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| AMGN > SEC Filings for AMGN > Form 10-Q on 7-Nov-2008 | All Recent SEC Filings |
7-Nov-2008
Quarterly Report
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 management's assumptions. In addition, we, or others on our behalf, may make forward looking statements in press releases or written statements, or in our communications and discussions with investors and analysts in the normal course of business through meetings, webcasts, phone calls and conference calls. Words such as "expect," "anticipate," "outlook," "could," "target," "project," "intend," "plan," "believe," "seek," "estimate," "should," "may," "assume," "continue," variations of such words and similar expressions are intended to identify such forward looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. We describe our respective risks, uncertainties and assumptions that could affect the outcome or results of operations in "Item 1A. Risk Factors." We have based our forward looking statements on our management's beliefs and assumptions based on information available to our management at the time the statements are made. We caution you that actual outcomes and results may differ materially from what is expressed, implied or forecast by our forward looking statements. Reference is made in particular to forward looking statements regarding product sales, regulatory activities, clinical trial results, reimbursement, expenses, EPS, liquidity and capital resources and trends. Except as required under the federal securities laws and the rules and regulations of the SEC, we do not have any intention or obligation to update publicly any forward looking statements after the distribution of this report, whether as a result of new information, future events, changes in assumptions or otherwise.
Overview
The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to assist the reader in understanding Amgen's business. MD&A is provided as a supplement to, and should be read in conjunction with, our condensed consolidated financial statements and accompanying notes included in this Quarterly Report on Form 10-Q and our consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2007.
We are a global biotechnology company that discovers, develops, manufactures and markets human therapeutics based on advances in cellular and molecular biology. Our mission is to serve patients. As a science-based, patient-focused organization, we discover and develop innovative therapies to treat grievous illness. We operate in one business segment - human therapeutics. Therefore, our results of operations are discussed on a consolidated basis.
We primarily earn revenues and income and generate cash from sales of human therapeutic products in the areas of 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. Aranesp® and EPOGEN® stimulate the production of red blood cells to treat anemia and belong to a class of drugs referred to as erythropoiesis-stimulating agents, or ESAs. Aranesp® is used for the treatment of anemia both in supportive cancer care and in nephrology. EPOGEN® is used to treat anemia associated with chronic renal failure ("CRF"). Neulasta® and NEUPOGEN®, which are used in supportive cancer care, selectively stimulate the production of neutrophils, one type of white blood cell that helps the body fight infections. ENBREL is marketed under a co-promotion agreement with Wyeth in the United States and Canada. ENBREL blocks the biologic activity of tumor necrosis factor ("TNF") by inhibiting TNF, a substance induced in response to inflammatory and immunological responses, such as rheumatoid arthritis and psoriasis. For both the three and nine months ended September 30, 2008, our principal products represented 94% of total worldwide product sales. Our international product sales consist principally of European sales of Aranesp®, Neulasta® and NEUPOGEN®. International product sales represented approximately 23% and 22% of total product sales for the three and nine months ended September 30, 2008, respectively. For additional information about our principal products, their
approved indications and where they are marketed, see "Item 1. Business - Principal products" in Part I of our Annual Report on Form 10-K for the year ended December 31, 2007.
We operate in a highly regulated industry and various U.S. and foreign regulatory bodies have substantial authority over how we conduct our business. Government authorities in the United States and in other countries regulate the manufacturing and marketing of our products and our ongoing R&D activities. The regulatory environment is evolving and there is increased scrutiny on drug safety and increased authority being granted to regulatory bodies, in particular the U.S. Food and Drug Administration ("FDA"), to assist in ensuring the safety of therapeutic products. Most patients receiving our principal products for approved indications are covered by either government or private payer health care programs. The reimbursement environment is also evolving with greater emphasis on cost containment. Further, as a result of the new U.S. presidential administration's plans for changes in the healthcare system, we believe that we and others in our industry will be under increased pressure to further demonstrate the safety, efficacy and economic value of our products. Therefore, sales of our principal products are and will continue to be affected by the availability and extent of reimbursement from third-party payers, including government and private insurance plans and administration of those programs. Further, safety signals or trends or adverse events or results from clinical trials or studies or meta-analyses (a meta-analysis is the review of studies using various statistical methods to combine results from previous separate, but related, studies) performed by us or by others (including our licensees or independent investigators) or from the marketed use of our products may expand safety labeling, restrict the use of our approved products or may result in additional regulatory requirements, such as requiring risk management activities, including a risk evaluation and mitigation strategy ("REMS"), and/or additional or more extensive clinical trials as part of postmarketing commitments ("PMCs") or a pharmacovigilance program, and may negatively impact worldwide sales or reimbursement of our products. In addition, the capital and credit markets have been experiencing extreme volatility and disruption, particularly in the past several weeks. We are working to manage our business effectively despite the unprecedented conditions in the financial markets both in the United States and around the world. However, the extent and/or the duration of any potential adverse economic impact that such financial disruption may have on our third party payers, customers, suppliers and service providers is unclear.
Total product sales for the three and nine months ended September 30, 2008 increased 7% and 3% as compared to the prior year comparative periods, respectively. Product sales in the United States for the three and nine months ended September 30, 2008 totaled $2.9 billion and $8.6 billion, respectively, representing an increase of 4% for the three month period and remaining essentially unchanged for the nine month period compared to the prior year comparative periods. International product sales for the three and nine months ended September 30, 2008 totaled $855 million and $2.5 billion, respectively, reflecting increases of 20% and 16% over the prior year comparative periods. International product sales for the three and nine months ended September 30, 2008 reflect favorable foreign currency exchange rate changes of $78 million and $243 million, respectively. Excluding the impact of foreign currency exchange rate changes for the three and nine months ended September 30, 2008, worldwide product sales increased 5% and 1%, respectively, and international product sales increased 9% and 4%, respectively.
Certain of our products, principally our marketed ESA products, have faced and will continue to face various challenges resulting from regulatory and reimbursement developments. Late in 2006 and throughout 2007, adverse safety results involving ESA products were observed in various studies that were performed by us and by others (including our licensees or independent investigators) that explored the use of ESAs in settings different from those outlined in the FDA approved label, including targeting higher hemoglobin ("Hb") levels and/or use in non-approved patient populations. The results of these studies culminated in significant regulatory and reimbursement developments affecting the class of ESA products, including Aranesp® and EPOGEN®. For example, in February 2007, following the reported results from our Anemia of Cancer phase 3 study (the "AoC 103 study"), the United States Pharmacopoeia Dispensing Information ("USP DI") Drug Reference Guides removed Aranesp® in the treatment of AoC. Thereafter, Aranesp® use in AoC essentially ceased. In addition, during 2007, we had discussions with the FDA and other regulatory authorities and meetings with certain of the FDA's advisory panels, namely the Oncologic Drugs Advisory Committee ("ODAC"), the Cardiovascular-Renal Drug Advisory Committee ("CRDAC") and the Drug Safety and Risk
Management Advisory Committee ("DSaRMAC"), regarding the administration of our ESA products in certain settings. These adverse safety results involving ESA products in various studies and related discussions with regulatory authorities led to several key regulatory and reimbursement developments, including safety-related revisions to ESA product labels in the United States in March and November 2007. Further, in July 2007, the Centers for Medicare and Medicaid Services ("CMS") issued its National Coverage Decision Memorandum for Use of Erythropoiesis Stimulating Agents in Cancer and Related Neoplastic Conditions (the "Decision Memorandum"). The Decision Memorandum established the ESA reimbursement policy for Medicare and other government beneficiaries who are treated for chemotherapy-induced anemia ("CIA") with ESAs. We believe that the restrictions in the Decision Memorandum 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. These developments have had a material adverse impact on sales of our marketed ESA products, in particular Aranesp® sales in the U.S. supportive cancer care setting. Furthermore, our ESA products will continue to face future challenges, including those described below under "ESA Developments" and also the potential for further revisions to product labels and changes to reimbursement.
As a result of the challenges facing certain of our products and, in particular, the regulatory and reimbursement developments involving our marketed ESA products that began in 2007 and their resulting impact on our operations, on August 15, 2007, we announced a plan to restructure our worldwide operations in order to improve our cost structure while continuing to make significant R&D investments and build the framework for our future growth. Key components of our restructuring plan initially included: (i) worldwide staff reductions aggregating approximately 2,500 positions, (ii) rationalization of our worldwide network of manufacturing facilities in order to gain cost efficiencies while continuing to meet future commercial and clinical demand for our products and product candidates and, to a lesser degree, changes to certain R&D capital projects and (iii) abandoning leases primarily for certain R&D facilities that will not be used in our operations. Through September 30, 2008, we have completed a majority of these actions and incurred $790 million of costs. We have recently identified certain additional initiatives designed to further assist in improving our cost structure, including outsourcing certain non-core business functions, most notably certain of our information systems infrastructure services, as well as abandoning leases for certain additional facilities that will no longer be used in our operations. The estimated cost of these additional initiatives is $50 million to $100 million. As a result of the actual costs incurred to date and the addition of the recently identified initiatives, the total charges expected to be incurred in connection with our restructuring plan, including related implementation costs, has been increased to $850 million to $925 million, as compared to our prior estimate of $775 million to $825 million. We currently estimate that all remaining costs will be incurred through 2009. Such cost estimates and amounts incurred are net of amounts recovered from our ENBREL co-promotion partner, Wyeth.
The following is a discussion of select key developments affecting our business that occurred in 2008 and should be read in conjunction with "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part I of our Form 10-Qs for the quarterly periods ended March 31, 2008 and June 30, 2008 and "Item 1. Business - Key Developments" in
• On August 6, 2008, we finalized changes to the ESA product labeling based on a complete response letter, received on July 30, 2008, from the FDA to the revisions to the ESA labeling we proposed following the March 13, 2008 ODAC meeting. The revised labeling included, among other things, (i) the addition to the boxed warning of a statement that ESAs are not indicated for patients receiving myelosuppressive therapy when the anticipated outcome of such therapy is cure, (ii) the addition of a statement in the DOSAGE and ADMINISTRATION section of the label that ESA therapy should not be initiated at Hb levels † 10 grams per deciliter ("g/dL") and that dose should be adjusted to maintain the lowest Hb level sufficient to avoid red blood cell transfusions and (iii) the removal of reference to the upper safety limit of 12 g/dL. Additionally, in response to the FDA's request under authority prescribed by the Food and Drug Administration Amendments Act of 2007 (the "FDAAA"), we have recently submitted a proposed REMS program for Aranesp® in oncology. We
also continue to work with the FDA to finalize protocols for clinical trials to determine the effects of Aranesp® on survival and tumor outcomes.
• On January 1, 2008, the CMS' revisions to its Claims Monitoring Policy:
Erythropoietin/darbepoetin alfa usage for beneficiaries with end stage
renal disease ("EMP") became effective, which require a 50% reduction in
Medicare reimbursement if a patient's Hb is above 13 g/dL for three or
more consecutive months. In addition, the 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. We
believe that the EMP implementation in January 2008 has significantly
affected physician behavior resulting in declines in dosing trends as
particularly noted in the quarter of implementation. However, this dose
decline subsequently stabilized but may further fluctuate in the future.
• On March 5, 2008, we announced that the European Commission reached its decision to amend the product labeling for the class of ESAs, including Aranesp®. On May 15, 2008, we and other ESA marketing authorization holders participated in a closed meeting of the Scientific Advisory Group on Oncology ("SAG-O"). The marketing authorization holders were asked to provide an overview on studies that have been initiated or conducted since July 2007, as well as any other new data that can help to elucidate recent issues on the impact of ESAs on tumor progression and survival in cancer patients. These data included previously disclosed interim results from the Preoperative Epirubicin Paclitaxel Aranesp® ("PREPARE") study in neo-adjuvant breast cancer therapy; follow-up data from the Gynecologic Oncology Group study ("GOG-191 study") in cervical cancer, which were published in the February 2008 issue of Gynecologic Oncology; and the February 2008 meta-analysis by Bennett et al, which was published in the Journal of the American Medical Association. Scientific Advisory Groups ("SAGs") are established by the European Medicines Agency ("EMEA") to deliver answers, on a consultative basis, to specific questions addressed to them by the Committee for Medicinal Products for Human Use ("CHMP"). On June 26, 2008 the EMEA, based upon the CHMP's opinion which took into account the position expressed by the SAG-O, recommended updating the product information for ESAs with a new warning for their use in cancer patients. In July 2008, the EMEA requested that further clarity around the product information be provided by regulatory agencies in each European Member State country through the publication of a Dear Healthcare Professional Communication, following which we followed the necessary regulatory procedure to update the Aranesp® product information. In October 2008, we received notification that the Aranesp® product information update was approved by the European Commission. 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 the benefit-risk assessment with the participation of the individual patient. This assessment should take into account the specific clinical context, including the type of tumor and its stage, the degree of anemia, life-expectancy, the environment in which the patient is being treated and patient preference.
• On September 30, 2008, we announced that we had received a summary of preliminary results from the Cochrane Collaboration's 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 EMEA. The preliminary summary includes four components: on-study deaths and overall survival in cancer patients regardless of their specific cancer treatment (chemotherapy, radiochemotherapy, radiotherapy, anemia of cancer with no treatment, other), and on-study deaths and overall survival in patients receiving chemotherapy (the only oncologic population for which ESA treatment is indicated in current FDA-approved labeling). The analysis showed that ESAs increased on-study deaths and decreased overall survival compared to controls. Although neither of these results were statistically significant, they do not exclude the potential for adverse outcomes when ESAs are used according to the current labeling. We expect to receive the complete meta-analysis results later this year and will provide this information to regulatory authorities at that time.
• On June 4, 2008, the FDA issued an Early Communication regarding the ongoing safety review of TNF blockers and the possible association between the use of these medicines and the development of lymphoma and other cancers in children and young adults and stated that it had decided to conduct further analyses to evaluate the risk and benefits of TNF blockers in pediatric patients.
• Following the June 18, 2008 Dermatologic and Ophthalmic Drugs Advisory Committee ("DODAC") meeting, on July 24, 2008, the FDA requested additional information from us to support the supplemental biologic license application ("BLA") we submitted for the use of ENBREL in pediatric patients with chronic moderate to severe plaque psoriasis. We continue to work with the FDA to respond to its requests and provide it with information to address additional questions related to the supplemental BLA and plans for risk management activities.
• On September 4, 2008, the FDA issued a Web-Alert regarding their review of histoplasmosis and other opportunistic fungal infections in patients treated with TNF-blockers. The FDA requested that the boxed warning and warnings sections of the U.S. prescribing information ("PI") and the medication guide for ENBREL (and other TNF blockers) be strengthened to include the risk of histoplasmosis and other invasive fungal infections with the goal of increasing timely diagnosis and treatment. The FDA also requested that the approved REMS for ENBREL be modified with a communication plan to healthcare providers regarding the risk of unrecognized fungal infections. We are working with the FDA to finalize the required revisions to respond to its requests.
• On August 22, 2008, the FDA approved Nplate™ (romiplostim), the first and only platelet producer for the treatment of thrombocytopenia in splenectomized (spleen removed) and non-splenectomized adults with chronic immune thrombocytopenic purpura ("ITP"). Nplate™, the first FDA approved peptibody protein, works by raising and sustaining platelet counts, representing a novel approach for the long-term treatment of this chronic disease. As part of the approval for NplateTM, a REMS was developed with the FDA to assure the safe use of NplateTM while minimizing risk. The NplateTM REMS involves, among other things, healthcare provider and patient enrollment registries, tracking of patient medical history and data and follow-up safety questionnaires to healthcare providers all of which require extensive discussion and education with healthcare providers.
Denosumab Osteoporosis
• On July 25, 2008, we announced findings from the pivotal fracture trial ("Study 216") evaluating our receptor activator of nuclear factor kappa B ("RANK") ligand inhibitor, denosumab, in the treatment of postmenopausal osteoporosis. In this pivotal, three-year, international, phase 3 study of approximately 7,800 women with osteoporosis, patients were randomized to receive either denosumab, given by subcutaneous injection once every six months, or placebo injections. For the primary endpoint, treatment with denosumab resulted in a statistically significant reduction in the incidence of new vertebral fractures compared with placebo treatment. In addition, women receiving denosumab experienced a statistically significant reduction in the incidence of new non-vertebral and hip fractures (each a secondary endpoint) compared with those receiving placebo. The incidence and types of both adverse and serious adverse events observed in this study, including serious infections and neoplasms, were similar between the denosumab and placebo groups. The most common adverse events across both treatment arms were arthralgia, back pain, hypertension and nasopharyngitis.
On September 16, 2008 at the 2008 American Society of Bone and Mineral Research ("ASBMR") annual meeting in Montreal, Canada, we presented detailed results of Study 216 evaluating
denosumab in osteoporosis. Compared to placebo, patients who received denosumab had 68% fewer vertebral fractures (2.3% for denosumab versus 7.2% for placebo, p=0.0001), 40% fewer hip fractures (0.7% versus 1.2%, p=0.036) and 20% fewer non-vertebral fractures (6.5% versus 8.0%, p=0.011). At the meeting we also presented data regarding the incidence and types of adverse events and serious adverse events observed in the trial, which were similar between the placebo and denosumab groups.
• In addition to the detailed results of Study 216, a pivotal fracture study, we presented the results of two non-pivotal phase 3 studies of denosumab in osteoporosis at the ASBMR. The first was a phase 3 head-to-head, double-blind trial known as the STAND (Study of Transitioning from AleNdronate to Denosumab) trial ("Study 234"). The results of this study demonstrated that subcutaneous injections of denosumab every six months achieved significantly greater increases in bone mineral density ("BMD") versus those achieved with alendronate at all sites measured. For the primary endpoint, denosumab resulted in significant increases in BMD at the total hip compared with alendronate (1.9% versus 1.05%, p<0.0001). Treatment with denosumab also resulted in significant increases in BMD compared with continued alendronate treatment at all secondary endpoints including the lumbar spine, femoral neck, hip trochanter and 1/3 radius. The incidence and types of adverse events observed in the study, including neoplasm and infection, were similar between the denosumab and alendronate treatment groups. The most common adverse events across both treatment arms were back pain, arthralgia and nasal pharyngitis.
The second non-pivotal study was a head-to-head trial comparing denosumab to
weekly oral alendronate, also known as the DECIDE (Determining Efficacy:
Comparison of Initiating Denosumab versus Alendronate) trial ("Study 141"). As a
part of this study, patients were given a questionnaire after 12 months of
treatment to gauge preference on mode of administration as well as satisfaction
with frequency of dosing of twice-yearly subcutaneous injections versus weekly
oral tablet. More than three-quarters of patients in both study arms preferred
subcutaneous injection over oral pills (77% versus 23%, p <0.0001). In addition,
significantly more patients were more satisfied with twice-yearly dosing
compared to weekly dosing (80% versus 20% placebo injection versus weekly oral
alendronate, and 79% versus 21% denosumab versus weekly placebo tablet, p
<0.0001 for both study groups).
Denosumab Oncology
• On July 14, 2008, we announced findings from a three-year pivotal phase 3 placebo-controlled trial evaluating denosumab in the treatment of bone loss in men undergoing androgen deprivation therapy ("ADT") for non-metastatic prostate cancer. In this study of more than 1,400 men, denosumab treatment produced statistically significantly greater increases in BMD at the lumbar spine (primary endpoint) and non-vertebral sites compared with placebo at multiple time points. These improvements in BMD were consistent with those seen in other denosumab studies evaluating BMD in women with breast cancer receiving aromatase inhibitor therapy, and in postmenopausal women with low bone mass. During the thirty-six month evaluation period, men receiving denosumab experienced less than half the incidence of new vertebral fractures (a secondary endpoint) compared with those receiving placebo, a statistically significant finding. Furthermore, in the denosumab arm there were fewer non-vertebral fractures over the thirty-six month period.
Other
• During the three months ended September 30, 2008, we received interim results from a phase 2 study of AMG 317 in patients with moderate to severe asthma. The data showed evidence of biological activity; however, . . .
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