e10vk
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31,
2010
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission file number
000-12477
Amgen Inc.
(Exact name of registrant as
specified in its charter)
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Delaware
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95-3540776
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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One Amgen Center Drive,
Thousand Oaks, California
(Address of principal executive offices)
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91320-1799
(Zip Code)
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(805) 447-1000
(Registrants telephone
number, including area code)
Securities registered pursuant
to Section 12(b) of the Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common stock, $0.0001 par value
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The NASDAQ Global Select Market
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Securities registered pursuant
to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes x No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No x
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 x No o
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 x No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
Large accelerated
filer x Accelerated
filer o Non-accelerated
filer o Smaller
reporting
company o
(Do not check if a smaller
reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act) Yes o No x
The approximate aggregate market value of voting and non-voting
stock held by non-affiliates of the registrant was
$50,355,022,164 as of June 30, 2010(A)
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(A)
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Excludes 1,085,011 shares of
common stock held by directors and officers, and any
stockholders whose ownership exceeds five percent of the shares
outstanding, at June 30, 2010. Exclusion of shares held by
any person should not be construed to indicate that such person
possesses the power, directly or indirectly, to direct or cause
the direction of the management or policies of the registrant,
or that such person is controlled by or under common control
with the registrant.
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932,452,902
(Number of shares of common stock
outstanding as of February 11, 2011)
DOCUMENTS
INCORPORATED BY REFERENCE
Specified portions of the registrants Proxy Statement with
respect to the 2011 Annual Meeting of stockholders to be held
May 20, 2011 are incorporated by reference into
Part III of this annual report.
Amgen Inc. (including its subsidiaries, referred to as
Amgen, the Company, we,
our or us) is the worlds largest
independent biotechnology medicines company. We discover,
develop, manufacture and market medicines for grievous
illnesses. We focus solely on human therapeutics and concentrate
on innovating novel medicines based on advances in cellular and
molecular biology. Our mission is to serve patients.
We were incorporated in 1980 and organized as a Delaware
corporation in 1987. Our public website is www.amgen.com. On our
website, investors can find press releases, financial filings
and other information about the Company. The
U.S. Securities and Exchange Commission (SEC)
website, www.sec.gov, also offers access to reports and
documents we have electronically filed with or furnished to the
SEC. These website addresses are not intended to function as
hyperlinks, and the information contained in our website and in
the SECs website is not intended to be a part of this
filing.
As of December 31, 2010, we had 17,400 staff members
worldwide. Approximately 6,700 of our staff members work in our
research and development (R&D) function,
approximately 4,600 work in manufacturing, approximately 4,200
work in our commercial operations and the rest are in general
and administrative functions.
Currently, we market primarily recombinant protein therapeutics
in supportive cancer care, nephrology and inflammation. Our
principal products are:
Aranesp®
(darbepoetin alfa) and
EPOGEN®
(Epoetin alfa), erythropoiesis-stimulating agents
(ESAs) that stimulate the production of red blood
cells;
Neulasta®
(pegfilgrastim), a pegylated protein, based on the Filgrastim
molecule, and
NEUPOGEN®
(Filgrastim), a recombinant-methionyl human granulocyte
colony-stimulating factor (G-CSF), both of which
selectively stimulate the production of neutrophils (a type of
white blood cell that helps the body fight infection); and
Enbrel®
(etanercept), an inhibitor of tumor necrosis factor
(TNF), a substance that plays a role in the
bodys response to inflammatory diseases. Our principal
products represented 91%, 93% and 94% of our sales in 2010, 2009
and 2008, respectively. Our other marketed products include:
Sensipar®/Mimpara®
(cinacalcet), a small molecule calcimimetic that lowers serum
calcium levels;
Vectibix®
(panitumumab), a monoclonal antibody that binds specifically to
the epidermal growth factor receptor (EGFr); and
Nplate®
(romiplostim), a thrombopoietin (TPO) receptor
agonist that mimics endogenous TPO, the primary driver of
platelet production. In addition, in 2010 we launched
Prolia®
(denosumab) and
XGEVAtm
(denosumab) both of which contain the same active ingredient but
which are approved for different indications, patient
populations, doses and frequencies of administration. Denosumab
is a fully human monoclonal antibody that specifically targets
RANKL, an essential regulator of osteoclasts (the cells that
break down bone).
We maintain sales and marketing forces primarily in the United
States, Europe and Canada. We have also entered into agreements
with third parties to assist in the commercialization and
marketing of certain of our products in specified geographic
areas. (See Business Relationships.) Together with our partners,
we market our products to healthcare providers, including
physicians or their clinics, dialysis centers, hospitals and
pharmacies. Most patients receiving our principal products for
approved indications are covered by either government or private
payer healthcare programs, which influence demand. The
reimbursement environment continues to evolve with greater
emphasis on both cost containment and demonstration of the
economic value of products.
In addition to our marketed products, we have various product
candidates in
mid-to-late
stage development in a variety of therapeutic areas, including
oncology, hematology, inflammation, bone, nephrology,
cardiovascular and general medicine, which includes neurology.
Our R&D organization has expertise in multiple treatment
modalities, including large molecules (such as proteins,
antibodies and peptibodies) and small molecules.
Our manufacturing operations consist of bulk manufacturing,
formulation, fill and finish and distribution activities for all
of our principal products as well as most of our product
candidates. We operate commercial
and/or
clinical manufacturing facilities in the United States, Puerto
Rico and the Netherlands. (See Item 2. Properties.)
1
Drug development in our industry is complex, challenging and
risky; and failure rates are high. Product development cycles
are very long approximately 10 to 15 years from
discovery to market. A new medicine must undergo many years of
preclinical and clinical testing to establish its safety and
efficacy for use in humans at appropriate dosing levels and with
an acceptable benefit-risk profile. Biological products, which
are produced in living systems, are inherently complex due to
naturally occurring molecular variations. Highly specialized
knowledge and extensive process and product characterization are
required to transform laboratory-scale processes into
reproducible commercial manufacturing processes. Upon approval,
marketed products in our industry generally face substantial
competition.
Our industry is also highly regulated, and various U.S. and
foreign regulatory bodies have substantial authority over how we
conduct our business. Government authorities in the United
States and other countries regulate the manufacturing and
marketing of our products as well as our ongoing R&D
activities. In recent years, regulators have placed a greater
scrutiny on drug safety. This has led to, and may in the future
lead to: fewer products being approved by the U.S. Food and
Drug Administration (FDA) or other regulatory
bodies; delays in receiving approvals; additional safety-related
requirements; restrictions on the use of products, including
expanded safety labeling, or required risk management activities.
Following is a summary of significant developments that occurred
in 2010 and early 2011 affecting our business. A more detailed
discussion of each development follows in the appropriate
section.
Denosumab
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The FDA approved
Prolia®
for the treatment of postmenopausal women with osteoporosis at a
high risk of fracture.
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The European Commission (EC) granted marketing
authorization for
Prolia®
for the treatment of osteoporosis in postmenopausal women at
increased risk of fractures and for the treatment of bone loss
associated with hormone ablation in men with prostate cancer at
increased risk of fractures.
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The FDA approved
XGEVAtm
for the prevention of skeletal related events (SREs)
in patients with bone metastases from solid tumors.
XGEVAtm
is not indicated for the prevention of SREs in patients with
multiple myeloma.
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We submitted a marketing authorization application to the
European Medicines Agency (EMA) for denosumab for
the reduction of SREs in cancer patients.
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We announced that a phase 3 trial evaluating
XGEVAtm
versus placebo in men with castrate-resistant prostate cancer
met its primary endpoint by significantly improving bone
metastasis-free survival. This study will form the basis of
planned marketing applications, which we expect to submit to
regulatory authorities beginning in the first half of 2011, for
the prevention of bone metastases in prostate cancer.
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Healthcare
Reform
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A new healthcare reform law was enacted in the United States
that, among other provisions, imposes additional costs on the
biotechnology and pharmaceutical industries and authorizes the
FDA to approve biosimilars.
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ESAs
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The Centers for Medicare & Medicaid Services
(CMS) released its Final Rule on Bundling in
Dialysis, effective January 1, 2011, which provides a
single payment for all dialysis services, including drugs that
were previously reimbursed separately (except for oral drugs
without intravenous equivalents for which the bundling rules
have been postponed).
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CMS engaged in a number of activities to examine the use of ESAs
in certain patients with kidney disease, including holding a
March 2010 meeting of the Medicare Evidence
Development & Coverage Advisory Committee
(MEDCAC), opening a National Coverage Analysis
(NCA) in June 2010 to examine the use of ESAs to
manage anemia in patients with chronic kidney disease
(CKD) and dialysis-related anemia as well as holding
another MEDCAC meeting in January 2011 to review the impact of
ESA use on renal transplant graft survival.
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We announced that the FDA approved a risk evaluation and
mitigation strategy (REMS) for ESAs that requires,
among other elements, that healthcare providers and institutions
who prescribe ESAs to patients with cancer receive additional
training and document their risk discussions with their cancer
patients prior to initiating a new course of ESA therapy.
Healthcare providers and institutions who fail to comply with
the REMS program requirements, including enrolling in the ESA
REMS program and meeting ongoing compliance obligations, will
have their access to ESAs suspended. Beginning February 16,
2011, we must ensure that our distributors do not ship ESAs to
any healthcare provider or institution until such provider or
institution has enrolled in the ESA APPRISE (Assisting Providers
and cancer Patients with Risk Information for the Safe use of
ESAs) Oncology Program.
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We are working with the FDA to determine the appropriate use of
ESAs in CKD patients and to determine any future ESA labeling
changes required in connection with our Trial to Reduce
Cardiovascular Events with
Aranesp®
Therapy (TREAT) study or the October 2010
Cardiovascular and Renal Drug Advisory Committee
(CRDAC) meeting.
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Vectibix®
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We submitted our application to the EMA for marketing
authorization for the use of
Vectibix®
in first- and second-line treatment of metastatic colorectal
cancer (mCRC) in patients whose tumors contain
wild-type KRAS genes.
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We filed supplemental Biologics License Application
(BLA) submissions with the FDA for first- and
second-line mCRC.
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We announced that a phase 3 trial evaluating
Vectibix®
as a first-line treatment in patients with recurrent
and/or
metastatic squamous cell head and neck cancer failed to meet its
primary endpoint.
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Other
Developments
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We initiated a phase 3 study in recurrent ovarian cancer for AMG
386.
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We announced plans to begin a phase 3 study in first-line
metastatic pancreatic cancer for ganitumab (AMG 479).
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We announced that we anticipate data for a phase 3 motesanib
study for advanced non small cell lung cancer
(NSCLC) in the first half of 2011.
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We recently announced an agreement to acquire BioVex Group, Inc.
(BioVex). BioVex is a privately held biotechnology
company developing treatments for cancer and the prevention of
infectious disease, including
OncoVEXGM-CSF,
a novel oncology vaccine in phase 3 trials for the treatment of
melanoma and head and neck cancer. The acquisition, which is
subject to customary closing conditions, is expected to close
during the three months ended March 31, 2011.
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We market our principal products,
Aranesp®,
EPOGEN®,
Neulasta®,
NEUPOGEN®
and ENBREL in supportive cancer care, nephrology and
inflammation. Certain of our marketed products face, and our
product candidates, if approved, are also expected to face,
substantial competition, including from products marketed by
large pharmaceutical corporations, which may have greater
clinical, research, regulatory, manufacturing, marketing,
financial and human resources than we do. Our products
competitive position among other biological and
3
pharmaceutical products may be based on, among other things,
safety, efficacy, reliability, availability, patient
convenience/delivery devices, price, reimbursement and patent
position and expirations.
Over the next several years, the existing patents on our
principal products will begin to expire, and we expect to face
increasing competition thereafter, including from biosimilar
products. A biosimilar product is a follow-on
version of another biological product for which marketing
approval is sought or has been obtained based on a demonstration
that it is highly similar to the original reference
product. This demonstration will typically consist of
comparative analytical, preclinical and clinical data from the
biosimilar product to show that it has similar safety and
efficacy as the reference product. The 2010 U.S. healthcare
reform legislation authorized the FDA to approve biosimilar
products under a new, abbreviated pathway. Consequently, we
expect to face greater competition, including from manufacturers
with biosimilar products approved in Europe that may seek to
quickly obtain U.S. approval, subject to our ability to
enforce our patents. In the European Union (EU), we
are already facing increasing competition from biosimilars given
an established regulatory pathway for biosimilars in the EU.
Further, the introduction of new products or the development of
new processes or technologies by competitors or new information
about existing products may result in increased competition for
our marketed products, even for those protected by patents, or
in a reduction of price that we receive from selling our
products. In addition, the development of new treatment options
or standards of care may reduce the use of our products,
particularly in supportive cancer care, or may limit the utility
and application of ongoing clinical trials for our product
candidates.
In addition to the challenges presented by competition, our
existing products and product candidates are also subject to
increasing regulatory compliance requirements that could be
imposed as conditions of approval or after a product has been
approved. This is increasingly true of new therapies with novel
mechanisms of action. While such therapies may offer important
benefits
and/or
better treatment alternatives, they may also involve relatively
new or higher levels of scientific complexity and may therefore
generate increased safety concerns. As a condition of approval
or due to safety concerns after a product has been approved, we
may be required to perform additional clinical trials or
studies. A postmarketing requirement (PMR) is a
trial or study that a sponsor company is required by statute or
regulation to conduct. A postmarketing commitment
(PMC) is a trial or study that a sponsor company
agrees to in writing, but is not required by law, to conduct. We
currently have PMRs or PMCs for a number of our marketed
products. In addition, we may be required to implement risk
management plans for our products in the various regions in
which they are approved. For example, in 2008 the FDA began
requiring REMS for various approved products to ensure that the
benefits of the drugs outweigh the risks. A REMS may also be
imposed as a condition of approval or after a product has been
on the market. A REMS may include a medication guide or a
patient package insert, a healthcare provider communication plan
or elements to assure safe use that the FDA deems necessary.
While the elements of REMS may vary, all REMS require the
sponsor company to submit periodic assessment reports to the FDA
to demonstrate that the goals of the REMS are being met. The FDA
evaluates such assessments and may require additional
modifications to the REMS elements. REMS may also be modified as
the FDA and companies gain more experience with REMS and how
they are implemented, operated and monitored. We currently have
REMS for a number of our marketed products. (See discussion on
PMRs, PMCs and REMS in Government Regulation.)
ESAs
Aranesp®
and
EPOGEN®
are our registered trademarks for darbepoetin alfa and Epoetin
alfa, respectively, both of which are ESAs, proteins that
stimulate 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. A deficient
red blood cell count can result in anemia, a condition in which
insufficient oxygen is delivered to the bodys organs and
tissues. Anemia can be associated with chronic renal failure
(CRF) in patients either on or not on dialysis.
Individuals with CRF suffer from anemia because they do not
produce sufficient amounts of erythropoietin, which is normally
produced in healthy kidneys. Anemia can also result from
chemotherapy treatments for patients with non-myeloid
malignancies.
ESA products, including ours, have faced and continue to face
challenges. For example, based on adverse safety results
observed beginning in late 2006 in various ESA studies,
performed by us and by others, that explored
4
the use of ESAs in settings different from those outlined in the
FDA approved label, the product labeling of our ESA products in
the United States and the EU has been updated several times to
reflect those safety concerns. In addition, due in part to
certain of these developments, reimbursement of our ESA products
in the United States was also revised resulting in changes in
the way ESAs are used in clinical practice, including by
decreasing the number of treated patients, average dose and
duration of ESA therapy. Certain of these developments have had
a material adverse impact on sales of our ESA products, in
particular
Aranesp®
sales in the U.S. supportive cancer care setting,
reflecting an overall decline in the segment.
Further, we believe that the following recent and pending
developments could also have a material adverse impact on future
sales of
Aranesp®
and/or
EPOGEN®:
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On January 1, 2011, the Final Rule on Bundling in Dialysis
became effective which provides a single payment for all
dialysis services, including drugs, supplies, and non-routine
laboratory tests that were previously reimbursed separately.
Under the Final Rule, dialysis providers were given the choice
of opting into the new bundled payment system in its entirety on
January 1, 2011, or phasing in over time. Substantially all
dialysis providers in the United States have opted into the
bundled payment system in its entirety. We expect the bundled
payment system to decrease dose utilization of
EPOGEN®
and that this decrease will have a material adverse impact on
our
EPOGEN®
sales.
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On March 24, 2010, CMS held a MEDCAC meeting to examine the
currently available evidence on the use of ESAs to manage anemia
in patients who have CKD. Although there was no clear outcome
from the MEDCAC meeting, on June 16, 2010, CMS opened an
NCA to examine the use of ESAs to manage anemia in patients with
CKD and dialysis-related anemia, which is generally CMSs
first step toward developing a National Coverage Determination
(NCD). Generally, an NCD is a national policy
statement granting, limiting or excluding Medicare coverage or
reimbursement for a specific medical item or service. Medicare
currently does not have an NCD for the use of ESAs for anemia in
patients who have CKD but has historically reimbursed for the
use of ESAs in this setting. CMS has stated that the NCA process
for ESAs will conclude on or before June 16, 2011, but CMS
could propose an NCD at any time prior to that deadline. In
addition, on January 19, 2011, CMS held another MEDCAC
meeting, this time to review the available evidence on the
impact of ESA use on renal transplant graft survival.
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On February 16, 2010, Amgen and Centocor Ortho Biotech
Products, L.P. (Centocor), a subsidiary of
Johnson & Johnson (J&J), announced
that the FDA had approved a REMS for ESAs which includes
Aranesp®,
EPOGEN®
and
PROCRIT®
(Epoetin alfa), a product marketed by J&J. In order to
ensure continued access to ESAs for healthcare providers and
institutions who prescribe ESAs to patients with cancer,
healthcare providers and institutions are required to train and
enroll in the ESA APPRISE Oncology Program. Enrolled healthcare
providers and institutions are required to document that a
discussion about the risks of ESAs took place with each patient
prior to the initiation of each new course of ESA therapy.
Beginning February 16, 2011, we must ensure that our
distributors do not ship ESAs to any healthcare provider or
institution until such provider or institution is enrolled in
the APPRISE program. We are responsible for tracking and
documenting certain elements of healthcare provider and
institution compliance with the REMS and for providing the FDA
with periodic assessment reports to demonstrate that the goals
of the REMS are being met. Healthcare providers and institutions
that fail to comply with the APPRISE program requirements will
have their access to ESAs suspended. Direct patient registration
or approval prior to ESA administration is not required through
the ESA APPRISE Oncology Program. As required, we will work with
the FDA if it is determined any modifications to the REMS are
needed based on the REMS assessments we submit.
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On October 18, 2010, the FDA held a CRDAC meeting to review
results from the TREAT study conducted in CRF patients not on
dialysis with type-2 diabetes and moderate anemia, and how those
results inform the appropriate use of ESAs in patients with CKD.
Prior to the CRDAC meeting, we submitted for the FDAs
review proposed labeling changes regarding the use of ESAs in
CRF patients not on dialysis that would limit treatment to
patients who are most likely to benefit, specifically those with
significant anemia (hemoglobin (Hb) levels <10
grams per deciliter (g/dL)), and who are at high
risk for transfusion and for whom
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transfusion avoidance is considered clinically important,
including those in whom it is important to preserve kidney
transplant eligibility. In addition to narrowing the patient
population, we are proposing a more conservative dosing
algorithm in those patients. We are working with the FDA to
determine the appropriate use of ESAs in CKD patients and to
determine any future ESA labeling changes required in connection
with TREAT or the CRDAC meeting.
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We are working with the FDA to make ESA product package insert
changes associated with the Physicians Labeling Rule
(PLR) conversion process. During the process of
converting from the existing format to the new PLR format, the
FDA and Amgen are evaluating the package insert information to
ensure that it accurately reflects current knowledge and may
revise, add to or remove information appearing in the old format
that could substantively impact the content of the product
package insert.
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In addition to the above, following the FDAs Oncologic
Drugs Advisory Committee (ODAC) meeting in May 2004,
we proposed a pharmacovigilance program for
Aranesp®
comprised of five studies to explore the use of ESAs in settings
different from those outlined in the FDA approved label. The
studies were subsequently designated by the FDA as PMCs. Of the
five studies, one was sponsored by Amgen while the other four
were investigator-sponsored. Results of certain of those studies
contributed to safety-related product labeling changes for our
ESA products and changes in reimbursement, as noted above. Of
the five studies, three are complete with final results of the
remaining studies expected in 2011. In addition, Johnson and
Johnson Pharmaceutical Research & Development
(J&JPRD), a subsidiary of J&J,
and/or its
investigators have conducted numerous studies proposed at the
2004 ODAC meeting. All of these studies are closed to enrollment
and summary results were submitted to the FDA.
Based on our discussions with the FDA in response to the May
2007 ODAC meeting, we and J&JPRD have carefully considered
potential new study designs to determine the effects of ESAs on
survival and tumor outcomes in anemic patients with metastatic
cancer receiving concomitant myelosuppressive chemotherapy.
Based on those discussions, we have initiated a randomized,
double-blind, placebo-controlled, phase 3 non-inferiority study
evaluating overall survival when comparing advanced NSCLC
patients on
Aranesp®
to patients receiving placebo (Study782) as
part of our
Aranesp®
pharmacovigilance program. In addition, J&JPRDs
EPO-ANE-3010 study in breast cancer is also ongoing. Both
studies are designated by the FDA as PMR clinical trials.
Adverse events or results of any of these studies could further
affect product safety labeling, healthcare provider prescribing
behavior, regulatory or private healthcare organization medical
guidelines
and/or
reimbursement practices related to
Aranesp®.
Aranesp®
(darbepoetin alfa)
We were granted an exclusive license by
Kirin-Amgen,
Inc. (KA), a joint venture between Kirin Holdings
Company, Limited (Kirin) and Amgen (see Business
Relationships Kirin Holdings Company, Limited), to
manufacture and market
Aranesp®
in the United States, all European countries, Canada, Australia,
New Zealand, Mexico, all Central and South American countries
and certain countries in Central Asia, Africa and the Middle
East.
We market
Aranesp®
primarily in the United States and Europe.
Aranesp®
was launched in 2001 in the United States and Europe for
the treatment of anemia associated with CRF (both in patients on
dialysis and patients not on dialysis) and is also indicated for
the treatment of anemia due to concomitant chemotherapy in
patients with non-myeloid malignancies.
Worldwide
Aranesp®
sales for the years ended December 31, 2010, 2009 and 2008
were $2.5 billion, $2.7 billion and
$3.14 billion, respectively. For the years ended
December 31, 2010, 2009 and 2008,
U.S. Aranesp®
sales were $1.1 billion, $1.3 billion and
$1.65 billion, respectively, and international
Aranesp®
sales were $1.4 billion, $1.4 billion and
$1.49 billion, respectively.
6
Our outstanding material patents for darbepoetin alfa are
described in the following table.
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Territory
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General Subject Matter
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Expiration
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U.S.
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Glycosylation analogs of erythropoietin proteins
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5/15/2024
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Europe(1)
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Glycosylation analogs of erythropoietin proteins
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8/16/2014
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(1) |
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In some cases, this European patent may also be entitled to
supplemental protection in one or more countries in Europe and
the length of any such extension will vary by country. |
Our principal European patent relating to Epoetin alfa expired
in December 2004. Although we do not market
EPOGEN®
in Europe, upon expiration of this patent, some companies
received approval to market products, including biosimilars,
that compete with
Aranesp®
in Europe, as further discussed below.
Any products or technologies that are directly or indirectly
successful in addressing anemia associated with chemotherapy
and/or renal
failure negatively impact
Aranesp®
sales. In the United States,
Aranesp®
competes with
EPOGEN®,
primarily in the U.S. hospital dialysis clinic setting. The
following table reflects companies and their currently marketed
products that compete with
Aranesp®
in the United States and Europe in the supportive cancer care
and nephrology segments, unless otherwise indicated. The table
and the following discussion of competitor marketed products and
products in development may not be exhaustive.
|
|
|
|
|
Territory
|
|
Competitor Marketed Product
|
|
Competitor
|
U.S.
|
|
PROCRIT®(1)
|
|
Centocor(2)
|
Europe
|
|
EPREX®/ERYPO®
|
|
Janssen-Cilag(2)
|
Europe
|
|
NeoRecormon®
|
|
F. Hoffmann-La Roche Ltd. (Roche)
|
Europe
|
|
Retacrittm(3)/Silapo®(3)
|
|
Hospira Inc.. (Hospira)/Stada Arzneimittel AG
|
Europe
|
|
Binocrit®(3)/Epoetin
alfa
Hexal®(3)/
Abseamed®(3)
|
|
Sandoz GmbH (Sandoz)/Hexal Biotech Forschungs GmbH
(Hexal)/Medice Arzneimittel Pütter GmbH &
Company KG
|
Europe
|
|
MIRCERA®(4)
|
|
Roche
|
Europe
|
|
Eporatio®/Biopoin®
|
|
ratiopharm GmbH
(ratiopharm)(5)/CT
Arztneimittel GmbH (CT Arztneimittel)
|
|
|
|
(1) |
|
Aranesp®
competes with
PROCRIT®
in the supportive cancer care and pre-dialysis settings. |
|
(2) |
|
A subsidiary of J&J. |
|
(3) |
|
Biosimilar product. |
|
(4) |
|
Competes with
Aranesp®
in the nephrology segment only. Pursuant to a December 2009
settlement agreement between Amgen and Roche, Roche is allowed
to begin selling
MIRCERA®
in the United States in mid-2014 under terms of a limited
license agreement.
MIRCERA®
has been approved by the FDA for the treatment of anemia
associated with CRF. |
|
(5) |
|
A subsidiary of Teva Pharmaceutical Industries Ltd. (Teva
Pharmaceutical). |
In addition to competition from these marketed products, the
following products in development could compete with
Aranesp®
in the future:
|
|
|
|
|
Affymax Inc. and Takeda Pharmaceutical Company Limited
(Takeda) are co-developing peginesatide, an ESA for
the treatment of anemia in CRF patients on dialysis and they
have announced plans to file for regulatory approval in the
United States in the second quarter of 2011.
|
|
|
|
Reliance Life Sciences Pvt. Ltd. (Reliance Life
Sciences) has an epoetin biosimiliar (Epostim) that they
filed for regulatory approval for in Europe.
|
7
EPOGEN®
(Epoetin alfa)
We were granted an exclusive license to manufacture and market
EPOGEN®
in the United States under a licensing agreement with KA. We
have retained exclusive rights to market
EPOGEN®
in the United States for dialysis patients. We granted Ortho
Pharmaceutical Corporation, a subsidiary of J&J (which has
assigned its rights under the Product License Agreement to
Centocor), a license to commercialize recombinant human
erythropoietin as a human therapeutic in the United States in
all indications other than dialysis. (See Business
Relationships Johnson & Johnson.)
We launched
EPOGEN®
in the United States in 1989 for the treatment of anemia
associated with CRF in patients who are on dialysis. We market
EPOGEN®
in the United States for the treatment of anemic adult and
pediatric patients with CRF who are on dialysis.
EPOGEN®
is indicated for elevating or maintaining the red blood cell
level (as determined by hematocrit or Hb measurements) and
decreasing the need for blood transfusions in these patients.
EPOGEN®
sales in the United States for the years ended December 31,
2010, 2009 and 2008 were $2.5 billion, $2.6 billion
and $2.5 billion, respectively.
Our outstanding material patents for Epoetin alfa are described
in the following table.
|
|
|
|
|
Territory
|
|
General Subject Matter
|
|
Expiration
|
|
U.S.
|
|
Process of making erythropoietin
|
|
8/15/2012
|
U.S.
|
|
Product claims to erythropoietin
|
|
8/20/2013
|
U.S.
|
|
Pharmaceutical compositions of erythropoietin
|
|
8/20/2013
|
U.S.
|
|
Cells that make certain levels of erythropoietin
|
|
5/26/2015
|
Any products or technologies that are directly or indirectly
successful in addressing anemia associated with renal failure
negatively impact
EPOGEN®
sales. In the United States, as noted above,
EPOGEN®
and
Aranesp®
compete with each other, primarily in the U.S. hospital
dialysis clinic setting. In addition,
EPOGEN®
could face additional competition from those products in
development noted in the
Aranesp®
section above that may be used in dialysis in the United States.
Neulasta®
(pegfilgrastim)/NEUPOGEN®
(Filgrastim)
We were granted an exclusive license to manufacture and market
Neulasta®
and
NEUPOGEN®
in the United States, Europe, Canada, Australia and New
Zealand under a licensing agreement with KA. (See Business
Relationships Kirin Holdings Company, Limited.)
Neulasta®
and
NEUPOGEN®
stimulate production of certain white blood cells known as
neutrophils. Neutrophils defend against infection. Treatments
for various diseases and diseases themselves can result in
extremely low numbers of neutrophils, a condition called
neutropenia. Myelosuppressive chemotherapy, one treatment option
for individuals with certain types of cancers, targets cell
types that grow rapidly, such as tumor cells. Normal cells that
divide rapidly, such as those in the bone marrow that become
neutrophils, are also vulnerable to the cytotoxic effects of
myelosuppressive chemotherapy, resulting in neutropenia with an
increased risk of severe infection.
NEUPOGEN®
is our registered trademark for Filgrastim, our
recombinant-methionyl human G-CSF.
Neulasta®
is our registered trademark for pegfilgrastim, a pegylated
protein based on the Filgrastim molecule. A polyethylene glycol
molecule (PEG) is added to enlarge the Filgrastim
molecule, thereby extending its half-life and causing it to be
removed more slowly from the body. Because pegfilgrastim is
eliminated through binding to its receptor on neutrophils and
their precursors, pegfilgrastim remains in the circulation until
neutrophil recovery has occurred. This neutrophil-mediated
clearance allows for administration as a single dose per
chemotherapy cycle, compared with
NEUPOGEN®,
which requires more frequent dosing.
Neulasta®
and
NEUPOGEN®
are prescribed more frequently in the curative setting, in which
myelosuppressive chemotherapy is administered with the intent to
cure cancer, rather than in the palliative setting, in which
myelosuppressive chemotherapy is administered to treat other
complications of cancer by managing tumor growth.
We market
Neulasta®
and
NEUPOGEN®
primarily in the United States and Europe. Filgrastim is also
marketed under the brand name
GRANULOKINE®
in Italy.
Neulasta®
was launched in the United States and
8
Europe in 2002 and is indicated to decrease the incidence of
infection associated with chemotherapy-induced febrile
neutropenia in cancer patients with non-myeloid malignancies.
Administration of
Neulasta®
in all cycles of chemotherapy is approved for patients receiving
myelosuppressive chemotherapy associated with a clinically
significant risk of febrile neutropenia.
NEUPOGEN®
was launched in the United States and Europe in 1991.
NEUPOGEN®
is indicated for reducing the incidence of infection as
manifested by febrile neutropenia for patients with non-myeloid
malignancies undergoing myelosuppressive chemotherapy; reducing
the duration of neutropenia and neutropenia-related consequences
for patients with non-myeloid malignancies undergoing
myeloablative chemotherapy followed by bone marrow
transplantation; reducing the incidence and duration of
neutropenia-related consequences in symptomatic patients with
congenital neutropenia, cyclic neutropenia or idiopathic
neutropenia (collectively, severe chronic neutropenia);
mobilizing peripheral blood progenitor cells (PBPC)
in cancer patients who have undergone myeloablative chemotherapy
for stem cell transplantation; and reducing the recovery time of
neutrophils and the duration of fever following induction or
consolidation chemotherapy treatment in adult patients with
acute myeloid leukemia (AML).
Worldwide
Neulasta®/NEUPOGEN®
sales for the years ended December 31, 2010, 2009 and 2008
were $4.8 billion, $4.6 billion and $4.7 billion,
respectively.
U.S. Neulasta®/NEUPOGEN®
sales for the years ended December 31, 2010, 2009 and 2008
were $3.6 billion, $3.4 billion and $3.4 billion,
respectively. International
Neulasta®/NEUPOGEN®
sales for the years ended December 31, 2010, 2009 and 2008
were $1.2 billion, $1.2 billion and $1.3 billion,
respectively.
Our outstanding material patents for pegfilgrastim are described
in the following table.
|
|
|
|
|
Territory
|
|
General Subject Matter
|
|
Expiration
|
|
U.S.
|
|
Pegylated G-CSF
|
|
10/20/2015
|
Europe(1)
|
|
Pegylated G-CSF
|
|
2/8/2015
|
|
|
|
(1) |
|
In some cases, this European patent may also be entitled to
supplemental protection in one or more countries in Europe and
the length of any such extension will vary by country. |
Our outstanding material patents for Filgrastim are described in
the following table.
|
|
|
|
|
Territory
|
|
General Subject Matter
|
|
Expiration
|
|
U.S.
|
|
G-CSF polypeptides
|
|
12/3/2013
|
U.S.
|
|
Methods of treatment using G-CSF polypeptides
|
|
12/10/2013
|
Our principal European patent relating to G-CSF expired in
August 2006. Upon expiration of that patent, some companies
received approval to market products, including biosimilars,
that compete with
NEUPOGEN®
and
Neulasta®
in Europe, as further discussed below.
Neulasta®
and/or
NEUPOGEN®
also face competition in some circumstances from companies
marketing or developing treatments for neutropenia associated
with chemotherapy, for bone marrow and PBPC transplant patients,
severe chronic neutropenia and AML. Further,
NEUPOGEN®
competes with
Neulasta®
in the United States and Europe, and
NEUPOGEN®
sales have been adversely impacted by conversion to
Neulasta®.
However, we believe the conversion in the United States is
substantially complete and that a significant amount of the
conversion in Europe has already occurred.
9
The following table reflects companies and their currently
marketed products that compete with
Neulasta®
and/or
NEUPOGEN®
in the United States and Europe in the supportive cancer care
setting. The table and the following discussion of competitor
marketed products and products in development may not be
exhaustive.
|
|
|
|
|
Territory
|
|
Competitor Marketed Product
|
|
Competitor
|
|
U.S.
|
|
Leukine®
|
|
Bayer HealthCare Pharmaceuticals
|
Europe
|
|
Granocyte®
|
|
Chugai Pharmaceuticals Co., Ltd./Sanofi-Aventis
|
Europe
|
|
Ratiograstim®(1)/Filgrastim
Ratiopharm®(1)/Biograstim®(1)
|
|
ratiopharm(2)/CT
Arztneimittel
|
Europe
|
|
Tevagrastim®(1)
|
|
Teva Pharmaceutical
|
Europe
|
|
Zarzio®(1)/Filgrastim
Hexal®(1)
|
|
Sandoz/Hexal
|
Europe
|
|
Nivestim®(1)
|
|
Hospira
|
|
|
|
(1) |
|
Biosimilar product. |
|
(2) |
|
A subsidiary of Teva Pharmaceutical. |
In February 2010, Teva Pharmaceutical announced that the FDA had
accepted for review its BLA seeking U.S. approval to market
XM02 to boost white blood cells under the brand name
Neutrovaltm.
On September 30, 2010, the FDA issued a Complete Response
Letter requesting additional information from Teva
Pharmaceutical to complete the review of its applications for
approval of
Neutrovaltm.
Neutrovaltm
is currently sold under the brand name
Tevagrastim®
in several European countries. If approved in the United States,
this drug would compete with
NEUPOGEN®
and
Neulasta®.
On November 30, 2009, Teva Pharmaceutical filed a
declaratory judgment action against us alleging that certain of
our
NEUPOGEN®
patents are invalid and not infringed by
Neutrovaltm,
and on January 15, 2010, we filed an answer and
counterclaims seeking a declaratory judgment that our patents
are valid and infringed. Pretrial proceedings are ongoing and no
trial date has yet been set. (See Note 19, Contingencies
and commitments to the Consolidated Financial Statements.)
Other companies with short-acting filgrastims in phase 3
clinical development for Europe are:
|
|
|
|
|
Merck & Company, Inc. (Merck) (MK-4214).
|
|
|
|
Intas/Apotex Inc. (Neukine).
|
|
|
|
Reliance Life Sciences (Religrast).
|
|
|
|
Biocon Ltd./Celgene Corporation (Celgene) (Nufil).
|
In addition, Teva Pharmaceutical has two long-acting filgrastims
in phase 3 clinical development for Europe (XM-22 and Neugranin).
Enbrel®
(etanercept)
ENBREL is our registered trademark for etanercept, our TNF
receptor fusion protein that inhibits the binding of TNF to its
receptors, which can result in a significant reduction in
inflammatory activity. TNF is one of the chemical messengers
that help regulate the inflammatory process. When the body
produces too much TNF, it overwhelms the immune systems
ability to control inflammation of the joints or of
psoriasis-affected skin areas. ENBREL is similar to a protein
that the body produces naturally, and like this protein, it
binds certain TNF molecules before they can trigger inflammation.
We acquired the rights to ENBREL in July 2002 with our
acquisition of Immunex Corporation (Immunex). ENBREL
was launched in November 1998 for the treatment of rheumatoid
arthritis (RA). In addition, ENBREL is now indicated
for the treatment of adult patients with the following
conditions: moderately to severely active RA; chronic moderate
to severe plaque psoriasis patients who are candidates for
systemic therapy or phototherapy; active psoriatic arthritis;
and active ankylosing spondylitis. ENBREL is also approved for
the treatment of moderately to severely active polyarticular
juvenile idopathic arthritis in patients ages 2 and older.
10
We market ENBREL under a collaboration agreement with Pfizer
Inc. (Pfizer) in the United States and Canada, which
expires in the fourth quarter of 2013. (See Business
Relationships Pfizer Inc.) The rights to market
and sell ENBREL outside the United States and Canada are
reserved to Pfizer.
ENBREL sales for the years ended December 31, 2010, 2009
and 2008 were $3.5 billion, $3.5 billion and
$3.6 billion, respectively.
Our outstanding material patents for etanercept are described in
the following table.
|
|
|
|
|
Territory
|
|
General Subject Matter
|
|
Expiration
|
|
U.S.
|
|
TNFR DNA vectors, cells and processes for making proteins
|
|
10/23/2012
|
U.S.
|
|
Aqueous
Formulation(1)
|
|
2/27/2023
|
|
|
|
(1) |
|
This formulation patent relates to the currently approved liquid
formulation of ENBREL, which formulation accounts for the
majority of ENBREL sales in the United States. ENBREL is also
sold as a lyophilized formulation that requires reconstituting
before it can be administered to the patient. Accordingly, a
potential competitor may be able to develop an alternative
formulation of etanercept, including the lyophilized
formulation, and compete in the marketplace prior to the
expiration of the liquid formulation patent. |
Any products or technologies that are directly or indirectly
successful in treating rheumatologic conditions, which includes
moderate to severe RA; moderate to severe polyarticular juvenile
idiopathic arthritis; ankylosing spondylitis and psoriatic
arthritis; and dermatologic conditions, which includes moderate
to severe plaque psoriasis, could negatively impact ENBREL
sales. Certain of the treatments for these indications include
generic methotrexate and other products.
The following table reflects companies and their currently
marketed products that primarily compete with ENBREL in the
United States and Canada in the inflammatory disease setting.
The table and the following discussion of competitor marketed
products and products in development may not be exhaustive.
|
|
|
|
|
|
|
|
|
|
|
Competitor
|
|
|
Territory
|
|
Therapeutic Area
|
|
Marketed Product
|
|
Competitor
|
|
U.S. & Canada
|
|
Rheumatology & Dermatology
|
|
REMICADE®
|
|
Centocor(1)/Merck
|
U.S. & Canada
|
|
Rheumatology & Dermatology
|
|
HUMIRA®
|
|
Abbott Laboratories (Abbott)
|
U.S. & Canada
|
|
Rheumatology & Dermatology
|
|
Simponi®
|
|
Centocor(1)
|
U.S. & Canada
|
|
Rheumatology
|
|
Cimzia®
|
|
UCB/ Nektar Therapeutics
|
U.S. & Canada
|
|
Rheumatology
|
|
Orencia®
|
|
Bristol-Myers Squibb Corporation (BMS)
|
U.S. & Canada
|
|
Rheumatology
|
|
Rituxan®
|
|
Roche
|
U.S.
|
|
Rheumatology
|
|
Actemra®
|
|
Roche
|
U.S. & Canada
|
|
Dermatology
|
|
Stelara®
|
|
Centocor(1)
|
U.S. & Canada
|
|
Dermatology
|
|
Amevive®
|
|
Biogen IDEC Inc.
|
In addition to competition from the above-noted marketed
products, various competitors are developing products that may
compete with ENBREL in the future, as discussed below:
|
|
|
|
|
BMS submitted a supplemental BLA in the United States in October
2010 for subcutaneous
Orencia®.
|
|
|
|
Pfizer released phase 3 data for its small molecule oral JAK
program (tofacitinib) in RA and has initiated phase 3 trials in
psoriasis.
|
|
|
|
AstraZeneca PLC and Rigel Pharmaceuticals Inc. initiated phase 3
trials in RA for their small molecule (fostamatinib).
|
|
|
|
Celgene initiated phase 3 clinical trials in both psoriasis and
psoriatic arthritis for its small molecule (apremilast).
|
11
In addition, several pharmaceutical companies announced their
intent to produce biosimilars that may compete with ENBREL.
Other
Our other marketed products are
Sensipar®/Mimpara®
(cinacalcet),
Vectibix®
(panitumumab),
Nplate®
(romiplostim),
Prolia®
(denosumab) and
XGEVAtm
(denosumab).
Sensipar®/Mimpara®
(cinacalcet)
Sensipar®
is our registered trademark in the United States and
Mimpara®
is our registered trademark in Europe for cinacalcet, our small
molecule medicine used in treating CKD patients on dialysis who
produce too much parathyroid hormone (PTH), a
condition known as secondary hyperparathyroidism. In 2004,
Sensipar®/Mimpara®
was approved in the United States and Europe for the treatment
of secondary hyperparathyroidism in CKD patients on dialysis and
for the treatment of hypercalcemia in patients with parathyroid
carcinoma. In 2008,
Mimpara®
was approved in Europe for the reduction of hypercalcemia in
patients with primary hyperparathyroidism where a
parathyroidectomy is not clinically appropriate or is
contraindicated. We market
Sensipar®
primarily in the United States and
Mimpara®
primarily in Europe.
In addition, as previously discussed, CMS released the Final
Rule on Bundling in Dialysis, effective January 1, 2011,
resulting in a bundled payment system for dialysis facilities.
Oral drugs without intravenous equivalents, such as
Sensipar®
and phosphate binders, will continue to be reimbursed separately
under the Medicare Part D benefit until 2014 when they will
be reimbursed under the bundled payment system. Inclusion in the
bundled payment system may reduce utilization of these oral
drugs and have a material adverse impact on
Sensipar®
sales. (See Reimbursement.)
Worldwide
Sensipar®/Mimpara®
sales for the years ended December 31, 2010, 2009 and 2008
were $714 million, $651 million and $597 million,
respectively.
Our outstanding material patents for cinacalcet are described in
the following table.
|
|
|
|
|
Territory
|
|
General Subject Matter
|
|
Expiration
|
|
U.S.
|
|
Calcium receptor-active molecules including species
|
|
10/23/2015
|
U.S.(1)
|
|
Calcium receptor-active molecules
|
|
12/14/2016
|
U.S.
|
|
Methods of treatment
|
|
12/14/2016
|
Europe(2)
|
|
Calcium receptor-active molecules
|
|
10/23/2015
|
|
|
|
(1) |
|
An election of U.S. Patent No. 6,011,068 for patent term
extension has been submitted to the U.S. Patent and Trademark
Office which will extend this patent until March 8, 2018. |
|
(2) |
|
In some cases, this European patent may also be entitled to
supplemental protection in one or more countries in Europe and
the length of any such extension will vary by country. |
Any products or technologies that are directly or indirectly
successful in treating secondary hyperparathyroidism in patients
with CKD on dialysis
and/or
hypercalcemia in patients with parathyroid carcinoma negatively
impact
Sensipar®/Mimpara®
sales.
12
The following table reflects companies and their currently
marketed products that compete with
Sensipar®
in the United States and with
Mimpara®
in Europe in the nephrology segment for patients with CKD on
dialysis. The table and discussion below of competitor marketed
products and products in development may not be exhaustive.
|
|
|
|
|
Territory
|
|
Competitor Marketed Product
|
|
Competitor
|
|
U.S.
|
|
Hectorol®
|
|
Genzyme Corporation (Genzyme)
|
U.S.
|
|
Rocaltrol®
|
|
Roche
|
U.S.
|
|
Calcijex®
|
|
Abbott
|
U.S.
|
|
Calcium
Acetate®
|
|
Roxane Laboratories/Sandoz
|
U.S. & Europe
|
|
Zemplar®
|
|
Abbott
|
U.S. & Europe
|
|
Renagel®
|
|
Genzyme
|
U.S. & Europe
|
|
Renvela®
|
|
Genzyme
|
U.S. & Europe
|
|
PhosLo®/Rephoren®
|
|
Fresenius Medical Care
|
U.S. & Europe
|
|
OsvaRen®
|
|
Fresenius Medical Care
|
U.S. & Europe
|
|
Fosrenol®
|
|
Shire Pharmaceuticals Group Plc
|
On July 25, 2008, we filed a lawsuit against Teva
Pharmaceuticals USA, Inc. and Teva Pharmaceutical (together
defined as Teva) and Barr Pharmaceuticals Inc.
(Barr) for infringement of four
Sensipar®
patents. The lawsuit was based on Abbreviated New Drug
Applications filed by Teva and Barr that sought approval to
market generic versions of
Sensipar®.
Following trial, on January 7, 2011, the U.S. District
Court for the District of Delaware granted an injunction
prohibiting Teva and Barr from commercializing generic versions
of
Sensipar®
in the United States until expiration of three of those patents.
(See Note 19, Contingencies and commitments to the
Consolidated Financial Statements.) These generic versions could
compete with
Sensipar®
in the future.
Vectibix®
(panitumumab)
Vectibix®
is our registered trademark for panitumumab, our monoclonal
antibody for the treatment of patients with EGFr expressing mCRC
after disease progression on, or following fluoropyrimidine-,
oxaliplatin- and irinotecan- containing chemotherapy regimens.
EGFr is a protein that plays an important role in cancer cell
signaling and is over-expressed in many human cancers.
Vectibix®
binds with high affinity to EGFrs and interferes with signals
that might otherwise stimulate growth and survival of the cancer
cell. We acquired full ownership of
Vectibix®
with our acquisition of Abgenix, Inc. (Abgenix) in
April 2006. In September 2006,
Vectibix®
received FDA accelerated approval in the United States, based
upon clinical trial data from a study demonstrating a
statistically significant improvement in progression-free
survival and with the condition that Amgen conduct a
confirmatory trial to verify the clinical benefit of panitumumab
through demonstration of an improvement in overall survival. In
the EU, the conditional approval of
Vectibix®
as monotherapy, for the treatment of patients with EGFr
expressing metastatic colorectal carcinoma with non-mutated
(wild-type) KRAS genes after failure of
fluoropyrimidine-, oxaliplatin-, and irinotecan-containing
chemotherapy regimens, was received in December 2007 and is
reviewed annually by the Committee for Medicinal Products for
Human Use (CHMP). In December 2008, 2009 and 2010,
the EU conditional marketing authorization was renewed with an
additional specific obligation to conduct a clinical trial in
the existing approved indication. In 2010, we began enrollment
for this additional clinical trial which compares the effect of
Vectibix®
versus
Erbitux®
(cetuximab) on overall survival for chemorefractory mCRC
patients with wild-type KRAS genes. KRAS is a
protein found in all human cells. Some colorectal cancers have
mutations in the KRAS gene.
Vectibix®
has been shown to be ineffective in people whose tumors had
KRAS mutations in codon 12 or 13.
In 2009, we announced results from the 203 and 181
pivotal phase 3 trials evaluating
Vectibix®
in combination with chemotherapy (FOLFOX or FOLFIRI) as a first-
and second-line treatment for mCRC, respectively. Both studies
demonstrated that
Vectibix®
administered with chemotherapy significantly improved
progression-free survival in patients with wild-type KRAS
mCRC. Additionally, both studies showed numeric improvements
in median overall survival in the same patient population. The
numeric improvements in median overall survival failed to
achieve statistical significance. It was previously agreed with
the FDA that the 181 study would serve as the confirmatory
trial for establishing full approval for the mCRC indication.
13
On April 16, 2010, our application for marketing
authorization for the use of
Vectibix®
in first- and second-line treatment of mCRC in patients whose
tumors contain wild-type KRAS genes was submitted to the
EMA. In the United States, we filed supplemental BLA submissions
for first- and second-line mCRC with the FDA on October 29,
2010 and November 4, 2010. Both the EMA and FDA filings
included the data from the 203 and 181 clinical
trials. In addition, the FDA has indicated that in order for
Vectibix®
to be approved for these indications, there must be a
commercially available, FDA-approved KRAS test kit. We
continue to work with our partner QIAGEN N.V. to support their
submission of a Premarket Application for approval of this test
kit.
On February 8, 2011, we and four other sponsor companies
met with the FDA and the ODAC to discuss the status of our
respective PMCs for product indications that had been granted
accelerated approval by the FDA prior to 2009, including
Vectibix®.
At that meeting, we updated the Committee on the completion and
submission of the main PMC for
Vectibix®,
the confirmatory 181 study, and participated in an open
discussion with the ODAC on the accelerated approval process.
Worldwide
Vectibix®
sales for the years ended December 31, 2010, 2009 and 2008
were $288 million, $233 million and $153 million,
respectively.
Our outstanding material patents for panitumumab are described
in the following table.
|
|
|
|
|
Territory
|
|
General Subject Matter
|
|
Expiration
|
|
U.S.
|
|
Human monoclonal antibodies to EGFr
|
|
4/8/2020
|
U.S.
|
|
Human monoclonal antibodies to EGFr
|
|
5/5/2017
|
Europe
|
|
Fully human antibodies that bind EGFr
|
|
12/3/2017
|
Europe(1)
|
|
Human monoclonal antibodies to EGFr
|
|
5/5/2018
|
|
|
|
(1) |
|
In some cases, this European patent may also be entitled to
supplemental protection in one or more countries in Europe and
the length of any such extension will vary by country. |
Any products or technologies that are directly or indirectly
successful in treating mCRC after disease progression on, or
following fluoropyrimidine-, oxaliplatin- and irinotecan-
containing chemotherapy regimens negatively impact
Vectibix®
sales. The following table reflects companies and their
currently marketed products that compete with
Vectibix®
in the United States and Europe. The table may not be exhaustive.
|
|
|
|
|
Territory
|
|
Competitor Marketed Product
|
|
Competitor
|
|
U.S.
|
|
Erbitux®
|
|
Eli Lilly and Company (Eli Lilly)/BMS
|
Europe
|
|
Erbitux®
|
|
Merck KGaA
|
Nplate®
(romiplostim)
In August 2008, the FDA approved
Nplate®,
our platelet producer for the treatment of thrombocytopenia in
splenectomized (spleen removed) and non-splenectomized adults
with chronic immune thrombocytopenic purpura (ITP).
Nplate®
works by raising and sustaining platelet counts. We were granted
an exclusive license by KA to manufacture and market
Nplate®
in the United States, all European countries, Canada, Australia,
New Zealand, Mexico, all Central and South American countries
and certain countries in Central Asia, Africa and the Middle
East. In February 2009, we announced that the EC had granted
marketing authorization for
Nplate®
for the treatment of splenectomized adult chronic ITP patients
who are refractory to other treatments (eg, corticosteroids,
immunoglobulins). In the EU,
Nplate®
may also be considered as second-line treatment for adult
non-splenectomized ITP patients where surgery is contraindicated.
We currently have an approved REMS for
Nplate®,
which includes a medication guide, a healthcare provider
communication plan and certain elements to assure safe use
(including restricted distribution, registry, healthcare
provider, institution and patient enrollment). As required, we
have submitted REMS assessment reports to the FDA and are
working with the FDA to determine any additional modifications
to the REMS that will be needed.
14
Worldwide
Nplate®
sales for the years ended December 31, 2010, 2009 and 2008
were $229 million, $110 million and $17 million,
respectively.
Our outstanding material patents for romiplostim are described
in the following table.
|
|
|
|
|
Territory
|
|
General Subject Matter
|
|
Expiration
|
|
U.S.
|
|
Thrombopoietic compounds
|
|
1/19/2022
|
Europe(1)
|
|
Thrombopoietic compounds
|
|
10/22/2019
|
|
|
|
(1) |
|
In some cases, this European patent may also be entitled to
supplemental protection in one or more countries in Europe and
the length of any such extension will vary by country. |
Any products or technologies that are directly or indirectly
successful in treating thrombocytopenia in splenectomized and
non-splenectomized adults with chronic ITP negatively impact
Nplate®
sales. The following table reflects currently marketed products
that compete with
Nplate®
in the United States and Europe. The table may not be exhaustive.
|
|
|
|
|
Territory
|
|
Competitor Marketed Product
|
|
Competitor
|
|
U.S.
|
|
Promacta®
|
|
GlaxoSmithKline plc (GSK)
|
Europe
|
|
Revolade®
|
|
GSK
|
Prolia®/XGEVAtm
(denosumab)
In 2010, we launched
Prolia®
and
XGEVAtm,
both of which contain the same active ingredient but which are
approved for different indications, patient populations, doses
and frequencies of administration. We have a collaboration
agreement with Glaxo Group Limited (Glaxo), a wholly
owned subsidiary of GSK, for the commercialization of denosumab
in certain countries. (See Business Relationships
Glaxo Group Limited.)
Prolia®
On June 1, 2010, the FDA approved
Prolia®
for the treatment of postmenopausal women with osteoporosis at
high risk for fracture, defined as a history of osteoporotic
fracture, or multiple risk factors for fracture, or patients who
have failed or are intolerant to other available osteoporosis
therapy. We estimate that the majority of potential
U.S. Prolia®
patients are covered under Medicare and the remaining patients
under commercial plans. (See Reimbursement.) Future
U.S. product sales for
Prolia®
will depend on the willingness of primary care physicians to
prescribe, the availability of reimbursement for and patient
acceptance of the product.
On May 25, 2010, the EC granted marketing authorization for
Prolia®
for the treatment of osteoporosis in postmenopausal women at
increased risk of fractures and for the treatment of bone loss
associated with hormone ablation in men with prostate cancer at
increased risk of fractures. The timing of reimbursement
authority approval of pricing in individual EU countries will
vary by country, which could follow the EC approval by many
months. For example, on July 1, 2010,
Prolia®
received reimbursement authority in Germany. On October 27,
2010, the National Institute for Health and Clinical Excellence
(NICE) in the United Kingdom (UK)
recommended
Prolia®
for National Health Service (NHS) reimbursement as a
treatment option for certain postmenopausal women who are at
increased risk of primary and secondary osteoporotic fractures
if other treatments available on the publicly-funded NHS are
unsuitable.
Worldwide
Prolia®
sales for the year ended December 31, 2010 were
$33 million.
15
The following table and discussion reflect other companies and
their currently marketed products that compete with
Prolia®.
The table and the discussion of competitor marketed products and
product in development may not be exhaustive.
|
|
|
|
|
Territory
|
|
Competitor Marketed Product
|
|
Competitor
|
|
U.S. & Europe
|
|
FOSAMAX®(1)
|
|
Merck
|
U.S. & Europe
|
|
Actonel®/Atelviatm
|
|
Warner Chilcott PLC
|
U.S. & Europe
|
|
Boniva®/Bonviva®
|
|
Roche
|
U.S. & Europe
|
|
Evista®
|
|
Eli Lilly
|
U.S. & Europe
|
|
Forteo®/Forsteotm
|
|
Eli Lilly
|
U.S. & Europe
|
|
Miacalcin®
|
|
Novartis AG (Novartis)
|
U.S. & Europe
|
|
Aclasta®/Reclast®
|
|
Novartis
|
Europe
|
|
Conbriza®
|
|
Pfizer
|
Europe
|
|
Fablyn®
|
|
Pfizer
|
|
|
|
(1) |
|
Mercks patent covering the use of
FOSAMAX®
to treat bone loss expired in the United States in February
2008. Following the patent expiry, generic alendronate, which
competes with
FOSAMAX®
and
Prolia®,
became available. |
Over the next several years, we expect certain additional
marketed products noted above to lose patent protection, at
which time we expect that generic versions of these products
would become commercially available and compete with
Prolia®.
In addition to competition from the above-noted marketed
products, Merck has a new cathepsin-K inhibitor, odanacatib, in
phase 3 clinical trials that could compete with
Prolia®
in the future.
XGEVAtm
On November 18, 2010, the FDA approved
XGEVAtm
for the prevention of SREs in patients with bone metastases from
solid tumors.
XGEVAtm
is not indicated for the prevention of SREs in patients with
multiple myeloma.
We also submitted a marketing authorization application to the
EMA on June 4, 2010 for denosumab for the reduction of SREs
in cancer patients.
On December 12, 2010, we announced top-line results from a
phase 3 trial evaluating
XGEVAtm
versus placebo in men with castrate-resistant prostate cancer.
The trial, known as the 147 study, demonstrated that
XGEVAtm
significantly improved median bone metastasis-free survival by
4.2 months compared to placebo (primary endpoint) and
significantly improved time to first occurrence of bone
metastases (secondary endpoint). Overall survival was similar
between the
XGEVAtm
and placebo groups (secondary endpoint). This study will form
the basis of planned marketing applications, which we expect to
submit to regulatory authorities beginning in the first half of
2011, for the prevention of bone metastasis in prostate cancer.
(See Research and Development and Selected Product Candidates.)
U.S.
XGEVAtm
sales for the year ended December 31, 2010 were
$8 million.
16
The following table reflects currently marketed products that
compete with
XGEVAtm.
The table may not be exhaustive.
|
|
|
|
|
Territory
|
|
Competitor Marketed Product
|
|
Competitor
|
|
U.S. & Europe
|
|
Zometa®(1)
|
|
Novartis
|
U.S. & Europe
|
|
Aredia®(2)
|
|
Novartis
|
|
|
|
(1) |
|
Novartis has indicated that patent protection on the active
ingredient for
Zometa®
will expire in 2013 in the United States and 2012 in other major
markets. At such time, we expect that generic forms of
zoledronic acid may become commercially available and compete
with
Zometa®
and
XGEVAtm. |
|
(2) |
|
Novartiss patent covering the use of
Aredia®
to treat tumor-induced hypercalcemia, osteolysis from multiple
myeloma and bone metastases from breast cancer expired in the
United States in 2001. Following the patent expiry, generic
pamidronate, which competes with
Aredia®
and
XGEVAtm,
became available from other companies. |
Our outstanding material patents for denosumab are described in
the following table.
|
|
|
|
|
Territory
|
|
General Subject Matter
|
|
Expiration(1)
|
|
U.S.
|
|
RANKL antibodies; methods of interfering with RANK signaling
|
|
12/22/2017
|
U.S.
|
|
Methods of treatment
|
|
11/11/2018
|
U.S.
|
|
RANKL antibodies including sequences
|
|
11/28/2023
|
Europe
|
|
RANKL antibodies
|
|
12/22/2017
|
Europe
|
|
Medical use of RANKL antibodies
|
|
4/15/2018
|
Europe
|
|
RANKL antibodies including epitope binding
|
|
2/23/2021
|
Europe
|
|
RANKL antibodies including sequences
|
|
6/25/2022
|
|
|
|
(1) |
|
The expiration dates may be subject to change if delays in
regulatory approval lead to extensions of patent terms in the
United States and/or supplemental protection in Europe. |
We maintain sales and marketing forces primarily in the United
States, Europe and Canada to support our currently marketed
products. We have also entered into agreements with third
parties to assist in the commercialization and marketing of
certain of our products in specified geographic areas. (See
Business Relationships.) Together with our partners, we market
our products to healthcare providers, including physicians or
their clinics, dialysis centers, hospitals and pharmacies. We
also market certain products directly to consumers through
direct-to-consumer
print and television advertising, and also through the Internet.
In addition, for certain of our products, we promote programs to
increase public awareness of the health risks associated with
the diseases these products treat, as well as providing support
to various patient education and support programs in the related
therapeutic areas. (See Government Regulation FDA
Regulation of Product Marketing and Promotion for a discussion
of the government regulation over product marketing and
promotion.)
In the United States, we sell primarily to wholesale
distributors of pharmaceutical products. We utilize those
wholesale distributors as the principal means of distributing
our products to healthcare providers. In Europe, we sell
principally to healthcare providers
and/or
wholesalers depending on the distribution practice in each
country. We monitor the financial condition of our larger
customers and limit our credit exposure by setting credit
limits, requiring letters of credit and obtaining credit
insurance, as we deem appropriate.
We had product sales to three large wholesaler customers each
accounting for more than 10% of total revenues for the years
ended December 31, 2010, 2009 and 2008. On a combined
basis, these distributors accounted for 71% and 88% for 2010 of
worldwide gross revenues and U.S. gross product sales,
respectively, as noted in the table
17
below. Certain information with respect to these distributors
for the years ended December 31, 2010, 2009 and 2008 is as
follows (dollar amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
AmerisourceBergen Corporation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross product sales
|
|
$
|
7,678
|
|
|
$
|
7,179
|
|
|
$
|
7,099
|
|
% of total gross revenues
|
|
|
38%
|
|
|
|
37%
|
|
|
|
37%
|
|
% of U.S. gross product sales
|
|
|
47%
|
|
|
|
46%
|
|
|
|
46%
|
|
McKesson Corporation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross product sales
|
|
$
|
3,913
|
|
|
$
|
3,694
|
|
|
$
|
3,594
|
|
% of total gross revenues
|
|
|
19%
|
|
|
|
19%
|
|
|
|
19%
|
|
% of U.S. gross product sales
|
|
|
24%
|
|
|
|
24%
|
|
|
|
23%
|
|
Cardinal Health, Inc.:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross product sales
|
|
$
|
2,813
|
|
|
$
|
2,841
|
|
|
$
|
2,823
|
|
% of total gross revenues
|
|
|
14%
|
|
|
|
15%
|
|
|
|
15%
|
|
% of U.S. gross product sales
|
|
|
17%
|
|
|
|
18%
|
|
|
|
18%
|
|
Sales of all of our principal products are dependent in large
part on the availability and extent of coverage and
reimbursement from third-party payers, including government and
private insurance plans. Most patients receiving our products
are covered by government healthcare programs or private
insurers. Governments may regulate coverage, reimbursement
and/or
pricing of our products to control costs or to affect levels of
use of our products, and private insurers may adopt or be
influenced by government coverage and reimbursement
methodologies. Worldwide use of our products may be affected by
cost containment pressures and cost shifting from governments
and private insurers to healthcare providers or patients in
response to ongoing initiatives to reduce or reallocate
healthcare expenditures. An increasing worldwide focus on
patient access controls and cost containment by public and
private insurers has resulted, and may continue to result, in
reduced reimbursement rates for our products. In addition,
recent healthcare reform efforts enacted in the United States
have made substantial long-term changes to the reimbursement of
our products, and those changes have had, and are expected to
continue to have, a significant impact on our business.
U.S.
Reimbursement System
Our principal products are sold primarily in the United States
and healthcare providers, including doctors, hospitals and other
healthcare professionals and providers, are reimbursed for their
services by the government through Medicare, Medicaid and other
government healthcare programs as well as through private
payers. Government healthcare programs are funded primarily
through the payment of taxes by individuals and businesses. The
public and private components of this multi-payer system are
described below.
Medicare
and Other Forms of Public Health Insurance
Medicare is a federal program administered by the federal
government that covers individuals age 65 and over as well
as those with certain disabilities and end stage renal disease
(ESRD), regardless of their age. The primary
Medicare programs that affect reimbursement for our products are
Medicare Part B, which covers physician services and
outpatient care, and Medicare Part D, which provides a
voluntary outpatient prescription drug benefit. CMS is the
federal agency responsible for administering Medicare (as well
as Medicaid, described below) and, among its responsibilities,
has authority to issue Medicare NCDs which are national policy
statements granting, limiting or excluding Medicare coverage for
specific medical items or services. In addition, CMS has
authority to issue manual policy issuances and updates as well
as reimbursement codes for drugs and other items, which
determine how products and services are reimbursed. Medicare
Administrative Contractors have authority to issue local
coverage determinations. CMS sometimes uses advisory committees
of external experts in order to obtain
18
independent expert advice on scientific, technical and policy
matters. For example, the MEDCAC was established to provide
independent guidance and expert advice to CMS on specific
clinical topics. The MEDCAC reviews and evaluates medical
literature, technology assessments, and examines data and
information on the effectiveness and appropriateness of medical
items and services that are covered under Medicare, or that may
be eligible for coverage under Medicare.
Medicare Part B Coverage of Drugs and
ESRD. Medicare Part B provides limited coverage of
outpatient drugs and biologicals that are furnished
incident to a physicians services. Generally,
incident to drugs and biologicals are covered if
they satisfy certain criteria, including that they are of the
type that are not usually self-administered by the patient and
are reasonable and necessary for a medically accepted diagnosis
or treatment. Medicare Part B also covers certain drugs
pursuant to a specific statutory directive, such as
blood-clotting factors and certain immunosuppressive drugs,
erythropoietin and certain oral cancer drugs, if they fall under
a specific statutory benefit category and they are safe
and effective as established by FDA approval. Many of our
principal products are currently covered under Medicare
Part B (as well as other government healthcare programs).
In addition, most patients with ESRD, regardless of age, are
eligible for coverage of dialysis treatment through the ESRD
Program under Medicare Part B, the primary payer for
dialysis treatment. Because Medicare Part B is the primary
payer for dialysis treatment, reimbursement for products, such
as
EPOGEN®,
that are typically administered in dialysis centers and other
settings is particularly sensitive to changes in Medicare
coverage and reimbursement policy. Beginning January 1,
2011, dialysis treatment is reimbursed by Medicare under a
bundled payment system described in more detail below. (See
Dialysis Reimbursement.)
Medicare Part D. Medicare Part D provides
a voluntary prescription drug benefit for Medicare eligible
beneficiaries. The coverage is available through various private
plans that provide insurance coverage for prescription drugs for
a monthly premium. The list of prescription drugs covered by
Medicare Part D plans varies by plan, but drug lists
maintained by individual plans must cover certain classes of
drugs and biologicals; specifically the statute stipulates that
Medicare Part D plans have at least two drugs in each
unique therapeutic category or class, subject to certain
exceptions. Medicare patients who obtain ENBREL and
Sensipar®
under retail coverage, where they are primarily provided, are
typically covered by Medicare Part D.
Medicaid. Medicaid is a joint federal and state
program administered by individual states for low-income and
disabled eligible beneficiaries. CMS also has responsibility for
federal administration of the Medicaid program. Under federal
law, states must cover low-income adults and children, pregnant
women, disabled individuals and seniors, and states have the
option of expanding eligibility beyond those groups of
beneficiaries. Medicaid is financed jointly by the states and
federal government through taxes. Medicaid offers a broad set of
benefits, including prescription drugs. Medicaid includes the
Drug Rebate Program which requires manufacturers to provide
rebates to the states for products covered and reimbursed by
state Medicaid programs.
See Item 1A. Risk Factors Our sales depend on
coverage and reimbursement from third-party payers.
Private
Health Insurance
Employer-sponsored insurance. Employer-sponsored
insurance currently represents the main pathway by which
Americans receive private health insurance. Many employers
provide health insurance as part of employees benefit
packages. Insurance plans are administered by private companies,
both for-profit and
not-for-profit,
and some companies are self-insured (i.e., they pay
for all healthcare costs incurred by employees directly through
a plan administered by a third party). Generally,
employer-sponsored insurance premiums are paid primarily by
employers and secondarily by employees.
Individual market. The individual market covers part
of the population that is self-employed or retired. In addition,
it covers some people who are unable to obtain insurance through
their employers. The plans are administered by private insurance
companies. Individuals pay
out-of-pocket
insurance premiums for coverage, and the benefits vary widely
according to plan specifications.
19
Reimbursement
of Our Principal Products
Aranesp®,
Neulasta®
and
NEUPOGEN®. Medicare
and Medicaid payment policies for drugs and biologicals are
subject to various laws and regulations. The Medicare program
covers our principal products
Aranesp®,
Neulasta®
and
NEUPOGEN®
(as well as certain of our other products including
Vectibix®,
Nplate®,
Prolia®
and
XGEVAtm)
under Part B, when administered in the physician clinic
setting and the hospital outpatient and dialysis settings.
Healthcare providers are reimbursed for these products under a
buy and bill process where providers purchase the
product in advance of treatment and then submit a reimbursement
claim to Medicare following administration of the product.
Medicare reimburses providers using a payment methodology based
on a fixed percentage of each products average sales price
(ASP). ASP is calculated by the manufacturer based
on a statutorily defined formula and submitted to CMS. A
products ASP is calculated and reported to CMS on a
quarterly basis and therefore may change each quarter. The ASP
in effect for a given quarter (the Current Period)
is based upon certain historical sales and sales incentive data
covering a statutorily defined period of time preceding the
Current Period. CMS publishes the ASPs for products in advance
of the quarter in which they go into effect so healthcare
providers will know the applicable reimbursement rates. In the
calculation of ASP, CMS currently allows manufacturers to make
reasonable assumptions consistent with the general requirements
and the intent of the Medicare statute and regulations and their
customary business practices and in the future CMS may provide
more specific guidance. Any changes to the ASP calculations
directly affect the Medicare reimbursement for our products
administered in the physician clinic setting, hospital
outpatient setting and, to a lesser extent, the dialysis
facility setting. (See
EPOGEN®
and Dialysis Reimbursement.) Our ASP calculations are reviewed
quarterly for completeness and based on such review, we have on
occasion restated our reported ASPs to reflect calculation
changes both prospectively and retroactively. (See
Items 1A. Risk Factors Our sales depend on
coverage and reimbursement from third-party payers.)
Since 2005, in the physician office setting under Medicare
Part B,
Aranesp®,
Neulasta®
and
NEUPOGEN®
have been reimbursed at 106% of their ASP (sometimes referred to
as ASP+6%), and in 2011 will continue to be
reimbursed at this rate pursuant to the 2011 Medicare Physician
Fee Schedule Final Rule. In the hospital outpatient
setting, from 2006 to 2010 Medicare reimbursement rates fell
incrementally from ASP+6% to ASP+4%, but rose in 2011 to ASP+5%
pursuant to the 2011 Hospital Outpatient Prospective Payment
Final Rule. CMS has the regulatory authority to further adjust
formulas in future years. The extent to which commercial payers
adopt the use of ASP as a payment methodology is often based on
the contractual relationship between the provider and the
insurer.
Dialysis Reimbursement. Currently, dialysis
providers in the United States are reimbursed for
EPOGEN®
primarily by Medicare through the ESRD Program, which is
established by federal law and implemented by CMS. The ESRD
Program reimburses Medicare providers for 80% of allowed
dialysis costs; the remainder is paid by other sources,
including patients, state Medicaid programs, private insurance,
and to a lesser extent, state kidney patient programs. Until
January 1, 2011, Medicare reimbursed for separately
billable dialysis drugs (including
EPOGEN®
and
Aranesp®)
administered in both freestanding and hospital-based dialysis
centers, at ASP+6%, using the same payment amount methodology
used in the physician clinic setting under Part B. On
January 1, 2011, CMSs bundled payment system went
into effect for dialysis facilities which provides a single
payment for all dialysis services including drugs, supplies and
non-routine laboratory tests that were previously reimbursed
separately. Key provisions under the new system include:
|
|
|
|
|
Unit of payment CMS will provide a per treatment
unit of payment. Consistent with past policy, ESRD facilities
can be paid for up to three treatments per week, unless medical
necessity justifies more frequent treatments.
|
|
|
|
Payment rate for 2011, the base rate is $229.63 per
treatment.
|
|
|
|
Oral drugs without intravenous equivalents oral-only
drugs, such as
Sensipar®
and phosphate binders, will remain under the Medicare
Part D benefit until 2014 when they will be reimbursed
under the bundled payment system.
|
20
Dialysis providers were given the choice of opting into the new
bundled payment system 100% on January 1, 2011, or phasing
in over a four-year period. Substantially, all dialysis
providers in the United States have opted into the bundled
payment system in its entirety.
To encourage dialysis facilities to continue to provide quality
dialysis treatment under the new bundled payment system, on
December 29, 2010, CMS issued the Final Rule to implement
the ESRD Quality Improvement Program (QIP). Under
the QIP, beginning in 2012, ESRD facilities will be subject to a
payment penalty of up to 2% of amounts reimbursed for failure to
meet or exceed CMS quality performance standards,
including performance standards related to anemia management and
dialysis adequacy. Under the QIP, the penalty will be based on a
composite score of measures as follows:
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The percent of Medicare patients with Hb levels below 10 g/dL
constitutes 50% of the weighting.
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The percent of Medicare patients with Hb levels above 12 g/dL
represents 25% of the weighting.
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The percent of Medicare patients with an average Urea Reduction
Ratio of greater than or equal to 65% constitutes 25% of the
weighting.
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Notwithstanding the implementation of the QIP in 2012, we expect
the bundled payment system to decrease dose utilization of
EPOGEN®
and that this decrease will have a material adverse impact on
EPOGEN®
sales. Further, if CMS issues an NCD for the use of ESAs in
patients who have kidney disease (see Other ESA Reimbursement
Developments below), CMS could further adjust the bundled
payment system
and/or the
QIP.
Other ESA Reimbursement Developments. Since April 1,
2006, Medicare reimbursement for ESAs administered to dialysis
patients has been subject to a Erythropoietin Monitoring Policy
(EMP), the Medicare payment review mechanism used by
CMS to monitor
EPOGEN®
and
Aranesp®
utilization and appropriate hematocrit outcomes of dialysis
patients. The EMP was revised, effective January 1, 2008,
requiring a 50% reduction in Medicare reimbursement if a
patients Hb is above 13 g/dL for three or more consecutive
months. In addition, the revised EMP reduces the monthly dosing
limits to 400,000 international units (IUs) of
EPOGEN®,
from 500,000 IUs, and to 1,200 micrograms (mcgs) of
Aranesp®,
from 1,500 mcgs.
On March 14, 2007, CMS announced a review of all Medicare
policies related to the administration of ESAs in non-renal
disease applications as part of an NCA, which is generally
CMS first step toward developing an NCD. As a result of
that review, CMS initiated an NCD for non-renal ESAs. After
various CMS proposals and a public comment period, CMS issued a
final NCD on July 30, 2007. The 2007 NCD determined that
ESA treatment was not reasonable and necessary for certain
clinical conditions and established Medicare coverage parameters
for FDA-approved ESA use in oncology. We believe the
restrictions in the 2007 NCD changed the way ESAs are used in
clinical practice, for example, by decreasing the number of
treated patients, the average ESA dose and the duration of ESA
therapy. We believe this restriction on coverage of ESAs in the
2007 NCD has had a material adverse effect on the coverage,
reimbursement and sales of
Aranesp®,
and our business and results of operations. In addition, many
private payers have implemented portions of the 2007 NCD and we
believe many healthcare providers have reduced ESA utilization
for all of their patients regardless of insurance coverage.
On March 24, 2010, CMS held a MEDCAC meeting to examine the
currently available evidence on the use of ESAs to manage anemia
in patients who have CKD. Although there was no clear outcome
from the MEDCAC meeting, on June 16, 2010, CMS opened a new
NCA to examine the use of ESAs to manage anemia in patients with
CKD and dialysis-related anemia, which is generally CMS
first step toward developing an NCD. CMS has stated that the NCA
process for ESAs will conclude on or before June 16, 2011,
but CMS could propose a new NCD at any time prior to that
deadline. Additionally, on January 19, 2011, CMS held
another MEDCAC meeting, this time to review the available
evidence on the impact of ESA use on renal transplant graft
survival.
ENBREL Reimbursement. The majority of prescription claims
for ENBREL are paid through private insurance companies. Under
Medicare, ENBREL is reimbursed through the Part D program,
although less than 10% of all ENBREL U.S. prescriptions are
reimbursed by Medicare.
21
Prolia®
Reimbursement
We estimate that the majority of potential
U.S. Prolia®
patients are covered under Medicare and the remaining under
commercial plans. Beginning in 2010,
Prolia®
has been reimbursed under Medicare Part B through the buy
and bill process. (See Reimbursement of Our Principal
Products
Aranesp®,
Neulasta®
and
NEUPOGEN®.)
The buy and bill reimbursement process for
Prolia®
has required, and is expected to continue to require, time to
become established, particularly among primary care physicians
who may have limited experience using this reimbursement
process. We expect that U.S. Medicare Part D plans
will begin to cover
Prolia®
in 2011 and that commercial coverage will continue to expand as
more commercial plans make their decisions about
Prolia®
coverage and reimbursement.
Medicaid
Reimbursement
Since 1991, we have participated in the Medicaid drug rebate
program established in Section 1927 of the Social Security
Act by the Omnibus Budget Reconciliation Act of 1990 and
subsequent amendments of that law. Under the Medicaid drug
rebate program, we pay a rebate to the states for each unit of
our product reimbursed by state Medicaid programs. As more fully
described below, the new healthcare reform law enacted in the
United States in March 2010 made certain changes in how those
rebates are calculated and to whom they must be extended. (See
U.S. Healthcare Reform.) The amount of the rebate
for each of our products is currently set by law as a minimum of
23.1% of the Average Manufacturer Price (AMP) of
that product, or if it is greater, the difference between AMP
and the best price available from us to any non-government
customer. The rebate amount is determined for each quarter based
on our reports to CMS of the quarters AMP and best price
for each of our products. The rebate amount also includes an
inflation adjustment if AMP increases faster than inflation. As
described below, the statutory definition of AMP changed in 2010
as a result of the new U.S. healthcare reform law, and we
expect CMS to shortly issue a proposed rule further defining the
new AMP definition. Until that rule is issued, we will be
required to make reasonable assumptions when calculating AMP.
Once CMS proposed rule is issued, and clarification is provided
on the calculation of AMP, we will have to determine whether our
reasonable assumptions need to be amended to comply with the
regulations definition of AMP, and whether we need to
restate our prior AMPs. The terms of our participation in the
Medicaid drug rebate program impose an obligation to correct the
prices reported in previous quarters, as may be necessary. Any
such corrections could result in an overage or underage in our
rebate liability for past quarters, depending on the direction
of the correction. In addition to retroactive rebates, if we
were found to have knowingly submitted false information to the
government, in addition to other penalties available to the
government, the statute provides for civil monetary penalties in
the amount of $100,000 per item of false information.
Related to our participation in the Medicaid drug rebate program
is a requirement that we extend comparable discounts under the
Public Health Service (PHS) drug pricing program to
a variety of community health clinics and other entities that
receive health services grants from the PHS, as well as
hospitals that serve a disproportionate share of Medicare and
Medicaid beneficiaries. As more fully described below, the list
of entities to which we are required to extend these discounts
also expanded as a result of the new healthcare reform law.
We also make our products available to authorized users of the
Federal Supply Schedule (FSS) of the General
Services Administration. Since 1993, as a result of the Veterans
Health Care Act of 1992 (the VHC Act), federal law
has required that we offer deeply discounted FSS contract
pricing for purchases by the Department of Veterans Affairs, the
Department of Defense, the Coast Guard and the PHS (including
the Indian Health Service) in order for federal funding to be
available for reimbursement of our products under the Medicaid
program or purchase of our products by those four federal
agencies and certain federal grantees. FSS pricing to those four
federal agencies must be equal to or less than the Federal
Ceiling Price (FCP), which is 24% below the
Non-Federal Average Manufacturer Price (Non-FAMP)
for the prior fiscal year. The accuracy of our reported
Non-FAMPs, FCPs and our FSS contract prices may be audited by
the government under applicable federal procurement laws and the
terms of our FSS contract. Among the remedies available to the
government for inaccuracies in calculation of Non-FAMPs and FCPs
is recoupment of any overcharges to the four specified Federal
agencies based on those inaccuracies. Also, if we were found to
have knowingly reported a false Non-FAMP, in addition to other
penalties available to the government, the VHC Act provides for
civil monetary penalties of $100,000 per item that is
22
incorrect. Finally, we are required to disclose in our FSS
contract proposal all commercial pricing that is equal to or
less than our proposed FSS pricing, and subsequent to award of
an FSS contract, we are required to monitor certain commercial
price reductions and extend commensurate price reductions to the
government, under the terms of the FSS contract Price Reductions
Clause. Among the remedies available to the government for any
failure to properly disclose commercial pricing
and/or to
extend FSS contract price reductions is recoupment of any FSS
overcharges that may result from such omissions.
U.S. Healthcare Reform. In March 2010, the Patient
Protection and Affordable Care Act (the PPACA) and
the companion Healthcare and Education Reconciliation Act, which
made certain changes and adjustments to the PPACA, primarily
with respect to the PPACAs financial and budgetary
impacts, were signed into law. We refer to those two laws
collectively as the new healthcare reform law. The
new healthcare reform law imposes additional costs on and
reduces the revenue of companies in the biotechnology and
pharmaceutical industries. The following paragraphs describe
certain provisions of the new healthcare reform law that will
affect the reimbursement of our products.
The new healthcare reform law increased the rebates we pay to
the states for our products that are covered and reimbursed by
state Medicaid programs. The healthcare reform law increased the
minimum base Medicaid rebate rate payable on our products
reimbursed by Medicaid from 15.1% to 23.1% of the AMP of the
product, or if it is greater, the difference between the AMP and
the best price available from us to any non-government customer.
The change in the minimum rebate percentage was effective on
January 1, 2010. The healthcare reform law also extended
the Medicaid drug rebate program to patients in Medicaid managed
care insurance plans for whom rebates were not previously
required. The extension of rebates to patients in Medicaid
managed care plans was effective on March 23, 2010.
As mentioned above, the new healthcare reform law also expanded
the list of provider institutions to which we must extend
discounts under the PHS 340B drug pricing program. The new
healthcare reform law added certain cancer centers,
childrens hospitals, critical access hospitals and rural
referral centers to the list of entities to which these
discounts must be extended. This change to the list of eligible
entities was effective on January 1, 2010. The healthcare
reform law also imposed a new fee on manufacturers and importers
of branded prescription drugs, which includes drugs
approved under section 505(b) of the Federal Food, Drug,
and Cosmetic Act or biologicals licensed under
section 351(a) of the Public Health Service Act. Beginning
in 2011, the new healthcare reform law sets an aggregate annual
fee, to be paid by these manufacturers and importers, totaling
$28 billion over 10 years, of which $2.5 billion
is payable in 2011. This annual fee will be apportioned among
the participating companies, including us, based on each
companys sales of qualifying products to, and utilization
by, certain U.S. government programs during the preceding
calendar year. The additional fee became effective
January 1, 2011, and is not deductible for
U.S. federal income tax purposes. Manufacturers and
importers of generic or biosimilar drugs are not subject to the
fee. We estimate that we will be required to pay
$150 million to $200 million as our portion of the
2011 fee.
Since the Medicare Part D drug benefit took effect in 2006,
beneficiaries enrolled in Part D plans have been required
to pay 100% of their prescription drug costs after their total
drug spending exceeds an initial coverage limit until they
qualify for catastrophic coverage. This coverage gap is
sometimes referred to as the Part D doughnut
hole. The new healthcare reform law reduces the
doughnut hole by requiring manufacturers like us to
provide a 50% discount to Medicare Part D patients whose
prescription expenses exceed the Part D prescription drug
coverage limit but have not yet reached the catastrophic
coverage threshold. This provision became effective
January 1, 2011.
The new healthcare reform law also expands the Medicaid
eligibility to include those with incomes up to 133% of the
federal poverty level (FPL), from 100% of the FPL.
This provision becomes effective January 1, 2014.
We estimate that the total impact of U.S. healthcare reform
in 2011 to us, including the industry fee described above, will
be in the range of $400 million to $500 million.
23
Reimbursement
Outside the United States
Generally, in Europe and other countries outside the United
States, government-sponsored healthcare systems have
traditionally been the primary payers of all healthcare costs,
including payment for drugs and biologicals. Over the past
several years, the reimbursement environment in Europe has
become very challenging, with the advent of Health Technology
Assessment (HTA) organizations (eg, NICE in the UK)
that make recommendations
and/or
determinations of coverage and reimbursement based on both the
clinical as well as the economic value of a product. Although
the methods employed by different HTA agencies vary from country
to country, the use of formal economic metrics has been
increasing across Europe as well as in several emerging markets
throughout the world. In addition to determining whether or not
a new product will be reimbursed, these agencies are becoming
increasingly involved in setting the maximum price at which the
product will be reimbursed the
value-based price for a product.
With increased budgetary constraints, payers in many countries
employ a variety of measures to exert downward price pressure.
In some countries, international price referencing is the
primary mechanism for price control whereby the ceiling price of
a pharmaceutical or biological product is set based on the
prices in particular benchmark countries. These price
referencing rules are increasing in complexity as prices become
more transparent and payers seek lower-price benchmarks against
which to compare themselves. Additional cost-containment
measures can include therapeutic reference pricing (eg, setting
the reimbursement rate for a given class of agents at the lowest
price within the class), generic substitution and
government-mandated price cuts.
While mandatory price reductions have been a recurring aspect of
business for the pharmaceutical and biotechnology industries in
the EU, given the current worldwide economic conditions, some EU
governmental agencies have increased the frequency
and/or size
of such mandatory price reductions to extract further cost
savings. For example, in 2010, countries such as Greece
announced price reductions
and/or
mandated rebates for certain pharmaceutical and biological
products that substantially exceeded prior levels. Other
countries may follow
and/or take
similar or more extensive actions to reduce expenditures on
drugs and biologics, including implementing mandatory price
reductions, establishing preferences for biosimilar products, or
reducing the amount of reimbursement.
In many countries, the influence of regional and hospital payers
also contributes to whether patients have access to certain
products. For example, a product may be successfully listed on a
national formulary, but may also be subject to further
evaluations or competitive bidding by payers at a regional or
hospital level. Finally, payers in some countries are beginning
to experiment with alternative payment mechanisms (eg, payment
caps) as a means to maintain access to innovative therapies.
Fraud and
Abuse Regulations Related to Reimbursement
As participants in government reimbursement programs, we are
subject to various U.S. federal and state laws, as well as
foreign laws, pertaining to healthcare fraud and
abuse, including anti-kickback laws and false claims laws.
(See Government Regulation Other.) Violations of
fraud and abuse laws can result in stringent enforcement
penalties up to and including complete exclusion from federal
healthcare programs (including Medicare and Medicaid).
Manufacturing
Biological products, which are produced in living systems, are
inherently complex due to naturally-occurring molecular
variations. Highly specialized knowledge and extensive process
and product characterization are required to transform
laboratory scale processes into reproducible commercial
manufacturing processes. Our manufacturing operations consist of
bulk manufacturing, formulation, fill and finish and
distribution activities. Bulk manufacturing includes
fermentation and cell culture, which are the processes by which
our proteins are produced. The proteins are purified to a high
quality and then formulated into a stable form. The fill process
24
dispenses the formulated bulk protein into vials or syringes.
Finally, in the finish process, our products are packaged for
distribution.
We operate commercial
and/or
clinical manufacturing facilities in the United States, Puerto
Rico and the Netherlands. (See Item 2. Properties.)
Manufacturing of
Sensipar®/Mimpara®,
our small molecule product, is currently performed by
third-party contract manufacturers, although we are in the
process of transferring certain finishing aspects to our
facility in Puerto Rico. We also use and expect to continue to
use third-party contract manufacturers to produce or assist in
the production of certain of our large molecule marketed
products, including ENBREL,
Nplate®,
Prolia®
and
XGEVAtm
as well as a number of our clinical product candidates. In
addition to producing our own commercial quantities of Epoetin
alfa, we also supply Epoetin alfa in the United States to
J&J under a supply agreement. (See Business
Relationships Johnson & Johnson.)
The global supply of our principal products depends on actively
managing the inventory produced at our facilities and by
third-party contract manufacturers and the uninterrupted and
efficient operation of our facilities and those of our
third-party contract manufacturers. During the manufacturing
scale-up
process, and even after achieving sustainable commercial
manufacturing, we may encounter difficulties or disruptions due
to defects in raw materials or equipment, contamination or other
factors that could impact product availability. (See
Item 1A. Risk Factors Manufacturing
difficulties, disruptions or delays could limit supply of our
products and limit our product sales and We rely on
third-party suppliers for certain of our raw materials, medical
devices and components.)
We have obtained from various parties certain licenses we deem
necessary or desirable for the manufacture of our products. The
licenses generally require us to pay royalties to the licensors
based on product sales.
Commercial
Bulk Manufacturing
We operate commercial bulk manufacturing facilities in Puerto
Rico and in several locations throughout the United States. (See
Item 2. Properties.) We perform all of the commercial bulk
manufacturing of all of our proteins except ENBREL,
Prolia®
and
XGEVAtm,
which we supplement with a third-party contract manufacturer.
Commercial
Formulation, Fill and Finish Manufacturing
Our primary commercial formulation, fill and finish
manufacturing facility is located in Puerto Rico. We perform the
commercial formulation, fill and finish manufacturing for our
proteins at that facility, except for
Vectibix®
and
Nplate®.
We operate a commercial formulation, fill and finish
manufacturing facility in the United States for
Vectibix®
and the formulation, fill and finish for
Nplate®
is performed by a third-party contract manufacturer. In addition
to the formulation, fill and finish of ENBREL performed by us in
Puerto Rico, fill and finish of a certain portion of ENBREL is
also performed by third-party contract manufacturers. We also
conduct certain finish activities in the Netherlands. (See
Item 2. Properties.)
Clinical
Manufacturing
Clinical bulk, formulation, fill and finish manufacturing
facilities are operated primarily in our Thousand Oaks,
California location. (See Item 2. Properties.) Certain
finishing activities for our clinical products are performed in
the Netherlands. In addition, we also utilize third-party
contract manufacturers for certain of our clinical products.
See Item 1A. Risk Factors We perform a
substantial amount of our commercial manufacturing activities at
our Puerto Rico manufacturing facility and a substantial amount
of our clinical manufacturing activities at our Thousand Oaks,
California manufacturing facility; if significant natural
disasters or production failures occur at the Puerto Rico
facility, we may not be able to supply these products or, at the
Thousand Oaks facility, we may not be able to continue our
clinical trials.
Distribution
We operate distribution centers in the United States,
principally in Kentucky and California, and in the Netherlands
for worldwide distribution of the majority of our commercial and
clinical products. In addition, we also
25
use third-party distributors to supplement distribution of our
commercial and clinical products in certain areas of the world.
Other
In addition to the manufacturing and distribution activities
noted above, our operations in the United States, Puerto Rico
and the Netherlands perform key manufacturing support functions,
including quality control, process development, procurement,
distribution and production scheduling. Certain of those
manufacturing and distribution activities are highly regulated
by the FDA as well as other international regulatory agencies.
(See Government Regulation FDA Regulation of
Manufacturing Standards.)
Manufacturing
Initiatives
We have multiple ongoing initiatives that are designed to
optimize our manufacturing network and mitigate risks while
continuing to ensure adequate supply of our commercial products.
For example, we are completing the construction and
qualification of a new formulation and filling facility at our
Puerto Rico site in order to mitigate the risk associated with
the majority of our formulation and fill operations being
performed in a single facility and we are qualifying the
expansion of our existing bulk protein facilities at our Puerto
Rico site in order to maintain supply and to satisfy anticipated
future demand for denosumab. Upon completion, the facilities
will require licensure by the various regulatory authorities.
We have also entered into an agreement with Boehringer Ingelheim
(BI) for the divestiture of our manufacturing
facility in Fremont, California to further optimize our
manufacturing network.
In addition to these projects, we have initiatives designed to
operate our facilities at appropriate production capacity over
the next few years, further optimize manufacturing asset
utilization, continue our use of third-party contract
manufacturers and maintain a state of regulatory compliance.
(See Item 1A. Risk Factors Manufacturing
difficulties, disruptions or delays could limit supply of our
products and limit our product sales.)
Raw
Materials and Medical Devices
Certain raw materials necessary for the commercial and clinical
bulk manufacturing of our products are provided by unaffiliated
third-party suppliers, certain of which may be our only source
for such materials. Also, certain medical devices and components
necessary for the formulation, fill and finish of our products
are provided by unaffiliated third-party suppliers, certain of
which may be the sole source. Certain of the raw materials,
medical devices and components are the proprietary products of
those unaffiliated third-party suppliers and are specifically
cited in our drug application with regulatory agencies so that
they must be obtained from the specific sole source or sources
and could not be obtained from another supplier unless and until
the regulatory agency approved such supplier. We currently
attempt to manage the risk associated with such suppliers by
inventory management, relationship management and evaluation of
alternative sources when feasible. We also monitor the financial
condition of certain suppliers, their ability to supply our
needs and the market conditions for these items.
Certain of the raw materials required in the commercial and
clinical manufacturing of our products are sourced from other
countries
and/or
derived from biological sources, including mammalian tissues. In
addition, one of our marketed products also uses bovine serum
and human serum albumin (HSA). Some countries in
which we market our products may restrict the use of certain
biologically derived substances in the manufacture of drugs. We
continue to investigate alternatives to certain biological
sources and alternative manufacturing processes that do not
require the use of certain biologically derived substances
because such raw materials may be subject to contamination
and/or
recall. A material shortage, contamination, recall
and/or
restriction of the use of certain biologically derived
substances or other raw materials, which may be sourced from
other countries and that are used in the manufacture of our
products could adversely impact or disrupt the commercial
manufacturing of our products or could result in a mandated
withdrawal of our products from the market. (See Item 1A.
Risk Factors We rely on third-party suppliers for
certain of our raw materials, medical devices and components.)
26
We perform various procedures to assist in authenticating the
source of raw materials, including intermediary materials used
in the manufacture of our products, which include verification
of the country of origin. These procedures are incorporated into
the manufacturing processes we and our third-party contract
manufacturers perform.
From time to time, we enter into business relationships
including, joint ventures and collaborative arrangements, for
the R&D, manufacture
and/or
commercialization of products and product candidates. In
addition, we also acquire product and R&D technology rights
and establish R&D collaborations with third-parties to
enhance our strategic position within our industry by
strengthening and diversifying our R&D capabilities,
product pipeline and marketed product base. These arrangements
generally provide for non-refundable upfront license fees,
R&D and commercial performance milestone payments, cost
sharing, royalty payments
and/or
profit sharing. Our collaboration agreements are performed on a
best efforts basis with no guarantee of either
technological or commercial success and each is unique in nature.
Trade secret protection for our unpatented confidential and
proprietary information is important to us. To protect our trade
secrets, we generally require parties to business relationships
to execute confidentiality agreements upon the commencement of
the business relationship with us. However, others could either
develop independently the same or similar information or obtain
access to our information.
Kirin
Holdings Company, Limited
We formed KA, a
50-50 joint
venture with Kirin in 1984. KA develops and commercializes
certain of our and Kirins product rights, which have been
transferred to this joint venture. KA has given exclusive
licenses to us to manufacture and market: (i) darbepoetin
alfa in the United States, Europe, Canada, Australia, New
Zealand, Mexico, all Central and South American countries and
certain countries in Central Asia, Africa and the Middle East,
(ii) pegfilgrastim and G-CSF in the United States, Europe,
Canada, Australia and New Zealand, (iii) recombinant human
erythropoietin in the United States and (iv) romiplostim in
the United States, Europe, Canada, Australia, New Zealand,
Mexico, all Central and South American countries and certain
countries in Central Asia, Africa and the Middle East. We
currently market darbepoetin alfa, pegfilgrastim, G-CSF,
recombinant human erythropoietin and romiplostim under the brand
names
Aranesp®,
Neulasta®,
NEUPOGEN®/GRANULOKINE®,
EPOGEN®
and
Nplate®,
respectively.
KA has also given exclusive licenses to Kirin to manufacture and
market: (i) darbepoetin alfa, pegfilgrastim, G-CSF and
romiplostim in Japan, the Peoples Republic of China
(China), Taiwan, Korea and certain other countries
in Asia, and (ii) recombinant human erythropoietin in Japan
and China. Kirin markets darbepoetin alfa in Japan under the
brand name
NESP®.
Kirin markets G-CSF and recombinant human erythropoietin in
China under separate agreements with KA. Kirin markets its G-CSF
product in its respective territories under the trademark
GRAN®/Grasin®/Filgrastim®.
Kirin markets its recombinant human erythropoietin product in
Japan under the trademark
ESPO®.
Kirin also markets G-CSF and recombinant human erythropoietin in
China under a separate agreement with Amgen Greater China Ltd.,
a subsidiary of Amgen Inc.
KA has licensed to J&J rights to recombinant human
erythropoietin in all geographic areas of the world outside the
United States, China and Japan. (See Johnson &
Johnson.) Under its agreement with KA, J&J pays a royalty
to KA based on sales. KA has also licensed to Roche rights to
pegfilgrastim and G-CSF in certain geographic areas of the world.
In connection with our various license agreements with KA, we
pay KA royalties based on product sales. In addition, we also
receive payment from KA for conducting certain R&D
activities on its behalf. (See Note 7, Related party
transactions to the Consolidated Financial Statements.)
27
Johnson &
Johnson
We granted J&J a license to commercialize recombinant human
erythropoietin as a human therapeutic in the United States in
all indications other than dialysis and diagnostics. All
recombinant human erythropoietin sold by J&J in the United
States is manufactured by us and sold by J&J under the
trademark
PROCRIT®
(Epoetin alfa).
PROCRIT®
brand Epoetin alfa is identical to
EPOGEN®
brand Epoetin alfa, which is manufactured and sold by us in the
U.S. market for the dialysis indication. Pursuant to the
license agreement with J&J, we earn a 10% royalty on net
sales of
PROCRIT®
by J&J in the United States.
Outside the United States, with the exception of China and
Japan, J&J was granted rights to manufacture and
commercialize recombinant human erythropoietin as a human
therapeutic for all uses under a licensing agreement with KA.
With respect to its sales outside of the United States, J&J
manufactures and commercializes its own brand of Epoetin alfa
which is then sold by a subsidiary of J&J under various
trademarks such as
EPREX®
and
ERYPO®.
We are not involved in the manufacture of Epoetin alfa sold by
J&J outside of the United States.
Pfizer
Inc.
Amgen and Pfizer are in a collaboration agreement to co-promote
ENBREL in the United States and Canada. The rights to market
ENBREL outside of the United States and Canada are reserved to
Pfizer. Under the agreement, a management committee comprised of
equal representation from Amgen and Pfizer is responsible for
overseeing the marketing and sales of ENBREL, including
strategic planning, the approval of an annual marketing plan,
product pricing and the establishment of a brand team. The brand
team, with equal representation from each party, prepares and
implements the annual marketing plan, which requires a minimum
level of financial and sales personnel commitment from each
party, and is responsible for all sales activities. Further,
pursuant to the collaboration agreement, Amgen and Pfizer share
in the
agreed-upon
selling and marketing expenses approved by the joint management
committee. We currently pay Pfizer a percentage of the annual
gross profits on our ENBREL sales in the United States and
Canada attributable to all approved indications for ENBREL on a
scale that increases as gross profits increase; however, we
maintain a majority share of ENBREL profits. After expiration of
the collaboration agreement in the fourth quarter of 2013, we
are required to pay Pfizer a percentage of net ENBREL sales in
the United States and Canada for three years. The annual amount
of such payments is anticipated to be significantly less than
the current ENBREL profit share.
Glaxo
Group Limited
In July 2009, we entered into a collaboration agreement with
Glaxo for the commercialization of denosumab for osteoporosis
indications in Europe, Australia, New Zealand and Mexico (the
Primary Territories). We retained the rights to
commercialize denosumab for all indications in the United States
and Canada and for oncology indications in the Primary
Territories. Under a related agreement, Glaxo will commercialize
denosumab for all indications in countries, excluding Japan,
where we do not currently have a commercial presence, including
China, Brazil, India, Taiwan and South Korea (the
Expansion Territories). In the Expansion
Territories, Glaxo will be responsible for all development and
commercialization costs and will purchase denosumab from us to
meet demand. We have the option of expanding our role in the
future in the commercialization of denosumab in the Primary
Territories and certain of the Expansion Territories. In the
Primary Territories, we share equally in the commercialization
profits and losses related to the collaboration after accounting
for expenses, including an amount payable to us in recognition
of our discovery and development of denosumab. Glaxo will also
be responsible for bearing a portion of the cost of certain
specified development activities in the Primary Territories.
Takeda
Pharmaceutical Company Limited
In February 2008, we entered into a collaboration agreement with
Takeda, which provides Takeda the exclusive rights to develop
and commercialize for the Japanese market up to 12 clinical
stage molecules from our pipeline across a range of therapeutic
areas, including oncology and inflammation. The products include
Vectibix®
which received regulatory approval in Japan in 2010 for
unresectable, advanced or recurrent colorectal cancer with
wild-type KRAS, AMG 386, which is in a phase 3 trial in
the United States for recurrent ovarian cancer, and
28
ganitumab (AMG 479) which is expected to enter into a phase
3 trial in the United States for first-line metastatic
pancreatic cancer in 2011. We have the right to participate in
the promotion of the products in Japan. In addition, we entered
into a collaboration agreement with Takeda for the worldwide
development and commercialization of our product candidate
motesanib in the oncology area. Each party has the right to
participate in the commercialization of motesanib in the other
partys territory.
Daiichi
Sankyo Company, Limited
In July 2007, we entered into a collaboration and license
agreement with Daiichi Sankyo, which provides Daiichi Sankyo the
exclusive rights to develop and commercialize denosumab in Japan
in postmenopausal osteoporosis (PMO), oncology and
certain other indications. As part of the agreement, Amgen
received exclusive worldwide rights to certain Daiichi Sankyo
intellectual property to the extent applicable to denosumab.
Fresenius
Medical Care North America
In October 2006, we entered into a five-year sole sourcing and
supply agreement with an affiliate of Fresenius Medical Care
North America (Fresenius North America) (a wholly
owned subsidiary of Fresenius Medical Care), on its behalf and
on behalf of certain of its affiliates, whereby Fresenius North
America agreed to purchase, and we have agreed to supply, all of
Fresenius North Americas commercial requirements for ESAs
for use in managing the anemia of its hemodialysis patients in
the United States and Puerto Rico, based on forecasts provided
by Fresenius and subject to the terms and conditions of the
agreement.
Regulation by government authorities in the United States and
other countries is a significant factor in the production and
marketing of our products and our ongoing R&D activities.
In order to clinically test, manufacture and market products for
therapeutic use, we must satisfy mandatory procedures and safety
and effectiveness standards established by various regulatory
bodies. In the United States, the Public Health Service Act, the
Federal Food, Drug and Cosmetic Act (FDCA) and the
regulations promulgated thereunder, as well as other federal and
state statutes and regulations govern, among other things, the
raw materials and components used in the production, research,
development, testing, manufacture, quality control, labeling,
storage, record keeping, approval, advertising and promotion,
and distribution of our products. Failure to comply with the
applicable regulatory requirements may subject us to a variety
of administrative
and/or
judicially imposed sanctions. The sanctions could include the
FDAs refusal to approve pending applications, withdrawals
of approvals, delay or suspension of clinical trials, warning
letters, product recalls, product seizures, total or partial
suspension of our operations, injunctions, fines, civil
penalties
and/or
criminal prosecution.
Clinical Development. We must conduct extensive clinical
trials designed to establish the safety and efficacy of product
candidates in order to file for regulatory approval to market a
product. Product development and approval within that regulatory
framework takes a number of years and involves our expenditure
of substantial resources, and any approval we obtain remains
costly for us to maintain. After laboratory analysis and
preclinical testing in animals, we file an investigational new
drug application (IND) with the FDA to begin human
testing. The IND automatically becomes effective 30 days
after receipt by the FDA, unless the FDA raises concerns or
questions. In such a case, we and the FDA must resolve any
outstanding concerns before the clinical trial can begin.
Typically, we undertake a three-phase human clinical testing
program. In phase 1, we conduct small clinical trials to
investigate the safety and proper dose ranges of our product
candidates in a small number of human subjects. In phase 2, we
conduct clinical trials to investigate side effect profiles and
the efficacy of our product candidates in a larger number of
patients who have the disease or condition under study. In phase
3, we conduct clinical trials to investigate the safety and
efficacy of our product candidates in a large number of patients
who have the disease or condition under study. The time and
expense required for us to perform this clinical testing is
substantial and may vary by product. For example, the clinical
trials for the BLA for
Prolia®/XGEVAtm
were large and required substantial time and resources to
recruit patients and significant expense to execute.
Historically, our products have required smaller, shorter
trials. Foreign studies performed under an IND must meet the
same
29
requirements that apply to U.S. studies. The FDA will
accept a foreign clinical study not conducted under an IND only
if the study is well-designed, well-conducted, performed by
qualified investigators, and conforms to good clinical practice.
Phase 1, 2 and 3 testing may not be completed successfully
within any specified time period, if at all. (See Item 1A.
Risk Factors We may not be able to develop
commercial products.) The FDA monitors the progress of each
trial conducted under an IND and may, at its discretion,
re-evaluate, alter, suspend, or terminate the testing based on
the data accumulated to that point and the FDAs
risk/benefit assessment with regard to the patients enrolled in
the trial. (See Item 1A. Risk Factors We must
conduct clinical trials in humans before we can commercialize
and sell any of our product candidates or existing products for
new indications.)
Applications. The results of preclinical and clinical
trials are submitted to the FDA in the form of a BLA for
biologic products subject to the Public Health Service Act or a
new drug application (NDA) for drugs subject to the
approval provisions of the FDCA. The submission of the
application is no guarantee that the FDA will find it complete
and accept it for filing. If an application is accepted for
filing, following the FDAs review, the FDA may grant
marketing approval, request additional information, or deny the
application if it determines that the application does not
provide an adequate basis for approval. We cannot take any
action to market any new drug or biologic product in the United
States until our appropriate marketing application has been
approved by the FDA.
Post-approval Phase. After we have obtained approval to
market our products, we monitor adverse events from the use of
our products and report such events to regulatory agencies,
along with information from post marketing surveillance or
studies. We may utilize other research approaches to learn or
confirm information about our marketed products, including
observational studies and patient registries, and may engage in
risk management activities such as physician education
initiatives and patient advocacy group initiatives. We may also
conduct, or be required by regulatory agencies to conduct,
further clinical trials to provide additional information on our
marketed products safety and efficacy. Those additional
trials may include studying different doses or schedules of
administration that were used in previous studies, use in other
patient populations or other stages of the disease or use over a
longer period of time. Additional trials of this nature are
sometimes required by regulatory agencies as a condition of
their approval to market our products and they might also
request or require that we conduct specific studies, including
observational epidemiological studies, in order to identify or
assess possible safety risks of our marketed products that are
observed or suggested by available scientific data and such
trials are sometimes referred to as PMCs or PMRs. In the United
States, under the Food and Drug Administration Amendments Act of
2007 (the FDAAA), if the FDA becomes aware of new
safety information after approval of a product, it may require
us to conduct further clinical trials to assess a known or
potential serious risk. If we are required to conduct such a
post-approval study, periodic status reports must be submitted
to the FDA. Failure to conduct such post-approval studies in a
timely manner may result in substantial civil or criminal
penalties. Data resulting from these clinical trials may result
in expansions or restrictions to the labeled indications for
which our products have already been approved and to the
reimbursement provided by government and commercial payers for
our products.
The FDAAA also gave the FDA authority to require companies to
implement a REMS for a product to ensure that the benefits of
the drugs outweigh the risks. While risk management activities
and programs are not new, with FDAAA the FDA gained new
authority to implement specific risk management requirements and
new enforcement power to ensure that the goals of the REMS are
being met. The FDA began to implement REMS in 2008. The FDA may
require the submission of a REMS before a product is approved or
after approval based on new safety information, including new
analyses of existing safety information. In determining whether
a product will require a REMS before the product is approved,
the FDA may consider a number of factors including:
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estimated size of the population likely to use the product;
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seriousness of the condition treated and expected benefits of
the product;
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duration of treatment with the product;
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seriousness of known or potential adverse events associated with
the product; and
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whether the product is a new molecular entity.
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30
All REMS are required to have a timetable for assessment and may
have one or more of the following:
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distribution of a medication guide or a patient package insert
to patients;
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communication plan for the healthcare provider or institution,
such as a Dear Healthcare Professional Letter;
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elements to assure safe use including, but not limited to:
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¡
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specific training, experience or certification for prescribers;
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¡
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certification of medication dispensing sites and dispensing in
limited settings;
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¡
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monitoring of specific patients; and
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enrollment of patients in a registry.
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Each REMS is unique and varies depending on the specific factors
required. While the elements of REMS may vary, all REMS require
the sponsor to submit periodic assessment reports to the FDA to
demonstrate that the goals of the REMS are being met. Failure to
comply with a REMS, including submission of a required
assessment or any modification to a REMS, may result in
substantial civil or criminal penalties and can result in
additional limitations being placed on a products use and,
potentially, withdrawal of the product from the market. We
currently have approved REMS for our ESAs, ENBREL,
Prolia®
and
Nplate®.
Because REMS are relatively new, the FDA and sponsor companies
continue to learn how best to implement, operate and monitor the
effectiveness of REMS, and the requirements of our REMS and
those of other companies may change over time.
Adverse events that are reported after marketing approval also
can result in additional limitations being placed on a
products use and, potentially, withdrawal of the product
from the market. The FDA has authority to mandate labeling
changes to products at any point in a products lifecycle
based on new safety information or as part of an evolving label
change to a particular class of products. Also under the
FDAs PLR implemented in 2006, we are required to make
changes to the existing format of U.S. product package
inserts for human prescription drug and biological products with
the intent of making product information more easily accessible.
The PLR requires revised standards of content and format of
labeling and provides timelines for when new and previously
approved products must comply with the new regulations. During
the PLR conversion process from an old format to the new PLR
format, the FDA has the authority to evaluate the package insert
information to ensure that it accurately reflects current
knowledge and the FDA may revise, add or remove information in
the old format that could substantively impact the content of
the product package insert for the new format. Failure to
implement FDA-mandated changes may result in civil or criminal
penalties. (See Item 1A. Risk Factors Our ESA
products continue to be under review and receive scrutiny by
regulatory authorities and Our current products and
products in development cannot be sold if we do not maintain or
gain regulatory approval.) The package inserts for our ENBREL
and
Neulasta®
products have already been converted to the new PLR format and
we are currently working with the FDA on converting the package
inserts for
Aranesp®,
EPOGEN®
and
Sensipar®.
Our
Vectibix®,
Nplate®,
Prolia®
and
XGEVAtm
products were approved in the PLR format.
The FDA also uses various advisory committees of external
experts to assist in its mission to protect and promote the
public health, to obtain independent expert advice on
scientific, technical and policy matters. The committees are
generally advisory only and FDA officials are not bound to or
limited by their recommendations. We have participated in
meetings of the ODAC, the CRDAC and the Advisory Committee for
Reproductive Health Drugs, among others, to address certain
issues related to our products, including
Aranesp®,
EPOGEN®
and
Prolia®.
FDA Approval of Biosimilar Products. The new healthcare
reform law authorizes the FDA to approve biosimilar products
under a separate, abbreviated pathway. The new law establishes a
period of 12 years of data exclusivity for reference
products in order to preserve incentives for future innovation
and outlines statutory criteria for science-based biosimilar
approval standards that take into account patient safety
considerations. Under this framework, data exclusivity protects
the data in the innovators regulatory application by
prohibiting others, for a period of 12 years, from gaining
FDA approval based in part on reliance or reference to the
innovators data in their application to the FDA. The new
law does not change the duration of patents granted on biologic
products. While the FDA now has the authority to approve
biosimilar products, the FDA has not announced whether it will
first
31
publish guidance or rules for biosimilar applicants before
approving biosimilar products. The FDA held a public meeting in
November 2010 to seek stakeholder input on the subject and
accepted written comments through 2010.
FDA Regulation of Product Marketing and Promotion. The
FDA closely reviews and regulates the marketing and promotion of
products. We are required to obtain FDA approval before
marketing or promoting a product as a treatment for a particular
indication. Our product promotion for approved product
indications must comply with the statutory standards of the
FDCA, and the FDAs implementing regulations and standards.
The FDAs review of marketing and promotional activities
encompasses, but is not limited to,
direct-to-consumer
advertising, healthcare provider-directed advertising and
promotion, sales representative communications to healthcare
professionals, promotional programming and promotional
activities involving the Internet. The FDA may also review
industry-sponsored scientific and educational activities. The
FDA may take enforcement action against a company for promoting
unapproved uses of a product (off-label promotion)
or for other violations of its advertising and labeling laws and
regulations. Enforcement action may include product seizures,
injunctions, civil or criminal penalties or regulatory letters,
which may require corrective advertising or other corrective
communications to healthcare professionals. Failure to comply
with the FDAs regulations also can result in adverse
publicity or increased scrutiny of company activities by the
U.S. Congress or other legislators.
FDA Regulation of Manufacturing Standards. The FDA
regulates and inspects equipment, facilities, laboratories and
processes used in the manufacturing and testing of products
prior to providing approval to market a product. If after
receiving approval from the FDA, we make a material change in
manufacturing equipment, location or process, additional
regulatory review may be required. We also must adhere to
current Good Manufacturing Practice (GMP)
regulations and product-specific regulations enforced by the FDA
through its facilities inspection program. The FDA also conducts
regular, periodic visits to re-inspect our equipment,
facilities, laboratories and processes following an initial
approval. If, as a result of those inspections, the FDA
determines that our equipment, facilities, laboratories or
processes do not comply with applicable FDA regulations and
conditions of product approval, the FDA may seek civil, criminal
or administrative sanctions
and/or
remedies against us, including suspension of our manufacturing
operations. Such issues may also delay the approval of new
products undergoing FDA review.
Approval and Post-Approval Regulation Outside the United
States. In the EU countries, Switzerland, Canada and
Australia, regulatory requirements and approval processes are
similar in principle to those in the United States.
Additionally, depending on the type of drug for which approval
is sought, there are currently two potential tracks for
marketing approval in the EU, including a centralized procedure.
In the centralized procedure, which is required of all products
derived from biotechnology, a company submits a single marketing
authorization application to the EMA who conducts a thorough
evaluation, drawing from its scientific resources across Europe.
If the drug product is proven to fulfill the requirements for
quality, safety and efficacy, the CHMP adopts a positive
opinion, which is transmitted to the EC for final approval of
the marketing authorization. While the EC generally follows the
CHMPs opinion, it is not bound to do so. In the EU,
biosimilar products have been approved under a
sub-pathway
of the centralized procedure since 2006. The pathway allows
sponsors of a biosimilar product to seek and obtain regulatory
approval based in part on the clinical trial data of an
originator product to which the biosimilar product has been
demonstrated to be similar. In many cases, this
allows biosimilar products to be brought to market without
conducting the full suite of clinical trials typically required
of innovators. After evaluation and marketing authorization,
various parties, including the national competent authorities,
the EMA, the EC and the marketing authorization holders share
responsibilities for the detection, assessment and prevention of
adverse effects and other medicine-related problems in a process
known as pharmacovigilance. Healthcare professionals and
patients are also encouraged to report adverse effects and other
medicine-related problems. This process includes the collection
of adverse drug reaction reports as part of the
follow-up on
any side effects of a product, and upon assessment, the
authorities can decide to demand that product labels be updated
with safety data or warnings, that safety data or warnings be
provided to healthcare professionals, or recommend the temporary
suspension or complete withdrawal of a product from the market.
Other. We are also subject to various federal and state
laws, as well as foreign laws, pertaining to healthcare
fraud and abuse, including anti-kickback laws and
false claims laws. Anti-kickback laws make it illegal to
solicit, offer, receive or pay any remuneration in exchange for,
or to induce, the referral of business, including the purchase
or prescription of a particular drug that is reimbursed by a
state or federal program. The federal government and the states
have published regulations that identify safe
harbors or exemptions for certain arrangements that do not
32
violate the anti-kickback statute. We seek to comply with the
safe harbors wherever possible. Due to the breadth of the
statutory provisions and the absence of guidance in the form of
regulations or court decisions addressing some of our practices,
it is possible that our practices might be challenged under
anti-kickback or similar laws. False claims laws prohibit
knowingly and willingly presenting, or causing to be presented
for payment to third-party payers (including Medicare and
Medicaid), claims for reimbursed drugs or services that are
false or fraudulent, claims for items or services not provided
as claimed or claims for medically unnecessary items or
services. Our activities related to the sale and marketing of
our products may be subject to scrutiny under these laws.
Violations of fraud and abuse laws may be punishable by criminal
and/or civil
sanctions, including fines and civil monetary penalties, as well
as the possibility of exclusion from federal healthcare programs
(including Medicare and Medicaid). If the government were to
allege against or convict us of violating those laws or if we
entered into a settlement with the government, there could be a
material adverse effect on our business, including our stock
price. Our activities could be subject to challenge for the
reasons discussed above and due to the broad scope of those laws
and the increasing attention being given to them by law
enforcement authorities.
We are also subject to regulation under the Occupational Safety
and Health Act, the Toxic Substances Control Act, the Resource
Conservation and Recovery Act and other current and potential
future federal, state or local laws, rules
and/or
regulations. Our R&D activities involve the controlled use
of hazardous materials, chemicals, biological materials and
various radioactive compounds. We believe our procedures comply
with the standards prescribed by federal, state or local laws,
rules and/or
regulations; however, the risk of injury or accidental
contamination cannot be completely eliminated. While we are not
required to do so, we strive to conduct our research and
manufacturing activities in a manner that meets the intents and
purposes of the National Institutes of Health Guidelines for
Recombinant DNA Research.
Additionally, the U.S. Foreign Corrupt Practices Act
(FCPA) prohibits U.S. corporations and their
representatives from offering, promising, authorizing or making
payments to any foreign government official, government staff
member, political party or political candidate in an attempt to
obtain or retain business abroad. The scope of the FCPA includes
interactions with certain healthcare professionals in many
countries.
Our present and future business has been and will continue to be
subject to various other U.S. and foreign laws, rules
and/or
regulations.
Our vision is to deliver therapeutics that can make a meaningful
difference in patients lives. Therefore, we focus our
R&D on novel human therapeutics for the treatment of
grievous illness in the areas of oncology, hematology,
inflammation, bone, nephrology, cardiovascular and general
medicine, which includes neurology. We take a
modality-independent approach to R&D that is,
we identify targets, and then choose the modality best suited to
address a specific target. As such, our discovery research
programs may yield targets that lead to the development of human
therapeutics delivered as large molecules (such as proteins,
antibodies and peptibodies) or small molecules.
We have major R&D centers in several locations throughout
the United States and in the United Kingdom, as well as smaller
research centers in Canada and Germany, and smaller development
facilities throughout Europe and in Canada, Australia, Mexico,
Hong Kong and India. (See Item 2. Properties.)
To execute our clinical trial programs, we need to maintain an
effective development organization and associated R&D
support organizations. We conduct clinical trial activities with
both our internal staff and third-party contract clinical trial
service providers. In order to increase the number of patients
available for enrollment for our clinical trials, we have and
will continue to open clinical sites and enroll patients in a
number of geographic locations. (See Item 1A. Risk
Factors We must conduct clinical trials in humans
before we can commercialize and sell any of our product
candidates or existing products for new indications.)
Some of our competitors are actively engaged in R&D in
areas where we have products or where we are developing product
candidates or new indications for existing products. For
example, we compete with other clinical trials for eligible
patients, which may limit the number of available patients who
meet the criteria for certain
33
clinical trials. The competitive marketplace for our product
candidates is significantly dependent upon the timing of entry
into the market. Early entry may have important advantages in
gaining product acceptance, contributing to the products
eventual success and profitability. Accordingly, we expect that
in some cases, the relative speed with which we can develop
products, complete clinical testing, receive regulatory approval
and supply commercial quantities of the product to the market is
expected to be important to our competitive position.
In addition to product candidates and marketed products
generated from our internal R&D efforts, we acquire
companies, acquire and license certain product and R&D
technology rights and establish R&D collaborations with
third parties to enhance our strategic position within our
industry by strengthening and diversifying our R&D
capabilities, product pipeline and marketed product base. These
licenses and collaboration agreements generally provide for
non-refundable upfront license fees, R&D and commercial
performance milestone payments, cost sharing, royalty payments
and/or
profit sharing.
Various public and privately owned companies, research
organizations, academic institutions and governmental agencies
conduct a significant amount of R&D in the biotechnology
industry. We face competition in pursuing collaborative
arrangements and licensing or acquisition activities from other
pharmaceutical and biotechnology companies that also seek to
license or acquire technologies, product candidates or marketed
products from these entities. Accordingly, we may have
difficulty entering into collaborative arrangements and
licensing or acquiring technologies, product candidates and
marketed products on acceptable terms.
See Government Regulation Clinical Development for a
discussion of the government regulation over clinical
development.
34
The following table is a selection of certain of our product
candidates by phase of development in our therapeutic areas of
focus as of February 9, 2011, unless otherwise indicated.
Each target indication for product candidates in phase 3 is
listed separately. Additional product candidate (pipeline)
information can be found on our website at
http://www.amgen.com.
(This website address is not intended to function as a
hyperlink, and the information contained on our website is not
intended to be a part of this filing.)
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Molecule
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Disease/Condition
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Therapeutic Area
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Phase 3 Programs
|
AMG 386
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Ovarian cancer
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Hematology/Oncology
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Ganitumab (AMG 479)
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Pancreatic cancer
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Hematology/Oncology
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Aranesp®
(darbepoetin alfa)
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Anemia in heart failure
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Nephrology
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Motesanib
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First-line non-small cell lung cancer
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Hematology/Oncology
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Prolia®
(denosumab)
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Male osteoporosis
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Bone
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Sensipar®/Mimpara®
(cinacalcet)
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Cardiovascular disease in patients with secondary
hyperparathyroidism and chronic kidney disease undergoing
maintenance dialysis
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Nephrology
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Vectibix®
(panitumumab)
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First- and second-line colorectal cancer
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Hematology/Oncology
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XGEVAtm
(denosumab)
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Prevention of bone metastases in prostate cancer
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Hematology/Oncology
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XGEVAtm
(denosumab)
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Prevention of bone metastases in breast cancer
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Hematology/Oncology
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Phase 2 Programs
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AMG 386
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Various cancer types
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Hematology/Oncology
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Ganitumab (AMG 479)
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Various cancer types
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Hematology/Oncology
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AMG 785
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Bone-related conditions, including postmenopausal osteoporosis
and fracture healing
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Bone
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AMG 827
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Inflammatory diseases
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Inflammation
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AMG 853
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Asthma
|
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Inflammation
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Conatumumab
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Various cancer types
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Hematology/Oncology
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Denosumab
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Rheumatoid arthritis
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Inflammation
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Motesanib
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First-line breast cancer
|
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Hematology/Oncology
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Nplate®
(romiplostim)
|
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Chemotherapy-induced thrombocytopenia
|
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Hematology/Oncology
|
Nplate®
(romiplostim)
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Myelodysplastic syndromes
|
|
Hematology/Oncology
|
Omecamtiv mecarbil (AMG 423)
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Heart failure
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Cardiovascular
|
Rilotumumab (AMG 102)
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Various cancer types
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Hematology/Oncology
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Sensipar®/Mimpara®
(cinacalcet)
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Post Renal Transplant
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Nephrology
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Vectibix®
(panitumumab)
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Locally advanced head and neck cancer
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Hematology/Oncology
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Phase 1 Programs
|
AMG 139
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Inflammatory diseases
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Inflammation
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AMG 145
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Hypercholesterolemia
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Cardiovascular
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AMG 151
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Type 2 diabetes
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General Medicine
|
AMG 157
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Asthma
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Inflammation
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AMG 167
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Bone-related conditions
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Bone
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AMG 181
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Ulcerative colitis
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Inflammation
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AMG 191
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Inflammatory diseases
|
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Inflammation
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AMG 208
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Various cancer types
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Hematology/Oncology
|
AMG 221
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Type 2 diabetes
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General Medicine
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AMG 319
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Hematologic malignancies
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Hematology/Oncology
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AMG 337
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Various cancer types
|
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Hematology/Oncology
|
AMG 557
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Systemic lupus erythematosus
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Inflammation
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AMG 745
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Muscle-wasting disorders
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General Medicine
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AMG 747
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Neuroscience
|
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General Medicine
|
AMG 761
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Asthma
|
|
Inflammation
|
AMG 780
|
|
Various cancer types
|
|
Hematology/Oncology
|
AMG 811
|
|
Systemic lupus erythematosus
|
|
Inflammation
|
AMG 820
|
|
Various cancer types
|
|
Hematology/Oncology
|
AMG 888
|
|
Various cancer types
|
|
Hematology/Oncology
|
AMG 900
|
|
Various cancer types
|
|
Hematology/Oncology
|
Dulanermin (rhApo2L/TRAIL)
|
|
Various cancer types
|
|
Hematology/Oncology
|
|
|
|
Phase 1
|
|
clinical trials investigate safety
and proper dose ranges of a product candidate in a small number
of human subjects.
|
|
Phase 2
|
|
clinical trials investigate side
effect profiles and efficacy of a product candidate in a large
number of patients who have the disease or condition under study.
|
|
Phase 3
|
|
clinical trials investigate the
safety and efficacy of a product candidate in a large number of
patients who have the disease or condition under study.
|
35
The following text provides additional information about
selected product candidates that have advanced into human
clinical trials.
AMG
386
AMG 386 is a peptibody that inhibits the interaction between the
endothelial cell-selective Tie2 receptor and its ligands Ang1
and Ang2. It is being investigated as a cancer treatment.
In 2007 and 2008, we initiated five randomized phase 2 studies
of AMG 386 for the treatment of renal cell carcinoma
(RCC), metastatic breast cancer, ovarian cancer,
gastric cancer and colorectal cancer, and numerous other
supportive studies. In June 2010 at a medical meeting, we
presented the results from the phase 2 recurrent ovarian cancer
trial. Based on study results, we initiated a phase 3 study in
recurrent ovarian cancer in 2010. We also initiated a phase 1b
study in first-line ovarian cancer in 2010. We are initiating
other phase 2 studies in 2011.
Ganitumab
(AMG 479)
Ganitumab (AMG 479) is a fully human monoclonal antibody
antagonist of IGF-1 receptor. It is being investigated as a
cancer treatment.
In 2007, we initiated a phase 2 study of ganitumab (AMG
479) as a potential cancer therapeutic in Ewings
sarcoma. We also initiated, in 2008, phase 2 studies for the
treatment of advanced breast, pancreatic, colorectal and small
cell lung cancers. We reported the results from the phase 2
Ewings sarcoma and pancreatic cancer studies at a medical
meeting in June 2010 and results from the breast cancer study at
a meeting in December 2010. Results from a study in mCRC in
combination with
Vectibix®
were reported at a meeting in January 2011. We are initiating a
phase 3 study in first-line metastatic pancreatic cancer in 2011.
Aranesp®
(darbepoetin alfa)
Aranesp®
is a recombinant human protein agonist of the erythropoietin
receptor.
The Reduction of Events with Darbepoetin alfa in Heart Failure
(RED-HF®)
Trial phase 3 study, initiated in 2006, is a large (2,600
subjects planned), global, randomized, double-blind,
placebo-controlled study to evaluate the effect of treatment of
anemia with darbepoetin alfa on morbidity and mortality in
patients with symptomatic left ventricular heart failure. The
RED-HF®
Trial continues to enroll subjects and we anticipate completion
of the study in 2012.
Motesanib
Motesanib is an orally-administered small molecule antagonist of
vascular endothelial growth factor receptors 1, 2 and 3,
platelet-derived growth factor receptors and stem cell factor
receptor. It is being investigated as a cancer treatment. We are
developing this product in collaboration with Takeda/Millennium
Pharmaceuticals.
Enrollment in the phase 3 first-line NSCLC study (MONET1)
evaluating motesanib in combination with paclitaxel and
carboplatin for the first-line treatment of advanced NSCLC is
complete. Based on current event rates, we anticipate completion
of the study in the first half of 2011.
At a medical meeting in June 2010, we shared the results of
biomarkers as predictors of response to treatment with motesanib
or bevacizumab in combination with carboplatin/paclitaxel in
patients with NSCLC or in combination with paclitaxel in
patients with locally recurrent or metastatic breast cancer.
Denosumab
Denosumab is a fully human monoclonal antibody that specifically
targets a ligand known as RANKL (that binds to a receptor known
as RANK) which is a key mediator of osteoclast formation,
function, and survival. Denosumab is being studied across a
range of conditions including osteoporosis, treatment-induced
bone loss, RA and numerous tumor types across the spectrum of
cancer-related bone diseases.
Prolia®
(denosumab)
The phase 3 study evaluating
Prolia®
patients with male osteoporosis is ongoing.
36
XGEVAtm
(denosumab)
In February 2010, we announced that a pivotal, phase 3,
head-to-head
study evaluating
XGEVAtm
versus
Zometa®
(zoledronic acid) in the treatment of bone metastases in 1,901
men with advanced prostate cancer met its primary and secondary
endpoints.
XGEVAtm
demonstrated superiority over
Zometa®
for both delaying the time to the first on-study SRE (fracture,
radiation to bone, surgery to bone or spinal cord compression)
(hazard ratio (HR) 0.82, 95% confidence interval
(CI): 0.71, 0.95), and reducing the rate of multiple
SREs (HR 0.82, 95% CI: 0.71, 0.94). Both results were
statistically significant.
In December 2010, we announced top-line results from a phase 3
trial evaluating
XGEVAtm
versus placebo in 1,432 men with non-metastatic
castrate-resistant prostate cancer. The trial, known as the
147 study, demonstrated that
XGEVAtm
significantly improved median bone metastasis-free survival by
4.2 months (HR=0.85, 95%
CI 0.73-0.98,
p=0.03) compared to placebo (primary endpoint), and
significantly improved time to first occurrence of bone
metastases (secondary endpoint). Overall survival was similar
between the
XGEVAtm
and placebo groups (secondary endpoint). Overall rates of
adverse events and serious adverse events were generally similar
between
XGEVAtm
and placebo, with hypocalcemia and osteonecrosis of the jaw
(ONJ) observed at increased frequencies in the
XGEVAtm
arm. The yearly rate of ONJ in the
XGEVAtm-treated
group was similar to what has been observed in prior
XGEVAtm
trials. This study will form the basis of planned marketing
applications, which we expect to submit to regulatory
authorities beginning in the first half of 2011, for a new
indication for the prevention of bone metastases in prostate
cancer.
Also, we are currently conducting a study for the prevention of
bone metastases in patients with breast cancer and are planning
an additional SRE study in patients with multiple myeloma.
Sensipar®/Mimpara®
(cinacalcet)
Sensipar®/Mimpara®
is an orally-administered small molecule that lowers PTH levels
in blood by signaling through the calcium-sensing receptor in
parathyroid tissue to inhibit PTH secretion. It also lowers
blood calcium and phosphorous levels.
The phase 3 EValuation Of Cinacalcet HCl Therapy to Lower
CardioVascular Events
(E.V.O.L.V.Etm)
trial, initiated in 2006, is a large (3,800 patient),
multi-center, international, randomized, double-blind study to
assess the effects of
Sensipar®/Mimpara®
in mortality and cardiovascular morbidity in patients with CKD
undergoing maintenance dialysis. The
E.V.O.L.V.Etm
study completed enrollment in January 2008. Based on current
event rates, we anticipate completion of the study in dialysis
patients in 2012.
Sensipar®/Mimpara®
is also being evaluated in post renal transplant patients.
Vectibix®
(panitumumab)
Vectibix®
is a monoclonal antibody antagonist of the EGFr pathway. It is
being investigated as a cancer treatment.
On April 16, 2010, our application for marketing
authorization for the use of
Vectibix®
in first- and second-line treatment of mCRC in patients whose
tumors contain wild-type KRAS genes was submitted to the
EMA. In the United States, we filed supplemental BLA submissions
for first- and second-line mCRC with the FDA on October 29,
and November 4, 2010.
In August 2010, we announced top-line results from a randomized
phase 3 trial evaluating
Vectibix®
as a first-line treatment in patients with recurrent
and/or
metastatic squamous cell head and neck cancer. The data showed
the addition of
Vectibix®
to platinum-based chemotherapy did not result in a statistically
significant improvement in overall survival, the primary
endpoint, compared to chemotherapy alone [median
11.1 months versus 9.0 months, HR 0.87 (95% CI: 0.73,
1.05)]. Secondary endpoints of progression-free survival [median
5.8 months versus 4.6 months, HR 0.78 (95% CI: 0.66,
0.92)] and objective response rate (36% versus 25%) were
numerically improved but were not tested for statistical
significance.
Additionally, we have two ongoing phase 2 trials in locally
advanced head and neck cancer.
37
AMG
785
AMG 785 is a humanized monoclonal antibody that targets
sclerostin, a protein secreted by bone cells that inhibits bone
formation. AMG 785 (also known as CDP7851) is being developed in
collaboration with UCB for bone-related conditions, including
PMO and fracture healing.
In 2009, we initiated phase 2 studies of AMG 785 for the
treatment of PMO and fracture healing (tibial diaphyseal).
In 2010, we initiated a phase 2 study of AMG 785 for the
treatment of fracture healing (hip).
AMG
827
AMG 827 is a fully human monoclonal antibody that binds to and
blocks signaling via the interleukin-17 receptor. It is being
investigated as a treatment for a variety of inflammatory
disorders.
In 2009, we initiated phase 2 studies of AMG 827 as a potential
treatment for psoriasis and RA. In 2010, we initiated phase 2
studies of AMG 827 as a potential treatment for Crohns
disease and asthma. We received the results from the phase 2
study in psoriasis in 2010 and plan to share these data at an
upcoming medical meeting.
AMG
853
AMG 853 is an orally-administered small molecule antagonist of
the CRTH2 and D-prostanoid receptors of prostaglandin D2. It is
being investigated as a treatment for asthma.
Phase 1 single- and multiple-ascending dose studies have been
completed. A global, randomized, double-blind, placebo
controlled, multiple dose phase 2 study in subjects with
inadequately controlled asthma was initiated in December 2009
and is ongoing.
Conatumumab
Conatumumab is a fully human monoclonal antibody agonist that
targets death receptor 5 and induces apoptosis in sensitive
tumor cells. It is being investigated as a cancer treatment.
We have an ongoing phase 2 study in mCRC.
Nplate®
(romiplostim)
Nplate®
is a peptibody agonist of the TPO receptor.
In December 2010, we announced results at a medical meeting from
studies evaluating
Nplate®
in adult and pediatric patients with chronic immune (idiopathic)
thrombocytopenic purpura.
Results from completed phase 2 studies in myelodysplastic
syndromes (MDS) were presented in 2010. In late
February 2011, an independent Data Monitoring Committee
(DMC) recommended that we modify the study conduct
in another ongoing phase 2 study exploring the use of
Nplate®
in MDS, expressing concern that the demonstrated benefits seen
in treated patients might not outweigh the potential risks of
accelerated disease progression to AML. The DMC was also
concerned that transient blast cell increases in the
Nplate®
arm put patients at risk for diagnosis of, and treatment for,
AML, irrespective of whether or not the disease had actually
developed. We accepted the recommendation of the DMC and
notified investigators that subjects in this study should
discontinue
Nplate®
treatment and enter into the observational long-term
follow-up
phase of the study.
Nplate®
is also being evaluated in chemotherapy-induced thrombocytopenia.
Omecamtiv
mecarbil (AMG 423)
Omecamtiv mecarbil is a small molecule activator of cardiac
myosin. Omecamtiv mecarbil is being investigated to improve
cardiac contractility in subjects with heart failure. We are
developing this product in collaboration with Cytokinetics, Inc.
(Cytokinetics).
38
Rilotumumab
(AMG 102)
Rilotumumab (AMG 102) is a fully human monoclonal antibody
that blocks the action of hepatocyte growth factor/scatter
factor. It is being investigated as a cancer treatment.
Results from a study in mCRC in combination with
Vectibix®
were reported at a meeting in January 2011. Phase 2 combination
studies with rilotumumab (AMG 102) in the gastric,
prostate, mCRC and small cell lung cancer settings continue.
As of December 31, 2010, Amgen had approximately 17,400
staff members, which includes approximately 300 part-time
staff members. There can be no assurance that we will be able to
continue attracting and retaining qualified personnel in
sufficient numbers to meet our needs. None of our staff members
are covered by a collective bargaining agreement, and we have
experienced no work stoppages. We consider our staff relations
to be good.
Trade secret protection for our unpatented confidential and
proprietary information is important to us. To protect our trade
secrets, we generally require our staff members, material
consultants and scientific advisors to execute confidentiality
agreements upon commencement of employment or a consulting
relationship with us. However, others could either develop
independently the same or similar information or obtain access
to our information.
The executive officers of the Company as of February 11,
2011 are as follows:
Mr. Kevin W. Sharer, age 62, has served as a director
of the Company since November 1992. Mr. Sharer has been the
Companys Chief Executive Officer since May 2000 and has
also been Chairman of the Board of Directors since January 2001.
From May 2000 to May 2010, Mr. Sharer also served as the
Companys President. From October 1992 to May 2000,
Mr. Sharer served as President and Chief Operating Officer
of the Company. From April 1989 to October 1992,
Mr. Sharer was President of the Business Markets Division
of MCI Communications Corporation. From February 1984 to March
1989, Mr. Sharer held numerous executive capacities at
General Electric Company (GE). Mr. Sharer is a
director of Chevron Corporation and Northrop Grumman
Corporation. He is Chairman of the Board of the Los Angeles
County Museum of Natural History.
Mr. David W. Beier, age 62, became Senior Vice
President, Global Government and Corporate Affairs in March
2008. He joined the Company in 2003 as Senior Vice President,
Global Government Affairs. Previously, Mr. Beier was a
partner with the law firm of Hogan and Hartson in
Washington, D.C. From 1998 to early 2001, Mr. Beier
served as Chief Domestic Policy Advisor to the Vice President of
the United States. He also held positions as Vice President of
Government Affairs and Public Policy for Genentech and staff
counsel in the U.S. House of Representatives.
Mr. Beier is a director of ARYx Therapeutics, Inc.
Dr. Fabrizio Bonanni, age 64, became Executive Vice
President, Operations in August 2007. He has served as Senior
Vice President, Manufacturing of the Company since 2004.
Dr. Bonanni joined the Company in 1999 as Senior Vice
President, Quality and Compliance, and in June 2001 he also
became the Corporate Compliance Officer. Previously,
Dr. Bonanni held various management positions at Baxter
International, Inc. from 1974 to 1999, including positions as
Corporate Vice President, Regulatory and Clinical Affairs and
Corporate Vice President, Quality System.
Mr. Robert A. Bradway, age 48, became President and
Chief Operating Officer of Amgen in May 2010. Mr. Bradway
joined the Company in 2006 as Vice President, Operations
Strategy and served as Executive Vice President and Chief
Financial Officer from April 2007 to May 2010. Prior to joining
the Company, he was a Managing Director at Morgan Stanley in
London where he had responsibility for the firms banking
department and corporate finance activities in Europe.
Mr. Bradway joined Morgan Stanley in New York as a health
care industry investment banker in 1985 and moved to London in
1990 where he served as head of the firms international
health care investment banking activities until assuming broader
corporate finance management responsibilities.
39
Mr. Brian McNamee, age 54, became Senior Vice
President, Human Resources in June 2001. From November 1999 to
June 2001, Mr. McNamee served as Vice President of Human
Resources at Dell Computer Corp. From 1998 to 1999,
Mr. McNamee served as Senior Vice President, Human
Resources for the National Broadcasting Corporation, a division
of GE. From July 1988 to November 1999, Mr. McNamee held
human resource positions at GE.
Mr. Jonathan M. Peacock, age 52, became Executive Vice
President and Chief Financial Officer in September 2010. Prior
to joining Amgen, Mr. Peacock served as Chief Financial and
Administration Officer of Novartis Pharmaceuticals AG beginning
in 2005. From 1998 to 2005, Mr. Peacock was a partner at
McKinsey and Co., where he co-led the European Corporate Finance
Practice. Mr. Peacock was also a partner at Price
Waterhouse in London and New York from 1993 to 1998.
Dr. Roger M. Perlmutter, age 58, became Executive Vice
President, Research and Development in January 2001. From July
1999 to December 2000, Dr. Perlmutter was Executive Vice
President, Worldwide Basic Research and Preclinical Development
of Merck Research Laboratories. From February 1999 to July 1999,
Dr. Perlmutter served as Executive Vice President of Merck
Research Laboratories, and from February 1997 to January 1999,
as Senior Vice President of Merck Research Laboratories. From
May 1989 to January 1997, Dr. Perlmutter was also Chairman
of the Department of Immunology, University of Washington, and
from January 1991 to January 1997, Professor in the Departments
of Immunology, Biochemistry and Medicine, University of
Washington. From July 1984 to January 1997, Dr. Perlmutter
served as Investigator at the Howard Hughes Medical Institute at
the University of Washington. Dr. Perlmutter currently
serves on the Board of Directors of StemCells, Inc.
Ms. Anna S. Richo, age 50, became Senior Vice
President and Chief Compliance Officer in June 2008. From
December 2003 to June 2008, Ms. Richo served as Vice
President, Law. Prior to Amgen, she spent 12 years at
Baxter Healthcare Corporation in roles of increasing
responsibility in law, including Vice President, Law, for
Baxters BioScience Division. Also, for more than five
years, Ms. Richo served on the Board of Directors of Cytyc
Corporation and was a member of the Audit and Finance Committees.
Mr. David J. Scott, age 58, became Senior Vice
President, General Counsel and Secretary in March 2004. From May
1999 to February 2004, Mr. Scott served as Senior Vice
President and General Counsel of Medtronic, Inc. and also as
Secretary from January 2000. From December 1997 to April 1999,
Mr. Scott served as General Counsel of London-based United
Distillers & Vintners. Mr. Scott also served in
executive roles at Grand Metropolitan plc and RJR Nabisco, Inc.,
and was an attorney in private practice.
For financial information concerning the geographic areas in
which we operate, see Note 20, Segment
information Geographic information to the
Consolidated Financial Statements.
Financial and other information about us is available on our
website
(http://www.amgen.com)
(This website address is not intended to function as a
hyperlink, and the information contained in our website is not
intended to be a part of this filing). We make available on our
website, free of charge, copies of our annual report on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act as soon as
reasonably practicable after filing or submitting such material
electronically or otherwise furnishing it to the SEC. In
addition, we have previously filed registration statements and
other documents with the SEC. Any document we file may be
inspected, without charge, at the SECs public reference
room at 100 F Street NE, Washington, D.C. 20549
or at the SECs internet address at
http://www.sec.gov
(This website address is not intended to function as a
hyperlink, and the information contained in the SECs
website is not intended to be a part of this filing).
Information related to the operation of the SECs public
reference room may be obtained by calling the SEC at
1-800-SEC-0330.
40
This report and other documents we file with the SEC contain
forward looking statements that are based on current
expectations, estimates, forecasts and projections about us, our
future performance, our business or others on our behalf, our
beliefs and our managements assumptions. These statements
are not guarantees of future performance and involve certain
risks, uncertainties and assumptions that are difficult to
predict. You should carefully consider the risks and
uncertainties facing our business. The risks described below are
not the only ones facing us. Our business is also subject to the
risks that affect many other companies, such as employment
relations, general economic conditions, geopolitical events and
international operations. Further, additional risks not
currently known to us or that we currently believe are
immaterial also may impair our business, operations, liquidity
and stock price materially and adversely.
Our sales
depend on coverage and reimbursement from third-party
payers.
Sales of all of our principal products are dependent on the
availability and extent of coverage and reimbursement from
third-party payers, including government healthcare programs and
private insurance plans. Governments and private payers may
regulate prices, reimbursement levels
and/or
access to our products to control costs or to affect levels of
use of our products. We rely in large part on the reimbursement
of our principal products through government programs such as
Medicare and Medicaid in the United States and similar programs
in foreign countries and a reduction in the coverage
and/or
reimbursement for our products could have a material adverse
effect on our product sales and results of operations.
The government-sponsored healthcare systems in Europe and many
other foreign countries are the primary payers for healthcare
expenditures, including payment for drugs and biologics, in
those regions. While mandatory price reductions have been a
recurring aspect of business for the pharmaceutical and
biotechnology industries in Europe, given the current worldwide
economic conditions, certain European country governments have
increased the frequency and size of such mandatory price
reductions to extract further cost savings. For example, in 2010
countries such as Greece announced price reductions
and/or
mandated rebates for certain pharmaceutical and biological
products that substantially exceeded prior levels. We expect
that other countries may follow
and/or take
similar or more extensive actions to reduce expenditure on drugs
and biologics, including mandatory price reductions, preference
for biosimilar products or reduction in the amount of
reimbursement. While we cannot fully predict the extent of
further price reductions by countries in Europe or the impact
such price reductions will have on our business, such reductions
in price
and/or the
coverage and reimbursement for our products in European
countries could have a material adverse effect on our product
sales and results of operations.
In March 2010 the United States adopted significant healthcare
reform through the enactment of the PPACA and the Heathcare and
Education Reconciliation Act. (See Reimbursement
U.S. Healthcare Reform.) A major goal of the new healthcare
reform law is to provide greater access to healthcare coverage
for more Americans. Accordingly, the new healthcare reform law
requires individual U.S. citizens and legal residents to
maintain qualifying health coverage, imposes certain
requirements on employers with respect to offering health
coverage to employees, amends insurance regulations regarding
when coverage can be provided and denied to individuals, and
expands existing government healthcare coverage programs to more
individuals in more situations, with most of these changes going
into effect in January 2014. We do not expect a significant
increase in sales of our products as a result of the 2014
expansions in healthcare coverage. The new healthcare reform law
does have several components, with varied implementation dates
that began in 2010, that have and are expected to continue to
adversely impact our business. While we cannot fully predict the
ultimate impact the new healthcare reform law will have on us,
we expect that the new law will continue to have a material
adverse effect on our business and results of operations.
Public and private insurers have pursued, and continue to
pursue, aggressive cost containment initiatives, including
increased focus on comparing the effectiveness, benefits and
costs of similar treatments, which could result in lower
reimbursement rates for our products. A substantial portion of
our U.S. business relies on reimbursement under Medicare
Part B coverage. Any deterioration in the timeliness or
certainty of payment from CMS to physicians, including as a
result of changes in policy or regulations, or as a result of
operational difficulties, could negatively impact the
willingness of physicians to prescribe our products for patients
relying on
41
Medicare for their medical coverage. Most of our products
furnished to Medicare beneficiaries in both a physician office
setting and hospital outpatient setting are reimbursed under the
ASP payment methodology. ASP-based reimbursements of products
under Medicare may be below or could fall below the cost that
some medical providers pay for such products, which would
adversely affect sales of our products. We also face certain
risks relating to the calculation of ASP. ASP is calculated by
the manufacturer based on a statutorily defined formula and
submitted to CMS. However, the statute, regulations and CMS
guidance do not define specific methodologies for all aspects of
the calculation of ASP. For example, in the Medicare Physician
Fee Schedule Final Rule for 2011, CMS did not address a
proposed methodology for treatment of bundled price concessions.
Consequently, the current CMS guidance is that manufacturers may
make reasonable assumptions in their calculation of
ASP consistent with the general requirements and the intent of
the Medicare statute, federal regulations and their customary
business practices. As a result, we are required to apply our
judgment in certain aspects of calculating ASP which are
disclosed to CMS and also are subject to further CMS review. If
our calculation of ASP is incorrect, we could be subject to
substantial fines and penalties which could have a material
adverse impact on our results of operations. Additionally, we
are required to pay rebates to the federal government on
products reimbursed by Medicaid at a rate of 23.1% of the
average manufacturers price (AMP) of a product, or
if it is greater, the difference between the AMP and the best
price available to any non-government customer. The definition
of AMP recently changed and we expect CMS to shortly issue a
proposed rule further defining the new AMP definition. Until
that rule is issued, we will be required to apply our judgment
in certain aspects of the AMP calculation. Once the CMS rule is
issued, we will have to determine whether our interpretation of
AMP follows the rule or would need to be restated and this could
have a material adverse impact on our business and results of
operations.
Other initiatives reviewing the coverage or reimbursement of our
products could result in less extensive coverage or lower
reimbursement rates. For example, in July 2007, CMS issued an
NCD where it determined that ESA treatment was not reasonable
and necessary for certain clinical conditions and established
Medicare coverage parameters for FDA-approved ESA use in
oncology. Generally, an NCD is a national policy statement
granting, limiting or excluding Medicare coverage or
reimbursement for a specific medical item or service. We believe
the restrictions in the 2007 NCD changed the way ESAs are used
in clinical practice, for example, by decreasing the number of
treated patients, the average ESA dose and the duration of ESA
therapy in the oncology setting. As a result, we believe these
restrictions have had a material adverse effect on the use,
reimbursement and sales of
Aranesp®,
which has had a significant impact to our business.
The reimbursement of ESAs in the nephrology setting is also
receiving attention. On March 24, 2010, CMS held a MEDCAC
meeting to examine the currently available evidence on the use
of ESAs to manage anemia in patients who have CKD and on
June 16, 2010, CMS opened an NCA to examine the use of ESAs
to manage anemia in patients with CKD and dialysis-related
anemia. This NCA initiates the process of reviewing and
evaluating potential changes in Medicare coverage policies for
the use of ESAs in those patients and may result in the issuance
of a new NCD by CMS. The
30-day
public comment period on the NCA ended on July 17, 2010 and
CMS has stated that the NCA process for ESAs will conclude on or
before June 16, 2011, but CMS could propose a new NCD at
any time prior to that deadline. Additionally, on
January 19, 2011, CMS held another MEDCAC meeting, this
time to review the available evidence on the impact of ESA use
on renal transplant graft survival. This development continues
CMSs process of reviewing and evaluating potential changes
in Medicare coverage policies for the use of ESAs in patients
with CKD. We cannot predict if and when a new NCD will be issued
or the details of any potentially changed coverage decisions for
the use of ESAs in patients with CKD, including whether or how a
new NCD could change CMSs bundled payment system
and/or the
ESRD QIP. However, similar to the impact of the 2007 NCD on the
use of ESAs in oncology, a new NCD around the use of ESAs to
manage anemia in patients with CKD and dialysis-related anemia
may negatively affect use, coverage and reimbursement,
and/or
product sales of our ESA products in the nephrology setting,
which could have a material adverse effect on our business and
results of operations.
Further, the list of potential future NCDs issued by CMS in late
2008 included the category of thrombopoiesis stimulating agents
(platelet growth factors), the category of drugs that includes
Nplate®,
and a discussion on bisphosphonates used to treat osteoporosis.
CMS has not announced whether it will proceed with an NCA
related to
42
thrombopoiesis stimulating agents and, while
Prolia®
is not a bisphosphonate, there is the possibility that CMS might
evaluate other agents, including RANK Ligand inhibitors such as
Prolia®
and
XGEVAtm.
In the dialysis setting, the reimbursement rates for our
products are also subject to downward pressure. In the United
States, dialysis providers are reimbursed for
EPOGEN®
primarily by the federal government through the ESRD Program of
Medicare. The ESRD Program reimburses approved dialysis
providers for 80% of allowed dialysis costs while the remainder
is paid by other sources, including patients, state Medicaid
programs, private insurance and, to a lesser extent, state
kidney patient programs. The ESRD Program reimbursement
methodology is established by federal law and is implemented by
CMS. Until January 1, 2011, Medicare reimbursed for
separately billable dialysis drugs (including
EPOGEN®
and
Aranesp®)
administered in both freestanding and hospital-based dialysis
centers at ASP+6%, using the same payment amount methodology
used in the physician clinic setting under Part B. On
January 1, 2011, CMSs bundled payment system went
into effect for dialysis facilities which provides a single
payment for all dialysis services including drugs, supplies, and
non-routine laboratory tests that were previously reimbursed
separately. (See Reimbursement Reimbursement of Our
Principal Products Dialysis Reimbursement.) Dialysis
providers were given the choice of opting into the new bundled
payment system in its entirety on January 1, 2011, or
phasing in ratably over a four-year period beginning in 2011.
Substantially all dialysis providers in the United States have
opted into the bundled payment system in its entirety beginning
in 2011. We expect that the implementation of the bundled
payment system by ESRD facilities will have a material adverse
impact on the reimbursement, use and sales of
EPOGEN®
beginning in 2011, and
Sensipar®
beginning in 2014.
Additional initiatives addressing the coverage or reimbursement
of our products could result in less extensive coverage or lower
reimbursement, which could negatively affect sales of our
products. For example, since April 2006, the Medicare
reimbursement for ESAs administered to dialysis patients has
also been subject to an EMP, the Medicare payment review
mechanism used by CMS to monitor
EPOGEN®
and
Aranesp®
utilization and hematocrit outcomes of dialysis patients. CMS
revised the EMP, effective January 2008, further limiting
reimbursement for
EPOGEN®
and
Aranesp®
in certain cases. Further reduction in reimbursement in the
dialysis setting could have a material adverse effect on sales
of
EPOGEN®
and
Aranesp®,
and our business.
If, for any of these or other reasons, reimbursement rates are
reduced, or if healthcare providers anticipate reimbursement
being reduced, providers may narrow the circumstances in which
they prescribe or administer our products, which could reduce
the use
and/or sales
of our products. A reduction in the use and sales of our
products could have a material adverse effect on our business
and our results of operations.
Our
current products and products in development cannot be sold if
we do not maintain or gain regulatory approval.
Our business is subject to extensive regulation by numerous
state and federal governmental authorities in the United States,
including the FDA, and by foreign regulatory authorities,
including the EMA. We are required in the United States and in
foreign countries to obtain approval from regulatory authorities
before we can manufacture, market and sell our products. Once
approved, the FDA and other U.S. and foreign regulatory
agencies have substantial authority to require additional
testing, change product labeling or mandate withdrawals of our
products. Also, legislative bodies or regulatory agencies could
enact new laws or regulations or change existing laws or
regulations at any time, which could affect our ability to
obtain or maintain approval of our products. For example, the
2007 creation of the FDAAA significantly added to the FDAs
authority, allowing the FDA to (i) require sponsors of
marketed products to conduct post-approval clinical studies;
(ii) mandate labeling changes to products and
(iii) require sponsors to implement a REMS for a product.
Failure to comply with FDAAA requirements could result in
significant civil monetary penalties, reputational harm and
increased product liability risk. Current policy discussions
underway in the United States include debates about the
implementation of the new, abbreviated pathway for biosimilars
established under the new healthcare reform law; renegotiation
of the Prescription Drug User Fee Act, which governs the user
fees pharmaceutical and biological companies pay to the FDA that
provide a substantial portion of the FDAs operating
budget, in anticipation of re-authorization before
September 30, 2012; and reforms to the regulations that
govern diagnostics and medical devices which are sometimes used
in conjunction with our products. We are unable to predict when
and whether any changes to laws or regulatory policies affecting
our business could occur, and such changes could have a material
adverse impact on our business.
43
Obtaining and maintaining regulatory approval has been and will
continue to be increasingly difficult, time-consuming and
costly. For example, in October 2009 we received Complete
Response Letters from the FDA for the BLA for
Prolia®
in the treatment and prevention of PMO and in the treatment and
prevention of bone loss due to hormone ablation therapy
(HALT) in breast and prostate cancer patients. The
Complete Response Letter related to the PMO indication requested
several items, including further information on the design and
background adverse event rates to inform the methodology of our
previously submitted post-marketing surveillance program. The
FDA also requested a new clinical program to support the
approval of
Prolia®
for the prevention of PMO, updated safety data and stated that a
REMS is necessary for
Prolia®.
The Complete Response Letter related to the HALT indication
requested additional information regarding the safety of
Prolia®
in patients with breast cancer receiving aromatase inhibitor
therapy and patients with prostate cancer receiving Androgen
Deprivation Therapy. The FDA specifically requested results from
additional adequate and well-controlled clinical trials
demonstrating that
Prolia®
has no detrimental effects on either time to disease progression
or overall survival.
In addition, there may be situations in which demonstrating the
efficacy and safety of a product candidate may not be sufficient
to gain regulatory approval unless superiority to comparative
products can be shown. Further some of our products are approved
by U.S. and foreign regulatory authorities on a conditional
basis with full approval conditioned upon fulfilling
requirements of regulators.
Vectibix®,
for example, received conditional approval in the United States
and EU, with full approval conditioned on conducting additional
clinical trials of the use of
Vectibix®
as a therapy in treating mCRC. (See Marketed Products and
Selected Product Candidates
Vectibix®
(panitumumab).) If we are unable to fulfill the requirements of
regulators that were conditions of our products
accelerated or conditional approval, we may not receive full
approval for these products and may be required to change the
products labeled indications or even withdraw the products
from the market. Further, some of our products or product
candidates may be used with a companion diagnostic product, such
as a test kit, or companion device, such as an injector or other
delivery system. These product candidates or expanded
indications of our products may not be approved if the companion
diagnostic product or companion device does not gain or maintain
regulatory approval. These companion diagnostics and devices may
be provided by single-source unaffiliated third-party companies.
We are dependent on the sustained cooperation and effort of
those third-party companies in conducting the studies required
for such approval by the applicable regulatory agencies. Delays
in the studies or failure of the third-party company to obtain
regulatory approval of the companion diagnostic or device could
negatively impact the approval of our product candidate or the
expanded indication of our product and we may incur increased
development costs, delays in regulatory approval
and/or
associated delays in a product candidate reaching the market or
the expansion of existing product labels for new indications.
The occurrence of a number of high profile safety events has
caused an increased public and governmental concern about
potential safety issues relating to pharmaceutical and
biological products and certain of our products and product
candidates. (See Our ESA products continue to be under review
and receive scrutiny by regulatory authorities.) As a result of
this increased concern in recent years, the U.S. regulatory
environment has evolved and safety signals and safety concerns
resulting from clinical trials (including
sub-analyses
and meta-analyses), market use or other sources are receiving
greater scrutiny. Actual or perceived safety problems could lead
to revised or restrictive labeling of our approved products or a
class of products, potentially including limitations on the use
of approved products in certain patients because of:
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the identification of actual or theoretical safety or efficacy
concerns with respect to any of our products by regulatory
agencies
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an increased rate or number of previously-identified
safety-related events
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the discovery of significant problems or safety signals or
trends with a similar product that implicates an entire class of
products
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44
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subsequent concerns about the sufficiency of the data or studies
underlying the label or changes to the underlying
safety/efficacy analysis related to results from clinical
trials, including
sub-analyses,
or meta-analysis (a meta-analysis is the review of studies using
various statistical methods to combine results from previous
separate but related studies) of clinical trials or clinical
data performed by us or others
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new legislation or rules by regulatory agencies
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For example, in December 2009, based on the TREAT results, we
updated the boxed warning in the labeling information for ESAs,
to reflect an increased risk of stroke when ESAs are
administered to CRF patients to target Hb levels of 13 g/dL and
above. In October 2010, we submitted additional proposed
labeling changes regarding the use of ESAs in CRF patients not
on dialysis that would limit treatment to patients who are most
likely to benefit, specifically those with significant anemia
(<10 g/dL), and who are at high risk for transfusion and
for whom transfusion avoidance is considered clinically
important, including those in whom it is important to preserve
kidney transplant eligibility. We are working with the FDA to
determine the appropriate use of ESAs in CKD patients and to
determine any future ESA labeling changes required in connection
with TREAT or the CRDAC meeting. (See Our ESA products continue
to be under review and receive scrutiny by regulatory
authorities.)
In addition to revised labeling for our products, discovery of
new safety information or previously unknown safety concerns
and/or
safety signals with our products or similar products could also
lead to:
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requirement of risk management activities (including a REMS) or
other FDA compliance actions related to the promotion and sale
of our products
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mandated PMCs or pharmacovigilance programs for our approved
products
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product recalls of our approved products
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revocation of approval for our products from the market
completely, or within particular therapeutic areas, and/or
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increased timelines or delays in being approved by the FDA or
other regulatory bodies
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fewer treatments or product candidates being approved by
regulatory bodies
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Product safety concerns could cause regulatory agencies to
impose risk management activities upon us (including a REMS),
which may require substantial costs and resources to negotiate,
develop, implement and administer. The results of these risk
management activities could:
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impact the ability of healthcare providers to prescribe,
dispense or use our products
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limit patient access to our products
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reduce patient willingness to use our products
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place administrative burdens on healthcare providers in
prescribing our products
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affect our ability to compete against products that do not have
a REMS or similar risk management activities
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We currently have approved REMS for our ESAs, ENBREL,
Prolia®
and
Nplate®,
and we use third-party service providers to assist in the
administration of our REMS that include elements to assure safe
use. For example, our
Nplate®
and ESA REMS each require applicable healthcare providers and
institutions to enroll in the program, receive education about
the product and the REMS and document and report certain
information to us over time. We are responsible for tracking and
documenting certain elements of healthcare provider and
institution compliance with the
Nplate®
and ESA REMS and providing the FDA with periodic assessment
reports to demonstrate that the goals of the REMS are being met.
If we or third-party service providers acting on our behalf fail
to effectively implement
and/or
administer the REMS for our products, we may be required to
modify such REMS, and we may be subject to FDA enforcement
actions or to civil penalties.
Further, if new medical data or product quality issues suggest
an unacceptable safety risk or previously unidentified
side-effects, we may withdraw some or all affected
product either voluntarily or by regulatory
45
mandate in certain therapeutic areas, or completely
recall a product presentation from the market for some period or
permanently. For example, in September 2009, we initiated a
voluntary recall of a limited number of ENBREL
SureClick®
lots due to a defect in the glass syringe barrel which resulted
in a small number of broken syringes following assembly of the
autoinjector device. In October 2010, we initiated a voluntary
recall of certain lots of ENBREL due to identification of cracks
in a small number of the glass syringes which may have resulted
in product leakage and syringe breakage. Further, beginning in
September 2010, we initiated a voluntary recall of certain lots
of
EPOGEN®
and J&J voluntarily recalled certain lots of
PROCRIT®,
manufactured by us, because a small number of vials in each lot
were found to contain glass lamellae (extremely thin, barely
visible glass flakes) which we believed was a result of the
interaction of the formulation with glass vials during the shelf
life of the product. The recalls were executed in close
collaboration with the FDA. We may experience the same or other
problems in the future, resulting in broader product recalls,
adverse event trends, delayed shipments, supply constraints,
contract disputes
and/or
stock-outs of our products, which may adversely affect the sales
of our products. Additionally, if other parties (including our
independent clinical trial investigators or our licensees, such
as J&J, Pfizer, Glaxo, Takeda and Daiichi Sankyo) report or
fail to effectively report to regulatory agencies side effects
or other safety concerns that occur from their use of our
products in clinical trials or studies or from marketed use,
resulting regulatory action could adversely affect the sales of
our products and our business and results of operations.
If regulatory authorities determine that we have not complied
with regulations in the R&D of a product candidate, a new
indication for an existing product or information to support a
current indication, they may not approve the product candidate
or new indication or maintain approval of the current indication
in its current form or at all, and we would not be able to
market and sell it. If we were unable to market and sell our
products or product candidates, our business and results of
operations would be materially and adversely affected. Further,
safety signals, trends, adverse events or results from clinical
trials or studies performed by us or by others (including our
licensees or independent investigators) from the marketed use of
our drugs or similar products that result in revised
safety-related labeling or restrictions on the use of our
approved products could negatively impact healthcare provider
prescribing behavior, use and sales of our products, regulatory
or private health organization medical guidelines and
reimbursement for our products all of which could have a
material adverse effect on our business and results of
operations.
Our ESA
products continue to be under review and receive scrutiny by
regulatory authorities.
Beginning in 2006, adverse safety results involving ESA products
were observed and since that time our ESAs have been the subject
of ongoing review and scrutiny by regulatory authorities and
reimbursement agencies. In the United States, the FDA continues
to review the benefit-risk profile of ESAs, which have resulted
and could result in future changes to ESA labeling and usage.
For example, we revised the labeling for our ESAs in August
2008, as the FDA directed. In addition, in July 2007 CMS issued
an NCD for non-renal ESAs that determined that ESA treatment was
not reasonable and necessary for certain clinical conditions,
and established Medicare coverage parameters for FDA-approved
ESA use in oncology. Since these labeling and reimbursement
changes, we experienced a substantial reduction in our ESA
sales, in particular
Aranesp®
sales in the U.S. supportive cancer care setting. In
October 2009, the results from TREAT, a phase 3 pivotal study of
patients with CKD not on dialysis were published in the
New England Journal of Medicine. The study failed to meet
its primary objectives of demonstrating a reduction in all-cause
mortality, cardiovascular morbidity, including heart failure,
heart attack, stroke or hospitalization for myocardial ischemia,
or time to ESRD. On December 16, 2009, based on the TREAT
results, we updated the boxed warning in the labeling
information for ESAs, to reflect an increased risk of stroke
when ESAs are administered to CRF patients to target Hb levels
of 13 g/dL and above. CMS held a MEDCAC meeting on
March 24, 2010 to examine the currently available evidence
on the use of ESAs to manage anemia in patients who have CKD,
which considered the results from the TREAT study, and on
June 16, 2010, CMS opened a new NCA to examine the use of
ESAs to manage anemia in patients with CKD and dialysis-related
anemia. On October 18, 2010 the FDAs CRDAC discussed
the results from the TREAT study conducted in patients not on
dialysis, and how those results informed the appropriate use of
ESAs in patients with CKD. Prior to the CRDAC meeting, we
submitted proposed labeling changes regarding the use of ESAs in
CRF patients not on dialysis that would limit treatment to
patients who are most likely to benefit, specifically those with
significant anemia
(<10 g/dL),
and who are at high risk for transfusion and for whom
transfusion avoidance is
46
considered clinically important, including those in whom it is
important to preserve kidney transplant eligibility. A variety
of opinions regarding the appropriate use of ESAs in patients
with CKD were offered at the CRDAC meeting by the various
meeting participants. On January 19, 2011, CMS held another
MEDCAC meeting, this time to review the available evidence on
the impact of ESA use on renal transplant graft survival. (See
Our sales depend on coverage and reimbursement from third-party
payers.) We are working with the FDA to determine the
appropriate use of ESAs in CKD patients and we continue to
cooperate with CMS in determining appropriate reimbursement for
our ESAs. Although we cannot predict what impact all of these
activities (including the revised ESA labeling; any future ESA
labeling changes required in connection with TREAT or the CRDAC
meeting or from our ongoing discussions with the FDA regarding
the conversion of the format of our ESA U.S. labels in
accordance with the Physicians Labeling Rule; the outcome
from the NCA or MEDCAC meetings, including an NCD; and the
impact of the approved REMS for ESAs) could have on our
business, these activities could, individually or together, have
a material adverse impact on the coverage, reimbursement, use
and/or sales
of our ESAs, which would have a material adverse effect on our
business and results of operations. (See Our current products
and products in development cannot be sold if we do not maintain
or gain regulatory approval.)
We also have ongoing PMCs for our ESAs that must be conducted to
maintain regulatory approval and marketing authorization. We
have agreed with the FDA to a robust pharmacovigilance program
to continue to study the safety surrounding the use of ESAs in
the oncology setting and we initiated Study782 as part of
our
Aranesp®
pharmacovigilance program, a phase 3 non-inferiority study
evaluating overall survival when comparing NSCLC patients on
Aranesp®
to patients receiving placebo. We continue to identify clinical
sites for Study782 and to enroll patients in the study. In
addition, J&JPRDs EPO-ANE-3010 study, which evaluates
the use of Epoetin alfa in patients with breast cancer, is
ongoing and is designated as an FDA PMC. Further, in 2008 the
FDA and the EMA reviewed interim results from the Preoperative
Epirubicin Paclitaxel
Aranesp®
(PREPARE) study in neo-adjuvant breast cancer, a PMC
study, which were ultimately incorporated into the ESA labeling
in both the United States and the EU. We received the final
results from the PREPARE study in 2009, which were substantially
consistent with the interim results, and provided that data to
the FDA and EMA. Although we cannot predict the results or the
outcomes of ongoing clinical trials, or the extent to which
regulatory authorities may require additional labeling changes
as a result of these or other trials, we cannot exclude the
possibility that adverse results from clinical trials, including
PMCs, could have a material adverse impact on the reimbursement,
use and sales of our ESAs, which would have a material adverse
effect on our business and results of operations.
Regulatory authorities outside the United States have also
reviewed and scrutinized the use of our ESA products. In June
2008, the EMA recommended updating the product information for
ESAs with a new warning for their use in cancer patients, which
was approved by the EC in October 2008. The product information
for all ESAs was updated to advise that, in some clinical
situations, blood transfusions should be the preferred treatment
for the management of anemia in patients with cancer and that
the decision to administer ESAs should be based on a
benefit-risk assessment with the participation of the individual
patient. Since the October 2008 revision, we have experienced a
reduction of
Aranesp®
sales in the supportive cancer care setting in the EU and,
although we cannot predict what further impact the revised EU
ESA product information could have on our business, the
coverage, reimbursement, use and sales of
Aranesp®
in Europe could further be materially adversely affected, which
would have a material adverse effect on our business and results
of operations.
Moreover, we continue to receive results from meta-analyses or
previously initiated clinical trials using ESAs, including PMCs,
and adverse results could negatively impact the use and sales of
our ESAs. For example, in September 2008, we announced that we
had received a summary of preliminary results from the Cochrane
Collaborations independent meta-analysis of patient-level
data from previously conducted, randomized, controlled, clinical
studies evaluating ESAs in cancer patients which we submitted to
the FDA and the EMA. This Cochrane meta-analysis of
patient-level data from previous studies corroborates prior
analyses indicating that the use of ESAs may increase the risk
of death in cancer patients. The studies in the analysis all
predate the current label, which advises using the least amount
of ESA necessary to avoid transfusion but they do not exclude
the potential for adverse outcomes when ESAs are prescribed
according to the current label.
47
We must
conduct clinical trials in humans before we can commercialize
and sell any of our product candidates or existing products for
new indications.
Before we can sell any products, we must conduct clinical trials
to demonstrate that our product candidates are safe and
effective for use in humans. The results of those clinical
trials are used as the basis to obtain approval from regulatory
authorities such as the FDA and EMA. (See Our current products
and products in development cannot be sold if we do not maintain
or gain regulatory approval.) We are required to conduct
clinical trials using an appropriate number of trial sites and
patients to support the product label claims. The length of
time, number of trial sites and patients required for clinical
trials vary substantially and therefore, we may spend several
years and incur substantial expense in completing certain
clinical trials. Delays in planned clinical trials can result in
increased development costs, delays in regulatory approvals,
associated delays in product candidates reaching the market and
revisions to existing product labels. For example, in 2006 we
delayed the start of our phase 3 trial in first-line NSCLC due
to an increased frequency of cholecystitis (inflammation of the
gall bladder) in patients treated with our late-stage product
candidate motesanib. Following initiation of the trial in
November 2008, enrollment in this phase 3 trial was temporarily
suspended following a planned safety data review of
600 patients by the studys independent DMC. In
February 2009, the DMC recommended the trial resume enrollment
of patients with non-squamous NSCLC only, and in June 2009, we
reinitiated enrollment in this patient population following an
FDA-approved revision to the study protocol.
In addition, in order to increase the number of patients
available for enrollment for our clinical trials, we have and
will continue to open clinical sites and enroll patients in a
number of new geographic locations where our experience
conducting clinical trials is more limited, including Russia,
India, East Asia and some Central and South American countries
either through utilization of third-party contract clinical
trial providers entirely or in combination with local staff.
Conducting clinical trials in locations where we have limited
experience requires substantial time and resources to identify
and understand the unique regulatory environments of individual
countries. Further, we must ensure the timely production,
distribution and delivery of the clinical supply of our product
candidates to the numerous and varied clinical trial sites. If
we fail to adequately manage the design, execution and
regulatory aspects of our large, complex and regulatorily
diverse clinical trials or manage the production or distribution
of our clinical supply, corresponding regulatory approvals may
be delayed or we may fail to gain approval for our product
candidates or could lose our ability to market existing products
in certain therapeutic areas or altogether. If we are unable to
market and sell our product candidates or are unable to obtain
approvals in the timeframe needed to execute our product
strategies, our business and results of operations would be
materially adversely affected. Additional information on our
clinical trials can be found on our website at www.amgen.com.
(This website address is not intended to function as a
hyperlink, and the information contained on our website is not
intended to be a part of this filing.)
Further, we rely on unaffiliated third-party vendors to perform
certain aspects of our clinical trial operations. In the event
that any of these vendors has unforeseen issues that negatively
impact the quality of its work, our ability to evaluate clinical
results may also be negatively impacted. As a result, this could
adversely affect our ability to file for, gain or maintain
regulatory approvals worldwide on a timely basis.
Patients may also suffer adverse medical events or side effects
in the course of our, our licensees, partners or independent
investigators clinical trials which could:
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delay the clinical trial program
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require additional or longer trials to gain approval
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prohibit regulatory approval of our product candidates or new
indications for existing products
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render the product candidate commercially unfeasible or limit
our ability to market existing products completely or in certain
therapeutic areas.
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Clinical trials must be designed based on the current standard
of medical care. However in certain diseases, such as cancer,
the standard of care is evolving rapidly. In these diseases, the
duration of time needed to complete certain clinical trials may
result in the design of such clinical trials being based on an
out of date standard of medical
48
care, limiting the utility and application of such trials. We
may not obtain favorable clinical trial results and may not be
able to obtain regulatory approval for new product candidates,
new indications for existing products or maintenance of our
current labels on this basis. Further, clinical trials conducted
by others, including our licensees, partners or independent
investigators, may result in unfavorable clinical trials results
that may call into question the safety of our products in
off-label or on label uses that may result in label restrictions
and/or
additional trials.
Even after a product is on the market, safety concerns may
require additional or more extensive clinical trials as part of
a pharmacovigilance program of our product or for approval of a
new indication. For example, we have initiated Study782 as
part of our
Aranesp®
pharmacovigilance program. (See Our ESA products continue to be
under review and receive scrutiny by regulatory authorities.)
Additional clinical trials we initiate, including those required
by the FDA, could result in substantial additional expense and
the outcomes could result in additional label restrictions or
the loss of regulatory approval for an approved indication, each
of which may have a material adverse effect on our business and
results of operations. Additionally, any negative results from
such trials could materially affect the extent of approvals, the
use, reimbursement and sales of our products.
We expect
to face increasing competition from biosimilar products which
could impact our profitability.
We currently face competition in Europe from biosimilar
products, and we expect to face increasing competition from
biosimilars in the future. Lawmakers in the United States have
recently enacted healthcare reform legislation which included an
abbreviated regulatory pathway for the approval of biosimilars.
The EU has already created such a regulatory pathway. To the
extent that governments adopt more permissive approval
frameworks and competitors are able to obtain broader marketing
approval for biosimilars, our products will become subject to
increased competition. Expiration or successful challenge of
applicable patent rights could trigger such competition, and we
could face more litigation regarding the validity
and/or scope
of our patents.
In the EU, the EC has granted marketing authorizations for
several biosimilars pursuant to a set of general and product
class-specific
guidelines for biosimilar approvals issued over the past few
years. In 2006, the EMA developed and issued final regulatory
guidelines related to the development and approval of biosimilar
products. The final guidelines included clinical trial guidance
for certain biosimilar products, including erythropoietins and
G-CSFs, recommending that applicants seeking approval of such
biosimilar products conduct pharmacodynamic, toxicological and
clinical safety studies as well as a pharmacovigilance program.
Some companies have received and other companies are seeking
approval to market erythropoietin and G-CSF biosimilars in the
EU, presenting additional competition for our products. (See Our
marketed products face substantial competition.) For example,
following the expiration of the principal European patent
relating to recombinant G-CSF in August 2006, the EC issued
marketing authorizations for the first G-CSF biosimilar products
and the products were launched in certain EU countries in 2008
and 2009. There are now several G-CSF biosimilars available in
the EU marketed by different companies and these G-CSF
biosimilar products compete with
NEUPOGEN®
and
Neulasta®.
Further, as in an effort to reduce costs, countries in the EU
may in the future permit the automatic substitution by
pharmacists of biosimilars for the corresponding innovator
products. We cannot predict to what extent the entry of
biosimilar products or other competing products will impact
future sales of our products in the EU. Our inability to compete
effectively could reduce sales, which could have a material
adverse effect on our results of operations.
On March 23, 2010, President Obama signed into law the
PPACA which authorized the FDA to approve biosimilar products
under a new abbreviated pathway. The new law established a
period of 12 years of data exclusivity for reference
products in order to preserve incentives for future innovation
and outlined statutory criteria for science-based biosimilar
approval standards that take into account patient safety
considerations. Under this framework, data exclusivity protects
the data in the innovators regulatory application by
prohibiting, for a period of 12 years, others from gaining
FDA approval based in part on reliance or reference to the
innovators data in their application to the FDA. The new
law does not change the duration of patents granted on biologic
products. As part of the implementation process, the FDA
published several questions in the Federal Register for public
comment. The FDA held a public meeting in November 2010 to seek
stakeholder input on the subject and accepted written comments
through 2010. The agency has the authority to approve biosimilar
products but has not announced whether it will first publish
guidance or rules for biosimilar applicants before approving
biosimilar products. With the likely introduction of biosimilars
in the United States, we expect in the future to face greater
competition from
49
biosimilar products and downward pressure on our product prices,
sales and revenues, subject to our ability to enforce our
patents. Further, biosimilar manufacturers with approved
products in Europe may seek to quickly obtain U.S. approval
now that the regulatory pathway for biosimilars has been
enacted. In addition, critics of the 12-year exclusivity period
in the biosimilar pathway law will likely seek to shorten the
data exclusivity period. President Obamas proposed 2012
budget includes a proposal to lower the data exclusivity period
to seven years, but this would require new legislation be passed
by the Congress. Critics may also encourage the FDA to interpret
narrowly the laws provisions regarding which new products
receive data exclusivity.
We may
not be able to develop commercial products.
Successful product development in the biotechnology industry is
highly uncertain, and very few R&D projects produce a
commercial product. We intend to continue to make significant
R&D investments. Product candidates or new indications for
existing products (collectively, product candidates)
that appear promising in the early phases of development may
fail to reach the market for a number of reasons, such as:
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the product candidate did not demonstrate acceptable clinical
trial results even though it demonstrated positive preclinical
trial results, for reasons that could include changes in the
standard of care of medicine
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the product candidate was not effective or more effective than
currently available therapies in treating a specified condition
or illness
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the product candidate is not cost effective in light of existing
therapeutics
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the product candidate had harmful side effects in humans or
animals
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the necessary regulatory bodies, such as the FDA or EMA, did not
approve our product candidate for an intended use
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the product candidate was not economical for us to manufacture
and commercialize
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other parties have or may have proprietary rights relating to
our product candidate, such as patent rights, and will not let
us sell it on reasonable terms, or at all
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we and certain of our licensees, partners or independent
investigators may fail to effectively conduct clinical
development or clinical manufacturing activities
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the regulatory pathway to approval for product candidates is
uncertain or not well-defined
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For example, after discussions with the FDA we have decided not
to file for approval of motesanib in refractory thyroid cancer
until there is more clarity on what would constitute an
appropriate regulatory filing package for that indication.
Further, several of our product candidates have failed or been
discontinued at various stages in the product development
process. For example, in June 2004, we announced that the phase
2 study of Glial Cell Lined-Derived Neurotrophic Factor
(GDNF) for the treatment of advanced
Parkinsons disease did not meet the primary study endpoint
upon completion of nine months of the double-blind treatment
phase of the study. The conclusion was reached even though a
small phase 1 pilot investigator-initiated open-label study over
a three-year period appeared to result in improvements for
advanced Parkinsons disease patients. Subsequently, we
discontinued clinical development of GDNF in patients with
advanced Parkinsons disease.
Our
marketed products face substantial competition.
We operate in a highly competitive environment. Our products
compete with other products or treatments for diseases for which
our products may be indicated. Our competitors market products
or are actively engaged in R&D in areas where we have
products, where we are developing product candidates or new
indications for existing products. In the future, we expect that
our products will compete with new drugs currently in
development, drugs currently approved for other indications that
may later be approved for the same indications as those of our
products and drugs approved for other indications that are used
off-label. Large pharmaceutical companies and generic
manufacturers of pharmaceutical products are expanding into the
biotechnology field with increasing frequency. These companies
may have greater resources than we do. In addition, some of our
competitors may have technical
50
or competitive advantages over us for the development of
technologies and processes. These resources may make it
difficult for us to compete with them to successfully discover,
develop and market new products and for our current products to
compete with new products or new product indications that these
competitors may bring to market. As a result, our products may
compete against products that have lower prices, equivalent or
superior performance, better safety profile, are easier to
administer or that are otherwise competitive with our products.
Concentration
of sales at certain of our wholesaler distributors and
consolidation of free-standing dialysis clinic businesses may
negatively impact our bargaining power and profit
margins.
The substantial majority of our U.S. product sales are made
to three pharmaceutical product wholesaler distributors,
AmerisourceBergen Corporation, Cardinal Health, Inc. and
McKesson Corporation. These distributors, in turn, sell our
products to their customers, which include physicians or their
clinics, dialysis centers, hospitals and pharmacies. In
addition, one of our products,
EPOGEN®,
is sold primarily to free-standing dialysis clinics, which have
experienced significant consolidation. Two organizations, DaVita
Inc. and Fresenius North America own or manage a large
number of the outpatient dialysis facilities located in the
United States and account for a substantial majority of all
EPOGEN®
sales in the free-standing dialysis clinic setting. Due to this
concentration, these entities have substantial purchasing
leverage, which may put pressure on our pricing by their
potential ability to extract price discounts on our products or
fees for other services, correspondingly negatively impacting
our bargaining position and profit margins. In October 2006, we
entered into a five-year sole sourcing and supply agreement with
an affiliate of Fresenius North America, on its behalf and on
behalf of certain of its affiliates, whereby they have agreed to
purchase, and we have agreed to supply, all of Fresenius North
Americas commercial requirements for ESAs for use in
managing the anemia of its hemodialysis patients in the United
States and Puerto Rico, based on forecasts provided by Fresenius
North America and subject to the terms and conditions of the
agreement.
We rely
on third-party suppliers for certain of our raw materials,
medical devices and components.
We rely on unaffiliated third-party suppliers for certain raw
materials, medical devices and components necessary for the
manufacturing of our commercial and clinical products. Certain
of those raw materials, medical devices and components are the
proprietary products of those unaffiliated third-party suppliers
and are specifically cited in our drug application with
regulatory agencies so that they must be obtained from that
specific sole source or sources and could not be obtained from
another supplier unless and until the regulatory agency approved
such supplier.
Among the reasons we may be unable to obtain these raw
materials, medical devices and components include:
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regulatory requirements or action by regulatory agencies or
others
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adverse financial or other strategic developments at or
affecting the supplier
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unexpected demand for or shortage of raw materials, medical
devices or components
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labor disputes or shortages, including the effects of a pandemic
flu outbreak, natural disaster, or otherwise
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failure to comply with our quality standards which results in
quality and product failures, product contamination
and/or recall
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discovery of previously unknown or undetected imperfections in
raw materials, medical devices or components
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These events could adversely affect our ability to satisfy
demand for our products, which could adversely affect our
product use, sales and operating results materially. For
example, we have experienced shortages in certain components
necessary for the formulation, fill and finish of certain of our
products in our Puerto Rico facility without impact on our
ability to supply these products. Further, quality issues which
result in unexpected additional demand for certain components
may lead to shortages of required raw materials or components
(such as we have experienced with
EPOGEN®
glass vials). We may experience or continue to experience these
or other shortages in the future resulting in delayed shipments,
supply constraints, contract disputes
and/or
stock-outs of our products.
51
Also, certain of the raw materials required in the commercial
and clinical manufacturing of our products are sourced from
other countries
and/or
derived from biological sources, including mammalian tissues. In
addition, one of our marketed products also uses bovine serum
and human serum albumin. Some countries in which we market our
products may restrict the use of certain biologically derived
substances in the manufacture of drugs. We continue to
investigate alternatives to certain biological sources and
alternative manufacturing processes that do not require the use
of certain biologically derived substances because such raw
materials may be subject to contamination
and/or
recall.
A material shortage, contamination, recall
and/or
restriction of the use of certain biologically derived
substances or other raw materials, which may be sourced from
other countries and that are used in the manufacture of our
products could adversely impact or disrupt the commercial
manufacturing of our products or could result in a mandated
withdrawal of our products from the market. This could adversely
affect our ability to satisfy demand for our products, which
could adversely affect our product sales and operating results
materially. Further, any disruptions or delays by us or by
third-party suppliers or partners in converting to alternatives
to certain biologically derived substances and alternative
manufacturing processes or our ability to gain regulatory
approval for the alternative materials and manufacturing
processes could increase our associated costs or result in the
recognition of an impairment in the carrying value of certain
related assets, which could have a material and adverse affect
on our results of operations.
Manufacturing
difficulties, disruptions or delays could limit supply of our
products and limit our product sales.
Manufacturing biologic human therapeutic products is difficult,
complex and highly regulated. We currently manufacture all of
our principal products and plan to manufacture many of our
product candidates. In addition, we currently use third-party
contract manufacturers to produce or assist in the production of
ENBREL,
Prolia®,
Sensipar®/Mimpara®,
Nplate®
and
XGEVAtm
and plan to use contract manufacturers to produce or assist in
the production of a number of our late-stage product candidates.
Our ability to adequately and timely manufacture and supply our
products is dependent on the uninterrupted and efficient
operation of our facilities and those of our third-party
contract manufacturers, which may be impacted by:
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availability or contamination of raw materials, components and
equipment used in the manufacturing process, particularly those
for which we have no other source or supplier
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capacity of our facilities and those of our contract
manufacturers
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contamination by microorganisms or viruses
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natural or other disasters, including hurricanes, earthquakes or
fires
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labor disputes or shortages, including the effects of a pandemic
flu outbreak, natural disaster, or otherwise
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degree of compliance with regulatory requirements
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changes in forecasts of future demand
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timing and actual number of production runs
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updating of manufacturing specifications
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production success rates and yields
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timing and outcome of product quality testing
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If the efficient manufacture and supply of our products is
interrupted, we may experience delayed shipments, supply
constraints, stock-outs
and/or
recalls of our products. For example, over the past several
years we have initiated a number of voluntary recalls of certain
lots of our products. (See Our current products and products in
development cannot be sold if we do not maintain or gain
regulatory approval.) If we are at any time unable to provide an
uninterrupted supply of our products to patients, we may lose
patients and physicians may elect to prescribe competing
therapeutics instead of our products, which could materially and
adversely affect our product sales and results of operations.
52
Our manufacturing processes and those of our third-party
contract manufacturers must undergo a potentially lengthy FDA or
other regulatory approval process and are subject to continued
review by the FDA and other regulatory authorities. It can take
longer than five years to build, validate and license a new
manufacturing plant and it can take longer than three years to
qualify and license a new contract manufacturer. For example, in
order to maintain supply and to satisfy anticipated future
demand for denosumab, we are qualifying the expansion of our
existing bulk protein facilities at our Puerto Rico site. In
addition, we are completing the construction and qualification
of a new formulation and filling facility at our Puerto Rico
site in order mitigate the risk associated with the majority of
our formulation and fill operations being performed in a single
facility. Upon completion, these facilities will require
licensure by the various regulatory authorities.
If regulatory authorities determine that we or our third-party
contract manufacturers or certain of our third-party service
providers have violated regulations or if they restrict, suspend
or revoke our prior approvals, they could prohibit us from
manufacturing our products or conducting clinical trials or
selling our marketed products until we or the affected
third-party contract manufacturers or third-party service
providers comply, or indefinitely. Because our third-party
contract manufacturers and certain of our third-party service
providers are subject to the FDA and foreign regulatory
authorities, alternative qualified third-party contract
manufacturers and third-party service providers may not be
available on a timely basis or at all. If we or our third-party
contract manufacturers or third-party service providers cease or
interrupt production or if our third-party contract
manufacturers and third-party service providers fail to supply
materials, products or services to us, we may experience delayed
shipments, supply constraints, stock-outs
and/or
recalls of our products. Additionally, we distribute a
substantial volume of our commercial products through a single
distribution center in Louisville, Kentucky for the United
States and another in Breda, the Netherlands for Europe and much
of the rest of the world. We also conduct all the labeling and
packaging of our products distributed in Europe and much of the
rest of the world in Breda, the Netherlands. Our ability to
timely supply products is dependent on the uninterrupted and
efficient operations of our distribution and logistics centers,
our third-party logistics providers and our labeling and
packaging facility in Breda. Further, we rely on commercial
transportation for the distribution of our products to our
customers which may be negatively impacted by natural disasters,
such as earthquakes or volcanic eruptions, or security threats.
We
perform a substantial amount of our commercial manufacturing
activities at our Puerto Rico manufacturing facility and a
substantial amount of our clinical manufacturing activities at
our Thousand Oaks, California manufacturing facility; if
significant natural disasters or production failures occur at
the Puerto Rico facility, we may not be able to supply these
products or, at the Thousand Oaks facility, we may not be able
to continue our clinical trials.
We currently perform all of the formulation, fill and finish for
EPOGEN®,
Aranesp®,
Neulasta®,
NEUPOGEN®,
Prolia®
and
XGEVAtm
and substantially all of the formulation, fill and finish
operations for ENBREL, and all of the bulk manufacturing for
Aranesp®,
Neulasta®,
and
NEUPOGEN®
at our manufacturing facility in Juncos, Puerto Rico. In
addition, we expect/plan to perform substantially all of the
bulk manufacturing for
Prolia®
and
XGEVAtm
at the Puerto Rico facility once the facility has been approved
by the FDA for that purpose. We also perform substantially all
of the bulk manufacturing and formulation, fill and finish, and
packaging for product candidates to be used in clinical trials
at our manufacturing facility in Thousand Oaks, California. The
global supply of our products and product candidates is
significantly dependent on the uninterrupted and efficient
operation of these facilities. A number of factors could
adversely affect our operations, including:
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power failures
and/or other
utility failures
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breakdown, failure or substandard performance of equipment
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improper installation or operation of equipment
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labor disputes or shortages, including the effects of a pandemic
flu outbreak
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inability or unwillingness of third-party suppliers to provide
raw materials and components
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natural or other disasters, including hurricanes, earthquakes or
fires
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failures to comply with regulatory requirements, including those
of the FDA
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In the past, the Puerto Rico facility has experienced
manufacturing component shortages and there was evidence of
adverse trends in the microbial bioburden of the production
environment that reduced the production output. The same or
other problems may result in our being unable to supply these
products, which could adversely affect our product sales and
operating results materially. Although we have obtained limited
insurance to protect against certain business interruption
losses, there can be no assurance that such coverage will be
adequate or that such coverage will continue to remain available
on acceptable terms, if at all. The extent of the coverage of
our insurance could limit our ability to mitigate for lost sales
and such losses could materially adversely affect our product
sales and operating results. Our Puerto Rico facility is also
subject to the same difficulties, disruptions or delays in
manufacturing experienced in our other manufacturing facilities.
For example, the limited number of lots of ENBREL and
EPOGEN®
voluntarily recalled in 2009 and 2010 were manufactured at our
Puerto Rico facility. In future inspections, our failure to
adequately address the FDAs expectations could lead to
further inspections of the facility or regulatory actions. (See
Manufacturing difficulties, disruptions or delays could limit
supply of our products and limit our product sales.)
If our
intellectual property positions are challenged, invalidated,
circumvented or expire, or if we fail to prevail in present and
future intellectual property litigation, our business could be
adversely affected.
Our success depends in part on our ability to obtain and defend
patent rights and other intellectual property rights that are
important to the commercialization of our products and product
candidates. The patent positions of pharmaceutical and
biotechnology companies can be highly uncertain and often
involve complex legal, scientific and factual questions. Third
parties may challenge, invalidate or circumvent our patents and
patent applications relating to our products, product candidates
and technologies. In addition, our patent positions might not
protect us against competitors with similar products or
technologies because competing products or technologies may not
infringe our patents. For certain of our product candidates,
there are third parties who have patents or pending patent
applications that they may claim necessitate payment of a
royalty or prevent us from commercializing these product
candidates in certain territories. Patent disputes are frequent,
costly and can preclude, delay or increase the cost of
commercialization of products. We are currently, and in the
future may be, involved in patent litigation. (See
Note 19, Contingencies and commitments in the notes
to our consolidated financial statements in our annual report.)
A patent dispute or litigation may not discourage a potential
violator from bringing the product that is alleged to infringe
to market prior to a final resolution of the dispute or
litigation. For example, despite the ongoing litigation, Teva
has stated that it intends to sell its filgrastim product, upon
approval from the FDA, in the United States without a license
from us and prior to the expiration of our G-CSF patents. The
period of time from inception until resolution of a patent
dispute or litigation is subject to the availability and
schedule of the court, agency or tribunal before which the
dispute or litigation is pending. We may be subject to
competition during this period and may not be able to fully
recover for the losses, damages, and harms we incur from
infringement by the competitor product even if we prevail.
Moreover, if we lose or settle current or future litigations at
certain stages or entirely, we could be subject to competition
and/or
significant liabilities, be required to enter into third-party
licenses for the infringed product or technology or be required
to cease using the technology or product in dispute. In
addition, we cannot guarantee that such licenses will be
available on terms acceptable to us, or at all.
Further, under the Hatch-Waxman Act, products approved by the
FDA under a NDA may be the subject of patent litigation with
generic competitors before the five year period of data
exclusivity provided for under the Hatch-Waxman Act has expired
and prior to the expiration of the patents listed for the
product.
Over the next several years, the existing patents on our
principal products will begin to expire. (See Item 1.
Business Marketed Products.) As our patents expire,
competitors may be able to legally produce and market similar
products or technologies, including biosimilars, which may
result in a reduction in the use and sales of our products.
While we have, and we continue to seek, additional patent
protection on certain of our products, including for specific
processes for making our products, formulations and particular
uses of our products, competitors may be able to design around
or otherwise circumvent any such additional patents and sell
competing products. Although we continue to develop and obtain
patent protection for new product candidates, we may not be able
to replace the revenue lost upon the expiration of the patents
on our current products.
54
In recent years, policymakers have proposed reforming
U.S. patent laws and regulations. For example, patent
reform legislation was introduced in both the House and the
Senate during the 111th Congress in 2009 but was not
adopted into law. Legislation was again introduced in the Senate
and passed the Senate Judiciary Committee on February 3,
2011. In general, the proposed legislation attempts to address
issues surrounding the increase in patent litigation by, among
other things, establishing new procedures for challenging
patents. While we cannot predict what form any new patent reform
laws or regulations may ultimately take, final legislation could
introduce new substantive rules and procedures for challenging
patents, and certain reforms that make it easier for competitors
to challenge our patents could have a material adverse effect on
our business.
Our
business may be affected by litigation and government
investigations.
We and certain of our subsidiaries are involved in legal
proceedings. (See Note 19, Contingencies and commitments in
the notes to our consolidated financial statements in our annual
report.) Civil and criminal litigation is inherently
unpredictable, and the outcome can result in excessive verdicts,
fines, penalties, exclusion from the federal healthcare programs
and/or
injunctive relief that affect how we operate our business.
Defense of litigation claims can be expensive, time-consuming
and distracting and it is possible that we could incur judgments
or enter into settlements of claims for monetary damages or
change the way we operate our business, which could have a
material adverse effect on our results of operations, financial
position or cash flows. In addition, product liability is a
major risk in testing and marketing biotechnology and
pharmaceutical products. We may face substantial product
liability exposure in human clinical trials and for products
that we sell after regulatory approval. Product liability
claims, regardless of their merits, could be costly and divert
managements attention, and adversely affect our reputation
and the demand for our products. Amgen and Immunex have
previously been named as defendants in product liability actions
for certain of our products.
We are also involved in government investigations that arise in
the ordinary course of our business. We have received subpoenas
from a number of government entities, including the
U.S. Attorneys Offices for the Eastern District of
New York and the Western District of Washington, as well as the
Attorneys General of New York and New Jersey. The federal
subpoenas have been issued pursuant to the Health Insurance
Portability and Accountability Act of 1996 (18 U.S.C.
3486), and by a federal grand jury, while the Attorneys General
subpoenas have been issued pursuant to state specific statutes
relating to consumer fraud laws and state false claims acts. The
government is allowed to use materials produced in response to a
section 3486 administrative subpoena in both criminal and
civil investigations. In general, the subpoenas request
documents relating to the sales and marketing of our products,
and our collection and dissemination of information reflecting
clinical research as to the safety and efficacy of our ESAs.
Based on representations in a U.S. government filing, that
became public in May 2009 relating to the Massachusetts Qui Tam
Action, we now believe the subpoenas we received from the
U.S. Attorneys Offices for the Eastern District of
New York and the Western District of Washington also relate to
nine additional Qui Tam Actions which are purportedly pending
against Amgen, including eight pending in the U.S. District
Court for the Eastern District of New York and one pending in
the U.S. District Court for the Western District of
Washington. The U.S. government filing further alleges that
a large number of states are involved in the Qui Tam
investigations, led by the State of New York. These
investigations are represented to be joint criminal and civil
investigations.
Throughout these investigations, and in litigation, the
government entities are asserting that we violated various state
and federal laws. These investigations are very burdensome,
expensive and time-consuming for us to explain and defend to
these entities. Although we cannot predict whether additional
proceedings may be initiated against us, or predict when these
matters may be resolved, it is not unusual for investigations
such as these to continue for a considerable period of time and
to require managements attention and significant legal
expense. A determination that we are in violation of the various
federal and state laws that govern the sales and marketing of
our products could result in federal criminal liability
and/or
federal or state civil or administrative liability, and thus
could result in substantial financial damages or criminal
penalties and possible exclusion from future participation in
the Medicare and Medicaid programs. In addition, we may see new
governmental investigations of or actions against us citing
novel theories of recovery. Any of these results could have a
material adverse effect on our results of operations, financial
position or cash flows in the period in which such liabilities
are incurred.
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Our stock
price is volatile.
Our stock price, like that of our peers in the biotechnology
industry, is volatile. Our revenues and operating results may
fluctuate from period to period for a number of reasons. Events
such as a delay in product development or even a relatively
small revenue shortfall may cause financial results for a period
to be below our expectations or projections. As a result, our
revenues and operating results and, in turn, our stock price may
be subject to significant fluctuations.
The capital and credit markets may experience extreme volatility
and disruption which may lead to uncertainty and liquidity
issues for both borrowers and investors. Historically, we have
occasionally and opportunistically accessed the capital markets
to support certain business activities including acquisitions,
in-licensing activities, share repurchases and to refinance
existing debt. In the event of adverse capital and credit market
conditions, we may not be able to obtain capital market
financing on similar favorable terms, or at all, which could
have a material adverse effect on our business and results of
operations. Changes in credit ratings issued by nationally
recognized credit rating agencies could adversely affect our
cost of financing and have an adverse effect on the market price
of our securities.
Current
economic conditions may magnify certain risks that affect our
business.
Our operations and performance have been, and may continue to
be, affected by economic conditions. Sales of our principal
products are dependent, in part, on the availability and extent
of reimbursement from third-party payers, including government
programs such as Medicare and Medicaid and private payer
healthcare and insurance programs. (See Our sales depend on
coverage and reimbursement from third-party payers.) In the
United States, there is an increased focus from the federal
government and others on analyzing the impact of various
regulatory programs on the federal deficit, which could result
in increased pressure on federal programs to reduce costs.
Financial pressures may cause government or other third-party
payers to more aggressively seek cost containment through
mandatory discounts on our products, policies requiring the
automatic substitution of biosimilar or generic products or
other similar measures. (See We expect to face increasing
competition from biosimilar products which could impact our
profitability.) Additionally, as a result of the current global
economic downturn, our third-party payers may delay or be unable
to satisfy their reimbursement obligations. A reduction in the
availability or extent of reimbursement from government
and/or
private payer healthcare programs or increased competition from
lower cost biosimilar products could have a material adverse
affect on the sales of our products, our business and results of
operations.
We are exposed to sovereign risk in some European countries
where we sell directly to public healthcare systems. Economic
and fiscal conditions in these countries could affect the amount
and timing of the collection of our receivables. For example,
the government of Greece has issued one-, two- and three-year
zero-coupon bonds to various pharmaceutical vendors in lieu of
payment of past due receivables dating from 2007 to 2009.
In addition, as a result of the economic downturn, some
employers may seek to reduce costs by reducing or eliminating
employer group healthcare plans or transferring a greater
portion of healthcare costs to their employees. Job losses or
other economic hardships may also result in reduced levels of
coverage for some individuals, potentially resulting in lower
levels of healthcare coverage for themselves or their families.
These economic conditions may affect patients ability to
afford healthcare as a result of increased co-pay or deductible
obligations, greater cost sensitivity to existing co-pay or
deductible obligations, lost healthcare insurance coverage or
for other reasons. We believe such conditions have led and could
continue to lead to changes in patient behavior and spending
patterns that negatively affect usage of certain of our
products, including delaying treatment, rationing prescription
medications, leaving prescriptions unfilled, reducing the
frequency of visits to healthcare facilities, utilizing
alternative therapies
and/or
foregoing healthcare insurance coverage. In addition to its
effects on consumers, the economic downturn may have also
increased cost sensitivities among medical providers in the
United States, such as oncology clinics, particularly in
circumstances where providers may experience challenges in the
collection of patient co-pays or be forced to absorb treatment
costs as a result of coverage decisions or reimbursement terms.
Collectively, we believe these changes have resulted and may
continue to result in reduced demand for our products, which
could continue to adversely affect our business and results of
operations. Any resulting decrease in demand
56
for our products could also cause us to experience excess
inventory write-offs
and/or
excess capacity or impairment charges at certain of our
manufacturing facilities.
Additionally, we rely upon third-parties for certain parts of
our business, including licensees and partners, wholesale
distributors of our products, contract clinical trial providers,
contract manufacturers and single third-party suppliers. Because
of the recent volatility in the financial markets, there may be
a disruption or delay in the performance or satisfaction of
commitments to us by these third-parties which could have a
material adverse affect on our business and results of
operations. Current economic conditions may adversely affect the
ability of our distributors, customers and suppliers to obtain
liquidity required to buy inventory or raw materials and to
perform their obligations under agreements with us, which could
disrupt our operations. Further, economic conditions appear to
have affected, and may continue to affect, the business
practices of our wholesale distributors in a manner that has and
may continue to contribute to lower sales of our products. For
example, in the first quarter of 2009, certain of our wholesale
distributors lowered their levels of inventory on hand, which we
believe was done to reduce their carrying costs and improve
their results of operations. Although we monitor our
distributors, customers and suppliers
financial condition and their liquidity in order to mitigate our
business risks, some of our distributors, customers and
suppliers may become insolvent, which could negatively impact
our business and results of operations.
We maintain a significant portfolio of investments disclosed as
cash equivalents and marketable securities on our Consolidated
Balance Sheet. The value of our investments may be adversely
affected by interest rate fluctuations, downgrades in credit
ratings, illiquidity in the capital markets and other factors
that may result in other than temporary declines in the value of
our investments. Any of those events could cause us to record
impairment charges with respect to our investment portfolio or
to realize losses on the sale of investments.
Guidelines
and recommendations published by various organizations can
reduce the use of our products.
Government agencies promulgate regulations and guidelines
directly applicable to us and to our products. However,
professional societies, health technology assessment
organizations, practice management groups, insurance carriers,
physicians, private health/science foundations and organizations
involved in various diseases from time to time may also publish
guidelines or recommendations to healthcare providers,
administrators and payers, and patient communities.
Recommendations by government agencies or those other
groups/organizations may relate to such matters as usage,
dosage, route of administration and use of related therapies as
well as reimbursement of our products by government and private
payers. Recommendations or guidelines that are followed by
patients, healthcare providers and payers could result in
decreased use
and/or
dosage of our products. Some examples of agency and
organizational guidelines include:
|
|
|
|
|
In August 2007, the National Kidney Foundation (NKF)
distributed to the nephrology community final updated Kidney
Disease Outcomes Quality Initiative (KDOQI) clinical
practice guidelines and clinical practice recommendations for
anemia in CKD. The
NKF-KDOQItm
Anemia Work Group recommended in its 2007 Update to the
NKF-KDOQItm
Anemia Management Guidelines that physicians target Hb in the
range of 11 g/dL to 12 g/dL, and also stipulated that the target
not be above 13 g/dL.
|
|
|
|
In December 2008, the Kidney Disease: Improving Global Outcomes
group (KDIGO), a
not-for-profit
foundation managed by NKF, announced that it was developing a
new global anemia guideline. The announcement stated that an
updated anemia guideline is necessary in light of new study
results, particularly the data from the TREAT trial, which had
become available since the
NKF-KDOQItms
clinical practice guidelines and clinical practice
recommendations for anemia in CKD were released. KDIGO has
stated that its new guidelines are expected to be released for
public review and comment in early to mid-2011 and that final
guidelines could be available by early 2012.
|
|
|
|
In February 2007, following the reported results from our Anemia
of Cancer 103 Study, the U.S. Pharmacopoeia Dispensing
Information Drug Reference Guides removed
Aranesp®
in the treatment of anemia of cancer.
|
57
In addition, Health Technology Assessment organizations, such as
NICE in the United Kingdom and the Canadian Agency for Drugs and
Technologies in Health, make reimbursement recommendations to
payers in their jurisdictions based on the clinical
effectiveness, cost-effectiveness and service impact of new,
emerging and existing medicines and treatments.
Any recommendations or guidelines that result in decreased use,
dosage or reimbursement of our products could adversely affect
our product sales and operating results materially. In addition,
the perception by the investment community or stockholders that
such recommendations or guidelines will result in decreased use
and dosage of our products could adversely affect the market
price for our common stock.
The
commercialization of certain of our product candidates and the
marketing of certain of our products is dependent in part on our
partners.
We have entered into agreements with third parties to assist in
the commercialization of certain of our product candidates and
the marketing of certain of our products in specified geographic
areas. (See Business Relationships.) Many of these agreements
involve the sharing of certain decisions and a division of
responsibilities, costs and benefits. If our partners fail to
effectively deliver on their marketing and commercialization
commitments to us or if we and our partners fail to coordinate
our efforts effectively, sales of our products may be materially
adversely affected.
Our corporate compliance and risk mitigation programs cannot
guarantee that we are in compliance with all potentially
applicable U.S. federal and state regulations and all
potentially applicable foreign regulations
and/or that
we effectively manage all operational risks.
The development, manufacturing, distribution, pricing, sales,
marketing and reimbursement of our products, together with our
general operations, are subject to extensive federal and state
regulation in the United States and to extensive regulation in
foreign countries. (See Our current products and products in
development cannot be sold if we do not maintain or gain
regulatory approval and Manufacturing difficulties, disruptions
or delays could limit supply of our products and limit our
product sales.) While we have developed and instituted a
corporate compliance program, we cannot guarantee that we, our
employees, our consultants or our contractors are or will be in
compliance with all potentially applicable U.S. federal and
state regulations
and/or laws
or all potentially applicable foreign regulations
and/or laws.
If we or our agents fail to comply with any of those regulations
and/or laws,
a range of actions could result, including, but not limited to,
the termination of clinical trials, the failure to approve a
product candidate, restrictions on our products or manufacturing
processes, withdrawal of our products from the market,
significant fines, exclusion from government healthcare programs
or other sanctions or litigation. Additionally, while we have
implemented numerous risk mitigation measures, we cannot
guarantee that we will be able to effectively mitigate all
operational risks. If we fail to effectively mitigate all
operational risks, our product supply may be materially
adversely affected, which could have a material adverse effect
on our product sales and results of operations.
Continual
process improvement efforts may result in the carrying value of
certain existing manufacturing facilities or other assets
becoming impaired or other related charges being
incurred
Our business continues to face many challenges. In response to
these challenges, we have worked and continue to work to improve
cost efficiencies and to reduce discretionary expenditures. As
part of those efforts, we undertake continuous process
improvement activities to evaluate our processes and procedures
in order to identify opportunities for achieving greater
efficiencies in how we conduct our business. In particular, we
evaluate our manufacturing operations to identify opportunities
to increase production yields
and/or
success rates as well as capacity utilization. Depending on the
timing and outcomes of these process improvement initiatives,
the carrying value of certain manufacturing or other assets may
not be fully recoverable and could result in the recognition of
impairment
and/or other
related charges. The recognition of such charges, if any, could
have a material adverse affect on our results of operations.
58
The
adoption of new tax legislation or exposure to additional tax
liabilities could affect our profitability.
We are subject to income and other taxes in the United States
and other jurisdictions in which we do business. Our provision
for income taxes and results of operations in the future could
be adversely affected by changes to our operating structure,
changes in the mix of earnings in countries with differing
statutory tax rates, changes in the valuation of deferred tax
assets and liabilities, and changes in applicable tax laws. In
addition, President Obamas administration has announced
proposals for U.S. tax legislation that, if adopted, could
adversely affect our provision for income taxes. There are also
other tax proposals that have been introduced, that are being
considered, or that have been enacted by the U.S. Congress
or the legislative bodies in foreign jurisdictions that could
materially adversely affect our provision for income taxes, tax
liabilities or our results of operations. For example, the
Commonwealth of Puerto Rico recently enacted tax legislation
effective on January 1, 2011 that, in certain
circumstances, imposes a temporary excise tax for companies that
purchase products from related Puerto Rico manufacturers.
None.
59
The following table summarizes our significant properties and
their primary functions as of December 31, 2010. For
additional information regarding manufacturing initiatives, see
Item 1. Business Manufacturing, Distribution
and Raw Materials.
60
Our corporate headquarters are located in Thousand Oaks,
California. In addition to the properties listed above, we have
undeveloped land at certain U.S. locations, principally in
Thousand Oaks, California; Longmont, Colorado; Louisville,
Kentucky; Allentown, Pennsylvania; West Greenwich, Rhode Island;
Seattle and Bothell, Washington; and in Juncos, Puerto Rico, to
accommodate future expansion, as required. Excluded from the
table above are leased properties that have been abandoned and
certain buildings that we still own but are no longer used in
our business. There are no material encumbrances on our
properties.
We believe our facilities are suitable for their intended use
and, in conjunction with our third-party contracting
manufacturing agreements, provide adequate capacity. We also
believe that our existing facilities, third-party contract
manufacturing agreements and our anticipated additions are
sufficient to meet our expected needs. (See Item 1A. Risk
Factors We perform a substantial amount of our
commercial manufacturing activities at our Puerto Rico
manufacturing facility and a substantial amount of our clinical
manufacturing activities at our Thousand Oaks, California
manufacturing facility; if significant natural disasters or
production failures occur at the Puerto Rico facility, we may
not be able to supply these products or, at the Thousand Oaks
facility, we may not be able to continue our clinical
trials, We rely on third-party suppliers for certain
of our raw materials, medical devices and components
and Manufacturing difficulties, disruptions or
delays could limit supply of our products and limit our product
sales.)
|
|
Item 3.
|
LEGAL
PROCEEDINGS
|
Certain of the legal proceedings in which we are involved are
discussed in Note 19, Contingencies and commitments to our
Consolidated Financial Statements in our 2010
Form 10-K
and are hereby incorporated by reference.
61
|
|
Item 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Common
stock
Our common stock trades on The NASDAQ Global Select Market under
the symbol AMGN. As of February 11, 2011, there were
approximately 10,156 holders of record of our common stock. No
cash dividends have been paid on the common stock to date.
The following table sets forth, for the periods indicated, the
range of high and low quarterly closing sales prices of the
common stock as quoted on The NASDAQ Global Select Market:
|
|
|
|
|
|
|
|
|
Year ended December 31, 2010
|
|
High
|
|
|
Low
|
|
|
Fourth quarter
|
|
$
|
57.96
|
|
|
$
|
52.69
|
|
Third quarter
|
|
|
56.32
|
|
|
|
50.93
|
|
Second quarter
|
|
|
61.14
|
|
|
|
50.36
|
|
First quarter
|
|
|
60.09
|
|
|
|
55.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2009
|
|
|
|
|
|
|
Fourth quarter
|
|
$
|
61.83
|
|
|
$
|
52.12
|
|
Third quarter
|
|
|
64.41
|
|
|
|
51.47
|
|
Second quarter
|
|
|
53.11
|
|
|
|
45.11
|
|
First quarter
|
|
|
59.65
|
|
|
|
46.27
|
|
62
Performance
graph
The following graph shows the value of an investment of $100 on
December 31, 2005 in each of Amgen common stock, the Amex
Biotech Index, the Amex Pharmaceutical Index and
Standard & Poors 500 Index (S&P
500). All values assume reinvestment of the pretax value
of dividends paid by companies included in these indices and are
calculated as of December 31 of each year. The historical stock
price performance of the Companys common stock shown in
the performance graph is not necessarily indicative of future
stock price performance.
Amgen vs.
Amex Biotech, Amex Pharmaceutical and S&P 500 Indices
Comparison
of Five-Year Cumulative Total Return
Value of Investment of $100 on December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/2005
|
|
|
12/31/2006
|
|
|
12/31/2007
|
|
|
12/31/2008
|
|
|
12/31/2009
|
|
|
12/31/2010
|
|
|
Amgen (AMGN)
|
|
$
|
100.00
|
|
|
$
|
86.62
|
|
|
$
|
58.89
|
|
|
$
|
73.23
|
|
|
$
|
71.73
|
|
|
$
|
69.62
|
|
Amex Biotech (BTK)
|
|
|
100.00
|
|
|
|
110.77
|
|
|
|
115.51
|
|
|
|
95.05
|
|
|
|
138.36
|
|
|
|
190.57
|
|
Amex Pharmaceutical (DRG)
|
|
|
100.00
|
|
|
|
110.59
|
|
|
|
111.71
|
|
|
|
93.74
|
|
|
|
109.66
|
|
|
|
112.41
|
|
S&P 500 (SPX)
|
|
|
100.00
|
|
|
|
115.61
|
|
|
|
121.95
|
|
|
|
77.38
|
|
|
|
97.44
|
|
|
|
111.88
|
|
The material in this performance graph is not soliciting
material, is not deemed filed with the SEC, and is not
incorporated by reference in any filing of the Company under the
Securities Act or the Exchange Act, whether made on, before or
after the date of this filing and irrespective of any general
incorporation language in such filing.
63
Stock
repurchase program
Repurchases under our stock repurchase program reflect, in part,
our confidence in the long-term value of our common stock.
Additionally, we believe it is an effective way of returning
cash to our stockholders. The manner of purchases, the amount we
spend and the number of shares repurchased will vary based on a
number of factors including stock price, blackout periods in
which we are restricted from repurchasing shares, and the impact
of repurchases on our credit rating and may include private
block purchases as well as market transactions.
During the three months ended December 31, 2010, we had one
outstanding stock repurchase program. A summary of our
repurchase activity for the three months ended December 31,
2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total number
|
|
|
|
|
|
|
|
|
|
|
|
|
of shares
|
|
|
|
|
|
|
|
|
|
|
|
|
purchased as
|
|
|
Maximum $
|
|
|
|
Total
|
|
|
|
|
|
part of
|
|
|
value that may
|
|
|
|
number
|
|
|
Average
|
|
|
publicly
|
|
|
yet be purchased
|
|
|
|
of shares
|
|
|
price paid
|
|
|
announced
|
|
|
under the
|
|
|
|
purchased
|
|
|
per share
|
|
|
program
|
|
|
program(1)
|
|
|
October
|
|
|
7,822,000
|
|
|
$
|
56.42
|
|
|
|
7,822,000
|
|
|
$
|
2,858,007,633
|
|
November
|
|
|
8,900,000
|
|
|
|
55.34
|
|
|
|
8,900,000
|
|
|
|
2,365,472,020
|
|
December
|
|
|
3,725,580
|
|
|
|
54.23
|
|
|
|
3,725,580
|
|
|
|
2,163,426,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,447,580
|
|
|
|
55.55
|
|
|
|
20,447,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In December 2009, the Board of Directors authorized us to
repurchase up to an additional $5.0 billion of common stock. |
64
|
|
Item 6.
|
SELECTED
FINANCIAL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
Consolidated Statement of Income Data:
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions, except per share data)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales
|
|
$
|
14,660
|
|
|
$
|
14,351
|
|
|
$
|
14,687
|
|
|
$
|
14,311
|
|
|
$
|
13,858
|
|
Other revenues
|
|
|
393
|
|
|
|
291
|
|
|
|
316
|
|
|
|
460
|
|
|
|
410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
15,053
|
|
|
|
14,642
|
|
|
|
15,003
|
|
|
|
14,771
|
|
|
|
14,268
|
|
Operating
expenses(1)(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (excludes amortization of certain acquired
intangible assets presented
below)(3)
|
|
|
2,220
|
|
|
|
2,091
|
|
|
|
2,296
|
|
|
|
2,548
|
|
|
|
2,095
|
|
Research and
development(4)
|
|
|
2,894
|
|
|
|
2,864
|
|
|
|
3,030
|
|
|
|
3,266
|
|
|
|
3,366
|
|
Selling, general and administrative
|
|
|
3,983
|
|
|
|
3,820
|
|
|
|
3,789
|
|
|
|
3,361
|
|
|
|
3,366
|
|
Amortization of certain acquired intangible
assets(5)
|
|
|
294
|
|
|
|
294
|
|
|
|
294
|
|
|
|
298
|
|
|
|
370
|
|
Write-off of acquired in-process research and
development(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
590
|
|
|
|
1,231
|
|
Other
charges(7)
|
|
|
117
|
|
|
|
67
|
|
|
|
380
|
|
|
|
728
|
|
|
|
|
|
Net
income(11)
|
|
|
4,627
|
|
|
|
4,605
|
|
|
|
4,052
|
|
|
|
3,078
|
|
|
|
2,809
|
|
Diluted earnings per
share(11)
|
|
|
4.79
|
|
|
|
4.51
|
|
|
|
3.77
|
|
|
|
2.74
|
|
|
|
2.36
|
|
Cash dividends declared per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
Consolidated Balance Sheet Data:
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Total
assets(2)
|
|
$
|
43,486
|
|
|
$
|
39,629
|
|
|
$
|
36,427
|
|
|
$
|
34,618
|
|
|
$
|
33,711
|
|
Total
debt(8)(9)(11)
|
|
|
13,362
|
|
|
|
10,601
|
|
|
|
9,352
|
|
|
|
10,114
|
|
|
|
7,725
|
|
Stockholders
equity(9)(10)(11)
|
|
|
23,944
|
|
|
|
22,667
|
|
|
|
20,885
|
|
|
|
18,512
|
|
|
|
19,841
|
|
In addition to the following notes, see Item 7.
Managements Discussion and Analysis of Financial Condition
and Results of Operations and the consolidated financial
statements and accompanying notes and previously filed
Form 10-Ks
for further information regarding our consolidated results of
operations and financial position for periods reported therein
and for known factors that will impact comparability of future
results.
|
|
|
(1) |
|
In 2009, 2008 and 2007, we incurred restructuring charges of
$70 million ($44 million, net of tax),
$148 million ($111 million, net of tax) and
$739 million ($576 million, net of tax), respectively,
related primarily to staff separation costs, asset impairment
charges, accelerated depreciation (primarily in 2007) and
loss accruals for leases for certain facilities that will not be
used in our business. |
|
(2) |
|
In 2008, we completed the acquisition of Dompé Biotec,
S.p.A (Dompé). The purchase price paid was
approximately $168 million, which included the carrying
value of our existing 49% ownership in Dompé. In July 2007,
we acquired all of the outstanding shares of Ilypsa, Inc.
(Ilypsa) for a net purchase price of approximately
$400 million. Also in July 2007, we acquired all of the
outstanding shares of Alantos Pharmaceuticals Holding, Inc.
(Alantos) for a net purchase price of approximately
$300 million. In October 2006, we acquired all of the
outstanding stock of Avidia, Inc. (Avidia) for a net
purchase price of approximately $275 million. In April
2006, we acquired all of the outstanding common stock of Abgenix
for a purchase price of approximately $2.2 billion. |
|
(3) |
|
Included in cost of sales (excludes amortization of certain
acquired intangible assets) for 2007 is a charge of
$30 million related to the write-off of the cost of a
semi-completed manufacturing asset that will not be used due to
a change in manufacturing strategy. |
65
|
|
|
(4) |
|
Included in R&D expenses for 2010, 2009, 2008, 2007 and
2006 is the ongoing, non-cash amortization of the R&D
technology intangible assets acquired with alternative future
uses of $70 million ($44 million, net of tax),
$70 million ($44 million, net of tax),
$70 million ($44 million, net of tax),
$71 million ($44 million, net of tax) and
$48 million ($30 million, net of tax), respectively,
acquired with the acquisitions of Avidia and Abgenix in 2006. |
|
(5) |
|
Primarily represents the non-cash amortization of acquired
product technology rights, related primarily to ENBREL, acquired
in the Immunex acquisition. Amortization charges, net of tax,
for the five years ended December 31, 2010 were
$186 million, $186 million, $183 million,
$185 million and $200 million, respectively. |
|
(6) |
|
As part of the accounting for the business combinations of
Alantos and Ilypsa in 2007 and Avidia and Abgenix in 2006, under
the then existing accounting rules we recorded charges to
write-off acquired in-process R&D (IPR&D)
of $270 million and $320 million in 2007,
respectively, and $130 million and $1.1 billion in
2006, respectively. The charges represent the estimated fair
values of the IPR&D that, as of the respective acquisition
dates, had not reached technological feasibility and had no
alternative future use. |
|
(7) |
|
In 2010 we incurred an asset impairment charge of
$118 million ($74 million, net of tax) associated with
a strategic decision to optimize our network of manufacturing
facilities. In 2009, we recorded loss accruals for settlements
of certain legal proceedings aggregating $33 million. In
2008, we recorded loss accruals for settlements of certain
commercial legal proceedings aggregating $288 million,
related principally to the settlement of the Ortho Biotech
Products L.P. (Ortho Biotech) antitrust suit. In
2007, we recorded a loss accrual for an ongoing commercial legal
proceeding and recorded an expense of $34 million. The
remaining amounts included in Other charges in 2009,
2008 and 2007, related primarily to charges for cost saving
initiatives and restructuring. (See Note 8, Cost savings
initiatives and restructuring to the Consolidated Financial
Statements.) |
|
(8) |
|
In 2010, we issued $900 million aggregate principal amount
of notes due in October 2020 (the October 2020
Notes), $700 million aggregate principal amount of
notes due in 2040 (the 2040 Notes),
$600 million aggregate principal amount of notes due in
2041 (the 2041 Notes) and $300 million
aggregate principal amount of notes due in March 2020 (the
March 2020 Notes). In 2009, we issued
$1.0 billion aggregate principal amount of notes due in
2019 (the 2019 Notes) and $1.0 billion
aggregate principal amount of notes due in 2039 (the 2039
Notes). In 2009, we repaid our $1.0 billion
4.00% notes. In 2008, we issued $500 million aggregate
principal amount of notes due in 2018 (the 2018
Notes) and $500 million aggregate principal amount of
notes due in 2038 (the 2038 Notes). In 2008, we
repaid our $2.0 billion of floating rate notes. |
|
(9) |
|
In 2007, as a result of holders of substantially all of our
outstanding 2032 Modified Convertible Notes exercising their put
option, we repurchased the majority of the then outstanding
convertible notes, at their then-accreted value of
$1.7 billion. In 2007, we issued $2.0 billion
aggregate principal amount of floating rate notes due in 2008,
$1.1 billion aggregate principal amount of notes due in
2017 and $900 million aggregate principal amount of notes
due in 2037. A total of $3.2 billion of the net proceeds
raised from the issuance of those notes was used to repurchase
shares of our common stock under an accelerated share repurchase
program entered into in May 2007. In 2006, we issued
$2.5 billion aggregate principal amount of convertible
notes due in 2011 (the 2011 Notes) and
$2.5 billion aggregate principal amount of convertible
notes due in 2013 (the 2013 Notes). In connection
with the issuance of those notes, a total of $3.0 billion
of our common stock was repurchased under our stock repurchase
program. Also, concurrent with the issuance of those notes, we
purchased convertible note hedges in private transactions. The
cost of the convertible note hedges, which aggregated
approximately $1.5 billion, was recorded as a reduction of
equity. Also, concurrent with the issuance of those notes, we
sold warrants to acquire shares of our common stock. Proceeds
received from the issuance of the warrants totaled approximately
$774 million. |
|
(10) |
|
Throughout the five years ended December 31, 2010, we had
share repurchase programs authorized by the Board of Directors
through which we repurchased $3.8 billion,
$3.2 billion, $2.3 billion, $5.1 billion and
$5.0 billion, respectively, of Amgen common stock. |
66
|
|
|
(11) |
|
Effective January 1, 2009, we adopted a new accounting
standard that changed the method of accounting for convertible
debt that may be partially or wholly settled in cash. As
required by this standard, we retrospectively applied this
change in accounting to all prior periods for which we had
applicable outstanding convertible debt. Under this method of
accounting, the debt and equity components of our convertible
notes are bifurcated and accounted for separately. The equity
components of our convertible notes, including our 2011
Convertible Notes, 2013 Convertible Notes and zero coupon
convertible notes, are included in Common stock and
additional paid-in capital in the Consolidated Balance
Sheets, with a corresponding reduction in the carrying values of
these convertible notes as of the date of issuance or
modification, as applicable. The reduced carrying values of our
convertible notes are being accreted back to their principal
amounts through the recognition of non-cash interest expense.
This results in recognizing interest expense on these borrowings
at effective rates approximating what we would have incurred had
we issued nonconvertible debt with otherwise similar terms.
Included in net income for 2010, 2009, 2008, 2007 and 2006 is
the incremental non-cash interest expense of $266 million
($168 million, net of tax), $250 million
($155 million, net of tax), $235 million
($144 million, net of tax), $168 million
($88 million, net of tax) and $197 million
($141 million, net of tax), respectively, related to the
adoption of the new accounting standard. |
67
|
|
Item 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Forward
looking statements
This report and other documents we file with the SEC contain
forward looking statements that are based on current
expectations, estimates, forecasts and projections about us, our
future performance, our business or others on our behalf, our
beliefs and our managements 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 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. We have based our forward looking
statements on our managements 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, earnings per share (EPS),
liquidity and capital resources and trends. Except as required
under the federal securities laws and the rules and regulations
of the SEC, we do not have any intention or obligation to update
publicly any forward looking statements after the distribution
of this report, whether as a result of new information, future
events, changes in assumptions or otherwise.
Overview
The following managements discussion and analysis
(MD&A) is intended to assist the reader in
understanding Amgens business. MD&A is provided as a
supplement to, and should be read in conjunction with, our
consolidated financial statements and accompanying notes. Our
results of operations discussed in MD&A are presented in
conformity with accounting principles generally accepted in the
United States (GAAP).
We are the largest independent biotechnology medicines company.
We discover, develop, manufacture and market medicines for
grievous illnesses. We concentrate on innovative novel medicines
based on advances in cellular and molecular biology. Our mission
is to serve patients. We operate in one business
segment human therapeutics. Therefore, our results
of operations are discussed on a consolidated basis.
We earn revenues and income and generate cash primarily from
sales of human therapeutic products in the areas of supportive
cancer care, nephrology and inflammation. Our principal products
include
Aranesp®,
EPOGEN®,
Neulasta®,
NEUPOGEN®
and ENBREL, all of which are sold in the United States. ENBREL
is marketed under a collaboration agreement with Pfizer in the
United States and Canada. Our international product sales
consist principally of European sales of
Aranesp®,
Neulasta®
and
NEUPOGEN®.
For additional information about our products, their approved
indications and where they are marketed, see Item 1.
Business Marketed Products.
Throughout 2010 and early 2011, various developments occurred
regarding our business, including regulatory and reimbursement
developments associated with certain of our marketed products
and product candidates. Most notably, the FDA approved
Prolia®
and
XGEVAtm,
and the EC granted marketing authorization for
Prolia®
for certain indications. In addition, healthcare reform
legislation was enacted in the United States. As a result of
these and other developments, we have various opportunities to
grow our business but will also continue to face various
challenges. The following summarizes certain key opportunities
and challenges.
We have various opportunities to grow our business. In the near
term, we believe the currently approved indications for
Prolia®
and
XGEVAtm
represent significant commercial opportunities. In addition,
receipt of regulatory approvals in new geographic territories or
for additional indications for these products may also provide
further significant opportunities. For example, the results of
our recently announced phase 3 trial evaluating
68
XGEVAtm
versus placebo in men with castrate-resistant prostate cancer
met its primary endpoint. This study will form the basis of
planned marketing applications, which we expect to submit to
regulatory authorities beginning in the first half of 2011, for
the prevention of bone metastases in prostate cancer.
Longer-term growth may also be achieved by the successful
development of our late-stage pipeline and strategic business
development opportunities, such as our recently announced
agreement to acquire BioVex. In addition, longer-term growth may
also be achieved by expansion into emerging markets and Japan.
Looking forward, we believe our products will continue to face
various regulatory, reimbursement and competitive challenges.
Our ESA products, in particular, have several near-term
challenges that could result in further reductions in sales. For
example,
EPOGEN®
sales will be impacted by the Final Rule on Bundling in Dialysis
that became effective in 2011. Further, the NCA opened by CMS in
June 2010 and the results of the MEDCAC meetings held in March
2010 and January 2011 could lead to an NCD for the use of ESAs
in patients with kidney disease, which could impact the use of
or reimbursement for ESAs to manage anemia in patients with CKD
and/or
dialysis-related anemia. In addition, the FDA-approved REMS for
ESAs may continue to impact
Aranesp®
sales in the supportive cancer care setting. Future product
label changes (including those we proposed prior to the 2010
CRDAC meeting, any others required in connection with TREAT or
the CRDAC meeting and any from the PLR conversion process), may
also impact the use of ESAs in CKD. Since we rely in large part
on the reimbursement of our products through government programs
such as Medicare and Medicaid, the recently enacted healthcare
reform law has had and will continue to have a material adverse
impact on sales of our products in the United States and on our
results of operations. The provisions of the new legislation
impacted our U.S. product sales by approximately
$200 million in 2010, and we anticipate that our
U.S. product sales in 2011 will be impacted by
$250 million to $300 million. Furthermore, we estimate
that our results of operations for 2011 will be impacted by an
additional $150 million to $200 million related to a
new fee on manufacturers and importers of branded
prescription drugs established by that legislation, which
is not deductible for U.S. federal income tax purposes.
Certain of our products will also continue to face increasing
competitive pressure, in particular ENBREL in the United States,
as well as
Aranesp®,
Neulasta®
and
NEUPOGEN®
in Europe as a result of biosimilars. In addition, over the next
several years, the existing patents on our principal products
will begin to expire, and we expect to face increasing
competition thereafter. (See Item 1. Business
Marketed Products.)
Certain of these developments are expected to have a material
adverse impact on our sales and results of operations. However,
these effects may be mitigated by certain of the opportunities
we have to grow our business, discussed above, by other
strategic initiatives or by increased efforts to manage our
expenses.
Selected
Financial Data
The following table presents selected financial data for the
years ended December 31, 2010 and 2009 (amounts in
millions, except percentages and per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
Change
|
|
|
2009
|
|
|
Product sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
11,254
|
|
|
|
1%
|
|
|
$
|
11,135
|
|
International
|
|
|
3,406
|
|
|
|
6%
|
|
|
|
3,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total product sales
|
|
|
14,660
|
|
|
|
2%
|
|
|
|
14,351
|
|
Other revenues
|
|
|
393
|
|
|
|
35%
|
|
|
|
291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
15,053
|
|
|
|
3%
|
|
|
$
|
14,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
$
|
9,508
|
|
|
|
4%
|
|
|
$
|
9,136
|
|
Operating income
|
|
$
|
5,545
|
|
|
|
1%
|
|
|
$
|
5,506
|
|
Net income
|
|
$
|
4,627
|
|
|
|
|
|
|
$
|
4,605
|
|
Diluted EPS
|
|
$
|
4.79
|
|
|
|
6%
|
|
|
$
|
4.51
|
|
Diluted shares
|
|
|
965
|
|
|
|
(5)%
|
|
|
|
1,021
|
|
The following discusses certain key changes in our results of
operations for the year ended December 31, 2010 as well as
our financial condition as of December 31, 2010.
69
The increase in our U.S. product sales for 2010 reflects
overall growth for all of our marketed products, except for our
ESA products, which declined 5%. The growth in sales of our
non-ESA products reflects increases primarily in average net
sales prices and, to a lesser extent, favorable changes in
wholesaler inventories. U.S. product sales in 2010 were
unfavorably impacted by $198 million as a result of the
recently enacted U.S. healthcare reform law.
The increase in our international product sales for 2010
reflects overall growth for all of our marketed products, except
for
Aranesp®,
which declined 1%.
The increase in other revenues for 2010 was due primarily to
milestone payments earned from Glaxo in connection with certain
commercial milestones for
Prolia®
in the EU and from Takeda in connection with certain regulatory
milestones for
Vectibix®
in Japan.
The increase in operating expenses for 2010 was due principally
to higher cost of sales, due primarily to higher bulk
manufacturing costs, as well as higher selling, general and
administrative (SG&A) expenses, due primarily
to increased promotional costs for
Prolia®
and our other marketed products.
Net income was relatively unchanged in 2010 as the increases in
operating income, discussed above, and interest and other income
were offset substantially by an increase in our provision for
income taxes. The increase in interest and other income was due
primarily to higher net realized gains on sales of investments
and higher interest income. The increase in our provision for
income taxes was due principally to reduced benefits resulting
from settlements with tax authorities in 2010.
The increase in diluted EPS for 2010 principally reflects a
reduction in our weighted-average shares used to compute diluted
EPS resulting from our stock repurchase program, including
approximately 67 million shares repurchased in 2010 at a
total cost of $3.8 billion.
Although changes in foreign currency rates result in increases
or decreases in our reported international product sales, the
benefit or detriment that such movements have on our
international product sales is offset partially by corresponding
increases or decreases in our international operating expenses
and our related foreign currency hedging activities. Our hedging
activities seek to offset the impact, both positive and
negative, that foreign currency exchange rate changes may have
on our net income by hedging our net foreign currency exposure,
primarily with respect to product sales denominated in the Euro.
As of December 31, 2010, our cash, cash equivalents and
marketable securities totaled $17.4 billion, and total debt
outstanding was $13.4 billion, including $2.5 billion
which was repaid in February 2011. Of our total cash, cash
equivalents and marketable securities balance as of
December 31, 2010, approximately $15.1 billion was
generated from operations in foreign tax jurisdictions and is
intended to be invested indefinitely outside of the United
States. Under current tax laws, if those funds were repatriated
for use in our U.S. operations, we would be required to pay
additional U.S. federal and state income taxes at the
applicable marginal tax rates.
70
Results
of Operations
Product
sales
For the years ended December 31, 2010, 2009 and 2008,
worldwide product sales and total product sales by geographic
region were as follows (dollar amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
Change
|
|
2009
|
|
|
Change
|
|
2008
|
|
|
Aranesp®
|
|
$
|
2,486
|
|
|
|
(6)
|
%
|
|
$
|
2,652
|
|
|
|
(15)
|
%
|
|
$
|
3,137
|
|
EPOGEN®
|
|
|
2,524
|
|
|
|
(2)
|
%
|
|
|
2,569
|
|
|
|
5
|
%
|
|
|
2,456
|
|
Neulasta®/NEUPOGEN®
|
|
|
4,844
|
|
|
|
4
|
%
|
|
|
4,643
|
|
|
|
|
|
|
|
4,659
|
|
ENBREL
|
|
|
3,534
|
|
|
|
1
|
%
|
|
|
3,493
|
|
|
|
(3)
|
%
|
|
|
3,598
|
|
Sensipar®/Mimpara®
|
|
|
714
|
|
|
|
10
|
%
|
|
|
651
|
|
|
|
9
|
%
|
|
|
597
|
|
Vectibix®
|
|
|
288
|
|
|
|
24
|
%
|
|
|
233
|
|
|
|
52
|
%
|
|
|
153
|
|
Nplate®
|
|
|
229
|
|
|
|
|
|
|
|
110
|
|
|
|
|
|
|
|
17
|
|
Prolia®
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
XGEVAtm
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total product sales
|
|
$
|
14,660
|
|
|
|
2
|
%
|
|
$
|
14,351
|
|
|
|
(2)
|
%
|
|
$
|
14,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S.
|
|
$
|
11,254
|
|
|
|
1
|
%
|
|
$
|
11,135
|
|
|
|
(3)
|
%
|
|
$
|
11,460
|
|
Total International
|
|
|
3,406
|
|
|
|
6
|
%
|
|
|
3,216
|
|
|
|
|
|
|
|
3,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total product sales
|
|
$
|
14,660
|
|
|
|
2
|
%
|
|
$
|
14,351
|
|
|
|
(2)
|
%
|
|
$
|
14,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales are influenced by a number of factors, some of
which may impact the sales of certain of our existing products
more significantly than others, including, but not necessarily
limited to:
|
|
|
|
|
our contracting and pricing strategies;
|
|
|
|
recent and future reimbursement changes resulting from:
|
|
|
|
|
¡
|
governmental or private organization regulations or guidelines
relating to the use of our products;
|
|
|
¡
|
legislative reform in federal, state and foreign jurisdictions;
|
|
|
¡
|
cost containment pressures; and
|
|
|
¡
|
the mix of reimbursement from governmental and private payers;
|
|
|
|
|
|
clinical trial outcomes, including adverse events or results
from clinical trials, including
sub-analyses,
studies or meta-analyses performed by us or by others (including
our licensees or independent investigators), which could impact
product safety labeling and may negatively impact healthcare
provider prescribing behavior, use of our products, regulatory
or private healthcare organization medical guidelines and
reimbursement practices;
|
|
|
|
changes in clinical practice, including those resulting from the
development of new protocols, tests
and/or
treatments;
|
|
|
|
adoption of and adherence to risk management activities, such as
a REMS, undertaken by us or required by the FDA or other
regulatory authorities;
|
|
|
|
product label changes;
|
|
|
|
patient population growth;
|
|
|
|
segment growth and penetration;
|
|
|
|
new product launches and indications;
|
|
|
|
expansion into new international markets;
|
71
|
|
|
|
|
competitive products, including biosimilars;
|
|
|
|
patent expirations and our ability to obtain and defend our
patent and other intellectual property rights;
|
|
|
|
fluctuations in foreign currency exchange rates;
|
|
|
|
adequacy of product supply and distribution;
|
|
|
|
effectiveness of our marketing efforts, including those
conducted under collaboration agreements;
|
|
|
|
concentration of customer purchasing power; and
|
|
|
|
acquisitions.
|
Our U.S. product sales are also subject to certain other
influences throughout the year, including wholesaler and
end-user buying patterns (eg, holiday-driven wholesaler and
end-user stocking, contract-driven buying and patients
purchasing products later in the year after satisfying their
annual insurance deductibles). Such factors can result in higher
demand for our products
and/or
higher wholesaler inventory levels and, therefore, higher
product sales for a given three-month period, generally followed
by a reduction in demand
and/or a
drawdown in wholesaler inventories and a corresponding decline
in product sales in the subsequent three-month period. For
example, sales of our products in the United States for the
three months ended March 31 have been slightly lower relative to
the immediately preceding three-month period, which we believe
to be due, in part, to certain of these factors. While this can
result in variability in quarterly product sales on a sequential
basis, these effects have generally not been significant when
comparing product sales in the three months ended March 31 with
product sales in the corresponding period of the prior year.
In addition, general economic conditions may affect, or in some
cases amplify, certain of these factors with a corresponding
impact on our product sales. (See Item 1.
Business Marketed Products for a discussion of our
principal products and their approved indications.)
Aranesp®
For the years ended December 31, 2010, 2009 and 2008, total
Aranesp®
sales by geographic region were as follows (dollar amounts in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
Change
|
|
2009
|
|
|
Change
|
|
2008
|
|
|
Aranesp®
U.S.
|
|
$
|
1,103
|
|
|
|
(12
|
)
|
%
|
|
$
|
1,251
|
|
|
|
(24
|
)
|
%
|
|
$
|
1,651
|
|
Aranesp®
International
|
|
|
1,383
|
|
|
|
(1
|
)
|
%
|
|
|
1,401
|
|
|
|
(6
|
)
|
%
|
|
|
1,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Aranesp®
|
|
$
|
2,486
|
|
|
|
(6
|
)
|
%
|
|
$
|
2,652
|
|
|
|
(15
|
)
|
%
|
|
$
|
3,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in
U.S. Aranesp®
sales for 2010 was due primarily to a decline in unit demand,
reflecting an overall decline in the segment. The decrease in
international
Aranesp®
sales for 2010 was due primarily to a decrease in demand.
U.S. sales of
Aranesp®
for 2008 benefited from certain changes in accounting estimates
related to product sales return reserves. Excluding the positive
impact of these changes in accounting estimates, the decrease in
U.S. Aranesp®
sales of approximately 21% for 2009 was due primarily to a
decline in unit demand and a low single-digit percentage point
decrease in the average net sales price. The decline in unit
demand reflects the negative impact, primarily in the supportive
cancer care setting, of a product safety-related label change in
August 2008 as well as an overall decline in the segment and a
slight loss of segment share. Excluding an $85 million
unfavorable foreign exchange impact, international
Aranesp®
sales for 2009 remained unchanged.
72
In addition to other factors mentioned in the Product sales
section above, future
Aranesp®
sales will depend, in part, on such factors as:
|
|
|
|
|
regulatory developments, including:
|
|
|
|
|
¡
|
the REMS for our ESAs approved by the FDA in February 2010;
|
|
|
¡
|
product label changes, including those proposed prior to the
October 2010 CRDAC meeting and any others required in connection
with TREAT or the CRDAC meeting, as well as any from the PLR
conversion process;
|
|
|
|
|
|
reimbursement developments, including the potential imposition
of an NCD or other developments resulting from the NCA opened by
CMS in June 2010 and the associated MEDCAC meetings; and
|
|
|
|
development of new protocols, tests
and/or
treatments for cancer
and/or new
chemotherapy treatments or alternatives to chemotherapy that may
have reduced and may continue to reduce the use of chemotherapy
in some patients.
|
Certain of the above factors could have a material adverse
impact on future sales of
Aranesp®.
See Item 1. Business Significant Developments,
Item 1. Business Marketed Products and
Item 1A. Risk Factors herein for further discussion of
certain of the above factors that could impact our future
product sales.
EPOGEN®
For the years ended December 31, 2010, 2009 and 2008, total
EPOGEN®
sales were as follows (dollar amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
Change
|
|
|
2009
|
|
|
Change
|
|
|
2008
|
|
|
EPOGEN®
U.S.
|
|
$
|
2,524
|
|
|
|
(2)%
|
|
|
$
|
2,569
|
|
|
|
5%
|
|
|
$
|
2,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in
EPOGEN®
sales for 2010 was due primarily to a decrease in unit demand
and certain changes in accounting estimates. The decrease in
unit demand reflects a decrease in dose utilization, offset
partially by patient population growth.
The increase in
EPOGEN®
sales for 2009 was due primarily to an increase in unit demand
and, to a lesser extent, an increase in the average net sales
price. The increase in unit demand was due principally to
patient population growth and increased dose utilization.
In addition to other factors mentioned in the Product sales
section above, future
EPOGEN®
sales will depend, in part, on such factors as:
|
|
|
|
|
reimbursement developments, including those resulting from:
|
|
|
|
|
¡
|
CMSs Final Rule on Bundling in Dialysis;
|
|
|
¡
|
Other CMS activities, including the potential imposition of an
NCD or other developments resulting from the NCA opened by CMS
in June 2010 and the associated MEDCAC meetings;
|
|
|
|
|
|
regulatory developments, such as those resulting from product
label changes, including those proposed prior to the October
2010 CRDAC meeting and any others required in connection with
TREAT or the CRDAC meeting, as well as any from the PLR
conversion process;
|
|
|
|
changes in dose fluctuations as healthcare providers continue to
refine their treatment practices in accordance with approved
labeling; and
|
|
|
|
adoption of alternative therapies or development of new
modalities to treat anemia associated with CRF.
|
Certain of the above factors are expected to have a material
adverse impact on future sales of
EPOGEN®.
See Item 1. Business Significant Developments,
Item 1. Business Marketed Products and
Item 1A. Risk Factors for further discussion of certain of
the above factors that could impact our future product sales.
73
Neulasta®/NEUPOGEN®
For the years ended December 31, 2010, 2009 and 2008, total
Neulasta®/NEUPOGEN®
sales by geographic region were as follows (dollar amounts in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
Change
|
|
|
2009
|
|
|
Change
|
|
|
2008
|
|
|
Neulasta®
U.S.
|
|
$
|
2,654
|
|
|
|
5%
|
|
|
$
|
2,527
|
|
|
|
1%
|
|
|
$
|
2,505
|
|
NEUPOGEN®
U.S.
|
|
|
932
|
|
|
|
3%
|
|
|
|
901
|
|
|
|
1%
|
|
|
|
896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Neulasta®/NEUPOGEN®
Total
|
|
|
3,586
|
|
|
|
5%
|
|
|
|
3,428
|
|
|
|
1%
|
|
|
|
3,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Neulasta®
International
|
|
|
904
|
|
|
|
9%
|
|
|
|
828
|
|
|
|
2%
|
|
|
|
813
|
|
NEUPOGEN®
International
|
|
|
354
|
|
|
|
(9)%
|
|
|
|
387
|
|
|
|
(13)%
|
|
|
|
445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International
Neulasta®/NEUPOGEN®
Total
|
|
|
1,258
|
|
|
|
4%
|
|
|
|
1,215
|
|
|
|
(3)%
|
|
|
|
1,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Neulasta®/NEUPOGEN®
|
|
$
|
4,844
|
|
|
|
4%
|
|
|
$
|
4,643
|
|
|
|
|
|
|
$
|
4,659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in U.S. sales of
Neulasta®/NEUPOGEN®
for 2010 was driven principally by an increase in the average
net sales price and, to a lesser extent, favorable changes in
wholesaler inventories. The increase in international
Neulasta®/NEUPOGEN®
sales for 2010 reflects primarily growth in
Neulasta®
principally from the continued conversion from
NEUPOGEN®
to
Neulasta®,
offset partially by a decline in
NEUPOGEN®
as a result of biosimilar competition.
The increase in U.S. sales of
Neulasta®/NEUPOGEN®
for 2009 was due primarily to a low single-digit percentage
point increase in the average net sales price, offset partially
by unfavorable changes in wholesaler inventories. Excluding a
$94 million unfavorable foreign exchange impact,
international
Neulasta®/NEUPOGEN®
sales increased 4% for 2009, due primarily to an increase in
demand, reflecting the continued conversion from
NEUPOGEN®
to
Neulasta®.
In addition to other factors mentioned in the Product sales
section above, future
Neulasta®/NEUPOGEN®
sales will depend, in part, on the development of new protocols,
tests and/or
treatments for cancer
and/or new
chemotherapy treatments or alternatives to chemotherapy that may
have reduced and may continue to reduce the use of chemotherapy
in some patients.
See Item 1. Business Marketed Products and
Item 1A. Risk Factors for further discussion of certain of
the above factors that could impact our future product sales.
ENBREL
For the years ended December 31, 2010, 2009 and 2008, total
ENBREL sales by geographic region were as follows (dollar
amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
Change
|
|
|
2009
|
|
|
Change
|
|
|
2008
|
|
|
ENBREL U.S.
|
|
$
|
3,304
|
|
|
|
1%
|
|
|
$
|
3,283
|
|
|
|
(3)%
|
|
|
$
|
3,389
|
|
ENBREL Canada
|
|
|
230
|
|
|
|
10%
|
|
|
|
210
|
|
|
|
|
|
|
|
209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ENBREL
|
|
$
|
3,534
|
|
|
|
1%
|
|
|
$
|
3,493
|
|
|
|
(3)%
|
|
|
$
|
3,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in ENBREL sales for 2010 reflects an increase in
the average net sales price, offset partially by a low
single-digit percentage point decline in unit demand, resulting
primarily from share declines in dermatology. ENBREL continues
to maintain a leading position in both the rheumatology and
dermatology segments.
The decrease in ENBREL sales for 2009 was due primarily to an
unfavorable change in wholesaler inventories resulting from an
approximate $100 million wholesaler inventory build in 2008
related to a shift of ENBREL to a wholesaler distribution model
and a decline in unit demand as a result of competitive
activity, offset partially by a mid single-digit percentage
point increase in the average net sales price.
See Item 1. Business Marketed Products and
Item 1A. Risk Factors for further discussion of certain of
the above factors that could impact our future product sales.
74
Selected
operating expenses
The following table summarizes our operating expenses for the
years ended December 31, 2010, 2009 and 2008 (dollar
amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
Change
|
|
2009
|
|
Change
|
|
2008
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (excludes amortization of certain acquired
intangible assets presented below)
|
|
$
|
2,220
|
|
|
|
6
|
%
|
|
$
|
2,091
|
|
|
|
(9
|
)%
|
|
$
|
2,296
|
|
% of product sales
|
|
|
15.1%
|
|
|
|
|
|
|
|
14.6%
|
|
|
|
|
|
|
|
15.6%
|
|
Research and development
|
|
$
|
2,894
|
|
|
|
1
|
%
|
|
$
|
2,864
|
|
|
|
(5
|
)%
|
|
$
|
3,030
|
|
% of product sales
|
|
|
19.7%
|
|
|
|
|
|
|
|
20.0%
|
|
|
|
|
|
|
|
20.6%
|
|
Selling, general and administrative
|
|
$
|
3,983
|
|
|
|
4
|
%
|
|
$
|
3,820
|
|
|
|
1
|
%
|
|
$
|
3,789
|
|
% of product sales
|
|
|
27.2%
|
|
|
|
|
|
|
|
26.6%
|
|
|
|
|
|
|
|
25.8%
|
|
Amortization of certain acquired intangible assets
|
|
$
|
294
|
|
|
|
|
|
|
$
|
294
|
|
|
|
|
|
|
$
|
294
|
|
Other charges
|
|
$
|
117
|
|
|
|
75
|
%
|
|
$
|
67
|
|
|
|
(82
|
)%
|
|
$
|
380
|
|
Cost of
sales
Cost of sales, which excludes the amortization of certain
acquired intangible assets, increased to 15.1% of product sales
for 2010, driven primarily by higher bulk material costs and
higher inventory write-offs due to voluntary
EPOGEN®,
PROCRIT®
(Epoetin alfa) and ENBREL recalls. These increases were offset
partially by lower excess capacity charges and lower royalties,
primarily for ENBREL.
Cost of sales decreased to 14.6% of product sales for 2009,
driven primarily by lower excess capacity charges, lower excess
inventory write-offs, due primarily to the $84 million
write-off of inventory in 2008 resulting from a strategic
decision to change manufacturing processes, and lower royalty
expenses. These decreases were offset partially by less
favorable product mix and higher fill and finish costs resulting
from lower utilization at our manufacturing facility in Puerto
Rico.
Research
and development
R&D costs are expensed as incurred and include primarily
salaries, benefits and other staff-related costs; facilities and
overhead costs; clinical trial and related clinical
manufacturing costs; contract services and other outside costs;
information systems costs and amortization of acquired
technology used in R&D with alternative future uses.
R&D expenses include costs incurred under R&D
arrangements with our corporate partners, such as activities
performed on behalf of KA, and costs and cost recoveries
associated with collaborative R&D and in-licensing
arrangements, including upfront fees and milestones paid to
collaboration partners in connection with technologies which
have not reached technological feasibility and did not have an
alternative future use. Net payment or reimbursement of R&D
costs for arrangements with our corporate partners is recognized
when the obligations are incurred or as we become entitled to
the cost recovery.
The increase in R&D expenses for 2010 was driven primarily
by $110 million of lower expense recoveries associated with
ongoing collaborations and higher staff-related costs of
$84 million. These increases were offset largely by lower
licensing fees of $115 million, associated principally with
payments made in 2009 under the Cytokinetics and Array BioPharma
Inc. (Array) agreements, and reduced denosumab
clinical trial costs of $73 million in 2010.
The decrease in R&D expenses for 2009 was driven primarily
by lower clinical trial costs of $128 million, including
those associated with our denosumab and
Vectibix®
registrational studies, our marketed products and the delay of
the phase 3 motesanib NSCLC trial, and $14 million lower
staff-related costs. The higher licensing fees incurred in 2009,
which were related to the $60 million expense associated
with the Array agreement and the $50 million expense
resulting from the payment to Cytokinetics, were offset
substantially by the $100 million expense in 2008 resulting
from the upfront payment associated with the Kyowa Hakko Kirin
Co. Ltd. collaboration.
75
Selling,
general and administrative
SG&A expenses are comprised primarily of salaries, benefits
and other staff-related costs associated with sales and
marketing, finance, legal and other administrative personnel;
facilities and overhead costs; outside marketing, advertising
and legal expenses and other general and administrative costs.
SG&A expenses also include costs and cost recoveries
associated with marketing and promotion efforts under certain
collaboration arrangements. Net payment or reimbursement of
SG&A costs for collaborations is recognized when the
obligations are incurred or as we become entitled to the cost
recovery. In connection with a collaboration agreement, we and
Pfizer market and sell ENBREL in the United States and Canada,
and Pfizer is paid a share of the related profits, as defined.
The share of ENBRELs profits owed to Pfizer is included in
SG&A expenses.
The increase in SG&A expenses for 2010 was due primarily to
higher promotional costs for
Prolia®
and other marketed products of $148 million, higher
staff-related costs of $46 million and higher litigation
expenses of $45 million, offset partially by charges of
$29 million in 2009 for certain cost savings initiatives
related to our 2007 restructuring plan.
The increase in SG&A expenses for 2009 was due primarily to
higher product promotional expenses of $207 million,
including increased spending for activities in anticipation of
the launch of
Prolia®.
This increase was offset substantially by lower litigation
expenses of $38 million, lower expenses associated with the
ENBREL profit share of $32 million, expense recoveries
associated with our Glaxo collaboration agreement for
Prolia®
in PMO in Europe, Australia, New Zealand and Mexico of
$29 million, lower staff-related costs of $28 million,
lower global enterprise resource planning (ERP)
system related expenses of $28 million and lower
restructuring and related costs of $8 million.
For the years ended December 31, 2010, 2009 and 2008, the
expense associated with the ENBREL profit share was
$1,184 million, $1,163 million and
$1,195 million, respectively.
Amortization
of certain acquired intangible assets
Amortization of certain acquired intangible assets relates to
products technology rights acquired in connection with the
Immunex acquisition.
Other
charges
In 2010, we recorded a $118 million asset impairment charge
for our manufacturing operations located in Fremont, California,
associated with our continuing efforts to optimize our network
of manufacturing facilities and improve cost efficiencies. In
2009, the Company recorded loss accruals for settlements of
certain legal proceedings aggregating $33 million. In 2008,
the Company recorded loss accruals for settlements of certain
commercial legal proceedings aggregating $288 million,
related principally to the settlement of the Ortho Biotech
antitrust suit.
Non-operating
expenses/income and provision for income taxes
The following table presents non-operating expenses/income and
the provisions for income taxes for the years ended
December 31, 2010, 2009 and 2008 (dollar amounts in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
Interest expense, net
|
|
$
|
604
|
|
|
$
|
578
|
|
|
$
|
551
|
|
Interest and other income, net
|
|
$
|
376
|
|
|
$
|
276
|
|
|
$
|
352
|
|
Provisions for income taxes
|
|
$
|
690
|
|
|
$
|
599
|
|
|
$
|
963
|
|
Effective tax rate
|
|
|
13.0%
|
|
|
|
11.5%
|
|
|
|
19.2%
|
|
76
Interest
expense, net
Included in interest expense, net for the years ended
December 31, 2010, 2009 and 2008 is the impact of non-cash
interest expense of $266 million, $250 million and
$235 million, respectively, resulting from the change in
the accounting for our convertible debt effective
January 1, 2009.
Interest
and other income, net
The increase in interest and other income, net for 2010 was due
primarily to higher net realized gains on sales of investments
of $48 million and higher interest income of
$51 million, due principally to higher average cash, cash
equivalents and marketable securities balances. The decrease in
interest and other income, net for 2009 was due primarily to:
lower interest income of $45 million, due principally to
lower portfolio investment returns; lower net gains on sales of
investments of $28 million; and higher losses on certain
leased facilities that will no longer be used in our operations
of $31 million; offset partially by higher foreign currency
exchange net gains of $27 million.
Income
taxes
The increase in our effective tax rate for 2010 was due
primarily to: the incremental favorable impact resulting from
the resolution of certain prior years matters with tax
authorities in 2009 compared to 2010; the unfavorable tax impact
of changes in revenue and expense mix in 2010; and the tax
impact from adjustments to deferred taxes arising from changes
in California tax law enacted in 2009 and effective for
subsequent periods. The resolution of prior years tax
matters recognized in 2010 and 2009 reduced the effective tax
rate by 3.1% and 4.2%, respectively.
The decrease in our effective tax rate for 2009 was due
principally to: the favorable resolution of certain income tax
examinations; higher profits and manufacturing in Puerto Rico,
which are taxed under an incentive grant; and a tax benefit from
adjustments to previously established deferred taxes arising
from changes in California tax law enacted in 2009.
As permitted under U.S. GAAP, 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.
(See Summary of Critical Accounting Policies Income
taxes and Note 4, Income taxes to the Consolidated
Financial Statements for further discussion.)
Recent
accounting pronouncements
In January 2010, we adopted a newly issued accounting standard
which requires additional disclosure about the amounts of and
reasons for significant transfers between levels of the fair
value hierarchy discussed in Note 17, Fair value
measurement. This standard also clarifies existing disclosure
requirements related to the level of disaggregation of fair
value measurements for each class of assets and liabilities and
disclosures about inputs and valuation techniques used to
measure fair value for both recurring and nonrecurring
Level 2 and Level 3 measurements. In addition,
effective for interim and annual periods beginning after
December 15, 2010, this standard requires additional
disclosure and requires an entity to present disaggregated
information about activity for Level 3 fair value
measurements on a gross as opposed to a net basis. As this
accounting standard only requires enhanced disclosure, its
adoption did not impact our consolidated financial position,
results of operations or cash flows.
In January 2011, we adopted a newly issued accounting standard
which addresses the accounting for the annual fee due from the
pharmaceutical manufacturing industry beginning January 1,
2011, mandated by the PPACA and the companion Health Care and
Education Reconciliation Act, which made certain changes and
adjustments to PPACA. We refer to these two laws collectively as
the new healthcare reform law. The new healthcare
reform law obligates a pharmaceutical manufacturer, upon the
first gross receipt during a calendar year from prescription
drug sales under any specified government program, to pay an
annual fee to the U.S. government. The new accounting
standard requires the liability for the annual fee to be
estimated and recorded in full upon the first qualifying sale
with a corresponding deferred cost established that is to be
amortized and recognized as an operating expense over
77
the calendar year that it is payable using a straight-line
method of allocation unless another method better allocates the
fee. We have elected to amortize this fee on a straight-line
basis and it will be recorded in SG&A expense.
Financial
Condition, Liquidity and Capital Resources
The following table summarizes selected financial data for the
years ended December 31, 2010 and 2009 (in millions):
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
Cash, cash equivalents and marketable securities
|
|
$
|
17,422
|
|
|
$
|
13,442
|
|
Total assets
|
|
|
43,486
|
|
|
|
39,629
|
|
Current debt
|
|
|
2,488
|
|
|
|
|
|
Non-current debt
|
|
|
10,874
|
|
|
|
10,601
|
|
Stockholders equity
|
|
|
23,944
|
|
|
|
22,667
|
|
We believe existing funds, cash generated from operations and
existing sources of and access to financing are adequate to
satisfy our working capital, capital expenditure and debt
service requirements for the foreseeable future. In addition, we
plan to opportunistically pursue our stock repurchase program
and other business initiatives, including acquisitions and
licensing activities. We anticipate that our liquidity needs can
be met through a variety of sources, including cash provided by
operating activities, sale of marketable securities, borrowings
through commercial paper
and/or our
syndicated credit facility and access to other debt markets and
equity markets. In February 2011, our 2011 Convertible Notes
with an aggregate principal balance of $2.5 billion were
repaid in full. (See Item 1A. Risk Factors
Current economic conditions may magnify certain risks that
affect our business.)
Cash,
cash equivalents and marketable securities
Of our total cash, cash equivalents and marketable securities
balances as of December 31, 2010, approximately
$15.1 billion was generated from operations in foreign tax
jurisdictions and is intended to be invested indefinitely
outside of the United States. Under current tax laws, if these
funds were repatriated for use in our U.S. operations, we
would be required to pay additional U.S. federal and state
income taxes at the applicable marginal tax rates.
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 debt 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 type and
issuer.
78
Financing
arrangements
The following table reflects the carrying value of our long-term
borrowings under our various financing arrangements as of
December 31, 2010 and 2009 (dollar amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
0.125% convertible notes due 2011 (2011 Convertible Notes)
|
|
$
|
2,488
|
|
|
$
|
2,342
|
|
0.375% convertible notes due 2013 (2013 Convertible Notes)
|
|
|
2,213
|
|
|
|
2,088
|
|
5.85% notes due 2017 (2017 Notes)
|
|
|
1,099
|
|
|
|
1,099
|
|
4.85% notes due 2014 (2014 Notes)
|
|
|
1,000
|
|
|
|
1,000
|
|
5.70% notes due 2019 (2019 Notes)
|
|
|
998
|
|
|
|
998
|
|
6.40% notes due 2039 (2039 Notes)
|
|
|
996
|
|
|
|
995
|
|
6.375% notes due 2037 (2037 Notes)
|
|
|
899
|
|
|
|
899
|
|
3.45% notes due October 2020 (October 2020 Notes)
|
|
|
897
|
|
|
|
|
|
5.75% notes due 2040 (2040 Notes)
|
|
|
696
|
|
|
|
|
|
4.95% notes due 2041 (2041 Notes)
|
|
|
595
|
|
|
|
|
|
6.15% notes due 2018 (2018 Notes)
|
|
|
499
|
|
|
|
499
|
|
6.90% notes due 2038 (2038 Notes)
|
|
|
499
|
|
|
|
499
|
|
4.50% notes due March 2020 (March 2020 Notes)
|
|
|
300
|
|
|
|
|
|
Other notes
|
|
|
183
|
|
|
|
182
|
|
|
|
|
|
|
|
|
|
|
Total borrowings
|
|
|
13,362
|
|
|
|
10,601
|
|
Less current portion
|
|
|
(2,488
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current debt
|
|
$
|
10,874
|
|
|
$
|
10,601
|
|
|
|
|
|
|
|
|
|
|
We issued debt securities in various offerings during the three
years ended December 31, 2010, including: in 2010,
$300 million principal amount of March 2020 Notes,
$700 million principal amount of 2040 Notes,
$900 million principal amount of October 2020 Notes and
$600 million principal amount of 2041 Notes; in 2009,
$1.0 billion principal amount of 2019 Notes and
$1.0 billion principal amount of 2039 Notes; and in 2008,
$500 million principal amount of 2018 Notes and
$500 million principal amount of 2038 Notes. Debt issuance
costs incurred in connection with these debt offerings totaled
$17 million, $13 million and $6 million for debt
issued in 2010, 2009 and 2008, respectively, and are being
amortized over the respective lives of the notes.
All of these debt issuances as well as the 2017 Notes and the
2037 Notes may be redeemed at any time at our option, in whole
or in part, at the principal amount of the notes being redeemed
plus accrued interest and a make-whole amount, as
defined. In the event of a change in control triggering event,
as defined, we may be required to purchase for cash all or a
portion of these debt issuances at a price equal to 101% of the
principal amount of the notes plus accrued interest.
In 2009, we repaid $1.0 billion aggregate principal amount
of notes with a fixed interest rate of 4.00% and in 2008, we
repaid $2.0 billion aggregate principal amount of floating
London Interbank Offered Rate (LIBOR) based notes.
See Note 15, Financing arrangements to the Consolidated
Financial Statements for further discussion of our Convertible
Notes.
To achieve a desired mix of fixed and floating interest rate
debt, we enter into interest rate swap agreements that
effectively convert a fixed rate interest coupon to a floating
LIBOR-based coupon over the life of the respective note. These
interest rate swap agreements qualify and are designated as fair
value hedges. As of December 31, 2010 and 2009, we had
interest rate swap agreements with an aggregate face value of
$3.6 billion and $1.5 billion, respectively. The
effective rates on these swaps range from LIBOR plus 0.3% to
LIBOR plus 2.6%. See Note 15, Financing arrangements and
Note 18, Derivative instruments to the Consolidated
Financial Statements for further discussion of our interest rate
swap agreements.
79
As of December 31, 2010, we have a commercial paper program
that allows us to issue up to $2.3 billion of unsecured
commercial paper to fund our working capital needs. At
December 31, 2010, no amounts were outstanding under our
commercial paper program.
As of December 31, 2010, we have a $2.3 billion
syndicated, unsecured, revolving credit facility that matures in
November 2012 and is available for general corporate purposes or
as a liquidity backstop to our commercial paper program. Annual
commitment fees for this facility are 0.05% based on our current
credit rating. As of December 31, 2010, no amounts were
outstanding under this facility.
We have filed a shelf registration statement with the SEC, which
allows us to issue an unspecified amount of debt securities;
common stock; preferred stock; warrants to purchase debt
securities, common stock, preferred stock or depository shares;
rights to purchase common stock or preferred stock; securities
purchase contracts; securities purchase units and depository
shares. Under this registration statement, all of the securities
available for issuance may be offered from time to time with
terms to be determined at the time of issuance. This shelf
registration expires in April 2011.
As of December 31, 2010, we have $400 million
remaining under a shelf registration statement that was
established in 1997. In connection with this shelf registration,
we established a $400 million medium-term note program
under which medium-term debt securities may be offered from time
to time with terms to be determined at the time of issuance. As
of December 31, 2010, no securities were outstanding under
this medium-term note program.
Certain of our financing arrangements contain non-financial
covenants and we were in compliance with all applicable
covenants as of December 31, 2010. None of our financing
arrangements contain any financial covenants.
Cash
flows
The following table summarizes our cash flow activity for the
years ended December 31, 2010, 2009 and 2008 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
Net cash provided by operating activities
|
|
$
|
5,787
|
|
|
$
|
6,336
|
|
|
$
|
5,988
|
|
Net cash used in investing activities
|
|
|
(4,152
|
)
|
|
|
(3,202
|
)
|
|
|
(3,165
|
)
|
Net cash used in financing activities
|
|
|
(1,232
|
)
|
|
|
(2,024
|
)
|
|
|
(3,073
|
)
|
Operating
Cash provided by operating activities has been and is expected
to continue to be our primary recurring source of funds. Cash
provided by operating activities during 2010 decreased due
primarily to the timing and amount of payments to taxing
authorities. Cash provided by operating activities during 2009
increased due primarily to higher net income of
$553 million and a higher dividend payment from KA of
$102 million, offset partially by the prior-year receipt of
$300 million for an upfront milestone payment related to
our licensing agreement with Takeda, and the negative impact of
the timing and amounts of receipts from customers and payments
to vendors and others.
Investing
Net purchases of marketable securities were $3.5 billion
for 2010 compared to net purchases of $2.7 billion and
$2.6 billion for 2009 and 2008, respectively.
Capital expenditures totaled $580 million,
$530 million and $672 million in 2010, 2009 and 2008,
respectively. Capital expenditures in 2010 and 2009 were
associated primarily with manufacturing capacity expansions in
Puerto Rico and other site developments. Capital expenditures in
2008 were associated primarily with manufacturing capacity
expansions in Puerto Rico, Fremont and other site developments
and with investment in our global ERP system and other
information systems projects. We currently estimate 2011
spending on capital projects and equipment to be approximately
$600 million.
80
Financing
In December 2009, the Board of Directors authorized us to
repurchase up to an additional $5.0 billion of common stock
of which a total of $2.2 billion remains available as of
December 31, 2010. The manner of purchases, the amount we
spend and the number of shares repurchased will vary based on a
variety of factors, including stock price, blackout periods in
which we are restricted from repurchasing shares and the impact
of repurchases on our credit rating, and may include private
block purchases as well as market transactions. A summary of our
repurchase activity under our stock repurchase program for the
years ended December 31, 2010, 2009 and 2008 is as follows
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
Shares
|
|
|
Dollars
|
|
|
Shares
|
|
|
Dollars
|
|
|
Shares
|
|
|
Dollars
|
|
|
First quarter
|
|
|
29.1
|
|
|
$
|
1,684
|
|
|
|
37.5
|
|
|
$
|
1,997
|
|
|
|
|
|
|
$
|
|
|
Second quarter
|
|
|
10.3
|
|
|
|
616
|
|
|
|
|
|
|
|
|
|
|
|
32.7
|
|
|
|
1,549
|
(1)
|
Third quarter
|
|
|
6.6
|
|
|
|
364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
|
(1)
|
Fourth quarter
|
|
|
20.5
|
|
|
|
1,136
|
|
|
|
21.7
|
|
|
|
1,211
|
|
|
|
12.6
|
|
|
|
700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
66.5
|
|
|
$
|
3,800
|
|
|
|
59.2
|
|
|
$
|
3,208
|
|
|
|
45.3
|
|
|
$
|
2,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The total cost of shares repurchased during the three months
ended June 30, 2008 excludes approximately $19 million
paid in July 2008 in connection with the final settlement of an
accelerated share repurchase program entered into in May 2008. |
As discussed above, we issued debt securities in various
offerings that resulted in net proceeds of $2.5 billion,
$2.0 billion and $1.0 billion in 2010, 2009 and 2008,
respectively. In addition, we repaid $1.0 billion and
$2.0 billion of notes in 2009 and 2008, respectively.
We receive cash from the exercise of employee stock options.
Employee stock option exercises provided $80 million,
$171 million and $155 million of cash in 2010, 2009
and 2008, respectively. Proceeds from the exercise of employee
stock options will vary from period to period based upon, among
other factors, fluctuations in the market value of our stock
relative to the exercise price of such options.
Off-Balance
Sheet Arrangements
We do not have any off-balance sheet arrangements that are
material or reasonably likely to become material to our
consolidated financial position or consolidated results of
operations.
Contractual
Obligations
Contractual obligations represent future cash commitments and
liabilities under agreements with third parties, and exclude
contingent liabilities for which we cannot reasonably predict
future payment. Additionally, the expected timing of payment of
the obligations presented below is estimated based on current
information. Timing of payments and actual amounts paid may be
different depending on the timing of receipt of goods or
services or changes to
agreed-upon
terms or amounts for some obligations.
81
The following table represents our contractual obligations as of
December 31, 2010, aggregated by type (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period
|
|
|
|
|
|
|
Year
|
|
|
Years
|
|
|
Years
|
|
|
Years
|
|
Contractual obligations
|
|
Total
|
|
|
1
|
|
|
2 and 3
|
|
|
4 and 5
|
|
|
6 and beyond
|
|
|
Long-term debt
obligations(1)
|
|
$
|
22,259
|
|
|
$
|
2,900
|
|
|
$
|
3,389
|
|
|
$
|
1,892
|
|
|
$
|
14,078
|
|
Operating lease obligations
|
|
|
1,009
|
|
|
|
140
|
|
|
|
246
|
|
|
|
189
|
|
|
|
434
|
|
Purchase
obligations(2)
|
|
|
3,263
|
|
|
|
1,020
|
|
|
|
560
|
|
|
|
131
|
|
|
|
1,552
|
|
Unrecognized tax
benefits(3)
|
|
|
200
|
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
26,731
|
|
|
$
|
4,260
|
|
|
$
|
4,195
|
|
|
$
|
2,212
|
|
|
$
|
16,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The long-term debt obligation amounts include future interest
payments. Future interest payments are included on our financing
arrangements at the fixed contractual coupon rates. To achieve a
desired mix of fixed and floating interest rate debt, we enter
into interest rate swap agreements, which effectively convert a
fixed rate interest coupon to a floating LIBOR-based coupon over
the life of the respective note. We used an interest rate
forward curve at December 31, 2010 to compute the net
amounts to be included in the table above for future interest
payments on our variable rate interest rate swaps. See
Note 15, Financing arrangements to the Consolidated
Financial Statements for further discussion of our long-term
debt obligations and our interest swap agreements. |
|
(2) |
|
Purchase obligations relate primarily to (i) our long-term
supply agreements with third party manufacturers, which are
based on firm commitments for the purchase of production
capacity; (ii) R&D commitments (including those
related to clinical trials) for new and existing products;
(iii) capital expenditures; and (iv) open purchase
orders for the acquisition of goods and services in the ordinary
course of business. Our obligation to pay certain of these
amounts may be reduced based on certain future events. |
|
(3) |
|
Long-term liabilities for unrecognized tax benefits
(UTBs) (net of foreign tax credits and federal tax
benefit of state taxes) and related accrued interest and
penalties totaling approximately $625 million at
December 31, 2010 are not included in the table above
because, due to their nature, there is a high degree of
uncertainty regarding the timing of future cash outflows and
other events that extinguish these liabilities. |
In addition to the above table, we are contractually obligated
to pay additional amounts, which in the aggregate are
significant, upon the achievement of various development,
regulatory and commercial milestones in conjunction with
collaborative agreements we have entered into with third
parties. These payments are contingent upon the occurrence of
various future events, which have a high degree of uncertainty
of occurring. These contingent payments have not been included
in the table above or recorded on our Consolidated Balance
Sheets. As of December 31, 2010, the maximum amount that
may be payable in the future under all such arrangements is
approximately $2.1 billion.
Summary
of Critical Accounting Policies
The preparation of our consolidated financial statements in
conformity with US GAAP requires management to make
estimates and assumptions that affect the amounts reported in
the financial statements and the notes to the financial
statements. Some of those judgments can be subjective and
complex, and therefore, actual results could differ materially
from those estimates under different assumptions or conditions.
Product
sales, sales deductions and returns
Revenues from sales of our products are recognized when the
products are shipped and title and risk of loss have passed.
Product sales are recorded net of accruals for estimated
rebates, wholesaler chargebacks, cash discounts and other
deductions (collectively, sales deductions) and
returns, which are established at the time of sale.
We analyze the adequacy of our accruals for sales deductions
quarterly. Amounts accrued for sales deductions are adjusted
when trends or significant events indicate that adjustment is
appropriate. Accruals are also adjusted to
82
reflect actual results. The following table summarizes amounts
recorded in Accrued liabilities in the Consolidated
Balance Sheets for sales deductions (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
Other
|
|
|
|
|
|
|
Rebates
|
|
|
Chargebacks
|
|
|
discounts
|
|
|
deductions
|
|
|
Total
|
|
|
Balance as of January 1, 2008
|
|
$
|
755
|
|
|
$
|
70
|
|
|
$
|
42
|
|
|
$
|
197
|
|
|
$
|
1,064
|
|
Amounts charged against product sales
|
|
|
1,813
|
|
|
|
1,635
|
|
|
|
324
|
|
|
|
466
|
|
|
|
4,238
|
|
Payments
|
|
|
(2,064
|
)
|
|
|
(1,621
|
)
|
|
|
(323
|
)
|
|
|
(418
|
)
|
|
|
(4,426
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2008
|
|
|
504
|
|
|
|
84
|
|
|
|
43
|
|
|
|
245
|
|
|
|
876
|
|
Amounts charged against product sales
|
|
|
1,497
|
|
|
|
2,424
|
|
|
|
312
|
|
|
|
406
|
|
|
|
4,639
|
|
Payments
|
|
|
(1,482
|
)
|
|
|
(2,380
|
)
|
|
|
(328
|
)
|
|
|
(355
|
)
|
|
|
(4,545
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2009
|
|
|
519
|
|
|
|
128
|
|
|
|
27
|
|
|
|
296
|
|
|
|
970
|
|
Amounts charged against product sales
|
|
|
1,522
|
|
|
|
2,593
|
|
|
|
347
|
|
|
|
572
|
|
|
|
5,034
|
|
Payments
|
|
|
(1,525
|
)
|
|
|
(2,548
|
)
|
|
|
(345
|
)
|
|
|
(442
|
)
|
|
|
(4,860
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2010
|
|
$
|
516
|
|
|
$
|
173
|
|
|
$
|
29
|
|
|
$
|
426
|
|
|
$
|
1,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, 2010, 2009 and 2008, total
sales deductions were 25%, 24% and 22% of gross product sales,
respectively. Included in these amounts are immaterial
adjustments related to prior-year sales due to changes in
estimates. Such amounts represent less than 1% of the aggregate
sales deductions charged against product sales for 2010 and 2009
and less than 2% for 2008. In late 2008, we began shifting our
discount structure as a component of broader contracting
revisions to be more heavily weighted toward fixed prices to
healthcare providers (reflected as chargebacks in the table
above) instead of rebates, resulting in a corresponding
reduction in rebates and an increase in chargebacks, as noted in
the table above.
In the United States, we utilize wholesalers as the principal
means of distributing our products to healthcare providers, such
as physicians or their clinics, dialysis centers, hospitals and
pharmacies. Products we sell in the EU are distributed
principally to hospitals
and/or
wholesalers depending on the distribution practice in each
country where the product is sold. We monitor the inventory
levels of our products at our wholesalers by using data from our
wholesalers and other third parties, and we believe wholesaler
inventories have been maintained at appropriate levels
(generally two to three weeks) given end-user demand.
Accordingly, historical fluctuations in wholesaler inventory
levels have not significantly impacted our method of estimating
sales deductions and returns.
Accruals for sales deductions are based primarily on estimates
of the amounts earned or to be claimed on the related sales.
These estimates take into consideration current contractual and
statutory requirements, specific known market events and trends,
internal and external historical data and forecasted customer
buying patterns. Sales deductions are substantially
product-specific and, therefore, for any given year, can be
impacted by the mix of products sold.
Rebates primarily include amounts paid to payers in the United
States and are based on contractual arrangements which vary by
product, by payer and individual payer plans. We estimate the
amount of rebate that will be paid based on the product sold,
contractual terms, historical experience and wholesaler
inventory levels and accrue these rebates in the period the
related sale is recorded. We adjust the accrual as more
information becomes available and to reflect actual experience.
Estimating such rebates is complicated due to the time delay
between the date of sale and the actual settlement of the
liability, which could take up to one year. Those rebates
totaled $1.5 billion, $1.5 billion and
$1.8 billion for the years ended December 31, 2010,
2009 and 2008, respectively. We believe the methodology we use
to accrue for rebates is reasonable and appropriate given
current facts and circumstances. However, actual results may
differ. Based on our recent experience, changes in annual
estimates related to prior annual periods have been less than 2%
of the estimated rebate amounts charged against product sales
for 2010 and 2009 and less than 3.5% for 2008. These changes in
annual estimates relate substantially to sales made in the
immediately preceding annual period. A 2% change in our rebate
estimate attributable to rebates recognized in 2010 would have
had an impact of approximately $30 million on our 2010
product sales and a corresponding impact on our financial
condition and liquidity.
Wholesaler chargebacks relate to our contractual agreements to
sell products to healthcare providers in the United States at
fixed prices that are lower than the prices we charge
wholesalers. When the healthcare providers
83
purchase our products through wholesalers at these reduced
prices, the wholesaler charges us for the difference between the
prices it pays us and the prices it charges the healthcare
providers. The provision for chargebacks is based on the
expected sales by our wholesaler customers to healthcare
providers. Those chargebacks from wholesalers totaled
$2.6 billion, $2.4 billion and $1.6 billion for
the years ended December 31, 2010, 2009 and 2008,
respectively. Accruals for wholesaler chargebacks are less
difficult to estimate than rebates and closely approximate
actual results since chargeback amounts are fixed at the date of
purchase by the healthcare provider, and we generally settle the
liability for these deductions within a few weeks.
Included in other deductions in the table above are rebates and
discounts paid to state Medicaid offices to participate in the
Medicaid program. In 2010, healthcare reform legislation was
enacted in the United States which has and will continue to
significantly increase our Medicaid rebates and discounts.
Certain provisions of this new legislation became effective in
2010, while others will become effective in later years. The
provisions of this new legislation reduced our U.S. product
sales in 2010 by approximately $200 million, and we
anticipate that our U.S. product sales in 2011 will be
negatively impacted by $250 million to $300 million by
this legislation.
Product
returns
Returns are estimated through comparison of historical return
data to their related sales on a production lot basis.
Historical rates of return are determined for each product and
are adjusted for known or expected changes in the marketplace
specific to each product, when appropriate. Historically, sales
return provisions have been insignificant, amounting to less
than 1.5% of gross product sales. Furthermore, changes in
estimates for prior year sales return provisions have
historically also been insignificant.
Inventories
produced in preparation for product launches
The Company capitalizes inventories produced in preparation for
product launches when the related product candidates are
considered to have a high probability of regulatory approval and
the related costs are expected to be recoverable through the
commercialization of the product. In connection with the
decision to capitalize such inventory, we evaluate among other
factors any identified risks or concerns with respect to the
product candidates safety and efficacy, the status of
related discussions with regulatory authorities and the outlook
for commercial success, including the existence of current or
anticipated competitive products and any reimbursement concerns.
In addition, we evaluate any risks associated with the
manufacturing of the product candidate as well as consider the
remaining shelf life of the inventory in relation to the
expected launch date. Upon capitalization, we continue to
monitor any changes in these factors. In the event of any
significant negative developments, we may be required to impair
previously capitalized costs. At December 31, 2009, we had
capitalized approximately $258 million of inventory costs
related to our then late-stage product candidate, denosumab.
During 2010, we received various approvals for denosumab from
regulatory authorities in the United States, the EU and various
other countries and commenced selling the product in certain
geographic markets.
Income
taxes
The Company provides for income taxes based on pretax income,
applicable tax rates and tax planning opportunities available in
the various jurisdictions in which it operates.
We recognize the tax benefit from an uncertain tax position only
if it is more likely than not that the tax position will be
sustained on examination by the taxing authorities based on the
technical merits of the position. The tax benefits recognized in
the financial statements on a particular tax position are
measured based on the largest benefit that is more likely than
not to be realized upon settlement. The amount of UTBs is
adjusted as appropriate for changes in facts and circumstances,
such as significant amendments to existing tax law, new
regulations or interpretations by the taxing authorities, new
information obtained during a tax examination, or resolution of
an examination. We believe our estimates for uncertain tax
positions are appropriate and sufficient for any assessments
that may result from examinations of our tax returns. We
recognize both accrued interest and penalties, where
appropriate, related to UTBs in income tax expense.
84
Certain items are included in the Companys tax return at
different times than they are reflected in the financial
statements. Such timing differences create deferred tax assets
and liabilities. Deferred tax assets are generally items that
can be used as a tax deduction or credit in the tax return in
future years but for which the Company has already recorded the
tax benefit in the financial statements. The Company establishes
valuation allowances against its deferred tax assets when the
amount of expected future taxable income is not likely to
support the use of the deduction or credit. Deferred tax
liabilities are either: (i) a tax expense recognized in the
financial statements for which payment has been deferred; or
(ii) an expense for which the Company has already taken a
deduction on the tax return, but has not yet recognized the
expense in the financial statements.
Our effective tax rate reflects the impact of undistributed
foreign earnings for which no U.S. taxes have been provided
because such earnings are intended to be invested indefinitely
outside the United States based on our projected cash flow,
working capital and long-term investment requirements of our
U.S. and foreign operations. If future events, including
material changes in estimates of cash, working capital and
long-term investment requirements necessitate that certain
assets associated with these earnings be repatriated to the
United States, under current tax laws an additional tax
provision and related liability would be required at the
applicable U.S. and state marginal income tax rates which
could have a material adverse effect on both our future
effective tax rate and our financial results.
Our operations are subject to the tax laws, regulations and
administrative practices of the United States, U.S. state
jurisdictions and other countries in which we do business.
Significant changes in these rules could have a material adverse
effect on the results of operations. For example, substantial
reform of U.S. tax law regarding tax on certain foreign
profits could result in an increase in our effective tax rate,
which could have a material adverse effect on our financial
results.
Contingencies
In the ordinary course of business, we are involved in various
legal proceedings such as intellectual property disputes,
contractual disputes, governmental investigations and class
action suits. Certain of these proceedings are discussed in
Note 19, Contingencies and commitments to the Consolidated
Financial Statements. We record accruals for such contingencies
to the extent we conclude their occurrence is both probable and
estimable. We consider all relevant factors when making
assessments regarding these contingencies.
While it is not possible to accurately predict or determine the
eventual outcome of these items, 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.
|
|
Item 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
We are exposed to market risks that may result from changes in
interest rates, foreign currency exchange rates and prices of
equity instruments as well as changes in the general economic
conditions in the countries where we conduct business. To reduce
certain of these risks, we monitor the financial condition of
our larger customers and limit our credit exposure by setting
credit limits, requiring letters of credit and obtaining credit
insurance, as we deem appropriate. In addition, we have an
investment policy that limits investments to certain types of
debt and money market instruments issued by institutions
primarily with investment grade credit ratings and places
restriction on maturities and concentrations by type and issuer.
We also enter into various types of foreign exchange and
interest rate derivative hedging transactions with
counterparties with investment grade credit ratings as part of
our risk management program. We do not use derivatives for
speculative trading purposes.
In the capital and credit markets, strong demand for fixed
income led to historically low interest rates on corporate debt
issuances during 2010. Short-term interest rates on
U.S. Treasury instruments continued to decline as a result
of the Federal Reserves monetary policy, which included a
program to buy back U.S. Treasury instruments. As a result,
in the discussion that follows, we have assumed a hypothetical
change in interest rates of 100 basis points from those at
December 31, 2010 and 2009. Continued uncertainty
surrounding European sovereign debt resulted in ongoing
volatility in the foreign exchange markets, and we have
consequentially assumed a hypothetical
85
20% change in foreign exchange rates against the
U.S. dollar based on its position relative to other
currencies as of December 31, 2010 and 2009.
Interest
rate sensitive financial instruments
Our investment portfolio of
available-for-sale
debt securities at December 31, 2010 and 2009 was comprised
of: U.S. Treasury securities and other government
obligations; corporate debt securities; mortgage and asset
backed securities; money market mutual funds; and other
short-term interest bearing securities, composed principally of
commercial paper. The fair value of our investment portfolio of
debt securities was $17.3 billion and $13.3 billion at
December 31, 2010 and 2009, respectively. Duration is a
sensitivity measure that can be used to approximate the change
in the value of a security that will result from a
100 basis point change in interest rates. Applying a
duration model, a hypothetical 100 basis point increase in
interest rates at December 31, 2010 and 2009, would not
have resulted in a material effect on the fair values of these
securities on these dates. In addition, a hypothetical
100 basis point decrease in interest rates at
December 31, 2010 and 2009 would not result in a material
effect on the related income or cash flows in the respective
ensuing year.
As of December 31, 2010 we had outstanding debt with a
carrying value of $13.4 billion and a fair value of
$14.5 billion. As of December 31, 2009 we had
outstanding debt with a carrying value of $10.6 billion and
a fair value of $11.6 billion. Our outstanding debt at
December 31, 2010 and 2009 was comprised entirely of debt
with fixed interest rates. Changes in interest rates do not
affect interest expense or cash flows on fixed rate debt.
Changes in interest rates would, however, affect the fair values
of fixed rate debt. A hypothetical 100 basis point decrease
in interest rates relative to interest rates at
December 31, 2010 would have resulted in an increase of
approximately $1.0 billion in the aggregate fair value of
our outstanding debt on this date. A hypothetical 100 basis
point decrease in interest rates relative to the interest rates
at December 31, 2009 would have resulted in an increase of
approximately $760 million in the aggregate fair value of
our outstanding debt on this date.
To achieve a desired mix of fixed and floating interest rate
debt, we have entered into interest rate swap agreements, which
qualify and have been designated as fair value hedges, for
certain of our fixed rate debt with notional amounts totaling
$3.6 billion and $1.5 billion at December 31,
2010 and 2009, respectively. These derivative contracts
effectively convert a fixed rate interest coupon to a floating
LIBOR-based coupon over the life of the respective note. A
hypothetical 100 basis point increase in interest rates
relative to interest rates at December 31, 2010 and 2009,
would have resulted in a $213 million and $78 million,
respectively, reduction in the fair value of our interest rate
swap agreements on these dates and would not result in a
material effect on the related income or cash flows in the
respective ensuing year.
Foreign
currency sensitive instruments
Our operating results are affected by fluctuations in the value
of the U.S. dollar as compared to foreign currencies,
predominately the Euro, as a result of the sale of our products
in foreign markets. Increases and decreases in our international
product sales from movements in foreign exchange rates are
offset partially by the corresponding increases or decreases in
our international operating expenses. To further reduce our net
exposure to foreign exchange rate fluctuations on our results of
operations, we enter into foreign currency forward and option
contracts.
We enter into foreign currency forward and options contracts
that are designated for accounting purposes as cash flow hedges
of certain anticipated foreign currency transactions. As of
December 31, 2010 we had open foreign currency forward and
options contracts, primarily Euro based, with notional amounts
of $3.2 billion and $398 million, respectively. As of
December 31, 2009 we had open foreign currency forward and
options contracts, primarily Euro based, with notional amounts
of $3.4 billion and $376 million, respectively. As of
December 31, 2010 the net unrealized gains and at
December 31, 2009 the net unrealized losses on these
contracts were not material. With regard to foreign currency
forward and option contracts that were open at December 31,
2010, a hypothetical 20% adverse movement in foreign exchange
rates compared with the U.S. dollar relative to exchange
rates at December 31, 2010 would have resulted in a
reduction in fair value of these contracts of approximately
86
$670 million on this date and, in the ensuing year, a
reduction in income and cash flows of approximately
$330 million. With regard to contracts that were open at
December 31, 2009 a hypothetical 20% adverse movement in
foreign exchange rates compared with the U.S. dollar
relative to exchange rates at December 31, 2009 would have
resulted in a reduction in fair value of these contracts of
approximately $720 million on this date and, in the ensuing
year, a reduction in income and cash flows of approximately
$330 million.
Also at December 31, 2010 and 2009, we had open foreign
currency forward contracts with notional amounts totaling
$670 million and $414 million, respectively, that
hedged fluctuations of certain assets and liabilities
denominated in foreign currencies but were not designated as
hedges for accounting purposes. These contracts had no material
net unrealized gains or losses at December 31, 2010 and
2009. With regard to these foreign currency forward contracts
that were open at December 31, 2010 and 2009, a
hypothetical 20% adverse movement in foreign exchange rates
compared with the U.S. dollar relative to exchange rates at
December 31, 2010 and 2009, would have resulted in a
reduction in fair value of these contracts on these dates of
$134 million and $83 million, respectively, and would
not result in a material effect on the related income or cash
flows in the respective ensuing year.
The analysis above does not consider the impact that
hypothetical changes in foreign currency exchange rates would
have on anticipated transactions or on assets and liabilities
that these foreign currency sensitive instruments were designed
to offset.
Market
price sensitive instruments
As of December 31, 2010 and 2009, we were also exposed to
price risk on equity securities included in our portfolio of
investments, which were acquired primarily for the promotion of
business and strategic objectives. These investments are
generally in small capitalization stocks in the biotechnology
industry sector. Price risk relative to our equity investment
portfolio at December 31, 2010 and 2009 was not material.
Counterparty
credit risks
Our financial instruments, including derivatives, are subject to
counterparty credit risk which we consider as part of the
overall fair value measurement. We attempt to mitigate that risk
through credit monitoring procedures.
|
|
Item 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
The information required by this item is incorporated herein by
reference to the financial statements and schedule listed in
Item 15(a)1 and (a)2 of Part IV and included in this
Form 10-K
Annual Report.
|
|
Item 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
|
None.
|
|
Item 9A.
|
CONTROLS
AND PROCEDURES
|
We maintain disclosure controls and procedures, as
such term is defined under Exchange Act
Rule 13a-15(e),
that are designed to ensure that information required to be
disclosed in Amgens Exchange Act reports is recorded,
processed, summarized and reported within the time periods
specified in the SECs rules and forms, and that such
information is accumulated and communicated to Amgens
management, including its Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions
regarding required disclosures. In designing and evaluating the
disclosure controls and procedures, Amgens management
recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of
achieving the desired control objectives and in reaching a
reasonable level of assurance Amgens management
necessarily was required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.
We have carried out an evaluation under the supervision and with
the participation of our management, including Amgens
Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of Amgens
disclosure controls and procedures. Based upon their evaluation
and subject to the foregoing,
87
the Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were
effective as of December 31, 2010.
Management determined that, as of December 31, 2010, there
were no changes in our internal control over financial reporting
that occurred during the fiscal quarter then ended that have
materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
Managements
Report on Internal Control over Financial Reporting
Management of the Company is responsible for establishing and
maintaining adequate internal control over financial reporting,
as such term is defined in
Rule 13a-15(f)
under the Securities Exchange Act of 1934. The Companys
internal control over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external purposes in accordance with generally accepted
accounting principles in the United States. However, all
internal control systems, no matter how well designed, have
inherent limitations. Therefore, even those systems determined
to be effective can provide only reasonable assurance with
respect to financial statement preparation and reporting.
Management assessed the effectiveness of the Companys
internal control over financial reporting as of
December 31, 2010. In making this assessment, management
used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in
Internal Control-Integrated Framework. Based on our assessment,
management believes that the Company maintained effective
internal control over financial reporting as of
December 31, 2010, based on the COSO criteria.
The effectiveness of the Companys internal control over
financial reporting has been audited by Ernst & Young
LLP, an independent registered public accounting firm, as stated
in their report appearing below, which expresses an unqualified
opinion on the effectiveness of the Companys internal
control over financial reporting as of December 31, 2010.
88
Report of
Independent Registered Public Accounting Firm
The Board
of Directors and Stockholders of Amgen Inc.
We have audited Amgen Inc.s (the Company)
internal control over financial reporting as of
December 31, 2010, based on criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(the COSO criteria). Amgen Inc.s management is responsible
for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness of
internal control over financial reporting included in the
accompanying Managements Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion
on the Companys internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Amgen Inc. maintained, in all material respects,
effective internal control over financial reporting as of
December 31, 2010, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Consolidated Balance Sheets as of December 31, 2010 and
2009, and the related Consolidated Statements of Income,
Stockholders Equity, and Cash Flows for each of the three
years in the period ended December 31, 2010 of Amgen Inc.
and our report dated February 25, 2011 expressed an
unqualified opinion thereon.
Los Angeles, California
February 25, 2011
89
|
|
Item 9B.
|
OTHER
INFORMATION
|
Not applicable.
|
|
Item 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE OF THE
REGISTRANT
|
Information about our Directors is incorporated by reference
from the section entitled
ITEM 1 ELECTION OF DIRECTORS
in our Proxy Statement for the 2011 Annual Meeting of
Stockholders to be filed with the SEC within 120 days of
December 31, 2010 (the Proxy Statement).
Information about compliance with Section 16(a) of the
Securities Exchange Act of 1934 is incorporated by reference
from the section entitled OTHER MATTERS
Section 16(a) Beneficial Ownership Reporting
Compliance in our Proxy Statement. Information about the
procedures by which stockholders may recommend nominees for the
Board of Directors is incorporated by reference from
Appendix A AMGEN INC. BOARD OF DIRECTORS
GUIDELINES FOR DIRECTOR QUALIFICATIONS AND EVALUATIONS in
our Proxy Statement. Information about our Audit Committee,
members of the committee and our Audit Committee financial
experts is incorporated by reference from the section entitled
CORPORATE GOVERNANCE Board
Committees Audit Committee in our Proxy
Statement. Information about our executive officers is contained
in the discussion entitled Item 1.
Business Executive Officers of the Registrant.
Code of
Ethics
We maintain a code of ethics applicable to our principal
executive officer, principal financial officer, principal
accounting officer or controller, and other persons performing
similar functions. To view this code of ethics free of charge,
please visit our website at www.amgen.com (This website address
is not intended to function as a hyperlink, and the information
contained in our website is not intended to be a part of this
filing). We intend to satisfy the disclosure requirements under
Item 5.05 of
Form 8-K
regarding an amendment to, or waiver from, a provision of this
code of ethics, if any, by posting such information on our
website as set forth above.
|
|
Item 11.
|
EXECUTIVE
COMPENSATION
|
Information about director and executive compensation is
incorporated by reference from the sections entitled
EXECUTIVE COMPENSATION and CORPORATE
GOVERNANCE in our Proxy Statement. Information about
compensation committee matters is incorporated by reference from
the sections entitled CORPORATE GOVERNANCE
Compensation and Management Development Committee and
CORPORATE GOVERNANCE Compensation Committee
Report in our Proxy Statement.
90
|
|
Item 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
Securities
Authorized for Issuance Under Existing Equity Compensation
Plans
The following table sets forth certain information as of
December 31, 2010 concerning our common stock that may be
issued under any form of award granted under all of our equity
compensation plans approved by stockholders and equity
compensation plans not approved by stockholders in effect as of
December 31, 2010 (including upon the exercise of options,
pursuant to purchases of stock or upon vesting of awards of
restricted stock units or performance units).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
Securities Remaining
|
|
|
|
Number of
|
|
|
Weighted
|
|
|
Available for Future
|
|
|
|
Securities to be
|
|
|
Average
|
|
|
Issuance Under
|
|
|
|
Issued Upon
|
|
|
Exercise Price
|
|
|
Equity Compensation
|
|
|
|
Exercise of
|
|
|
Outstanding
|
|
|
Plans (Excluding
|
|
|
|
Outstanding
|
|
|
Options and
|
|
|
Securities Reflected
|
|
Plan Category
|
|
Options and Rights
|
|
|
Rights
|
|
|
in Column (a))
|
|
Equity compensation plans approved by Amgen security holders:
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 Equity Incentive
Plan(1)
|
|
|
20,820,542
|
|
|
$
|
54.61
|
|
|
|
69,964,716
|
|
Amended and Restated 1991 Equity Incentive
Plan(2)
|
|
|
17,249,291
|
|
|
$
|
57.69
|
|
|
|
|
|
Amended and Restated Employee Stock Purchase
Plan(3)
|
|
|
|
|
|
$
|
|
|
|
|
6,316,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Approved Plans
|
|
|
38,069,833
|
|
|
$
|
56.23
|
|
|
|
76,280,716
|
|
Equity compensation plans not approved by Amgen security holders:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amended and Restated 1993 Equity Incentive
Plan(4)
|
|
|
69,625
|
|
|
$
|
49.06
|
|
|
|
|
|
Amended and Restated 1999 Equity Incentive
Plan(4)
|
|
|
11,667,851
|
|
|
$
|
61.62
|
|
|
|
|
|
Amended and Restated 1997 Equity Incentive
Plan(5)
|
|
|
1,280,822
|
|
|
$
|
52.35
|
|
|
|
|
|
Amended and Restated 1997 Special Non-Officer Equity Incentive
Plan(6)
|
|
|
5,618,035
|
|
|
$
|
63.44
|
|
|
|
|
|
Amended and Restated 1996 Incentive Stock
Plan(7)
|
|
|
311,000
|
|
|
$
|
68.81
|
|
|
|
|
|
Amended and Restated 1999 Incentive Stock
Plan(7)
|
|
|
1,681,339
|
|
|
$
|
65.66
|
|
|
|
|
|
Amended and Restated Assumed Avidia Equity
Plan(8)
|
|
|
13,186
|
|
|
$
|
2.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Unapproved Plans
|
|
|
20,641,858
|
|
|
$
|
61.84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total All Plans
|
|
|
58,711,691
|
|
|
$
|
58.66
|
|
|
|
76,280,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The number under column (a) with respect to this plan
includes approximately 12.57 million shares issuable upon
the exercise of outstanding options with a weighted average
exercise price of approximately $54.61, approximately
6.42 million shares issuable upon the vesting of
outstanding restricted stock units and approximately
1.83 million shares issuable upon the vesting of
outstanding performance units. The performance units awarded in
2009 and 2010 continue to be subject to performance goals and
the maximum number of units that could be earned is 200% of the
units awarded in 2009 and 2010. The number under column
(c) with respect to this plan represents the maximum number
of shares that remain available for future issuance under this
plan. This number may fluctuate depending on the nature of the
award granted. Shares that are subject to awards of options or
stock appreciation rights granted under the 2009 Plan will be
counted against the pool of available shares under the 2009 Plan
as one (1) share for every one (1) share granted.
Shares that are subject to awards granted under the 2009 Plan
other than options or stock appreciation rights will be counted
against the pool of available shares under the 2009 Plan as
1.9 shares for every one (1) share granted.
Furthermore, if any shares subject to an award under the 2009
Plan are forfeited or expire or an award under the 2009 Plan is
settled for cash, then any shares subject to such award may, to
the extent of |
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such forfeiture, expiration or cash settlement, be used again
for new grants under the 2009 Plan and the shares subject to
such awards will be added back to the pool of available shares
under the 2009 Plan as (i) one (1) share if such
shares were subject to an option or stock appreciation right
granted under the 2009 Plan and (ii) as 1.9 shares if
such shares were subject to awards other than options or stock
appreciation rights granted under the 2009 Plan. |
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(2) |
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This plan has terminated as to future grants. The number under
column (a) with respect to this plan includes approximately
13.95 million shares issuable upon the exercise of
outstanding options with a weighted average exercise price of
approximately $57.69, approximately 2.45 million shares
issuable upon the vesting of outstanding restricted stock units
and approximately 0.85 million shares issuable for
outstanding performance units granted in 2008 based on a target
performance. The maximum that could be earned would be 200% of
the units granted in 2008. |
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(3) |
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The purchases occurred on June 15, 2010 and
December 15, 2010 (the Purchase Dates) with a
purchase of 217,009 shares of Common Stock at a purchase
price of $52.36 per shares on June 15, 2010 and
158,204 shares of Common Stock at a purchase price of
$52.89 per share on December 15, 2010. Such purchases
reflect 95% of the closing price of the Common Stock on the
applicable Purchase Date. |
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(4) |
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These plans have terminated as to future grants. These Plans
were originally assumed pursuant to the terms of the merger
agreement between Amgen and Immunex which was approved by our
stockholders in May 2002. Both plans were previously approved by
Immunexs shareholders. The number under column
(a) with respect to the Amended and Restated 1999 Equity
Incentive Plan includes approximately 11.64 million shares
issuable upon the exercise of outstanding options with a
weighted average exercise price of approximately $61.62 and
approximately 27,000 shares issuable upon the vesting of
outstanding restricted stock units. |
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(5) |
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This plan has terminated as to future grants. This plan was
originally assumed by Amgen in connection with the merger of
Tularik with and into Amgen SF, LLC, a wholly owned subsidiary
of Amgen, on August 13, 2004. This plan was previously
approved by Tulariks shareholders. |
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(6) |
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This plan terminated as to future grants. The number under
column (a) with respect to this plan includes approximately
5.49 million shares issuable upon the exercise of
outstanding options with a weighted average exercise price of
approximately $63.44 and approximately 132,000 shares
issuable upon the vesting of outstanding restricted stock units. |
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(7) |
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These plans have terminated as to future grants. These plans
were originally assumed by Amgen in connection with the merger
of Abgenix with and into Amgen Fremont Inc., a wholly owned
subsidiary of Amgen, on April 1, 2006. The Amended and
Restated 1996 Incentive Stock Plan (1996 Plan) was previously
approved by Abgenixs shareholders. The number under column
(a) with respect to the 1996 Plan includes approximately
311,000 shares issuable upon the exercise of outstanding
options with a weighted average exercise price of approximately
$68.81. The number under column (a) with respect to the
Amended and Restated 1999 Incentive Stock Plan includes
approximately 1.42 million shares issuable upon the
exercise of outstanding options with a weighted average exercise
price of approximately $65.66 and approximately
259,000 shares issuable upon the vesting of outstanding
restricted stock units. |
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(8) |
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This plan has terminated as to future grants. This plan was
originally assumed by Amgen in connection with the merger of
Avidia, Inc. with and into Amgen Mountain View Inc., a wholly
owned subsidiary of Amgen, on October 24, 2006. |
Security
Ownership of Directors and Executive Officers and Certain
Beneficial Owners
Information about security ownership of certain beneficial
owners and management is incorporated by reference from the
sections entitled SECURITY OWNERSHIP OF DIRECTORS AND
EXECUTIVE OFFICERS and SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS in our Proxy Statement.
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Item 13.
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CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
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Information about certain relationships and related transactions
and directors independence is incorporated by reference from the
sections entitled CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS and CORPORATE GOVERNANCE
Board Independence in our Proxy Statement.
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Item 14.
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PRINCIPAL
ACCOUNTING FEES AND SERVICES
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Information about the fees for professional services rendered by
our independent registered public accountants is incorporated by
reference from the section entitled AUDIT
MATTERS Independent Registered Public
Accountants in our Proxy Statement.
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