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AMGN > SEC Filings for AMGN > Form 10-Q on 6-Nov-2012All Recent SEC Filings

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Form 10-Q for AMGEN INC


6-Nov-2012

Quarterly Report


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

Forward-looking statements
This report and other documents we file with the U.S. Securities and Exchange Commission (SEC) contain forward-looking statements that are based on current expectations, estimates, forecasts and projections about us, our future performance, our business, our beliefs and our management's assumptions. In addition, we, or others on our behalf, may make forward-looking statements in press releases or written statements, or in our communications and discussions with investors and analysts in the normal course of business through meetings, webcasts, phone calls and conference calls. Such words as "expect," "anticipate," "outlook," "could," "target," "project," "intend," "plan," "believe," "seek," "estimate," "should," "may," "assume," and "continue," as well as variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. We describe our respective risks, uncertainties and assumptions that could affect the outcome or results of operations in Item 1A. Risk Factors in Part II herein. We have based our forward-looking statements on our management's beliefs and assumptions based on information available to our management at the time the statements are made. We caution you that actual outcomes and results may differ materially from what is expressed, implied or forecast by our forward-looking statements. Reference is made in particular to forward-looking statements regarding product sales, regulatory activities, clinical trial results, reimbursement, expenses, EPS, liquidity and capital resources, trends and planned dividends and stock repurchases. 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 Annual Report on Form 10-K for the year ended December 31, 2011, and our Quarterly Reports on Form 10-Q for the periods ended March 31, 2012, and June 30, 2012. Our results of operations discussed in MD&A are presented in conformity with GAAP.
Amgen Inc. (including its subsidiaries, referred to as "Amgen," "the Company," "we," "our" or "us") is a global biotechnology pioneer that discovers, develops, manufactures and delivers innovative human therapeutics. Our medicines help millions of patients in the fight against cancer, kidney disease, rheumatoid arthritis, bone disease, and other serious illnesses. We operate in one business segment: human therapeutics. Therefore, our results of operations are discussed on a consolidated basis.
Currently, we market primarily recombinant protein therapeutics in supportive cancer care, nephrology and inflammation. Our principal products are Neulasta® (pegfilgrastim), NEUPOGEN® (Filgrastim), ENBREL (etanercept) and our erythropoiesis-stimulating agents (ESAs): Aranesp® (darbepoetin alfa) and EPOGEN® (epoetin alfa). Our product sales outside the United States consist principally of sales in Europe. For the three and nine months ended September 30, 2012, our principal products represented 81% and 82% of worldwide product sales, respectively; and for the three and nine months ended September 30, 2011, our principal products represented 86% and 88% of worldwide product sales, respectively. Our other marketed products include principally Sensipar®/Mimpara® (cinacalcet), Vectibix® (panitumumab), Nplate® (romiplostim), XGEVA® (denosumab) and Prolia® (denosumab).


Significant developments
Following is a summary of selected significant developments affecting our business that have occurred to date since June 30, 2012. For additional developments or for a more comprehensive discussion of certain developments discussed below, see our Annual Report on Form 10-K for the year ended December 31, 2011, and our Quarterly Reports on Form 10-Q for the periods ended March 31, 2012, and June 30, 2012.
Products/Pipeline
Sensipar®
• On November 3, 2012, we presented at American Society of Nephrology's Kidney Week the results of the phase 3 E.V.O.L.V.E™ (EValuation Of Cinacalcet HCl Therapy to Lower CardioVascular Events) trial. As previously reported, the primary analysis showed that the trial did not reach its primary endpoint (time to composite event comprising all-cause mortality or first non-fatal cardiovascular event, including myocardial infarction, hospitalization for unstable angina, heart failure or peripheral vascular event) in the intent-to-treat analysis (see Significant Developments in our Form 10-Q for the period ended June 30, 2012). Baseline characteristics between the Sensipar®/Mimpara® and placebo groups were generally well-balanced with the notable exception of age - an important predictor of death and cardiovascular events. Patients in the Sensipar®/Mimpara® group were one-year older than those in the placebo group (median age 55 and 54 years, respectively). A pre-specified analysis adjusting for baseline imbalances showed that treatment with Sensipar®/Mimpara® resulted in a 12% reduction in the primary endpoint (Hazard Ratio (HR) 0.88, 95% Confidence Interval (CI) 0.79 to 0.97). Discontinuation of investigational product was common in both arms and more frequent in the placebo group (66.7% versus 70.5%, respectively). Reasons for discontinuation included kidney transplant, parathyroidectomy, adverse events, and patient request. A pre-specified analysis, which excluded data from patients that was collected beyond six months after stopping investigational product, showed a 15% reduction in the primary endpoint (HR 0.85, 95% CI 0.76 to 0.95).

AMG 145
• On November 5 and 6, 2012, we presented data from four phase 2 studies evaluating AMG 145 as monotherapy, in combination with statin therapy, in heterozygous familial hypercholesterolemia (HeFH), and in statin-intolerant subjects. In each of these studies treatment with AMG 145 resulted in statistically significant reductions in low-density lipoprotein cholesterol (LDL-C) compared to the control arms at 12 weeks. Results from the MENDEL study (evaluating AMG 145 as monotherapy) demonstrated that treatment with AMG 145 reduced LDL-C by up to 47% compared to placebo when dosed every 2 weeks (Q2W) (mean reductions from baseline of 41% in the 70 mg group, 44% in the 105 mg group and 51% in the 140 mg group, versus 4% for placebo) and up to 53% compared to placebo when dosed every four weeks (Q4W) (mean reductions from baseline of 39% in the 280 mg group, 43% in the 350 mg group and 48% in the 420 mg group, versus 5% increase for placebo). In the MENDEL study, the most common adverse events (AEs) reported for AMG 145 were upper respiratory tract infection, nasopharyngitis and diarrhea. Results from the LAPLACE-TIMI 57 study (evaluating AMG 145 in hypercholesterolemic patients with statins) demonstrated that adding AMG 145 to statin therapy reduced LDL-C by up to 66% compared to placebo when dosed Q2W (mean reductions versus placebo of 42% in the 70 mg group, 60% in the 105 mg group and 66% in the 140 mg group) and up to 50% when dosed Q4W (mean reductions versus placebo of 42% in the 280 mg group, 50% in the 350 mg group and 50% in the 420 mg group). In the LAPLACE-TIMI 57 study, the most common AEs reported for the AMG 145 group were nasopharyngitis, cough and nausea. Results from the RUTHERFORD study (evaluating AMG 145 in combination with statin therapy, with or without ezetimibe, in patients with HeFH) showed treatment with AMG 145 dosed Q4W reduced LDL-C by up to 56% versus placebo (mean reductions from baseline of 43% in the 350 mg group and 55% in the 420 mg group, versus an increase of 1% for placebo). In the RUTHERFORD study, the most common AEs reported for the AMG 145 group were nasopharyngitis, injection-site reaction and headache. Results from the GAUSS study (evaluating AMG 145 in hypercholesterolemic patients who cannot tolerate statins) demonstrated that treatment with AMG 145 dosed Q4W reduced LDL-C from baseline by up to 51% with AMG 145 (mean reductions from baseline of 41% in the AMG 145 280 mg group, 43% in the AMG 145 350 mg group and 51% in the AMG 145 420 mg group versus 15% in the placebo/ezetimibe 10 mg group) and up to 63% with the combination of AMG 145 and ezetimibe (mean reductions from baseline of 63% in the AMG 145 420 mg/ezetimibe 10 mg group versus 15% in the placebo/ezetimibe 10 mg group). In the GAUSS study, the most common AEs reported for the AMG 145 group were myalgia, nasopharyngitis, nausea and fatigue.

Brodalumab (AMG 827)
• On October 23, 2012, we announced the start of a phase 3 program in moderate-to-severe psoriasis. The program consists of three phase 3 studies, with ustekinumab and/or placebo controls. Brodalumab is one of five inflammation monoclonal antibodies being jointly developed in the collaboration with AstraZeneca that was announced in April 2012.


Prolia®
• On September 20, 2012, we announced that the FDA approved a new indication for Prolia® as a treatment to increase bone mass in men with osteoporosis at high risk for fracture.

Selected financial information
Following is an overview of our results of operations for the three and nine months ended September 30, 2012, as well as our financial condition as of September 30, 2012 (amounts in millions, except percentages and per-share data):

                        Three months ended                     Nine months ended
                           September 30,                         September 30,
                          2012           2011     Change       2012         2011      Change
Product sales:
U.S.                $    3,248         $ 2,965      10  %   $    9,500    $  8,718       9  %
ROW                        953             912       4  %        2,802       2,670       5  %
Total product sales      4,201           3,877       8  %       12,302      11,388       8  %
Other revenues             118              67      76  %          542         221       *
Total revenues      $    4,319         $ 3,944      10  %   $   12,844    $ 11,609      11  %
Operating expenses  $    2,896         $ 3,419     (15 )%   $    8,355    $  8,459      (1 )%
Operating income    $    1,423         $   525       *      $    4,489    $  3,150      43  %
Net income          $    1,107         $   454       *      $    3,557    $  2,749      29  %
Diluted EPS         $     1.41         $  0.50       *      $     4.51    $   2.96      52  %
Diluted shares             783             914     (14 )%          789         930     (15 )%

* Change in excess of 100% The increases in U.S. product sales for the three and nine months ended September 30, 2012, reflect growth for most of our marketed products. ESAs declined 11% for both periods. Excluding ESAs, U.S. product sales increased 16% for both periods. The increases in rest-of-the-world (ROW) product sales for the three and nine months ended September 30, 2012, reflect growth for all of our marketed products except Aranesp®, which declined 3% and 5%, and combined Neulasta®/NEUPOGEN®, which declined 12% and 10%, in the respective periods. The increase in other revenues for the three months ended September 30, 2012, was driven by: (i) a milestone payment received in the quarter related to the initiation of the brodalumab (AMG 827) phase 3 psoriasis study and (ii) revenue earned in the quarter related to motesanib. The increase for the nine months ended September 30, 2012, was driven by a modification to our Takeda collaboration in the second quarter of 2012 which replaced a global co-development and profit share agreement for motesanib, originally signed in 2008, with an exclusive license for Takeda to develop, manufacture and commercialize motesanib. That modification resulted in revenue recognition of $232 million for the nine months ended September 30, 2012. In addition, the nine months ended September 30, 2012, also reflect milestone payments received earlier in the year from AstraZeneca and Astellas Pharma Inc. The decrease in operating expenses for the three months ended September 30, 2012, was due primarily to the negative impact in 2011 from a previously disclosed charge for a legal settlement reserve of $780 million. For the nine months ended September 30, 2012 as compared with the nine months ended September 30, 2011, the impact from the 2011 legal settlement reserve was offset largely by increases in cost of sales, Selling, General & Administrative (SG&A) and R&D spending. The increases in net income for the three and nine months ended September 30, 2012, were due primarily to higher operating income, offset partially by higher interest expense, net, and higher effective income tax rates in the 2012 periods. The increases in diluted EPS for the three and nine months ended September 30, 2012, were driven primarily by increases in net income and, to a lesser extent, by the favorable impacts of our stock repurchase program, which reduced the number of shares used to compute diluted EPS. Commencing January 1, 2011, Puerto Rico imposes a temporary excise tax on the purchase of goods and services from a related manufacturer in Puerto Rico. The excise tax is imposed on the gross intercompany purchase price of the goods and services and is effective for a six-year period beginning in 2011, with the excise tax rate declining in each year (4% in 2011, 3.75% in


2012, 2.75% in 2013, 2.5% in 2014, 2.25% in 2015 and 1% in 2016). We account for the excise tax as a manufacturing cost that is capitalized in inventory and expensed in cost of sales when the related products are sold. For U.S. income tax purposes, the excise tax results in foreign tax credits that are generally recognized in our provision for income taxes when the excise tax is incurred. This excise tax has had and will continue to have a significant adverse impact on our cost of sales and a significant favorable impact on our provision for income taxes. In addition, the overall impact of the excise tax will vary from period to period as a result of the timing difference between recognizing the expense and the applicable tax credit. For the three and nine months ended September 30, 2012, cost of sales increased by $87 million and $253 million, respectively, compared with $74 million and $132 million for the corresponding periods of the prior year. The provision for income taxes decreased by $82 million and $264 million, for the three and nine months ended September 30, 2012, respectively, as a result of this excise tax compared with $106 million and $259 million for the corresponding periods of the prior year.

As of September 30, 2012, our cash, cash equivalents and marketable securities totaled $25.4 billion and total debt outstanding was $26.5 billion. Of our total cash, cash equivalents and marketable securities balances as of September 30, 2012, approximately $18.8 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. Results of operations
Product sales
Worldwide product sales were as follows (dollar amounts in millions):

                         Three months ended                      Nine months ended
                            September 30,                          September 30,
                           2012           2011     Change        2012         2011      Change
Neulasta®/NEUPOGEN ® $    1,355         $ 1,335        1  %   $    4,046    $  3,893        4  %
ENBREL                    1,079             925       17  %        3,075       2,756       12  %
Aranesp®                    497             600      (17 )%        1,551       1,765      (12 )%
EPOGEN®                     491             476        3  %        1,462       1,554       (6 )%
Other products              779             541       44  %        2,168       1,420       53  %
Total product sales  $    4,201         $ 3,877        8  %   $   12,302    $ 11,388        8  %

Product sales are influenced by a number of factors, some of which may impact sales of certain of our products more significantly than others do. For a list of certain of those factors and their potential impact on sales, see Item 7 - Product Sales in our Annual Report on Form 10-K for the year ended December 31, 2011, and Item 2 - Product Sales in our Quarterly Reports on Form 10-Q for the periods ended March 31, 2012, and June 30, 2012. Neulasta®/NEUPOGEN®
Total Neulasta®/NEUPOGEN® sales by geographic region were as follows (dollar amounts in millions):

                                  Three months ended                           Nine months ended
                                     September 30,                               September 30,
                                   2012            2011       Change           2012            2011       Change
Neulasta®-U.S.               $      824         $    757           9  %   $    2,432        $  2,236           9  %
Neulasta®-ROW                       220              246         (11 )%          666             718          (7 )%
Total Neulasta®                   1,044            1,003           4  %        3,098           2,954           5  %
NEUPOGEN®-U.S.                      249              258          (3 )%          756             708           7  %
NEUPOGEN®-ROW                        62               74         (16 )%          192             231         (17 )%
Total NEUPOGEN®                     311              332          (6 )%          948             939           1  %
Total Neulasta®/NEUPOGEN®    $    1,355         $  1,335           1  %   $    4,046        $  3,893           4  %

The increases in U.S. Neulasta® sales for the three and nine months ended September 30, 2012, were driven by increases in the average net sales price and, to a lesser extent, increases in unit demand.
The decrease in ROW Neulasta® sales for the three months ended September 30, 2012, was due primarily to a decrease in unit demand from loss of share to biosimilars in Europe. The decrease for the nine months ended September 30, 2012, was due


primarily to a decrease in the average net sales price and, to a lesser extent, a decrease in unit demand from loss of share to biosimilars in Europe. The decrease in global NEUPOGEN® sales for the three months ended September 30, 2012, was driven primarily by a decrease in unit demand from loss of share to biosimilars in Europe. Global NEUPOGEN® sales for the nine months ended September 30, 2012, increased 1%.
Our outstanding material U.S. patents for Filgrastim (NEUPOGEN®) expire in December 2013. We expect to face competition in the United States beginning in the fourth quarter of 2013 which may have a material adverse impact over time on future sales of NEUPOGEN® and, in turn, Neulasta®. See Financial condition, liquidity and capital resources for further discussion of the potential impact of patent expiration. Our outstanding material U.S. patent for pegfilgrastim (Neulasta®) expires in 2015.
Future Neulasta®/NEUPOGEN® sales will depend in part on factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2011. Certain of those factors may have a material adverse impact on future sales of Neulasta®/NEUPOGEN®.

ENBREL
Total ENBREL sales by geographic region were as follows (dollar amounts in
millions):
                     Three months ended                         Nine months ended
                        September 30,                             September 30,
                        2012            2011     Change          2012           2011      Change
ENBREL - U.S.   $      1,012           $ 863       17 %     $    2,881        $ 2,578       12 %
ENBREL - Canada           67              62        8 %            194            178        9 %
Total ENBREL    $      1,079           $ 925       17 %     $    3,075        $ 2,756       12 %

The increases in total ENBREL sales for the three and nine months ended September 30, 2012, were driven primarily by increases in the average net sales price and, to a lesser extent, increases in unit demand.
Future ENBREL sales will depend in part on factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2011. Certain of those factors may have a material adverse impact on future sales of ENBREL. Aranesp®
Total Aranesp® sales by geographic region were as follows (dollar amounts in millions):

                     Three months ended                       Nine months ended
                       September 30,                            September 30,
                       2012            2011    Change          2012           2011     Change
Aranesp® - U.S. $     178             $ 272      (35 )%   $      595        $   763      (22 )%
Aranesp® - ROW        319               328       (3 )%          956          1,002       (5 )%
Total Aranesp®  $     497             $ 600      (17 )%   $    1,551        $ 1,765      (12 )%

The decreases in U.S. Aranesp® sales for the three and nine months ended September 30, 2012, were driven by declines in unit demand. The unit declines reflect changes in practice patterns resulting from changes to the label and to the reimbursement environment that occurred during 2011. For the three months ended September 30, 2012, the decrease to sales was also driven by a change in accounting estimates in 2011 that resulted in $34 million of the year-over-year decline in the quarter.
The decrease in ROW Aranesp® sales for the three months ended September 30, 2012, was 3%. The decrease for the nine months ended September 30, 2012, was 5% due primarily to a decrease in the average net sales price.
Sequentially, global Aranesp® unit demand was down 3% in the quarter ended September 30, 2012, compared with the quarter ended June 30, 2012, due to a small share loss in the oncology segment in the United States.
Future Aranesp® sales will depend in part on factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2011. Certain of those factors may have a material adverse impact on future sales of Aranesp®.
EPOGEN®
Total EPOGEN® sales were as follows (dollar amounts in millions):


Three months ended Nine months ended September 30, September 30, 2012 2011 Change 2012 2011 Change EPOGEN® - U.S. $ 491 $ 476 3 % $ 1,462 $ 1,554 (6 )%

The increase in EPOGEN® sales for the three months ended September 30, 2012, was driven by reductions in customer discounts, as part of new provider contracts that became effective January 1, 2012, and by a year-over-year favorable change in accounting estimates of $36 million. These increases were offset largely by a 15% decrease in unit demand, driven by reductions in dose utilization due to changes to the label and to the reimbursement environment that occurred in 2011. The decrease in EPOGEN® sales for the nine months ended September 30, 2012, was driven by a 22% decrease in unit demand due to the impact of the 2011 changes, offset partially by reductions in customer discounts and by a year-over-year favorable change in accounting estimates of $76 million.
Sequentially, EPOGEN® sales decreased 6% in the quarter ended September 30, 2012, compared with the quarter ended June 30, 2012, due to customer buying patterns and competition.
Future EPOGEN® sales will depend in part on factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2011, and in our Quarterly Report on Form 10-Q for the period ended March 31, 2012. Certain of those factors may have a material adverse impact on future sales of EPOGEN®. Other products
Other product sales by geographic region were as follows (dollar amounts in millions):

                                    Three months ended                             Nine months ended
                                      September 30,                                  September 30,
                                    2012              2011        Change           2012            2011        Change
Sensipar® - U.S.             $     172             $    135          27 %     $      462        $    375          23 %
Sensipar® (Mimpara®) - ROW          71                   71           - %            232             217           7 %
Vectibix® - U.S.                    30                   30           - %             92              91           1 %
Vectibix® - ROW                     58                   49          18 %            176             144          22 %
Nplate® - U.S.                      53                   43          23 %            157             120          31 %
Nplate® - ROW                       38                   34          12 %            110              97          13 %
XGEVA® - U.S.                      171                  100          71 %            466             215           *
XGEVA® - ROW                        30                    2           *               67               2           *
Prolia® - U.S.                      68                   31           *              197              78           *
Prolia® - ROW                       42                   20           *              121              44           *
Other - ROW                         46                   26          77 %             88              37           *
Total other products         $     779             $    541          44 %     $    2,168        $  1,420          53 %
Total U.S.                   $     494             $    339          46 %     $    1,374        $    879          56 %
Total ROW                          285                  202          41 %            794             541          47 %
Total other products         $     779             $    541          44 %     $    2,168        $  1,420          53 %

* Change in excess of 100% Future sales of our other products will depend in part on factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2011. Certain of those factors may have a material adverse impact on future sales of our other products. Selected operating expenses Selected operating expenses were as follows (dollar amounts in millions):


                                Three months ended                       Nine months ended
                                   September 30,                           September 30,
                                 2012          2011       Change         2012          2011       Change
Cost of sales (excludes
amortization of certain
. . .
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