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| AMGN > SEC Filings for AMGN > Form 10-Q on 10-Aug-2009 | All Recent SEC Filings |
10-Aug-2009
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" in Part II herein. We have based our forward looking statements on our management's beliefs and assumptions based on information available to our management at the time the statements are made. We caution you that actual outcomes and results may differ materially from what is expressed, implied or forecast by our forward looking statements. Reference is made in particular to forward looking statements regarding product sales, regulatory activities, clinical trial results, reimbursement, expenses, EPS, liquidity and capital resources 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 the business of Amgen. 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, 2008.
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. ENBREL is marketed under a co-promotion agreement with Wyeth in the United States and Canada. Our international product sales consist principally of European sales of Aranesp®, Neulasta® and NEUPOGEN®. International product sales represented 22% of total product sales for both the three and six months ended June 30, 2009. International product sales represented 23% and 22% of total product sales for the three and six months ended June 30, 2008, respectively.
Aranesp® and EPOGEN® stimulate the production of red blood cells to treat anemia and belong to a class of drugs referred to as 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® selectively stimulate the production of neutrophils, one type of white blood cell that helps the body fight infections. ENBREL blocks the biologic activity of tumor necrosis factor ("TNF") by inhibiting its binding to TNF receptors, a substance induced in response to inflammatory and immunological responses, such as rheumatoid arthritis and psoriasis. For both the three and six months ended June 30, 2009, our principal products represented 93% of worldwide product sales. For both the three and six months ended June 30, 2008, our principal products represented 95% of worldwide product sales. For additional information about our principal products, their approved indications and where they are marketed, see "Item 1. Business - Marketed Products and Selected Product Candidates" in Part I of our Annual Report on Form 10-K for the year ended December 31, 2008.
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, which may lead to fewer products being approved by the FDA or other regulatory bodies or additional safety-related requirements or restrictions on the use of our products.
Most patients receiving our principal products for approved indications are covered by either government or private payer healthcare programs, which are placing greater emphasis on cost containment, including requiring that the economic value of products be clearly demonstrated. Governments may regulate access to, prices or reimbursement levels of our products to control costs or to affect levels of use of our products and private insurers may be influenced by government reimbursement methodologies. Worldwide use of our products may be affected by these 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. Therefore, sales of our principal products have 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. Additionally, ongoing healthcare reform efforts may also have a significant impact on our business. For example, the 2008 U.S. general elections resulted in a renewed focus on healthcare issues. Significant legislative reforms to the U.S. healthcare system have been proposed by Congress that may include reducing the coverage and reimbursement of our products and additional healthcare reform costs being borne by pharmaceutical/biotechnology companies, including ourselves. In addition, a number of states are considering or have recently enacted legislative proposals that would significantly alter their healthcare systems.
Further, safety signals, trends, adverse events or results from clinical trials, 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 coverage or reimbursement of our products.
Worldwide product sales for the three and six months ended June 30, 2009 were $3.6 billion and $6.9 billion, respectively, representing decreases of 2% and 5%, respectively, compared to the corresponding periods in the prior year. U.S. product sales for the three months ended June 30, 2009 totaled $2.8 billion and were relatively unchanged compared to the prior year. For the three months ended June 30, 2009, the decline in U.S. Aranesp® sales of $89 million was largely offset by increased U.S. sales of our other products. U.S. product sales for the six months ended June 30, 2009 were $5.3 billion compared to $5.6 billion for the six months ended June 30, 2008, a decrease of 5%. For the six months ended June 30, 2009, the decline in U.S. product sales was largely attributable to declines in Aranesp® sales of $202 million and ENBREL sales of $135 million, partially offset by increased sales of our other products. The decline in U.S. Aranesp® sales for the three and six months ended June 30, 2009 principally reflects the negative impact, primarily in the supportive cancer care setting, of additional safety-related product label changes that occurred in August 2008. The decline in ENBREL sales for the six months ended June 30, 2009 primarily reflects a $120 million benefit to ENBREL's sales in 2008 related to the initial wholesaler inventory stocking resulting from a change in ENBREL's distribution model. During the three months ended March 31, 2008, ENBREL's distribution model was converted from being primarily drop shipped to pharmacies to a wholesaler distribution model similar to our other products, which resulted in this initial wholesaler stocking. International product sales were $801 million for the three months ended June 30, 2009 compared to $849 million for the three months ended June 30, 2008, a decrease of 6%. International product sales were $1,537 million for the six months ended June 30, 2009 compared to $1,597 million for the six months ended June 30, 2008, a decrease of 4%. The decrease in international product sales for the three and six months ended June 30, 2009 reflects unfavorable foreign currency exchange rate changes of $103 million and $172 million, respectively. Excluding the impact of foreign currency exchange rate changes, worldwide product sales increased 1% and declined 3% for the three and six months ended June 30, 2009, respectively. Excluding the impact of foreign currency exchange rate changes, international product sales for the three and six months ended June 30, 2009 increased 6% and 7%, respectively.
For the three months ended June 30, 2009, net income was $1,269 million and diluted earnings per share were $1.25 compared to $906 million and $0.84, respectively, for the three months ended June 30, 2008, representing increases of 40% and 49%, respectively. For the six months ended June 30, 2009, net income was $2,288 million and earnings per share were $2.23 compared to $2,006 million and $1.85, respectively, for the six months ended June 30, 2008, representing increases of 14% and 21%, respectively. Net income and earnings per share for the three and six months ended June 30, 2009 were favorably impacted by a $115 million income tax benefit as a result of resolving certain non-routine transfer pricing issues with the IRS for prior periods. Net income and earnings per share for the three and six months ended June 30, 2008 were negatively impacted by $263 million of loss accruals for settlements of certain commercial legal proceedings.
The following is a discussion of selected key factors that have impacted and may continue to impact our business in 2009.
Denosumab Developments
Reproductive Health Drugs Advisory Committee ("RHDAC")
On June 22, 2009, we announced that the FDA has asked us to participate in a meeting of the RHDAC on August 13, 2009. The RHDAC will review data supporting the biologics license application ("BLA") for denosumab, for which we are seeking approval for treatment and prevention of postmenopausal osteoporosis and bone loss in patients undergoing hormone ablation for either prostate or breast cancer. The RHDAC is an advisory committee of external experts who advise the FDA about the safety and effectiveness of marketed and investigational human drugs for use in the practice of obstetrics, gynecology and related specialties. This committee is advisory only and FDA officials are not bound to or limited by their recommendations. However, the FDA commonly follows the recommendations of its advisory panels.
Denosumab Phase 3 Clinical Trials for the Prevention of Skeletal Related Events ("SRE") Due to the Spread of Cancer to the Bone
Multiple Myeloma and Multiple Solid Tumors
On August 3, 2009, we announced that a pivotal, phase 3, head-to-head trial
evaluating denosumab versus Zometa® (zoledronic acid) in the treatment of bone
metastases in 1,776 advanced cancer patients with solid tumors (not including
breast and prostate cancer) or multiple myeloma met its primary endpoint. For
the primary endpoint, patients treated with denosumab experienced a similar time
to first SRE (fracture, radiation to bone, surgery to bone or spinal cord
compression) compared with those receiving Zometa® (Hazard Ratio ("HR") 0.84,
[95% Confidence Interval ("CI"): 0.71-0.98]), which is statistically significant
for non-inferiority (p<0.0007). Although numerically greater, the delay in the
time to first SRE associated with denosumab treatment was not statistically
superior compared to Zometa® (adjusted p=0.06) (secondary endpoint). The time to
first-and-subsequent SRE was also numerically greater but not statistically
superior compared to Zometa® (HR 0.90, [95% CI: 0.77-1.04]) (secondary
endpoint). Overall, the incidence of adverse events and serious adverse events
was consistent with what has previously been reported for these two agents.
Rates of osteonecrosis of the jaw ("ONJ") were balanced and infrequent in both
treatment groups (10 patients receiving denosumab as compared with 11 patients
receiving Zometa®). Infectious adverse events were balanced between the two
treatment arms, as was overall survival and the time to cancer progression. Full
efficacy and safety data will be submitted for presentation at an upcoming
medical meeting in the second half of 2009.
Breast Cancer
On July 7, 2009, we announced that a pivotal, phase 3, head-to-head trial evaluating denosumab versus Zometa® (zoledronic acid) in the treatment of bone metastases in 2,049 patients with advanced breast cancer met its primary endpoint (non-inferiority compared to Zometa®) and secondary endpoints (superiority compared to Zometa®). Superior efficacy compared to Zometa® was demonstrated for both delaying the time to the first on-study SREs (fracture, radiation to bone, surgery to bone or spinal cord compression) (HR 0.82, [95% CI: 0.71-0.95]), and delaying the time to the first-and-subsequent SREs (HR 0.77, [95% CI: 0.66-0.89]). Both results were statistically significant. Overall, the incidence of adverse events and serious adverse events was consistent with what has previously been reported for these two agents. Of note, ONJ, which had not been observed in previously reported phase 3 studies with denosumab, was seen infrequently in both treatment groups (20 patients receiving denosumab as compared with 14 patients receiving Zometa®). There was no statistically significant difference in the rate of ONJ between the two treatment arms. Infectious adverse events were balanced between the two treatment arms, as was overall survival and the time to cancer progression. Full efficacy and safety data will be submitted for presentation at an upcoming medical meeting in the second half of 2009.
GlaxoSmithKline agreement
On July 27, 2009, we announced a collaboration with GlaxoSmithKline in which the companies will share commercialization of denosumab for osteoporosis indications in Europe, Australia, New Zealand and Mexico (the "Primary Territories"). We will commercialize denosumab for osteoporosis and oncology indications in the United States and Canada and for oncology indications in the Primary Territories. GlaxoSmithKline will commercialize denosumab for all indications in countries where we do not currently have a commercial presence, including China, Brazil, India, Taiwan and South Korea (the "Expansion Territories"). In the Expansion Territories, GlaxoSmithKline will be responsible for all development and commercialization costs and will purchase denosumab from us to meet demand. We will have the option of having an expanded role in the commercialization of denosumab in the Primary Territories and certain of the Expansion Territories in the future. Financial terms of the partnership include an initial payment and commercial milestones payable to us totaling $120 million. In the Primary Territories, we will share equally in profits related to the partnered portion of denosumab after accounting for expenses, including a tiered royalty paid to us in recognition of our discovery and development of denosumab.
Economic Environment
We believe that the unprecedented global economic downturn and associated increase in unemployment in the United States, have resulted in a significant increase in the number of individuals whose private insurance coverage has been reduced or eliminated and/or who have assumed a larger portion of healthcare costs previously covered by their employers and/or who have reduced their out-of-pocket medical expenditures for various reasons, including high co-pays or unmet insurance deductibles. While it is not
possible to accurately estimate the impact or extent of these developments, we believe that these factors have led to changes in patient behavior and spending patterns that negatively affected usage of certain of our products, particularly in products with higher co-pays, such as ENBREL in the three months ended March 31, 2009. However, we believe that these changes in behavior and spending patterns moderated somewhat during the three months ended June 30, 2009 and sales of certain of our products began to recover from the depressed levels experienced in the preceding three month period. To assist patients in these difficult economic times, we launched a new co-pay plan for commercially insured patients treated with ENBREL in April 2009 and introduced a new plan for Neulasta® in June 2009 to assist low income, commercially insured patients with their co-pay and insurance requirements.
Sales of our products in the United States for the three months ended March 31 are typically slightly lower relative to the immediately preceding three month period which we believe to be due, in part, to various factors relating to wholesaler and customer buying patterns. As a result, demand for our products and wholesale distributor inventory levels in the United States are typically negatively impacted in the three months ended March 31. During the three months ended June 30, sales of certain of our products, most notably ENBREL, generally increase relative to the three months ended March 31. These effects are generally not significant when comparing product sales in the three months ended March 31 and June 30 with product sales for the corresponding three month periods of the prior year. However, as stated above, we believe that the decline in product sales for the three months ended March 31, 2009 was more pronounced due to the current economic downturn and the associated increase in unemployment.
ESA Developments
Our ESA products have and will continue to face future challenges, in particular, Aranesp® in the U.S. supportive cancer care setting. For example, on August 6, 2008, we revised the ESA product labeling, as the FDA directed, 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 Oncologic Drugs Advisory Committee ("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 hemoglobin ("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. Furthermore, we have initiated a randomized, double-blind, placebo-controlled, phase 3 non-inferiority study evaluating overall survival when comparing advanced non-small cell lung cancer ("NSCLC") patients on Aranesp® to patients receiving placebo ("Study 782") as part of our Aranesp® pharmacovigilance program. 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 submitted a proposed REMS and continue to work closely with the FDA to develop a REMS program for the class of ESA products. The components of the REMS approved by the FDA could be different for the use of ESAs in the oncology and nephrology indications. We believe that a REMS program for our ESA products could have a material adverse impact on the future sales of Aranesp®, especially in the U.S. supportive cancer care setting. Additionally, future Aranesp® sales could also be materially adversely impacted by further changes in reimbursement, including as a result of future regulatory developments. In addition, we are awaiting data from our Trial to Reduce Cardiovascular Events with Aranesp® Therapy, or TREAT, study, a large 4,000 patient multi-center, randomized, double-blind, placebo-controlled phase 3 trial designed to determine the impact of anemia therapy with Aranesp® on mortality and non-fatal cardiovascular events in patients with chronic kidney disease ("CKD"), anemia and type 2 diabetes, and we expect to present the data in the second half of 2009.
Vectibix® Developments
On August 6, 2009, we announced that a pivotal, phase 3 study of Vectibix® (panitumumab) met its primary endpoint of extending progression-free survival ("PFS") in patients with KRAS wild-type metastatic colorectal cancer ("mCRC"). Originally designed to compare the treatment effect in the overall population, the study was amended to analyze outcomes with respect to the presence or absence of activating mutations in KRAS in the tumor itself. Tumor KRAS status was ascertained in more than 90% of the 1,183 patients enrolled in the trial. In the study, Vectibix®, administered in combination with FOLFOX (an oxaliplatin-based chemotherapy), significantly prolonged PFS compared with FOLFOX alone in the first-line treatment of patients with KRAS wild-type mCRC. However, in patients with tumors harboring activating KRAS mutations, PFS was significantly inferior in the Vectibix® arm. These data confirm previous findings when oxaliplatin-based chemotherapy and an anti-epidermal growth factor receptor ("EGFr") antibody are combined. Overall, the adverse event profile was as anticipated for an anti-EGFr antibody in combination with oxaliplatin-based chemotherapy, including known events such as skin toxicity, hypomagnesemia and diarrhea.
On July 17, 2009, we announced that the FDA approved certain revisions to the U.S. prescribing information ("PI") for the EGFr class of antibodies, including Vectibix®. The INDICATION AND USAGE section of the PI has been updated to include that retrospective subset analyses of mCRC trials have not shown a treatment benefit for Vectibix® in patients whose tumors had KRAS mutations in codon 12 or 13 and that use of Vectibix ® is not recommended for the treatment of colorectal cancer with these mutations. The CLINICAL STUDIES section of the PI has been updated to reflect results from retrospective analyses across seven randomized clinical trials with agents in this class. This includes the first phase 3 analysis that showed mCRC patients with mutated KRAS tumors do not respond to monotherapy with an EGFr-inhibiting antibody (the Vectibix "408" trial). This decision follows the FDA's December 2008 ODAC meeting where the clinical utility of the KRAS gene as a predictive biomarker in patients with mCRC treated with anti-EGFr antibody was discussed.
Competition
Certain of our marketed products are under increased competitive pressures, including from biosimilar and other products in Europe, which compete or are expected to compete with Aranesp®, NEUPOGEN® and Neulasta®, as well as our marketed products in the United States, including ENBREL. For example, we have experienced and expect to continue to experience increased competition throughout Europe, including from a number of biosimilar erythropoietin products, which compete with Aranesp®. In addition, a number of G-CSF biosimilar products have received or are expected to receive marketing authorization from the European Commission, and have been or are expected to be launched and compete with NEUPOGEN® and Neulasta®. Further, in the United States, ENBREL will continue to face increased competition primarily due to the launch of new products, including competition from J&J's SimponiTM (golimumab), which was approved by the FDA in April 2009, and UCB/Nektar Therapeutics' Cimzia® (PEGylated anti-TNF alpha), which was approved by the FDA in May 2009. Furthermore, as part of the broad healthcare reform initiatives in the United States, legislation has been proposed to create a regulatory pathway for the abbreviated approval of biosimilars, including limiting the period of time during which the data submitted in an innovator's regulatory application may not be relied upon or referenced by others in their application for approval to the FDA. This legislation may be passed into law as early as 2009.
As of June 30, 2009, cash, cash equivalents and marketable securities aggregated $12.0 billion, of which approximately $9.2 billion was generated from operations in foreign tax jurisdictions and is intended for use in our foreign operations. 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 (see "Item 1A. Risk Factors - Significant changes to U.S. federal, state and foreign tax laws and regulations that apply to our operations and activities could have a material adverse effect on our financial results." in Part II herein). Our total debt outstanding was $11.5 billion as of June 30, 2009, of which $1.0 billion is due in November 2009, which we expect to repay without incurring additional indebtedness.
There are many factors that affect us and our industry in general, including, among others, those relating to increased complexity and cost of R&D due, in part, to greater scrutiny of clinical trials with respect to safety which may lead to fewer treatments being approved by the FDA or other regulatory bodies and/or safety-related label changes for approved products; increasing restrictions on the use of our products; increasingly intense competition for marketed products and product candidates, including biosimilars; reimbursement changes; healthcare provider prescribing behavior; regulatory or private healthcare organization medical guidelines and reimbursement practices; complex and expanding regulatory requirements and intellectual property protection. See "Item 1. Business" in Part I of our Annual Report on Form 10-K for the year . . .
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