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AMGN > SEC Filings for AMGN > Form 10-Q on 29-Oct-2013All Recent SEC Filings

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Form 10-Q for AMGEN INC


29-Oct-2013

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 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 Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2012. 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, 2012 and our Quarterly Reports on Form 10-Q for the periods ended March 31, 2013, and June 30, 2013. Our results of operations discussed in MD&A are presented in conformity with GAAP.
Amgen discovers, develops, manufactures, and delivers innovative human therapeutics. A biotechnology pioneer since 1980, Amgen was one of the first companies to realize the new science's promise by bringing safe, effective medicines from lab to manufacturing plant to patient. Amgen therapeutics have changed the practice of medicine, helping people around the world in the fight against serious illnesses. With a deep and broad pipeline of potential new medicines, Amgen remains committed to advancing science to dramatically improve people's lives. Amgen operates in one business segment: human therapeutics. Therefore, our results of operations are discussed on a consolidated basis. Currently, we market primarily recombinant protein therapeutics for supportive cancer care, inflammation, nephrology and bone disease. Our principal products are Neulasta® (pegfilgrastim), NEUPOGEN® (filgrastim), Enbrel® (etanercept), XGEVA® (denosumab), Prolia® (denosumab) and our erythropoiesis-stimulating agents: Aranesp® (darbepoetin alfa) and EPOGEN® (epoetin alfa). Our product sales outside the United States consist principally of sales in Europe. For the three and nine months ended September 30, 2013, our principal products represented 89% and 88% of worldwide product sales, respectively, compared with 89% for the corresponding periods of the prior year. Our other marketed products include principally Sensipar®/Mimpara® (cinacalcet), Vectibix® (panitumumab) and Nplate® (romiplostim).


Significant developments
Following is a summary of selected significant developments affecting our business that have occurred since June 30, 2013. 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, 2012 and our Quarterly Reports on Form 10-Q for the periods ended March 31, 2013, and June 30, 2013.
Acquisition
• In October 2013, we acquired Onyx, a biopharmaceutical company engaged in the development and commercialization of innovative therapies for improving the lives of people with cancer. Onyx has an important and growing multiple myeloma franchise, with Kyprolis® (carfilzomib) for Injection already approved in the United States, and with oprozomib being evaluated in clinical trials for patients with hematologic malignancies. In addition, Onyx has collaborations with Bayer HealthCare Pharmaceuticals, Inc., for two of Bayer's marketed oncology products:
Nexavar® (sorafenib) tablets, for which Onyx and Bayer have a profit-sharing relationship, and Stivarga® (regorafenib) tablets, for which Onyx receives sales-based royalties from Bayer. Onyx also has a collaboration with Pfizer related to palbociclib, an oncology product being developed by Pfizer for which Onyx will receive sales-based royalties. See Note 12, Subsequent event to the condensed consolidated financial statements.

We believe there is a significant opportunity to grow Kyprolis®. Ongoing studies to support and extend the position of Kyprolis® in multiple myeloma include:
• The FOCUS trial, which could support the EU filing for the indication of relapsed/refractory multiple myeloma, is expected to read out in the first half of 2014.

•          The ASPIRE trial is the confirmatory trial for full U.S. approval as
           well as a registration-enabling study for relapsed multiple myeloma in
           the United States and the EU. The Independent Data Monitoring
           Committee review of interim analysis is projected to occur in the
           first half of 2014.


•          The ENDEAVOR trial compares Kyprolis® with Velcade® (bortezomib) in
           patients with relapsed multiple myeloma who have received one to three
           prior therapies.


•          The CLARION trial compares Kyprolis® with Velcade® in patients with
           newly diagnosed multiple myeloma.

Products/Pipeline
Vectibix®
• In September 2013, we presented results from the phase 3 ASPECCT ('763) trial comparing Vectibix® with Erbitux® (cetuximab) for the treatment of wild-type KRAS metastatic colorectal cancer in patients who have not responded to chemotherapy. The study met its primary endpoint, demonstrating that panitumumab was non-inferior to cetuximab for overall survival. In Europe, the ASPECCT trial is a Specific Obligation for Vectibix® as part of the European Medicine Agency's conditional marketing authorization.

Trebananib
• In October 2013, we announced that the primary analysis of the event-driven overall survival secondary endpoint from the ongoing pivotal phase 3 study in recurrent ovarian cancer (TRINOVA-1) is projected to occur in the second half of 2014.

• In October 2013, we announced that enrollment has been closed in a phase 3 study in recurrent ovarian cancer (TRINOVA-2) due to DOXIL® (doxorubicin HCl liposome injection) supply issues.

• In October 2013, we discussed that enrollment will be reduced in the phase 3 study in first-line ovarian cancer (TRINOVA-3) while maintaining the integrity of the primary endpoint (progression-free survival).

Evolocumab (AMG 145)
• In October 2013, we announced that all of the pivotal lipid lowering studies of evolocumab have completed enrollment and that data are expected in the first quarter of 2014.

Brodalumab
• In October 2013, we announced that all phase 3 studies in subjects with psoriasis have completed enrollment and that data are expected in 2014.


Ivabradine
• In August 2013, we obtained the commercial rights in the United States to Servier's novel oral drug ivabradine. Ivabradine is approved in the EU for chronic heart failure and stable angina in patients with elevated heart rates, as well as approved in more than 100 other countries, excluding the United States.

Biosimilars
•      In October 2013, we announced that we commenced a pivotal study in
       subjects with psoriasis for our biosimilar Humira® (adalimumab).


Selected financial information
The following is an overview of our results of operations (in millions, except
percentages and per share data):
                            Three months ended                     Nine months ended
                               September 30,                         September 30,
                              2013           2012     Change       2013         2012      Change
Product sales:
U.S.                    $    3,625         $ 3,248      12  %   $   10,358    $  9,500       9  %
Rest-of-the-world (ROW)      1,022             953       7  %        3,035       2,802       8  %
Total product sales          4,647           4,201      11  %       13,393      12,302       9  %
Other revenues                 101             118     (14 )%          272         542     (50 )%
Total revenues          $    4,748         $ 4,319      10  %   $   13,665    $ 12,844       6  %
Operating expenses      $    3,060         $ 2,896       6  %   $    8,985    $  8,355       8  %
Operating income        $    1,688         $ 1,423      19  %   $    4,680    $  4,489       4  %
Net income              $    1,368         $ 1,107      24  %   $    4,060    $  3,557      14  %
Diluted EPS             $     1.79         $  1.41      27  %   $     5.31    $   4.51      18  %
Diluted shares                 766             783      (2 )%          764         789      (3 )%

The increases in global product sales for the three and nine months ended September 30, 2013, were driven by ENBREL, Neulasta®, XGEVA® and Prolia®. Product sales included a $155-million order for NEUPOGEN® from the U.S. government in the third quarter. Product sales for the nine months ended September 30, 2013, also included a positive adjustment of $164 million to previous years' estimates for managed Medicaid rebates based on recent claims experience. In the United States, we pay rebates to the states for our products that are covered and reimbursed by state Medicaid programs. One of the provisions of the Affordable Care Act-a U.S. healthcare reform law that became effective in 2010-was the extension of the Medicaid drug rebate program to patients in Medicaid managed care insurance plans for whom rebates were not previously required. As we sell product, we estimate the amount of Medicaid rebate that will be paid by us based on the product sold, contractual terms, estimated patient population, historical experience and wholesaler inventory levels, and we accrue these rebates in the period the related sale is recorded. We then adjust the rebate accruals as more information becomes available and to reflect actual claims experience. Estimating such rebates is complicated, in part, due to the limited availability of actual claims data as a result of the time delay between the date of sale and the actual settlement of the liability, which can take more than one year.
Other revenues for the three months ended September 30, 2013, decreased slightly. The decrease in other revenues for the nine months ended September 30, 2013, was due primarily to revenue recognized in the prior year related to changes in our motesanib collaboration with Takeda and milestone payments received in the prior year from AstraZeneca and Astellas Pharma Inc. The increases in operating expenses for the three and nine months ended September 30, 2013, were driven primarily by R&D and Selling, general & administrative (SG&A) spending.
Net income for the three months ended September 30, 2013, increased due primarily to higher operating income. The increase in net income for the nine months ended September 30, 2013, was due primarily to a lower effective income tax rate driven by tax benefits recognized in the first quarter as well as higher operating income.
The increases in diluted EPS for the three and nine months ended September 30, 2013, were driven primarily by an increase in net income and, to a lesser extent, by the favorable impact of our stock repurchase program in 2012 and the first quarter of 2013, which reduced the number of shares used to compute diluted EPS. We did not repurchase any shares during the second or third quarter of 2013.


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,
                          2013           2012     Change        2013         2012       Change
Neulasta®/NEUPOGEN® $    1,601         $ 1,355       18  %   $    4,383    $  4,046       8  %
ENBREL                   1,155           1,079        7  %        3,351       3,075       9  %
Aranesp®                   449             497      (10 )%        1,441       1,551      (7 )%
EPOGEN®                    491             491        -  %        1,428       1,462      (2 )%
XGEVA®                     261             201       30  %          733         533      38  %
Prolia®                    178             110       62  %          508         318      60  %
Other products             512             468        9  %        1,549       1,317      18  %
Total product sales $    4,647         $ 4,201       11  %   $   13,393    $ 12,302       9  %

Future sales of our products are influenced by a number of factors, some of which may impact sales of certain of our products more significantly than others. Such factors are discussed below and in the Overview, Item 1. Business - Marketed Products, Item 1A. Risk Factors and Item 7 - Product Sales in our Annual Report on Form 10-K for the year ended December 31, 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,
                                2013            2012          Change            2013            2012         Change
Neulasta®- U.S.           $      905         $     824           10  %     $    2,629        $   2,432            8  %
Neulasta®- ROW                   230               220            5  %            665              666            -  %
Total Neulasta®                1,135             1,044            9  %          3,294            3,098            6  %
NEUPOGEN®- U.S.                  409               249           64  %            918              756           21  %
NEUPOGEN®- ROW                    57                62           (8 )%            171              192          (11 )%
Total NEUPOGEN®                  466               311           50  %          1,089              948           15  %
Total Neulasta®/NEUPOGEN® $    1,601         $   1,355           18  %     $    4,383        $   4,046            8  %

The increase in global Neulasta® sales for the three months ended September 30, 2013, was driven by an increase in the average net sales price. The increase in global Neulasta® sales for the nine months ended September 30, 2013, was driven by an increase in the average net sales price, offset partially by a decline in units.
The increases in global NEUPOGEN® sales for the three and nine months ended September 30, 2013, were driven by a $155-million order from the U.S. government. Excluding the special order, sales for the three and nine months ended September 30, 2013, reflected decreases in unit demand, offset partially by increases in the average net sales price.
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 sales of NEUPOGEN® and Neulasta®.


ENBREL
Total ENBREL sales by geographic region were as follows (dollar amounts in
millions):
                    Three months ended                        Nine months ended
                       September 30,                            September 30,
                      2013           2012      Change          2013           2012      Change
ENBREL - U.S.   $    1,073         $ 1,012        6 %     $    3,136        $ 2,881        9 %
ENBREL - Canada         82              67       22 %            215            194       11 %
Total ENBREL    $    1,155         $ 1,079        7 %     $    3,351        $ 3,075        9 %

The increases in ENBREL sales for the three and nine months ended September 30, 2013, were driven primarily by increases in the average net sales price, offset partially by slight unit declines.
Aranesp®
Total Aranesp® sales by geographic region were as follows (dollar amounts in millions):

                     Three months ended                       Nine months ended
                       September 30,                            September 30,
                       2013            2012    Change          2013           2012      Change
Aranesp® - U.S. $     171             $ 178       (4 )%   $      567        $   595      (5 )%
Aranesp® - ROW        278               319      (13 )%          874            956      (9 )%
Total Aranesp®  $     449             $ 497      (10 )%   $    1,441        $ 1,551      (7 )%

The decreases in global Aranesp® sales for the three and nine months ended September 30, 2013, were driven by a decline in units and we expect sales to continue trending slightly downward.
EPOGEN®
Total EPOGEN® sales were as follows (dollar amounts in millions):

Three months ended Nine months ended
September 30, September 30,
2013 2012 Change 2013 2012 Change
EPOGEN® - U.S. $ 491 $ 491 - % $ 1,428 $ 1,462 (2 )%

EPOGEN® sales for the three months ended September 30, 2013, were flat. EPOGEN® sales for the nine months ended September 30, 2013, declined 2%.
The Centers for Medicare & Medicaid Services was directed to reduce the dialysis services and the related end stage renal disease payment bundle amount effective January 1, 2014, under the American Taxpayer Relief Act enacted in January 2013. This change may have an adverse impact on EPOGEN® sales. A final ruling is expected in November.


XGEVA® and Prolia®
Total XGEVA® and total Prolia® sales by geographic region were as follows
(dollar amounts in millions):
                           Three months ended                             Nine months ended
                             September 30,                                  September 30,
                           2013          2012         Change              2013             2012         Change
XGEVA® - U.S.          $      194     $     171           13 %     $       561          $     466           20 %
XGEVA® - ROW                   67            30            *               172                 67            *
Total XGEVA®                  261           201           30 %             733                533           38 %
Prolia® - U.S.                109            68           60 %             314                197           59 %
Prolia® - ROW                  69            42           64 %             194                121           60 %
Total Prolia®                 178           110           62 %             508                318           60 %
Total XGEVA®/Prolia®   $      439     $     311           41 %     $     1,241          $     851           46 %

* Change in excess of 100% The increases in global XGEVA® and Prolia® sales for the three and nine months ended September 30, 2013, were driven by unit growth reflecting increased segment share. Sequentially, global XGEVA® sales increased 5% in the quarter ended September 30, 2013, compared with the quarter ended June 30, 2013, reflecting increased segment share. Global Prolia® sales decreased 5% during that same period, impacted by seasonality. 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,
                                2013          2012         Change           2013            2012          Change
Sensipar® - U.S.            $      183     $     172            6  %   $      540        $     462           17  %
Sensipar®/Mimpara® - ROW            76            71            7  %          242              232            4  %
Vectibix® - U.S.                    32            30            7  %           90               92           (2 )%
Vectibix® - ROW                     75            58           29  %          197              176           12  %
Nplate® - U.S.                      58            53            9  %          175              157           11  %
Nplate® - ROW                       48            38           26  %          132              110           20  %
Other - ROW                         40            46          (13 )%          173               88           97  %
Total other products        $      512     $     468            9  %   $    1,549        $   1,317           18  %
Total U.S. - other products $      273     $     255            7  %   $      805        $     711           13  %
Total ROW - other products         239           213           12  %          744              606           23  %
Total other products        $      512     $     468            9  %   $    1,549        $   1,317           18  %


Operating expenses
Operating expenses were as follows (dollar amounts in millions):

                                Three months ended                       Nine months ended
                                   September 30,                           September 30,
                                 2013          2012       Change         2013          2012       Change
Cost of sales                $     788      $    775           2  %   $   2,317     $  2,277           2  %
% of product sales                17.0 %        18.4 %                     17.3 %       18.5 %
Research and development     $     989      $    880          12  %   $   2,834     $  2,442          16  %
% of product sales                21.3 %        20.9 %                     21.2 %       19.9 %
Selling, general and
administrative               $   1,249      $  1,131          10  %   $   3,663     $  3,441           6  %
% of product sales                26.9 %        26.9 %                     27.4 %       28.0 %

Other $ 34 $ 110 (69 )% $ 171 $ 195 (12 )%

Cost of sales
Cost of sales decreased to 17.0% and 17.3% of product sales for the three and nine months ended September 30, 2013, respectively, driven by lower royalties and higher average net sales prices, offset partially by changes in product mix. The excise tax imposed by Puerto Rico on the gross intercompany purchase price of goods and services from our manufacturer in Puerto Rico also slightly contributed to the decreases as the tax rate declined from 4.0% in 2011 to 3.75% in 2012 and 2.75% in 2013. However, changes to the law have increased the rate effective July 1, 2013, back to 4.0%.
Excluding the impact of the excise tax, cost of sales would have been 15.0% and 15.4% of product sales for the three and nine months ended September 30, 2013, respectively, compared with 16.4% and 16.5% for the corresponding periods of the prior year.
See Note 3, Income taxes, to the condensed consolidated financial statements for further discussion of the Puerto Rico excise tax. Research and development
The increase in R&D expenses for the three months ended September 30, 2013, was driven primarily by increased costs associated with supporting later-stage clinical programs of $133 million, particularly evolocumab and the $50 million upfront payment to Servier for the U.S. rights to ivabradine. These expenses were offset partially by reduced expenses associated with marketed product support of $24 million. Expenses related to Discovery Research and Translational Sciences activities were flat compared with the prior year.
The increase in R&D expenses for the nine months ended September 30, 2013, was driven primarily by increased costs associated with supporting later-stage clinical programs of $364 million, including evolocumab, and increases in Discovery Research and Translational Sciences activities of $65 million. These expenses were offset partially by reduced expenses associated with marketed product support of $37 million.
Selling, general and administrative
The increases in SG&A expenses for the three and nine months ended September 30, 2013, were driven by higher ENBREL profit share expenses of $46 million and $154 million, respectively; as well as $39 million and $88 million, respectively, related primarily to favorable changes to the estimated U.S. healthcare reform federal excise fee in the prior year.
Under our ENBREL collaboration agreement, we currently pay Pfizer a percentage of 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. For the three and nine months ended September 30, 2013, expenses associated with the ENBREL profit share were $432 million and $1,235 million, respectively, compared with $386 million and $1,081 million for the corresponding periods of the prior year. After expiration of the co-promotion term on October 31, 2013, we will be required to pay Pfizer residual royalties on a declining percentage of net Enbrel sales in the United States and Canada of 12% through October 31, 2014, 11% through October 31, 2015 and 10% through October 31, 2016. Other
Other operating expenses for the three and nine months ended September 30, 2013, included certain charges related to our cost savings initiatives, primarily severance, of $35 million and $46 million, respectively.


Based on analysis of the results from the phase 3 trial for talimogene laherparepvec in melanoma, which met its primary endpoint, there were increases . . .

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