	£	700	4.00	%	$	1,111	4.5	%

The effective portions of the unrealized gain/(loss) recognized in other comprehensive income for our derivative instruments designated as cash flow hedges were as follows (in millions):



	Three months ended
	March 31,
Derivatives in cash flow hedging relationships	2015			2014
Foreign currency contracts	$	392		$	13
Cross-currency swap contracts	(224		)	4
Total	$	168		$	17

The locations in the Condensed Consolidated Statements of Income and the effective portions of the gain/(loss) reclassified out of AOCI into earnings for our derivative instruments designated as cash flow hedges were as follows (in millions):



		Three months ended
		March 31,
Derivatives in cash flow hedging relationships	Statements of Income location	2015			2014
Foreign currency contracts	Product sales	$	69		$	—
Cross-currency swap contracts	Interest and other income, net	(183		)	14
Total		$	(114	)	$	14

No portions of our cash flow hedge contracts are excluded from the assessment of hedge effectiveness, and the gains and losses of the ineffective portions of these hedging instruments were not material for the three months ended March 31, 2015 and 2014. As of March 31, 2015, the amounts expected to be reclassified out of AOCI into earnings over the next 12 months are approximately $358 million of net gains on our foreign currency and cross-currency swap contracts and approximately $1 million of losses on forward interest rate contracts.

Fair value hedges

To achieve a desired mix of fixed and floating interest rates on our long-term debt, we entered into interest rate swap contracts, which qualified and are designated as fair value hedges. The terms of these interest rate swap contracts correspond to the related hedged debt instruments and effectively converted a fixed interest rate coupon to a floating LIBOR-based coupon over the lives of the respective notes. We had interest rate swap agreements as of March 31, 2015 and December 31, 2014, with aggregate notional amounts of $6.65 billion. The contracts have rates that range from three-month LIBOR plus 0.4% to three-month LIBOR plus 2.0%.

For derivative instruments that are designated and qualify as fair value hedges, the unrealized gain or loss on the derivative resulting from the change in fair value during the period as well as the offsetting unrealized loss or gain of the hedged item resulting from the change in fair value during the period attributable to the hedged risk is recognized in current earnings. For the three months ended March 31, 2015 and 2014, we included the unrealized losses on the hedged debt of $89 million and $62 million, respectively, in the same line item, Interest expense, net, in the Condensed Consolidated Statements of Income, as the offsetting unrealized gains of $89 million and $62 million, respectively, on the related interest rate swap agreements.

Derivatives not designated as hedges

We enter into foreign currency forward contracts that are not designated as hedging transactions to reduce our exposure to foreign currency fluctuations of certain assets and liabilities denominated in foreign currencies. These exposures are hedged on a month-to-month basis. As of March 31, 2015, and December 31, 2014, the total notional amounts of these foreign currency forward contracts were $957 million and $875 million, respectively.

The location in the Condensed Consolidated Statements of Income and the amount of gain/(loss) recognized in earnings for our derivative instruments not designated as hedging instruments were as follows (in millions):



		Three months ended
		March 31,
Derivatives not designated as hedging instruments	Statements of Income location	2015			2014
Foreign currency contracts	Interest and other income, net	$	(29	)	$	2

The fair values of derivatives included in the Condensed Consolidated Balance Sheets were as follows (in millions):



	Derivative assets			Derivative liabilities
March 31, 2015	Balance Sheet location	Fair value		Balance Sheet location	Fair value
Derivatives designated as hedging instruments:
Cross-currency swap contracts	Other current assets/ Other noncurrent assets	$	—	Accrued liabilities/ Other noncurrent liabilities	$	197
Foreign currency contracts	Other current assets/ Other noncurrent assets	667		Accrued liabilities/ Other noncurrent liabilities	—
Interest rate swap contracts	Other current assets/ Other noncurrent assets	109		Accrued liabilities/ Other noncurrent liabilities	—
Total derivatives designated as hedging instruments		776			197
Derivatives not designated as hedging instruments:
Foreign currency contracts	Other current assets	12		Accrued liabilities	12
Total derivatives not designated as hedging instruments		12			12
Total derivatives		$	788		$	209



	Derivative assets			Derivative liabilities
December 31, 2014	Balance Sheet location	Fair value		Balance Sheet location	Fair value
Derivatives designated as hedging instruments:
Cross-currency swap contracts	Other current assets/ Other noncurrent assets	$	32	Accrued liabilities/ Other noncurrent liabilities	$	12
Foreign currency contracts	Other current assets/ Other noncurrent assets	356		Accrued liabilities/ Other noncurrent liabilities	—
Interest rate swap contracts	Other current assets/ Other noncurrent assets	46		Accrued liabilities/ Other noncurrent liabilities	26
Total derivatives designated as hedging instruments		434			38
Derivatives not designated as hedging instruments:
Foreign currency contracts	Other current assets	4		Accrued liabilities	4
Total derivatives not designated as hedging instruments		4			4
Total derivatives		$	438		$	42

Our derivative contracts that were in liability positions as of March 31, 2015, contain certain credit-risk-related contingent provisions that would be triggered if: (i) we were to undergo a change in control and (ii) our or the surviving entity’s creditworthiness deteriorates, which is generally defined as having either a credit rating that is below investment grade or a materially weaker creditworthiness after the change in control. If these events were to occur, the counterparties would have the right, but not the obligation, to close the contracts under early-termination provisions. In such circumstances, the counterparties could request immediate settlement of these contracts for amounts that approximate the then current fair values of the contracts. In addition, our

derivative contracts are not subject to any type of master netting arrangement, and amounts due to or from a counterparty under these contracts may only be offset against other amounts due to or from the same counterparty if an event of default or termination, as defined, were to occur.

The cash flow effects of our derivative contracts for the three months ended March 31, 2015 and 2014, are included within Net cash provided by operating activities in the Condensed Consolidated Statements of Cash Flows.

12. Contingencies and commitments

Contingencies

In the ordinary course of business, we are involved in various legal proceedings and other matters—including those discussed in this Note—that are complex in nature and have outcomes that are difficult to predict. See Note 18, Contingencies and commitments to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2014, for further discussion of certain of our legal proceedings and other matters.

We record accruals for loss contingencies to the extent that we conclude that it is probable that a liability has been incurred and the amount of the related loss can be reasonably estimated. We evaluate, on a quarterly basis, developments in legal proceedings and other matters that could cause an increase or decrease in the amount of the liability that has been accrued previously.

Our legal proceedings range from cases brought by a single plaintiff to class actions with thousands of putative class members. These legal proceedings, as well as other matters, involve various aspects of our business and a variety of claims—including but not limited to patent infringement, marketing, pricing and trade practices and securities law—some of which present novel factual allegations and/or unique legal theories. In each of the matters described in this filing or in Note 18, Contingencies and commitments, to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2014, plaintiffs seek an award of a not-yet-quantified amount of damages or an amount that is not material. In addition, a number of the matters pending against us are at very early stages of the legal process (which in complex proceedings of the sort faced by us often extend for several years). As a result, none of the matters described in this filing have progressed sufficiently through discovery and/or development of important factual information and legal issues to enable us to estimate a range of possible loss, if any, or such amounts are not material. While it is not possible to accurately predict or determine the eventual outcomes of these items, an adverse determination in one or more of these items currently pending could have a material adverse effect on our consolidated results of operations, financial position or cash flows.

Certain recent developments concerning our legal proceedings and other matters are discussed below:

Onyx Litigation

The trial date in this class action lawsuit filed in connection with Amgen’s acquisition of Onyx has been set for April 28, 2016.

Federal Securities Litigation - In re Amgen Inc. Securities Litigation

The trial date in this federal securities class action has been set for July 12, 2016.

Sanofi/Regeneron Patent Litigation

The trial date in this patent infringement case has been set for March 7, 2016.

Sandoz Filgrastim Litigation

On March 19, 2015, the U.S. District Court for the Northern District of California (the California Northern District Court) issued an order dismissing with prejudice Amgen’s claims for unfair competition under California Business & Professions Code § 17200 and conversion under California common law, and entered judgment in favor of Sandoz Inc. (Sandoz) on Sandoz’s cross-motion for partial judgment on the pleadings. The order also denied Amgen’s motion for a preliminary injunction, as well as Amgen’s motion for partial judgment on the pleadings. On a joint motion of the parties, on March 25, 2015 the California Northern District Court entered final judgment on the claims and counterclaims decided by the court’s March 19th order. The remaining patent infringement claim, counterclaim and defenses were stayed by the court pending appeal. On March 25, 2015, Amgen appealed the judgment in favor of Sandoz and the denial of Amgen’s motion for preliminary injunction to the U.S. Court of Appeals for the Federal Circuit (the Federal Circuit Court). The Federal Circuit Court granted Amgen’s motion for an expedited appeal with the hearing date on the appeal scheduled for June 3, 2015. On April 17, 2015, Amgen filed a motion for an injunction pending appeal with the Federal Circuit Court.



Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to assist the reader in understanding Amgen’s business. MD&A is provided as a supplement to, and should be read in conjunction with, our Annual Report on Form 10-K for the year ended December 31, 2014. Our results of operations discussed in MD&A are presented in conformity with GAAP. Amgen operates in one business segment: human therapeutics. Therefore, our results of operations are discussed on a consolidated basis.

Forward-looking statements

This report and other documents we file with the U.S. Securities and Exchange Commission (SEC) contain forward-looking statements that are based on current expectations, estimates, forecasts and projections about us, our future performance, our business, our beliefs and our management’s assumptions. In addition, we, or others on our behalf, may make forward-looking statements in press releases or written statements or in our communications and discussions with investors and analysts in the normal course of business through meetings, webcasts, phone calls and conference calls. Such words as “expect,” “anticipate,” “outlook,” “could,” “target,” “project,” “intend,” “plan,” “believe,” “seek,” “estimate,” “should,” “may,” “assume,” and “continue,” as well as variations of such words and similar expressions, are intended to identify such forward-looking statements. These statements are not guarantees of future performance, and they involve certain risks, uncertainties and assumptions that are difficult to predict. We describe our respective risks, uncertainties and assumptions that could affect the outcome or results of operations in Item 1A. Risk Factors in Part II herein. We have based our forward-looking statements on our management’s beliefs and assumptions based on information available to our management at the time the statements are made. We caution you that actual outcomes and results may differ materially from what is expressed, implied or forecast by our forward-looking statements. Reference is made in particular to forward-looking statements regarding product sales, regulatory activities, clinical trial results, reimbursement, expenses, EPS, liquidity and capital resources, trends and planned dividends, stock repurchases and restructuring plans. Except as required under the federal securities laws and the rules and regulations of the SEC, we do not have any intention or obligation to update publicly any forward-looking statements after the distribution of this report, whether as a result of new information, future events, changes in assumptions or otherwise.

Overview

Amgen is committed to unlocking the potential of biology for patients suffering from serious illnesses by discovering, developing, manufacturing and delivering innovative human therapeutics. This approach begins by using tools like advanced human genetics to unravel the complexities of disease and understand the fundamentals of human biology.

Amgen focuses on areas of high unmet medical need and leverages its biologics manufacturing expertise to strive for solutions that improve health outcomes and dramatically improve people's lives. A biotechnology pioneer since 1980, Amgen has grown to be one of the world's leading independent biotechnology companies, has reached millions of patients around the world and is developing a pipeline of medicines with breakaway potential.

Currently, we market primarily recombinant protein therapeutics for supportive cancer care, inflammation, nephrology and bone health. Our principal products are Neulasta^® (pegfilgrastim), NEUPOGEN^® (filgrastim), Enbrel^® (etanercept), XGEVA^® (denosumab), Prolia^® (denosumab), Sensipar^®/Mimpara^® (cinacalcet) and our erythropoiesis-stimulating agents: Aranesp^® (darbepoetin alfa) and EPOGEN^® (epoetin alfa). Our product sales outside the United States consist principally of sales in Europe. For the three months ended March 31, 2015, our principal products represented 91% of worldwide product sales. We market several other products, including Vectibix^® (panitumumab), Nplate^® (romiplostim), Kyprolis^®(carfilzomib) and BLINCYTO^® (blinatumomab).

Significant developments

Following is a summary of selected significant developments affecting our business that have occurred since December 31, 2014. For additional developments or for a more comprehensive discussion of certain developments discussed below, see our Annual Report on Form 10-K for the year ended December 31, 2014.

Products/Pipeline

Cardiovascular

Corlanor^®(ivabradine)

•

In April 2015, we announced that the FDA granted approval of Corlanor^® to reduce the risk of hospitalization for worsening heart failure in patients with stable, symptomatic chronic heart failure with left ventricular ejection fraction ≤35 percent, who are in sinus rhythm with resting heart rate ≥70 beats per minute and either are on maximally tolerated doses of beta blockers or have a contraindication to beta blocker use. Commercial sales launched in April 2015.

Repatha^™(evolocumab)*


•	In March 2015, we announced that we submitted an application seeking marketing approval of Repatha^™ for the treatment of high cholesterol to the Ministry of Health, Labour and Welfare in Japan.

Nephrology

AMG 416


•	In February 2015, we announced results from the head-to-head phase 3 study comparing AMG 416 with cinacalcet for the treatment of secondary hyperparathyroidism in patients with chronic kidney disease receiving hemodialysis. The study met the primary endpoint of non-inferiority of AMG 416 compared to cinacalcet.

Oncology

Kyprolis^®


•	In March 2015, we announced that the FDA accepted the supplemental New Drug Application of Kyprolis^® for the treatment of patients with relapsed multiple myeloma who have received at least one prior therapy. As part of the acceptance, the FDA granted Kyprolis^® priority review.

•

In March 2015, we announced the results from a planned interim analysis showing that the phase 3 head-to-head clinical trial ENDEAVOR evaluating Kyprolis^® in combination with low-dose dexamethasone versus Velcade^® (bortezomib) and low-dose dexamethasone met the primary endpoint of progression-free survival (PFS). Patients with relapsed multiple myeloma treated with Kyprolis^® lived approximately twice as long without their disease worsening, demonstrating statistically and clinically significant superiority over Velcade^®.


•	In April 2015, we announced the initiation of a phase 3 study with weekly dosing in relapsed and refractory multiple myeloma.

Neulasta^®

•

In March 2015, we announced the Neulasta^® Delivery Kit is now available in the United States. The Neulasta^® Delivery Kit includes a specially designed single-use prefilled syringe co-packaged with the new On-body Injector for Neulasta^®. The Neulasta^® Delivery Kit enables the healthcare provider to initiate administration of Neulasta^® on the same day as cytotoxic chemotherapy—with delivery of the patient's full dose of Neulasta^® the day following chemotherapy administration, consistent with the Neulasta^® prescribing information. This frees patients from a return visit to their healthcare provider the day after chemotherapy.

Talimogene laherparepvec

•

In February 2015, we announced that the CTGTAC and the ODAC of the FDA will jointly review our talimogene laherparepvec BLA at a meeting on April 29, 2015. These advisory committees review marketed and investigational human drug products, including safety and effectiveness data, and make recommendations to the FDA. The FDA will consider the advisory committees' recommendations in its review of our talimogene laherparepvec BLA. The Prescription Drug User Fee Act action date for completion of FDA review of our talimogene laherparepvec BLA for the treatment of patients with injectable regionally or distantly metastatic melanoma is October 27, 2015.

* FDA provisionally approved trade name

Trebananib


•	In April 2015, we announced that we stopped administration of blinded investigational product in the phase 3 study of trebananib in first-line ovarian cancer based on a recommendation by the Data Safety Monitoring Committee, who deemed the study unlikely to achieve its primary PFS endpoint.

Vectibix^®

•

In April 2015, we announced that the European Commission approved a new use of Vectibix^® as first-line treatment in combination with FOLFIRI for the treatment of adult patients with wild-type (WT) RAS metastatic colorectal cancer (mCRC). About half of the patients with mCRC have WT RAS tumors. FOLFIRI, an irinotecan-based chemotherapy regimen, is frequently used in first-line colorectal cancer treatment in Europe.

Selected financial information

The following is an overview of our results of operations (dollar amounts in millions, except per share data):



	Three months ended
	March 31,
	2015		2014		Change
Product sales:
U.S.	$	3,771	$	3,289	15	%
Rest of the world (ROW)	1,103		1,067		3	%
Total product sales	4,874		4,356		12	%
Other revenues	159		165		(4	)%
Total revenues	$	5,033	$	4,521	11	%
Operating expenses	$	3,011	$	3,157	(5	)%
Operating income	$	2,022	$	1,364	48	%
Net income	$	1,623	$	1,073	51	%
Diluted EPS	$	2.11	$	1.40	51	%
Diluted shares	770		768		—	%

The increase in global product sales for the three months ended March 31, 2015, was driven by ENBREL, Prolia^®, EPOGEN^®, Sensipar^®and XGEVA^®.

The decrease in operating expenses for the three months ended March 31, 2015, was driven primarily as a result of savings from transformation and process improvement efforts under our restructuring plan, offset partially by increased investments for launching new products.

The increases in net income and diluted EPS for the three months ended March 31, 2015, were driven by an increase in operating income.

Results of operations

Product sales

Worldwide product sales were as follows (dollar amounts in millions):



	Three months ended
	March 31,
	2015		2014		Change
Neulasta^®/NEUPOGEN^®	$	1,380	$	1,379