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Amgen 10-K 2010 Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 Form 10-K (Mark One)
For the fiscal year ended December 31, 2009 OR
Commission file number 000-12477 Amgen Inc. (Exact name of registrant as specified in its charter)
(805) 447-1000 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Common stock, $0.0001 par value (Title of class) Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or Section 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ¨ (Do not check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes ¨ No x The approximate aggregate market value of voting and non-voting stock held by non-affiliates of the registrant was $53,667,437,634 as of June 30, 2009(A)
979,301,627 (Number of shares of common stock outstanding as of February 12, 2010) DOCUMENTS INCORPORATED BY REFERENCE Specified portions of the registrant’s Proxy Statement with respect to the 2010 Annual Meeting of stockholders to be held May 12, 2010 are incorporated by reference into Part III of this annual report.
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Overview Amgen Inc. (including its subsidiaries, referred to as “Amgen,” “the Company,” “we,” “our” and “us”) is the world’s largest independent biotechnology medicines company. We discover, develop, manufacture and market medicines for grievous illnesses. We focus solely on human therapeutics and concentrate on innovating novel medicines based on advances in cellular and molecular biology. Our mission is to serve patients. We were incorporated in 1980 and organized as a Delaware corporation in 1987. Our public website is www.amgen.com. On our website, investors can find press releases, financial filings and other information about the Company. The U.S. Securities and Exchange Commission (“SEC”) website, www.sec.gov, also offers access to reports and documents Amgen has filed electronically with the SEC. These website addresses are not intended to function as hyperlinks, and the information contained in our website and in the SEC’s website is not intended to be a part of this filing. As of December 31, 2009, we had 17,200 staff members worldwide. Approximately 6,600 of our staff members work in our research and development (“R&D”) function; approximately 4,700 work in manufacturing; approximately 3,900 work in our commercial operations and the rest are in general and administrative functions. Currently, we market primarily recombinant protein therapeutics in supportive cancer care, nephrology and inflammation. Our principal products are: Aranesp® (darbepoetin alfa) and EPOGEN® (Epoetin alfa), erythropoietic-stimulating agents (“ESAs”) that stimulate the production of red blood cells; Neulasta® (pegfilgrastim), a pegylated protein, based on the Filgrastim molecule, and NEUPOGEN® (Filgrastim), a recombinant-methionyl human granulocyte colony-stimulating factor (“G-CSF”), both of which selectively stimulate the production of neutrophils (a type of white blood cell that helps the body fight infection), and Enbrel® (etanercept), an inhibitor of tumor necrosis factor (“TNF”), a substance that plays a role in the body’s response to inflammatory diseases. Our principal products represented 93%, 94% and 95% of our sales in 2009, 2008 and 2007, respectively. Our other marketed products include: Sensipar®/Mimpara® (cinacalcet), a small molecule calcimimetic that lowers serum calcium levels; Vectibix® (panitumumab), a fully human monoclonal antibody that binds specifically to the epidermal growth factor receptor (“EGFr”) and Nplate® (romiplostim), a thrombopoietin (“TPO”) receptor agonist that mimics endogenous TPO, the primary driver of platelet production. In addition to our marketed products, we have products in mid-to-late stage development in various therapeutic areas, including oncology, hematology, inflammation, bone, nephrology and general medicine, which includes cardiology and neurology. Denosumab, our leading late-stage product candidate, is a fully human monoclonal antibody that specifically targets a ligand known as RANKL (that binds to a receptor known as RANK), an essential regulator of osteoclasts (the cells that break down bone) that is under regulatory review and is being studied across a range of conditions. Our R&D organization has expertise in multiple treatment modalities, including large molecules (such as proteins, antibodies and peptibodies) and small molecules. We maintain sales and marketing forces primarily in the United States, Europe and Canada. We market our products to healthcare providers, including physicians or their clinics, dialysis centers, hospitals and pharmacies. Most patients receiving our principal products for approved indications are covered by either government or private payer healthcare programs, which influence demand. The reimbursement environment is evolving with greater emphasis on cost containment and in demonstrating the economic value of products. Drug development in our industry is complex, challenging and risky. Product development cycles are very long — approximately 10 to 15 years from discovery to market – and failure rates are high. A new medicine must undergo many years of preclinical and clinical testing to establish safety and efficacy for use in humans at appropriate dosing levels with an acceptable benefit-risk profile. Biotechnology products, which are produced in living systems, are inherently complex due to naturally-occurring molecular variations. Highly specialized knowledge and extensive process and product characterization are required to transform laboratory scale processes into reproducible commercial manufacturing processes. Upon approval, marketed products in our industry
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Table of Contentsgenerally face substantial competition. Our industry is also highly regulated, and various U.S. and international regulatory bodies have substantial authority over how we develop, manufacture and commercialize our products as well as conduct our business. 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 safety of therapeutic products, which may lead to fewer products being approved by the FDA or other regulatory bodies, delays in receiving approvals or additional safety-related requirements or restrictions on the use of our products, including expanded safety labeling, required risk management activities, including a risk evaluation and mitigation strategy (“REMS”), and/or additional or more extensive clinical trials as part of post-marketing commitments (“PMCs”), post-marketing requirements (“PMRs”) or pharmacovigilance programs. Key Developments The following is a list of selected key developments that occurred during 2009 and early 2010 affecting our business, including regulatory and reimbursement developments associated with certain of our marketed products and product candidates. A more detailed discussion of each key development follows in the appropriate sections. Denosumab
These three studies will form the basis of the clinical evidence package for denosumab in advanced cancer, which will be submitted to regulatory authorities later in 2010.
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U.S. healthcare reform
At this time, we cannot predict which or whether any reform measures will be adopted into law. Other pipeline developments
Marketed Products and Selected Product Candidates We market our principal products, Aranesp®, EPOGEN®, Neulasta®, NEUPOGEN® and ENBREL, in the areas of supportive cancer care, nephrology and inflammation. Our products’ competitive position among other biologic and pharmaceutical products may be based on, among other things, patent position, product efficacy, safety, reliability, availability, patient convenience/delivery devices, price and reimbursement. Certain of our marketed products face, and our product candidates, if approved, are also expected to face, substantial competition from products marketed by large pharmaceutical corporations, which may have greater clinical, research, regulatory, manufacturing, marketing, financial and human resources than we do. In addition, the introduction of new products or the development of new processes or technologies by competitors or new information about existing products may result in increased competition for our marketed products, even for those protected by
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Table of Contentspatents, or a reduction in the price we receive from selling our products. For example, we are facing increasing competition from biosimilars in the European Union (“EU”), which has an established regulatory pathway for biosimilars. In addition, lawmakers in the United States have proposed bills to create a regulatory pathway for the abbreviated approval of biosimilars and several companies have recently announced plans to pursue development of biosimilars in the United States. Further, the development of new treatment options or standards of care may require less use of our products, particularly in supportive cancer care, or limit the utility and application of ongoing clinical trials for our product candidates. In addition to challenges presented by competition, our existing products and product candidates are also subject to increasing regulatory compliance requirements which can be imposed as a condition of approval or after a product has been approved. This is increasingly true of new therapies with novel mechanisms of action. While these therapies may offer important benefits and/or better treatment alternatives, they may also involve a relatively new or higher level of scientific complexity and, therefore, generate increased safety concerns. For example, as a condition of approval or due to safety concerns after the product has been approved, we may be required to perform additional clinical trials or studies, such as observational epidemiological studies. Such trials or studies are called PMCs or PMRs. We currently have PMCs or PMRs for some of our marketed products. In addition, we may be required to implement a REMS for a product to ensure that the benefits of the drug outweigh the risks. This requirement, too, may be imposed as a condition of approval or after a product has been on the market. A REMS may include a medication guide or a patient package insert, a healthcare provider communication plan or other elements the FDA deems are necessary to assure safe use of the product. While the elements of a REMS may vary, all REMS are required to have a timetable for assessments. ESAs Aranesp® is our registered trademark for one of our ESAs, a protein that stimulates red blood cell production. Red blood cells transport oxygen to all cells of the body. Without adequate amounts of erythropoietin, the red blood cell count is reduced. A deficient red blood cell count can result in anemia, a condition where insufficient oxygen is delivered to the body’s organs and tissues. Anemia can be associated with chronic renal failure (“CRF”), both in patients on dialysis and not on dialysis. Anemia can also result from chemotherapy treatments for patients with non-myeloid malignancies. EPOGEN® is our other ESA and is our registered trademark for our recombinant human erythropoietin product, a protein that stimulates red blood cell production. A reduced red blood cell count can result in anemia (see “— Aranesp® (darbepoetin alfa)”). Individuals with CRF suffer from anemia because they do not produce sufficient amounts of erythropoietin, which is normally produced in healthy kidneys. Our ESA products have and will continue to face challenges. For example, based on adverse safety results observed beginning in late 2006 in various ESA studies, performed by us and others, that explored the use of ESAs in settings different from those outlined in the FDA approved label, the product labeling of our ESA products has been updated several times to reflect these safety concerns in the United States and the EU, including, most recently, label updates in the United States in August 2008 and in December 2009 to reflect certain results of our TREAT study, as discussed below. In addition, due in part to certain of these developments, reimbursement of our ESA products in the United States was also revised resulting in changes in the way ESAs are used in clinical practice, including by decreasing the number of treated patients, average dose and duration of ESA therapy. Certain of these developments have had a material adverse impact on sales of our ESA products, in particular Aranesp® sales in the U.S. supportive cancer care setting. Further, we believe that certain of the following recent and pending developments could have a material adverse impact on the future sales of Aranesp® and EPOGEN®:
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In addition to the above, following the Oncologic Drugs Advisory Committee (“ODAC”) meeting in May 2004, we proposed a pharmacovigilance program for Aranesp® comprised of five studies to explore the use of ESAs in settings different from those outlined in the FDA approved label. These studies were subsequently designated by the FDA as PMCs. Of the five studies, one was sponsored by Amgen while the remaining four were investigator-sponsored. Results of certain of these studies contributed to safety-related product labeling changes for our ESA products and changes in reimbursement, as noted above. Of the five studies, three are complete while final results of the other two are expected in 2010 or 2011. In addition, Johnson and Johnson Pharmaceutical Research & Development (“J&JPRD”), a subsidiary of J&J, and/or its investigators have conducted numerous studies proposed at the 2004 ODAC meeting. All of these studies are closed to enrollment and summary results were submitted to the FDA. In addition, J&JPRD’s EPO-ANE-3010 study in breast cancer is ongoing and is designated as a FDA PMC. Based on our ongoing discussions with the FDA in response to the May 2007 ODAC meeting, we and J&JPRD have carefully considered potential new study designs to determine the effects of ESAs on survival and tumor outcomes in anemic patients with metastatic cancer receiving concomitant myelosuppressive chemotherapy. Based on these discussions, we have initiated a randomized, double-blind, placebo-controlled, phase 3
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Table of Contentsnon-inferiority study evaluating OS 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. Adverse events or results of any of these studies could further affect product safety labeling, healthcare provider prescribing behavior, regulatory or private healthcare organization medical guidelines and/or reimbursement practices related to Aranesp® . Aranesp® (darbepoetin alfa) We were granted an exclusive license by Kirin-Amgen, Inc. (“KA”), a joint venture between Kirin Holdings Company, Limited (“Kirin”) and Amgen (see “Business Relationships — Kirin Holdings Company, Limited”), to manufacture and market Aranesp® in the United States, all European countries, Canada, Australia, New Zealand, Mexico, all Central and South American countries and certain countries in Central Asia, Africa and the Middle East. We market Aranesp® primarily in the United States and Europe. Aranesp® was initially launched in 2001 in the United States and Europe for the treatment of anemia associated with CRF (both in patients on dialysis and patients not on dialysis) and is also indicated for the treatment of anemia due to concomitant chemotherapy in patients with non-myeloid malignancies. Worldwide Aranesp® sales for the years ended December 31, 2009, 2008 and 2007 were $2.65 billion, $3.14 billion and $3.61 billion, respectively. For the years ended December 31, 2009, 2008 and 2007, U.S. Aranesp® sales were $1.25 billion, $1.65 billion and $2.15 billion, respectively and international Aranesp® sales were $1.40 billion, $1.49 billion and $1.46 billion, respectively. Our outstanding material patents for darbepoetin alfa are described in the table below.
Our principal European patent relating to Epoetin alfa expired on December 12, 2004. Although we do not market EPOGEN® in Europe, upon expiration of this patent, some companies have received approval to market biosimilars or other products that compete with Aranesp® in Europe, presenting additional competition, as further discussed below.
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Table of ContentsAny products or technologies that are directly or indirectly successful in addressing anemia associated with chemotherapy and renal failure could negatively impact product sales of Aranesp® . The following table reflects companies and their currently marketed products that compete with Aranesp® in the United States and Europe in the supportive cancer care and nephrology segments, unless otherwise indicated. The table and discussion below of competitor marketed products and potential products may not be exhaustive.
In the United States, Aranesp® also competes with EPOGEN®, primarily in the U.S. hospital dialysis clinic setting. In addition to competition from the above-noted marketed products, the following product candidates could compete with Aranesp® in the future. Affymax Inc. and Takeda Pharmaceutical Company Limited (“Takeda”) are co-developing Hematide™, an ESA for the treatment of anemia in renal patients and they have announced plans to file for regulatory approval in 2010. FibroGen Inc. is developing FG-2216 and FG-4592, orally active ESAs, for the treatment of anemia and is also studying FG-4592 for the treatment in anemia of CKD. Additionally, in December 2008, Merck & Company, Inc. (“Merck”) announced the formation of a new biotech division, Merck Bioventures, which is developing a late-stage pegylated ESA (MK-2578), which they have announced they expect to launch in 2012. EPOGEN® (Epoetin alfa) We were granted an exclusive license to manufacture and market EPOGEN® in the United States under a licensing agreement with KA. We have retained exclusive rights to market EPOGEN® in the United States for dialysis patients. We granted Ortho Pharmaceutical Corporation, a subsidiary of J&J (which has assigned its rights under the Product License Agreement to Centocor Ortho Biotech Products), a license to commercialize recombinant human erythropoietin as a human therapeutic in the United States in all markets other than dialysis (see “Business Relationships — Johnson & Johnson”). We launched EPOGEN® in the United States in 1989 for the treatment of anemia associated with CRF for patients who are on dialysis. We market EPOGEN® in the United States for the treatment of anemic adult and pediatric patients with CRF who are on dialysis. EPOGEN® is indicated for elevating or maintaining the red blood cell level (as determined by hematocrit or Hb measurements) and decreasing the need for blood transfusions in these patients. EPOGEN® sales in the United States for the years ended December 31, 2009, 2008 and 2007 were $2.6 billion, $2.5 billion and $2.5 billion, respectively.
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Table of ContentsOur outstanding material patents for Epoetin alfa are described in the table below.
Amgen and Roche reached a settlement of litigation in December 2009, and on December 22, 2009, the U.S. District Court for the District of Massachusetts entered final judgment and a permanent injunction against Roche prohibiting Roche from infringing our patents. The judgment was accompanied by Roche’s admission that our five patents involved in the lawsuit are valid, enforceable and infringed by Roche’s Peg-EPO, and by us allowing Roche to begin selling Peg-EPO in the United States in mid-2014 under terms of a limited license agreement. Peg-EPO has been approved by the FDA for the treatment of anemia associated with CKD. Any products or technologies that are directly or indirectly successful in addressing anemia associated with CRF could negatively impact product sales of EPOGEN®. In the United States, as noted above, EPOGEN® and Aranesp® compete with each other, primarily in the U.S. hospital dialysis clinic setting. In addition, EPOGEN® could face additional competition in the United States from those product candidates noted in the Aranesp® section above that may be used in dialysis. Neulasta® (pegfilgrastim)/NEUPOGEN® (Filgrastim) Neulasta® is our registered trademark for a pegylated protein, based on the Filgrastim molecule, that selectively stimulates production of certain white blood cells known as neutrophils. Neutrophils defend against infection. NEUPOGEN® is our registered trademark for our recombinant-methionyl human G-CSF, a protein that selectively stimulates production of neutrophils. Treatments for various diseases and diseases themselves can result in extremely low numbers of neutrophils, a condition called neutropenia. Myelosuppressive chemotherapy, one treatment option for individuals with certain types of cancers, targets cell types that grow rapidly, such as tumor cells. Normal cells that divide rapidly, such as those in the bone marrow that become neutrophils, are also vulnerable to the effects of cytotoxic chemotherapy, resulting in neutropenia with an increased risk of severe infection. Very often, neutropenia is the dose limiting side effect of chemotherapy and can thus be responsible for a reduction in the amount of chemotherapy that can be administered safely. Such reductions in chemotherapy dose can compromise the effectiveness of chemotherapy on the cancer it is being used to treat, with the result of a higher treatment failure rate. As mentioned above, the pegfilgrastim molecule is based on the Filgrastim molecule. A polyethylene glycol molecule (“PEG”) is added to enlarge the Filgrastim molecule, thereby extending its half-life and causing it to be removed more slowly from the body. Because pegfilgrastim is eliminated through binding to its receptor on neutrophils and their precursors, pegfilgrastim remains in the circulation until neutrophil recovery has occurred. This neutrophil-mediated clearance allows for administration as a single dose per chemotherapy cycle, compared with NEUPOGEN®, which requires more frequent dosing. Neulasta® and NEUPOGEN® are prescribed more frequently in the curative setting, in which myelosuppressive chemotherapy is administered with the intent to cure cancer, rather than in the palliative setting, in which myelosuppressive chemotherapy is administered to treat other complications of cancer by managing tumor growth. We were granted an exclusive license to manufacture and market Neulasta® and NEUPOGEN® in the United States, Europe, Canada, Australia and New Zealand under a licensing agreement with KA (see “Business Relationships — Kirin Holdings Company, Limited”). We market Neulasta® and NEUPOGEN® primarily in the United States and Europe. Filgrastim is also marketed under the brand name GRANULOKINE® in Italy. Neulasta® was initially launched in the United States and Europe in 2002 and is indicated for reducing the incidence of infection associated with chemotherapy-induced neutropenia in cancer patients with non-myeloid malignancies. Administration of Neulasta® in all cycles of chemotherapy is approved for patients receiving myelosuppressive chemotherapy associated with at least a 17% risk of febrile neutropenia. NEUPOGEN® was initially launched in the United States and Europe in 1991. NEUPOGEN® is indicated for reducing the incidence of infection as manifested by febrile neutropenia for
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Table of Contentspatients with non-myeloid malignancies undergoing myelosuppressive chemotherapy; reducing the duration of neutropenia and neutropenia-related consequences for patients with non-myeloid malignancies undergoing myeloablative chemotherapy followed by bone marrow transplantation; reducing the incidence and duration of neutropenia-related consequences in symptomatic patients with congenital neutropenia, cyclic neutropenia or idiopathic neutropenia (collectively, severe chronic neutropenia); mobilizing peripheral blood progenitor cells (“PBPC”) in cancer patients who have undergone myeloablative chemotherapy for stem cell transplantation; and reducing the recovery time of neutrophils and the duration of fever following induction or consolidation chemotherapy treatment in adult patients with acute myeloid leukemia (“AML”). Worldwide Neulasta® sales for the years ended December 31, 2009, 2008 and 2007 were $3.4 billion, $3.3 billion and $3.0 billion, respectively. Worldwide NEUPOGEN® sales for each of the three years ended December 31, 2009 were $1.3 billion. Our outstanding material patents for pegfilgrastim are described in the table below.
Our outstanding material patents for Filgrastim are described in the table below.
Our principal European patent relating to G-CSF expired on August 22, 2006. Upon expiration of this patent, some companies have received approval to market biosimilar products that compete with Neulasta® and NEUPOGEN® in Europe, presenting additional competition, as further discussed below. Neulasta® and NEUPOGEN® could face competition in some circumstances from companies marketing or developing treatments for neutropenia associated with chemotherapy, for bone marrow and PBPC transplant patients, severe chronic neutropenia and AML. NEUPOGEN® competes with Neulasta® in the United States and Europe. U.S. and international NEUPOGEN® sales have been adversely impacted by conversion to Neulasta®. However, we believe that the conversion in the United States is substantially complete and that a significant amount of the conversion in Europe had already occurred. The following table reflects companies and their currently marketed products that primarily compete with Neulasta® and NEUPOGEN® in the United States and Europe in the supportive cancer care setting. The table and discussion below of competitor marketed products and potential competitor products may not be exhaustive.
In February 2010, Teva Pharmaceutical announced that the FDA has accepted for review its BLA seeking U.S. approval to market XM02 to boost white blood cells under the brand name Neutroval™. XM02 is already
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Table of Contentsbeing sold under the brand name Tevagrastim® in several European countries. If approved in the United States, this drug could compete with NEUPOGEN® and Neulasta®. On November 30, 2009, Teva Pharmaceutical filed a declaratory judgment action against us alleging that certain of our NEUPOGEN® patents are invalid and not infringed by Teva Pharmaceutical’s XM02 and on January 15, 2010, we filed an answer and counterclaims seeking a declaratory judgment that our patents are valid and infringed. (See Note 20, “Contingencies and commitments” to the Consolidated Financial Statements.) In addition, in September 2009, Hospira announced it acquired worldwide rights to a biogeneric version of Filgrastim from Teva Pharmaceutical. If approved in Europe, this drug could compete with NEUPOGEN® and Neulasta®. Enbrel® (etanercept) ENBREL is our registered trademark for our TNF receptor fusion protein that inhibits the binding of TNF to its receptors, which can result in a significant reduction in inflammatory activity. TNF is one of the chemical messengers that help regulate the inflammatory process. When the body produces too much TNF, it overwhelms the immune system’s ability to control inflammation of the joints or of psoriasis-affected skin areas. ENBREL is similar to a protein that the body produces naturally, and like this protein, it binds certain TNF molecules before they can trigger inflammation. We acquired the rights to ENBREL in July 2002 with our acquisition of Immunex Corporation (“Immunex”). We market ENBREL under a co-promotion agreement with Pfizer Inc. (“Pfizer”) in the United States and Canada (see “Business Relationships — Pfizer Inc.”). The rights to market and sell ENBREL outside of the United States and Canada are reserved to Pfizer. ENBREL was initially launched in November 1998 by Immunex for the treatment of rheumatoid arthritis (“RA”). In addition, ENBREL is now indicated for the treatment of adult patients with the following conditions: moderately to severely active RA; chronic moderate to severe plaque psoriasis patients who are candidates for systemic therapy or phototherapy; active psoriatic arthritis and active ankylosing spondylitis. ENBREL is also approved for the treatment of moderately to severely active polyarticular juvenile idopathic arthritis in patients ages 2 and older. ENBREL sales for the years ended December 31, 2009, 2008 and 2007 were $3.5 billion, $3.6 billion and $3.2 billion, respectively. Our outstanding material patent for etanercept is described in the table below.
Any products or technologies that are directly or indirectly successful in treating rheumatology, which includes moderate to severe RA, moderate to severe polyarticular juvenile idiopathic arthritis, ankylosing spondylitis and psoriatic arthritis; and dermatology, which includes moderate to severe plaque psoriasis, could negatively impact product sales of ENBREL. Current treatments for these indications include generic methotrexate and other products, as further discussed below.
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Table of ContentsThe following table reflects companies and their currently marketed products that primarily compete with ENBREL in the United States and Canada in the inflammatory disease setting. The table and discussion below of competitor marketed products and potential competitor products may not be exhaustive.
In addition to competition from the above-noted marketed products, various companies are developing products which may compete with ENBREL in the future, including Abbott, which is developing ABT-874 in phase 3 trials for the treatment of psoriasis. Abbott has announced that they are planning to submit this indication for regulatory approval in 2010. In addition, a number of companies have JAK kinase inhibitors in development for RA, including Pfizer and Incyte Corporation. Other Our other marketed products are principally comprised of Sensipar® (cinacalcet), Vectibix® (panitumumab) and Nplate® (romiplostim). Sensipar® (cinacalcet) Sensipar® is our registered trademark in the United States and Mimpara® is our registered trademark in Europe for our first small molecule medicine used in treating CKD patients on dialysis who produce too much parathyroid hormone (“PTH”), a condition known as secondary hyperparathyroidism. In 2004, Sensipar®/Mimpara® was approved in the United States and Europe for the treatment of secondary hyperparathyroidism in CKD patients on dialysis and for the treatment of hypercalcemia in patients with parathyroid carcinoma. In 2008, Mimpara® was approved in Europe (through an extension of the marketing authorization for Mimpara®) for the reduction of hypercalcemia in patients with primary hyperparathyroidism where a parathyroidectomy is not clinically appropriate or is contraindicated. We market Sensipar®/Mimpara® primarily in the United States and Europe. Worldwide Sensipar® sales for the years ended December 31, 2009, 2008 and 2007 were $651 million, $597 million and $463 million, respectively. On September 15, 2009, the CMS released its proposed rule to implement a bundled prospective payment system for ESRD. The proposed rule also includes in the bundled payment oral drugs that are not equivalent to separately billable Part B drugs, which could impact reimbursement for Sensipar®. (See “Reimbursement.”)
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Table of ContentsOur outstanding material patents for cinacalcet are described in the table below.
Any products or technologies that are directly or indirectly successful in treating secondary hyperparathyroidism in patients with CKD on dialysis and/or hypercalcemia in patients with parathyroid carcinoma could negatively impact product sales of Sensipar®/Mimpara®. The following table reflects companies and their currently marketed products that primarily compete with Sensipar® in the United States and Mimpara® in Europe in the nephrology segment for patients with CKD on dialysis. The table and discussion below of competitor marketed products and potential competitor products may not be exhaustive.
On July 25, 2008, we filed a lawsuit against Teva Pharmaceuticals USA, Inc. and Teva Pharmaceutical (together defined as “Teva”) and Barr Pharmaceuticals Inc. (“Barr”) for infringement of four Sensipar® patents. The lawsuit is based on the Abbreviated New Drug Application filed by Teva and Barr which seeks approval to market generic versions of Sensipar®. (See Note 20, “Contingencies and commitments” to the Consolidated Financial Statements.) These generic versions could compete with Sensipar® in the future. Vectibix® (panitumumab) Vectibix® is our registered trademark for our first fully human monoclonal antibody for the treatment of patients with EGFr expressing mCRC after disease progression on, or following fluoropyrimidine-, oxaliplatin- and irinotecan- containing chemotherapy regimens. EGFr is a protein that plays an important role in cancer cell signaling and is over-expressed in many human cancers. Vectibix® is a fully human monoclonal antibody that binds with high affinity to EGFrs and interferes with signals that might otherwise stimulate growth and survival of the cancer cell. The goal of developing fully human monoclonal antibodies is to offer effective targeted therapies with lessened risk of immune response against these agents. We acquired full ownership of Vectibix® with our acquisition of Abgenix, Inc. (“Abgenix”) in April 2006 and Vectibix® received FDA approval in September 2006. In the EU, the conditional approval of Vectibix® as monotherapy for the treatment of patients with EGFr expressing metastatic colorectal carcinoma with non-mutated (wild-type) KRAS after failure of standard chemotherapy regimens was received in December 2007 and is reviewed annually by the CHMP. In December 2008 and 2009, the conditional marketing authorization was renewed with an additional specific obligation to conduct a clinical trial in the existing approved indication. In 2009, the CHMP approved the protocol for this additional
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Table of Contentsclinical trial which will compare the effect of Vectibix® versus Erbitux® (cetuximab) on OS for chemorefractory mCRC patients with wild-type KRAS tumors. Worldwide Vectibix® sales for the years ended December 31, 2009, 2008 and 2007 were $233 million, $153 million and $170 million, respectively. In July 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 INDICATIONS 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. In 2009, we announced that the primary endpoint of extending progression-free survival (“PFS”) was met in the phase 3 clinical trial evaluating Vectibix® in combination with FOLFOX as a first-line treatment in patients with KRAS wild-type mCRC, while the secondary endpoint of OS was not met. In patients with mutated KRAS, PFS was significantly inferior for patients who received Vectibix® as compared to patients that did not receive Vectibix®. We also announced in 2009 that the co-primary endpoint of extending PFS was met in the phase 3 clinical trial evaluating Vectibix® in combination with FOLFIRI as compared to patients who received FOLFIRI alone as a second line treatment in patients with KRAS wild-type mCRC, while the co-primary endpoint of OS was not met. In patients with mutated KRAS, no difference was seen in PFS for patients who received Vectibix® as compared to patients that did not receive Vectibix®. For more information, see “Research and Development and Selected Product Candidates.” Based on the results of these studies, we are planning to file for regulatory approval in the United States and EU for first- and second- line treatment in patients with KRAS wild-type mCRC. Our outstanding material patents for panitumumab are described in the table below.
Any products or technologies that are directly or indirectly successful in treating mCRC after disease progression on, or following fluoropyrimidine-, oxaliplatin- and irinotecan- containing chemotherapy regimens could negatively impact product sales for Vectibix®. The following table reflects companies and their currently marketed products that primarily compete with Vectibix® in the United States and Europe. The table below of competitor marketed products may not be exhaustive.
Nplate® (romiplostim) In August 2008, the FDA approved Nplate®, the first 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. We were granted an exclusive license by KA to manufacture and market Nplate® in the United States, all European countries, Canada, Australia, New Zealand, Mexico, all Central and South American countries and certain countries in Central Asia, Africa and the Middle East. In February 2009, we announced that the European Commission granted marketing authorization for Nplate® for the treatment of splenectomized adult chronic ITP patients who are refractory to other treatments (e.g. corticosteroids, immunoglobulins). In the EU, Nplate® may
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Table of Contentsalso be considered as second-line treatment for adult non-splenectomized ITP patients where surgery is contraindicated. Worldwide Nplate® sales for the years ended December 31, 2009 and 2008 were $110 million and $17 million, respectively. Our outstanding material patents for romiplostim are described in the table below.
We currently have an approved REMS for Nplate®, which includes a medication guide, a healthcare provider communication plan and certain elements to ensure safe use (including restricted distribution, registry and healthcare provider and patient enrollment). Promacta®, GlaxoSmithKline plc’s (“GSK”) registered trademark in the United States, is indicated for the treatment of thrombocytopenia in patients with chronic ITP who have had an insufficient response to corticosteroids, immunoglobulins, or splenectomy, and competes with Nplate®. In December 2009, Revolade® , GSK’s proposed registered trademark in Europe, received a positive opinion from the CHMP for marketing authorization for the treatment of adult chronic ITP splenectomized patients who are refractory to other treatments, and may compete with Nplate® in the EU, if approved by the European Commission. Product candidates We are currently studying new product candidates, including denosumab, and currently marketed products for new indications, which, if approved, we expect will enter into highly competitive markets. If successful, these product candidates will face substantial competition from products currently marketed as well as those under development by other biotechnology and pharmaceutical companies. Denosumab Developments Denosumab is a fully human monoclonal antibody that specifically targets a ligand known as RANKL (that binds to a receptor known as RANK) which is an essential regulator of osteoclasts. Denosumab is under regulatory review and is being studied across a range of conditions, including osteoporosis, treatment-induced bone loss, bone metastases, multiple myeloma and RA. The following is a summary of certain key developments that occurred in 2009 and early 2010 with respect to denosumab: Prolia™ (denosumab) for the Prevention and Treatment of PMO and the Prevention and Treatment of Bone Loss in Patients Undergoing HALT for either Prostate Cancer or Breast Cancer In late 2008, we submitted the BLA to the FDA for Prolia™ in the treatment and prevention of PMO in women and bone loss in patients undergoing HALT for either prostate or breast cancer. On August 13, 2009, we announced the results of our meeting with the FDA’s Advisory Committee for Reproductive Health Drugs (“ACRHD”) to review the potential use of Prolia™ for the treatment and prevention of PMO in women and the treatment and prevention of bone loss in patients undergoing HALT for either prostate cancer or breast cancer. The Committee recommended approval of Prolia™ for the treatment of PMO and for the treatment of bone loss in patients undergoing HALT for prostate cancer. The Committee recommended against approval of Prolia™ to treat or prevent bone loss in women with breast cancer undergoing HALT until additional data are available. The Committee also recommended against approval of Prolia™ to prevent bone loss in
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Table of Contentslow-risk patients in all three populations. Finally, the Committee recommended that Prolia™ have a REMS. The ACRHD 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. In October 2009, the FDA issued Complete Response Letters for our BLA for Prolia™ for the above-noted indications. The FDA issues Complete Response Letters to request additional information needed to complete the review of applications for product approval. The Complete Response Letter related to the Prolia™ application for the treatment and prevention of PMO in women requested several items, including further information on the design and background adverse event rates that will inform the methodology of our previously submitted post-marketing surveillance program, although the letter did not require additional pre-marketing clinical trials to complete the review of the treatment indication. The FDA has also requested a new clinical program to support approval of Prolia™ for the prevention of PMO indication. In addition, the FDA has determined that a REMS is necessary for Prolia™ and must include a medication guide and a healthcare provider communication plan. The FDA acknowledged receipt of our previously submitted proposed REMS materials. The FDA also requested all updated safety data related to Prolia™. On February 19, 2010, we announced that the FDA has evaluated the content of our Complete Response submission for Prolia™ in the treatment of PMO, which we submitted on January 25, 2010, and classified it as a Class 2 resubmission. With the Class 2 designation, the FDA set a corresponding PDUFA action date of July 25, 2010. The Complete Response Letter related to the Prolia™ HALT application requested additional information regarding the safety of Prolia™ in patients with breast cancer receiving aromatase inhibitor therapy and patients with prostate cancer receiving androgen deprivation therapy (“ADT”). Specifically, the FDA has requested results from additional adequate and well-controlled clinical trials demonstrating that Prolia™ has no detrimental effects on either time-to-disease progression or OS. We continue to work with the FDA to determine the appropriate next steps regarding our application for the HALT indication. Prolia™ Received Positive Opinion from CHMP in the EU In December 2009, the CHMP announced a positive opinion for the marketing authorization of Prolia™ for the treatment of osteoporosis in postmenopausal women at increased risk of fractures, and for the treatment of bone loss associated with hormone ablation in men with prostate cancer at increased risk of fractures. If approved by the European Commission, we would receive marketing authorization for Prolia™ in all EU Member States. The timing of actual launch dates would vary by country based on reimbursement authority approval of pricing which could follow the EMA approval by many months. While the European Commission generally follows the CHMP’s opinion, it is not bound to do so. Prolia™ is also under regulatory review in Switzerland, Australia and Canada for the treatment and prevention of PMO and the treatment of bone loss in patients undergoing HALT for breast and prostate cancer. We are working closely with regulatory agencies in each of these countries. Denosumab Phase 3 Bone Metastases Clinical Trials In 2009, we announced that the phase 3 head-to-head trial evaluating denosumab versus Zometa® in the treatment of bone metastases in patients with advanced breast cancer met its primary endpoint of non-inferiority in time to first SRE and its secondary endpoints (superiority compared to Zometa® for both delaying the time to the first on-study SRE and delaying the time to the first-and-subsequent SREs). We also announced that the phase 3 head-to-head trial evaluating denosumab versus Zometa® in the treatment of bone metastases in advanced cancer patients with solid tumors (not including breast and prostate cancer) or multiple myeloma met its primary endpoint of non-inferiority in time to first SRE. On February 8, 2010, we announced that the phase 3 head-to-head trial evaluating denosumab versus Zometa® in the treatment of bone metastases in advanced cancer patients with prostate cancer met its primary endpoint of non-inferiority in time to first SRE and its secondary endpoints (superiority compared to Zometa® for both delaying the time to the first on-study SRE and delaying
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Table of Contentsthe time to the first-and-subsequent SREs). These three studies will form the basis of the clinical evidence package for denosumab in advanced cancer, which will be submitted to regulatory authorities later in 2010. For more information, see “Research and Development and Selected Product Candidates.” Patents and Competition Our outstanding material patents for denosumab are described in the table below.
The following table and discussion reflect other companies and their currently marketed products that will compete with denosumab, if approved. This table and discussion of competitor marketed products and potential competitor products may not be exhaustive. Merck’s patent covering the use of FOSAMAX® to treat bone loss expired in the United States in February 2008. Following the patent expiry, generic alendronate (“ALN”) became available from Teva and other companies, which competes with FOSAMAX®.
Marketing and Distribution We maintain sales and marketing forces primarily in the United States, Europe and Canada to support our currently marketed products and in preparation of the launch of Prolia™. We market our products to healthcare providers, including physicians or their clinics, dialysis centers, hospitals and pharmacies. We also market certain products directly to consumers through direct-to-consumer print and television advertising, and also through the Internet. In addition, for certain of our products, we promote programs to increase public awareness of the health risks associated with the diseases these products treat, as well as providing support to various patient education and support programs in the related therapeutic areas. In the United States, we sell primarily to wholesale distributors of pharmaceutical products. We utilize these wholesale distributors as the principal means of distributing our products to healthcare providers. In early 2008, ENBREL’s distribution model was converted from primarily being shipped directly to pharmacies to a wholesale distribution model similar to our other products. In Europe, Aranesp®, Neulasta® and NEUPOGEN® are principally sold to healthcare providers and/or wholesalers depending upon the distribution practice in each country. We monitor the financial condition of our larger customers and limit our credit exposure by setting credit limits, requiring letters of credit and obtaining credit insurance, as we deem appropriate.
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Table of ContentsWe had product sales to three large wholesaler customers each accounting for more than 10% of total revenues for the years ended December 31, 2009, 2008 and 2007. On a combined basis, these distributors accounted for 71% and 88% of worldwide gross revenues and U.S. gross product sales, respectively, for 2009, as noted in the following table (dollar amounts in millions):
We have entered into certain co-promotion agreements to market our products in certain geographic areas. These agreements generally require us to share profits on product sales. Under a co-promotion agreement, we and Pfizer market ENBREL in the United States and Canada for all approved indications. Under a co-promotion agreement with GSK, we and GSK will commercialize Amgen’s Prolia™ in Europe, Australia, New Zealand and Mexico, and GSK will commercialize denosumab, for all indications in countries where we do not currently have a commercial presence (see “Business Relationships – GlaxoSmithKline plc”). Additionally, we have entered into agreements with third-parties to market certain of our products, including Aranesp®, Neulasta® and NEUPOGEN® in certain geographic areas outside of the United States and to assist in marketing ENBREL in the United States. In addition, we have granted J&J a license to commercialize recombinant human erythropoietin as a human therapeutic in the United States in all markets other than dialysis (see “Business Relationships — Johnson & Johnson”). We have also granted Daiichi Sankyo Company, Limited (“Daiichi Sankyo”) a license to develop and commercialize denosumab in Japan in PMO, oncology and certain other indications (see “Business Relationships — Daiichi Sankyo Company, Limited”). See “Government Regulation — FDA Regulation of Product Marketing and Promotion” for a discussion of the government regulation over product marketing and promotion. Reimbursement Sales of all of our principal products are dependent, in part, on the availability and extent of coverage and reimbursement from third-party payers, including government and private insurance plans. Most patients receiving our products are covered by government healthcare programs or private insurers. Governments may regulate coverage, reimbursement and/or pricing of our products to control costs or to affect levels of use of our products, and private insurers may adopt or be influenced by government coverage and reimbursement methodologies. Worldwide use of our products may be affected by cost containment pressures and cost shifting from governments and private insurers to healthcare providers or patients in response to ongoing initiatives to reduce or reallocate healthcare expenditures. An increasing worldwide focus on patient access controls and cost containment by public and private insurers has resulted, and may continue to result, in reduced reimbursement rates for our products. In addition, we believe that ongoing healthcare reform efforts will include long-term changes to the coverage and reimbursement of our products which may have a significant impact on our business. U.S. Reimbursement System Our principal products are predominantly sold in the United States and healthcare providers, including doctors, hospitals and other healthcare professionals and providers are reimbursed for their services by the
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Table of Contentsgovernment through Medicare, Medicaid and other government healthcare programs as well as through private payers. Government healthcare programs are funded primarily through the payment of taxes from individuals and businesses. The public and private components of this multi-payer system are described below. Medicare and Other Forms of Public Health Insurance Medicare is a federal program administered by the federal government that covers individuals age 65 and over as well as those with certain disabilities and ESRD, regardless of their age. The primary Medicare programs that affect reimbursement for our products are Medicare Part B, which covers physician services and outpatient care, and Medicare Part D, which provides a voluntary outpatient prescription drug benefit. CMS is the federal agency responsible for administering Medicare (as well as Medicaid, described below) and, among its responsibilities, has authority to issue Medicare national coverage decisions (“NCD”) as well as manual policy issuances and updates and codes for drugs and other items. Local Medicare contractors have authority to issue Local Coverage Determinations. Generally, a NCD issued by CMS is a national policy statement granting, limiting or excluding Medicare coverage for a specific medical item or service. Medicare Part B Coverage of Drugs and ESRD. Medicare Part B provides limited coverage of outpatient drugs and biologicals that are furnished “incident to” a physician’s services. Generally, “incident to” drugs and biologicals are covered only if they satisfy certain criteria, including that they are of the type that is not usually self-administered by the patient and they are reasonable and necessary for a medically accepted diagnosis or treatment. Medicare Part B also covers some drugs pursuant to a specific statutory directive, such as blood-clotting factors and certain immunosuppressive drugs, erythropoietin and certain oral cancer drugs, if they fall under a specific statutory benefit category and they are “safe and effective” as established by FDA approval. Many of our principal products, including EPOGEN®, Aranesp®, Neulasta® and NEUPOGEN®, are currently covered under Medicare Part B (as well as other government healthcare programs). In addition, most patients with ESRD, regardless of age, are eligible for coverage of dialysis treatment through the ESRD Program under Medicare Part B, the primary payer for dialysis treatment. Because Medicare Part B is the primary payer for dialysis treatment, reimbursement for products, such as EPOGEN®, that are typically administered in dialysis centers and other settings is particularly sensitive to changes in Medicare coverage and reimbursement policy. Medicare Part D. Medicare Part D provides a voluntary prescription drug benefit for Medicare eligible beneficiaries. This coverage is available through various private plans that provide insurance coverage for prescription drugs for a monthly premium. The list of prescription drugs covered by Medicare Part D plans varies by plan, but drug lists maintained by individual plans must cover certain classes of drugs and biologicals, specifically the statute stipulates that Part D plans have at least two drugs in each unique therapeutic category, subject to certain exceptions. Medicare patients who obtain ENBREL and Sensipar® under retail coverage, where they are primarily provided, are typically covered by Medicare Part D. Medicaid. Medicaid is a joint federal and state program administered by individual states for low-income and disabled eligible beneficiaries. CMS also has responsibility for federal administration of the Medicaid program. Under federal law, states must cover low-income adults and children, pregnant women, disabled individuals and seniors, and states have the option of expanding eligibility beyond these groups of beneficiaries. Medicaid is financed jointly by the states and federal government through taxes. Medicaid offers a broad set of benefits, including prescription drugs. Medicaid includes the Drug Rebate Program which requires manufacturers to provide rebates to the states for our products covered and reimbursed by state Medicaid programs. (See— “Government Regulation” and “Item 1A. Risk Factors — Our sales depend on coverage and reimbursement from third-party payers.”) Private Health Insurance Employer-sponsored insurance. Employer-sponsored insurance represents the main pathway by which Americans receive private health insurance. Many employers provide health insurance as part of the benefits package for employees. Insurance plans are administered by private companies, both for-profit and not-for-profit, and some companies are “self-insured” (i.e., they pay for all healthcare costs incurred by employees directly through a plan administered by a third party). Generally, employer-sponsored insurance premiums are paid primarily by employers and secondarily by employees.
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Table of ContentsIndividual market. The individual market covers part of the population that is self-employed or retired. In addition, it covers some people who are unable to obtain insurance through their employer. In contrast to the employer-sponsored insurance, the individual market allows health insurance companies to deny people coverage based on pre-existing conditions although a newly enacted law prohibits denial of coverage based on genetic discrimination. The plans are administered by private insurance companies. Individuals pay an out-of-pocket insurance premium for coverage and benefits vary widely according to plan specifications. Reimbursement of Our Principal Products Aranesp®, Neulasta® and NEUPOGEN®. Medicare and Medicaid payment policies for drugs and biologicals are subject to various laws and regulations. The Medicare program covers Aranesp®, Neulasta® and NEUPOGEN®, under Part B, when administered in the physician clinic setting and the hospital outpatient and dialysis settings and reimburses providers using a payment methodology based on a fixed percentage of each product’s average sales price (“ASP”). ASP is calculated by the manufacturer based on a statutorily defined formula and submitted to CMS. A product’s ASP is calculated and reported to CMS on a quarterly basis and therefore may change each quarter. The ASP in effect for a given quarter (the “Current Period”) is based upon certain historical sales and sales incentive data covering a statutorily defined period of time preceding the Current Period. CMS publishes the ASPs for products in advance of the quarter in which they go into effect. In the calculation of ASP, CMS currently allows manufacturers to make reasonable assumptions consistent with the general requirements and the intent of the Medicare statute and regulations and their customary business practices and in the future CMS may provide more specific guidance. Any changes to the ASP calculations directly affect the Medicare reimbursement for our products administered in the physician clinic setting, dialysis facility or hospital outpatient setting. Our ASP calculations are reviewed quarterly for completeness and based on such review, we have on occasion restated our reported ASPs to reflect calculation changes both prospectively and retroactively. (See “Items 1A. Risk Factors — Our sales depend on coverage and reimbursement from third-party payers.”) Since January 1, 2005, in the physician office setting under Part B, our products have been reimbursed at 106% of its ASP (sometimes referred to as “ASP+6%”). As of January 1, 2009, Medicare payment in the hospital outpatient setting reimbursed each product ASP+4% which is lower than the payment rate was in 2008 (ASP+5%) or from 2006-2007 (ASP+6%). In 2010, the payment methodologies in both the hospital outpatient and physician office settings are at the same levels from 2009 (ASP+6% in the physician office setting and ASP+4% in the hospital outpatient setting), pursuant to the 2010 Medicare Physician Fee Schedule Final Rule and the 2010 Hospital Outpatient Prospective Payment Final Rule. CMS has the regulatory authority to further adjust the outpatient hospital payment formula in future years. The extent to which commercial payers adopt the use of ASP as a payment methodology is still evolving and is often based on the relationship between the provider and the insurer. Dialysis Reimbursement. Currently, dialysis providers in the United States are primarily reimbursed for EPOGEN® by Medicare through the ESRD Program. The ESRD Program reimburses Medicare providers for 80% of allowed dialysis costs; the remainder is paid by other sources, including patients, state Medicaid programs, private insurance, and to a lesser extent, state kidney patient programs. The ESRD Program reimbursement methodology is established by federal law and is implemented by CMS. Medicare reimburses for separately billable dialysis drugs administered in both freestanding and hospital-based dialysis centers, including EPOGEN® and Aranesp®, at ASP+6%, using the same payment amount methodology used in the physician clinic setting under Part B. On July 15, 2008, the Medicare Improvements for Patients and Providers Act of 2008 (the “MIPPA”) became law and contained a number of Medicare and Medicaid reforms, including a broader payment bundle for dialysis services and drugs which will require CMS, beginning in 2011, to establish a bundled Medicare payment rate that includes dialysis services and drug/labs that are currently separately billed. On September 15, 2009, CMS released its proposed rule to implement the bundled prospective payment system for ESRD. Under the proposed rule, the bundled payment system will include dialysis services covered under the current composite rate, as well as drugs and biologicals furnished for treatment of ESRD that are currently billed separately, including ESAs, intravenous iron and intravenous vitamin D, as well as “oral equivalent” forms of these intravenous drugs. In addition, the proposed rule also includes in the bundled payment oral drugs that are not equivalent to separately billable Part B drugs, specifically Sensipar® and phosphate binders. The public
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Table of Contentscomment period ended on December 16, 2009. The bundled reimbursement rate will be phased in over a four year period in equal increments starting in 2011. Providers have the option to move to a full Medicare bundled payment system in 2011 or may elect to adopt certain components of the bundled payment system beginning in 2010. CMS will also be required to establish a quality incentive program that begins concurrently with bundling in 2011. Beginning in 2012, facilities would be subject to up to a 2% annual reduction in Medicare reimbursement for failure to meet or exceed CMS quality performance standards, including performance standards related to anemia management and dialysis adequacy. Bundling initiatives that have been implemented in other healthcare settings have occasionally resulted in lower utilization of services that had not previously been a part of the bundled payment. ESA Reimbursement Developments. Since April 1, 2006, Medicare reimbursement for ESAs administered to dialysis patients has been subject to a revised Erythropoietin Monitoring Policy (“EMP”), the Medicare payment review mechanism used by CMS to monitor EPOGEN® and Aranesp® utilization and appropriate hematocrit outcomes of dialysis patients. The EMP was revised, effective January 1, 2008, requiring a 50% reduction in Medicare reimbursement if a patient’s Hb is above 13 g/dL for three or more consecutive months. In addition, the revised EMP reduces the monthly dosing limits to 400,000 international units (“IUs”) of EPOGEN®, from 500,000 IUs, and to 1,200 micrograms (“mcgs”) of Aranesp®, from 1,500 mcgs. On March 14, 2007, CMS announced a review of all Medicare policies related to the administration of ESAs in non-renal disease applications as part of a national coverage analysis (“NCA”), which is generally CMS’ first step toward developing a NCD. Subsequently, on May 14, 2007, CMS issued a proposed NCD that was open for public comment through June 13, 2007. On July 30, 2007, CMS issued a NCD which was substantially altered from the proposed NCD. On January 14, 2008, CMS issued changes to its Medicare NCD Manual, adding the ESA NCD, effective for claims with dates of service on and after July 30, 2007 with an implementation date of April 7, 2008. The NCD determined that ESA treatment was not reasonable and necessary for certain clinical conditions, and established Medicare coverage parameters for FDA-approved ESA use in oncology. We believe that the restrictions in the NCD changed the way ESAs are used in clinical practice, for example, by decreasing the number of treated patients, the average ESA dose and the duration of ESA therapy. We believe this restriction on coverage of ESAs in the NCD has had a material adverse effect on the coverage, reimbursement and sales of Aranesp®, and our business and results of operations. In addition, many private payers have implemented portions of the NCD and we believe many healthcare providers have reduced ESA utilization for all of their patients regardless of insurance coverage. On September 11, 2007, the FDA held a joint meeting of the Cardiovascular-Renal Drug Advisory Committee (“CRDAC”) and the Drug Safety and Risk Management Advisory Committee (“DSaRMAC”) to evaluate the safety data on ESA use in renal disease. On July 31, 2008, CMS issued a listing of potential topics for future NCDs as a step to increase transparency in the NCD process, which included as potential topics the use of ESAs in ESRD and CKD. CMS has not announced whether it will proceed to a NCD for ESAs in ESRD or CKD and we cannot predict whether ESAs in the renal setting will be the subject of a future NCD, however, any final NCD for ESAs in the renal setting, which may include non-coverage and/or new dosing and treatment restrictions similar to those in the NCD for treatment of anemia in oncology with ESAs, would negatively affect use, reduce coverage and reimbursement, negatively affect product sales of our ESA products and may have a material adverse effect on our business and results of operations. In addition, the CMS has scheduled a meeting on March 24, 2010 of the MEDCAC to review the available evidence on the use of ESAs to manage anemia in patients who have CKD, which may consider the results of the TREAT study. In February 2010, the CMS released the voting questions the MEDCAC will address, including whether the available evidence in both CKD not on dialysis and ESRD clearly (i) demonstrates benefits and risks of ESA therapy, (ii) supports a baseline Hb range or (iii) justifies a dose response or maximum dose. The CMS will decide whether more evidence is needed to determine whether ESA treatment is reasonable and necessary to support continued Medicare coverage. The CMS may consider initiating a NCA or a NCD following the MEDCAC. While the MEDCAC provides advice and recommendations to CMS about the adequacy of scientific evidence and votes on certain questions proposed by CMS, it functions as an independent advisory body and its advice and recommendations to CMS are advisory only.
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Table of ContentsEnbrel® Reimbursement. The majority of prescription claims for ENBREL are paid through private insurance companies. Under Medicare, ENBREL is reimbursed through the Part D program, although less then 10% of all ENBREL U.S. prescriptions are reimbursed by Medicare. Healthcare Reform. Healthcare reform, focused on expanding healthcare coverage to millions of uninsured Americans and reducing the rate of increase in the costs of healthcare, remains a priority for President Obama, U.S. Congress and a number of states. Developments in this area have been highly dynamic and difficult to predict. As recently as February 23, 2010, President Obama released a new proposal for healthcare reform which includes a combination of provisions from both the Senate and House of Representatives bills passed in late 2009. Certain healthcare reform proposals being considered, which may or may not be adopted into law, could:
At this time, we cannot predict which or whether any reform measures will be adopted into law. Reimbursement Outside the United States Generally, in Europe and other countries outside the United States, the government-sponsored healthcare system has traditionally been the primary payer for all healthcare costs, including payment for drugs and biologicals. Over the past several years, the reimbursement environment in Europe has become very challenging, with the advent of Health Technology Assessment (“HTA”) organizations (e.g., National Institute for Health and Clinical Excellence (“NICE”) in the United Kingdom) that make recommendations and/or determinations of coverage and reimbursement based upon both the clinical as well as the economic value of a product. Although the methods employed by different HTA agencies differ from country to country, the use of formal economic metrics has been increasing across Europe as well as in several emerging markets throughout the world. With increased budgetary constraints, payers in many countries employ a variety of measures to exert downward price pressure. In some countries, international price referencing is the primary mechanism for price control in which the ceiling price of a pharmaceutical or biological product is set based to the price in particular benchmark countries. These price referencing rules are increasing in complexity as prices are more transparent and payers seek lower-price benchmarks against which to compare themselves. Additional cost-containment measures can include therapeutic reference pricing, including setting the reimbursement rate for a given class of agents at the lowest price within the class, generic substitution and government-mandated price cuts. In many countries, the influence of regional and hospital payers also contributes to whether patients have access to certain products. For example, a product may be successfully listed on a national formulary, but may also be subject to further evaluations or competitive bidding by payers at a regional or hospital level. Finally, payers in some countries are beginning to experiment with alternative pricing mechanisms (e.g., payment caps) that facilitate greater predictability of payer budgets and require manufacturers to assume some financial risk. Manufacturing, Distribution and Raw Materials Manufacturing Biotechnology products, which are produced in living systems, are inherently complex due to naturally-occurring molecular variations. Highly specialized knowledge and extensive process and product characterization are required to transform laboratory scale processes into reproducible commercial manufacturing processes. Our manufacturing operations consist of bulk manufacturing, formulation, fill and finish and distribution activities for Aranesp®, Epoetin alfa, Neulasta®, NEUPOGEN®, ENBREL, Vectibix®, Nplate® and other products and product candidates, including denosumab, for both commercial and clinical purposes. Bulk manufacturing includes fermentation and cell culture, which are the processes by which our proteins are produced. The proteins are purified to a high quality and then formulated into a stable form. The fill process dispenses the formulated bulk protein into vials or syringes. Finally, in the finish process, our products are packaged for distribution.
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Table of ContentsWe operate commercial and clinical manufacturing facilities in several locations throughout the United States, Puerto Rico and the Netherlands (see “Item 2. Properties”). Manufacturing of Sensipar®, our small molecule product, is performed entirely by third-party contract manufacturers. We also use and expect to continue to use third-party contract manufacturers to produce or assist in the production of certain of our large molecule marketed products, including ENBREL and Nplate® , and a number of our clinical product candidates, including denosumab. The global supply of our principal products is dependent on actively managing the inventory produced at our facilities and by third-party contract manufacturers and the uninterrupted and efficient operation of our manufacturing facilities. During the manufacturing scale-up process, and even after achieving sustainable commercial manufacturing, we may encounter difficulties or disruptions due to defects in raw materials or equipment, contamination or other factors which may impact product availability. (See “Item 1A. Risk Factors — Manufacturing difficulties, disruptions or delays could limit supply of our products and limit our product sales.”) We have obtained from various parties licenses that we deem to be necessary or desirable for the manufacture of our products. These licenses generally require us to pay royalties to the licensors based on product sales. Commercial Bulk Manufacturing We operate commercial bulk manufacturing facilities in Puerto Rico and in several locations throughout the United States (see “Item 2. Properties”). Other than for ENBREL, we perform all of the commercial bulk manufacturing for our proteins. We supplement our own bulk manufacturing of ENBREL with a third-party contract manufacturer. In addition to producing our own commercial quantities of bulk Epoetin alfa, we also supply bulk Epoetin alfa in the United States to J&J under a supply agreement (see “Business Relationships — Johnson & Johnson”). Commercial Formulation, Fill and Finish Manufacturing Our primary commercial formulation, fill and finish manufacturing facility is located in Puerto Rico. In addition, we operate a commercial formulation, fill and finish manufacturing facility in California for Vectibix® and conduct certain finish activities in the Netherlands (see “Item 2. Properties”). Other than for Nplate®, we perform substantially all of our commercial formulation, fill and finish activities for our proteins in Puerto Rico. The formulation, fill and finish for Nplate® is performed by a third-party contract manufacturer. In addition to the formulation, fill and finish of ENBREL performed by us in Puerto Rico, fill and finish of a certain portion of ENBREL is also performed by third-party contract manufacturers (see “Item 1A. Risk Factors — We manufacture and formulate, fill and finish substantially all our products at our Puerto Rico manufacturing facility; if significant natural disasters or production failures occur at this facility, we may not be able to supply these products”). Clinical Manufacturing Clinical bulk, formulation, fill and finish manufacturing facilities are operated in several locations throughout the United States and in Puerto Rico (see “Item 2. Properties”). Certain finishing activities for our clinical products are performed in the Netherlands. In addition, we also utilize third-party contract manufacturers for certain of our clinical products. Distribution We operate distribution centers in the United States, principally in Kentucky and California, and the Netherlands for worldwide distribution of the majority of our commercial and clinical products. In addition, we also use third-party distributors to supplement distribution of our commercial and clinical products in certain areas of the world.
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Table of ContentsOther In addition to the manufacturing and distribution activities noted above, our operations in the United States, Puerto Rico and the Netherlands perform key manufacturing support functions, including quality control, process development, procurement, distribution and production scheduling. Certain of these manufacturing and distribution activities are highly regulated by the FDA and other international regulatory agencies (see “Government Regulation — FDA Regulation of Manufacturing Standards”). In preparation for the anticipated launch of Prolia™, we have performed bulk manufacturing at our Boulder, Colorado manufacturing facility and formulation, fill and finish manufacturing activities in Puerto Rico. We also have an agreement with a third-party contract manufacturer that allows us to supplement, if necessary, our own bulk manufacturing activities of denosumab. In addition, in order to assist in meeting anticipated future demand, we are expanding our Puerto Rico bulk protein facilities to manufacture denosumab, as discussed below. Manufacturing Initiatives We have certain key ongoing initiatives to assist in meeting our future manufacturing needs. To maintain supply, mitigate risks associated with the majority of our formulation, fill and finish operations being performed in a single facility, and to satisfy anticipated future demand for a number of our late-stage product candidates, in particular denosumab, we are completing the construction and qualification of a new formulation and filling facility at our Puerto Rico site and the expansion and qualification of our existing bulk protein facilities at our Puerto Rico site. Upon completion, these facilities will require licensure by the various regulatory authorities. In addition to these projects, we have initiatives designed to operate our facilities at appropriate production capacity over the next few years, optimize manufacturing asset utilization, continue our use of third-party contract manufacturers and maintain a state of regulatory compliance. (See “Item 1A. Risk Factors — Manufacturing difficulties, disruptions or delays could limit supply of our products and limit our product sales.”) Raw Materials and Medical Devices Certain raw materials necessary for the commercial and clinical manufacturing of our products are provided by single-source unaffiliated third-party suppliers. Also, certain medical devices and components necessary for the formulation, fill and finish of our products are provided by single-source unaffiliated third-party suppliers. Certain of these raw materials, medical devices and components are the proprietary products of these unaffiliated third-party suppliers and, in some cases, such proprietary products are specifically cited in our drug application with regulatory agencies so that they must be obtained from the specific sole source and could not be obtained from another supplier unless and until the regulatory agency approved such supplier. We currently attempt to manage the risk associated with such sole-sourced suppliers by inventory management, relationship management and evaluating alternate sources when feasible. We also monitor the financial condition of certain suppliers, their ability to supply our needs and the market conditions for these items. Also, certain of the raw materials required in the commercial and clinical manufacturing of our products are sourced from other countries and/or derived from biological sources, including mammalian tissues. In addition, one of our marketed products also includes bovine serum and human serum albumin (“HSA”). We continue to investigate alternatives to biological sources and alternative manufacturing processes that do not require the use of biologically-sourced raw materials as such raw materials may be subject to contamination and/or recall. Also, some countries in which we market our products may restrict the use of certain biologically derived substances in the manufacture of drugs. A material shortage, contamination, recall and/or restriction of the use of certain biologically derived substances or other raw materials, which may be sourced from other countries, used in the manufacture of our products could adversely impact or disrupt the commercial manufacturing of our products or could result in a mandated withdrawal of our products from the market. (See “Item 1A. Risk Factors — We rely on single-source third-party suppliers for certain of our raw materials, medical devices and components.”) We perform various procedures to assist in authenticating the source of raw materials, including intermediary materials used in the manufacture of our products, which include verification of the country of origin. These procedures are incorporated into the manufacturing processes performed by us and our third-party contract manufacturers.
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Table of ContentsBusiness Relationships From time to time, we enter into business relationships including, joint ventures and collaborative arrangements, for the R&D, manufacture and/or commercialization of products and product candidates. In addition, we also acquire product rights and have established R&D collaborations with third-parties to enhance our R&D capabilities and internally developed product pipeline. These arrangements may provide for non-refundable, upfront license fees, R&D and commercial performance milestone payments, cost sharing, royalty payments and/or profit sharing. Our collaboration agreements with third parties are performed on a “best efforts” basis with no guarantee of either technological or commercial success. Trade secret protection for our unpatented confidential and proprietary information is important to us. To protect our trade secrets, we generally require parties to business relationships to execute confidentiality agreements upon the commencement of the business relationship with us. However, others could either develop independently the same or similar information or obtain access to our information. Kirin Holdings Company, Limited We formed KA, a 50-50 joint venture with Kirin in 1984. KA develops and commercializes certain of our and Kirin’s product rights, which have been transferred to this joint venture. KA has given exclusive licenses to us to manufacture and market: (i) darbepoetin alfa in the United States, Europe, Canada, Australia, New Zealand, Mexico, all Central and South American countries and certain countries in Central Asia, Africa and the Middle East, (ii) pegfilgrastim and G-CSF in the United States, Europe, Canada, Australia and New Zealand, (iii) recombinant human erythropoietin in the United States and (iv) romiplostim in the United States, Europe, Canada, Australia, New Zealand, Mexico, all Central and South American countries and certain Central Asian, African and Middle East countries. We currently market darbepoetin alfa, pegfilgrastim, G-CSF, recombinant human erythropoietin and romiplostim under the brand names Aranesp®, Neulasta®, NEUPOGEN®/GRANULOKINE®, EPOGEN® and Nplate®, respectively. KA has also given exclusive licenses to Kirin to manufacture and market: (i) darbepoetin alfa, pegfilgrastim, G-CSF and romiplostim in Japan, the People’s Republic of China (“China”), Taiwan, Korea and certain other countries in Asia, (ii) pegfilgrastim and G-CSF in Japan, China, Taiwan and Korea and (iii) recombinant human erythropoietin in Japan and China. Kirin markets darbepoetin alfa in Japan under the brand name NESP®. Kirin markets G-CSF and recombinant human erythropoietin in China under separate agreements with KA. Kirin markets its G-CSF product in its respective territories under the trademark GRAN®/Grasin®/Filgrastim®. Kirin markets its recombinant human erythropoietin product in Japan under the trademark ESPO®. Kirin also markets G-CSF and recombinant human erythropoietin in China under a separate agreement with Amgen Greater China Ltd., a subsidiary of Amgen Inc. KA has licensed to J&J rights to recombinant human erythropoietin in all geographic areas of the world outside the United States, China and Japan (see “— Johnson & Johnson”). Under its agreement with KA, J&J pays a royalty to KA based on sales. KA has also licensed to Roche rights to pegfilgrastim and G-CSF in certain geographic areas of the world. In connection with our various license agreements with KA, we pay KA royalties based on product sales. In addition, we also receive payment from KA for conducting certain R&D activities on its behalf (see Note 8, “Related party transactions” to the Consolidated Financial Statements). Johnson & Johnson We granted J&J a license to commercialize recombinant human erythropoietin as a human therapeutic in the United States in all indications other than dialysis and diagnostics. All recombinant human erythropoietin sold by J&J in the United States is manufactured by us and sold by J&J under the trademark PROCRIT® (Epoetin alfa). PROCRIT® brand Epoetin alfa is identical to EPOGEN® brand Epoetin alfa, which is manufactured and sold by us in the U.S. market for the dialysis indication. Pursuant to the license agreement with J&J, we earn a 10% royalty on net sales of PROCRIT® by J&J in the United States.
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Table of ContentsOutside the United States, with the exception of China and Japan, J&J was granted rights to manufacture and commercialize recombinant human erythropoietin as a human therapeutic for all uses under a licensing agreement with KA. With respect to its sales outside of the United States, J&J manufactures and commercializes its own brand of Epoetin alfa which is then sold by a subsidiary of J&J under various trademarks such as EPREX® and ERYPO®. We are not involved in the manufacture of Epoetin alfa sold by J&J outside of the United States. Pfizer Inc. Amgen and Pfizer are in a collaboration agreement to co-promote ENBREL in the United States and Canada. The rights to market ENBREL outside of the United States and Canada are reserved to Pfizer. Under the agreement, a management committee comprised of equal representation from Amgen and Pfizer is responsible for overseeing the marketing and sales of ENBREL, including strategic planning, the approval of an annual marketing plan, product pricing and the establishment of a brand team. The brand team, with equal representation from each party, prepares and implements the annual marketing plan, which requires a minimum level of financial and sales personnel commitment from each party, and is responsible for all sales activities. Further, pursuant to the co-promotion agreement, Pfizer and Amgen each pay a defined percentage of all selling and marketing expenses approved by the joint management committee. In addition, we pay Pfizer a percentage of the annual gross profits on our ENBREL sales in the United States and Canada attributable to all approved indications for ENBREL on a scale that increases as gross profits increase; however, we maintain a majority share of ENBREL profits. GlaxoSmithKline plc In July 2009, we entered into a collaboration agreement with GSK for the commercialization of our late-stage product candidate, denosumab, in Europe, Australia, New Zealand and Mexico (the “Primary Territories”) for osteoporosis indications. We will commercialize denosumab for all indications in the United States and Canada and for oncology indications in the Primary Territories. GSK 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, GSK will be responsible for all development and commercialization costs and will purchase denosumab from us to meet demand. We have the option of expanding our role in the commercialization of denosumab in the Primary Territories and certain of the Expansion Territories in the future. In the Primary Territories, we will share equally in commercialization profits and losses related to the collaboration after accounting for expenses, including an amount payable to us in recognition of our discovery and development of denosumab that will decline as certain sales thresholds are met. GSK will also be responsible for bearing a portion of the cost of certain specified development activities. Takeda Pharmaceutical Company Limited In February 2008, we entered into a collaboration agreement with Takeda Pharmaceutical Company Limited (“Takeda”), which provides them the exclusive rights to develop and commercialize for the Japanese market up to 12 clinical stage molecules, including Vectibix®, from our pipeline across a range of therapeutic areas, including oncology and inflammation. We have the right to participate in the promotion of these products in Japan. In addition, we entered into a collaboration agreement with Takeda for the worldwide development and commercialization of our product candidate motesanib in the oncology area. Each party has the right to participate in the commercialization of motesanib in the other party’s territory. Daiichi Sankyo Company, Limited In July 2007, we entered into a collaboration and license agreement with Daiichi Sankyo, which provides them the exclusive rights to develop and commercialize our late-stage product candidate, denosumab, in Japan in PMO, oncology and certain other indications. As part of the agreement, Amgen received exclusive worldwide rights to certain Daiichi Sankyo intellectual property to the extent applicable to denosumab.
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Table of ContentsFresenius Medical Care North America In October 2006, we entered into a five-year sole sourcing and supply agreement with an affiliate of Fresenius Medical Care North America (“Fresenius North America”) (a wholly owned subsidiary of Fresenius Medical Care), on its behalf and on behalf of certain of its affiliates, whereby they have agreed to purchase, and we have agreed to supply, all of Fresenius North America’s commercial requirements for ESAs for use in managing the anemia of its hemodialysis patients in the United States and Puerto Rico, based on forecasts provided by Fresenius and subject to the terms and conditions of the agreement. Government Regulation Regulation by governmental authorities in the United States and other countries is a significant factor in the production and marketing of our products and our ongoing R&D activities. In order to clinically test, manufacture and market products for therapeutic use, we must satisfy mandatory procedures and safety and effectiveness standards established by various regulatory bodies. In the United States, the Public Health Service Act, the Federal Food, Drug and Cosmetic Act (“FDCA”) and the regulations promulgated thereunder, and other federal and state statutes and regulations govern, among other things, the raw materials and components used in the production of, research, development, testing, manufacture, quality control, labeling, storage, record keeping, approval, advertising and promotion, and distribution of our products on a product-by-product basis. The failure to comply with the applicable regulatory requirements may subject us to a variety of administrative and/or judicially imposed sanctions. These sanctions could include the FDA’s refusal to approve pending applications, withdrawals of approvals, delay or suspension of clinical trials, warning letters, product recalls, product seizures, total or partial suspension of our operations, injunctions, fines, civil penalties and/or criminal prosecution. Clinical Development. We must conduct extensive clinical trials designed to establish the safety and efficacy of product candidates in order to file for regulatory approval to market a product. Product development and approval within this regulatory framework takes a number of years and involves our expenditure of substantial resources, and any approval we obtain remains costly for us to maintain. After laboratory analysis and preclinical testing in animals, we file an investigational new drug (“IND”) application with the FDA to begin human testing. The IND application automatically becomes effective 30 days after receipt by the FDA, unless the FDA raises concerns or questions. In such a case, we and the FDA must resolve any outstanding concerns before the clinical trial can begin. Typically, we undertake a three-phase human clinical testing program. In phase 1, we conduct small clinical trials to investigate the safety and proper dose ranges of our product candidates in a small number of human subjects. In phase 2, we conduct clinical trials to investigate side effect profiles and efficacy of our product candidates in a larger number of patients who have the disease or condition under study. In phase 3, we conduct clinical trials to investigate the safety and efficacy of our product candidates in a large number of patients who have the disease or condition under study. The time and expense required for us to perform this clinical testing is substantial and may vary by product. For example, the clinical trials for the BLA for ProliaTM were large and required substantial time and resources to recruit patients and significant expense to execute. Historically, our products have required smaller, shorter trials. Foreign studies performed under an IND must meet the same requirements that apply to U.S. studies. The FDA will accept a foreign clinical study not conducted under an IND only if the study is well-designed, well-conducted, performed by qualified investigators, and conforms to good clinical practice. Phase 1, 2 and 3 testing may not be completed successfully within any specified time period, if at all. (See “Item 1A. Risk Factors — We may not be able to develop commercial products.”) The FDA monitors the progress of each trial conducted under an IND and may, at its discretion, re-evaluate, alter, suspend, or terminate the testing based upon the data accumulated to that point and the FDA’s risk/benefit assessment with regard to the patients enrolled in the trial. (See “Item 1A. Risk Factors — We must conduct clinical trials in humans before we can commercialize and sell any of our product candidates or existing products for new indications.”) Applications. The results of preclinical and clinical trials are submitted to the FDA in the form of a BLA for biologic products subject to the Public Health Service Act or a new drug application (“NDA”) for drugs subject
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Table of Contentsto the approval provisions of the FDCA. The submission of the application is no guarantee that the FDA will find it complete and accept it for filing. If an application is accepted for filing, following the FDA’s review, the FDA may grant marketing approval, request additional information, or deny the application if it determines that the application does not provide an adequate basis for approval. We cannot take any action to market any new drug or biologic product in the United States until our appropriate marketing application has been approved by the FDA. Post-approval Phase. After we have obtained approval to market our products, we monitor adverse events from the use of our products and report these events to regulatory agencies, along with information from post marketing surveillance or studies. We may utilize other research approaches to learn or confirm information about our marketed products, including observational studies and patient registries, and may engage in risk management activities such as physician education initiatives and patient advocacy group initiatives. We may also conduct, or be required by regulatory agencies to conduct, further clinical trials to provide additional information on our marketed products’ safety and efficacy. These additional trials may include, among other things, studying different doses or schedules of administration that were used in previous studies, use in other patient populations or other stages of the disease or use over a longer period of time. Additional trials of this nature are sometimes required by regulatory agencies as a condition of their approval to market our products and they may also request or require that we conduct specific studies, including observational epidemiological studies, in order to identify or assess possible safety risks of our marketed products that are observed or suggested by available scientific data and such trials are sometimes referred to as PMCs or PMRs. In the United States, under the Food and Drug Administration Amendments Act of 2007 (the “FDAAA”), if the FDA becomes aware of new safety information after approval of a product, they may require us to conduct further clinical trials to assess a known or potential serious risk. If required to conduct a post-approval study, periodic status reports must be submitted to the FDA. Failure to conduct such post-approval studies in a timely manner may result in substantial civil or criminal penalties. The FDAAA also gave the FDA authority to require companies to implement a REMS for a product to ensure that the benefits of the drug outweigh the risks. The FDA may require the submission of a REMS before a product is approved or after approval based on new safety information, including new analyses of existing safety information. In determining whether a product will require a REMS, the FDA may consider a number of factors including:
All REMS are required to have a timetable for assessment and may have one or more of the following three elements:
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Table of ContentsEach REMS is unique and varies depending on the specific factors required. Failure to comply with a REMS, including the submission of a required assessment or any modification to a REMS, may result in substantial civil or criminal penalties. We currently have approved REMS for our ESAs, ENBREL and Nplate®. Additionally, in response to the FDA’s request, under authority prescribed by the FDAAA, we are currently in discussions with the FDA regarding an update to the existing REMS for ENBREL and a REMS for our product candidate ProliaTM. Adverse events that are reported after marketing approval also can result in additional limitations being placed on a product’s use and, potentially, withdrawal of the product from the market. The FDA has authority to mandate labeling changes to products at any point in a product’s lifecycle based on new safety information or as part of an evolving label change to a particular class of products. Also under the FDA’s PLR implemented in 2006, we are required to make changes to the existing format of U.S. product package inserts for human prescription drug and biological products with the intent of making product information more easily accessible. The PLR requires revised standards of content and format of labeling and provides timelines for when new and previously approved products must comply with the new regulations. During the PLR conversion process from an old format to the new PLR format, the FDA has the authority to evaluate the package insert information to ensure that it accurately reflects current knowledge and may revise, add or remove information in the old format that could substantively impact the content of the product package insert for the new format. Failure to implement FDA-mandated changes may result in civil or criminal penalties. (See “Item 1A. Risk Factors — Our ESA products continue to be under review and receive scrutiny by regulatory authorities.” and “— Our current products and products in development cannot be sold if we do not gain or maintain regulatory approval.”) The FDA also uses various advisory committees of external experts to assist in its mission to protect and promote the public health, to obtain independent expert advice on scientific, technical and policy matters. The committees are generally advisory only and FDA officials are not bound to or limited by their recommendations. We have participated in meetings of the ODAC, the CRDAC and the ACRHD, among others, to address certain issues related to Aranesp®, EPOGEN® and ProliaTM, respectively. The FDA has also announced that it will call an advisory committee meeting in 2010 to re-evaluate the use of ESAs to treat anemia in patients with CKD and the advisory committee could consider lowering targeted Hb levels and reducing approved dosing for ESAs. FDA Regulation of Product Marketing and Promotion. The FDA closely reviews and regulates the marketing and promotion of products. We are required to gain FDA approval before marketing or promoting a product as a treatment for a particular indication. Our product promotion for approved product indications must comply with the statutory standards of the FDCA, and the FDA’s implementing regulations and standards. The FDA’s review of marketing and promotional activities encompasses, but is not limited to, direct-to-consumer advertising, healthcare provider-directed advertising and promotion, sales representative communications to healthcare professionals, promotional programming and promotional activities involving the Internet. The FDA may also review industry-sponsored scientific and educational activities. The FDA may take enforcement action against a company for promoting unapproved uses of a product (“off-label promotion”) or for other violations of its advertising and labeling laws and regulations. Enforcement action may include product seizures, injunctions, civil or criminal penalties or regulatory letters, which may require corrective advertising or other corrective communications to healthcare professionals. Failure to comply with the FDA regulations also can result in adverse publicity or increased scrutiny of company activities by the U.S. Congress or other legislators. FDA Regulation of Manufacturing Standards. The FDA regulates and inspects equipment, facilities, laboratories and processes used in the manufacturing and testing of products prior to providing approval to market a product. If after receiving clearance from the FDA, we make a material change in manufacturing equipment, location or process, additional regulatory review may be required. We also must adhere to current Good Manufacturing Practice (“GMP”) regulations and product-specific regulations enforced by the FDA through its facilities inspection program. The FDA also conducts regular, periodic visits to re-inspect our equipment, facilities, laboratories and processes following an initial approval. If, as a result of these inspections, the FDA determines that our equipment, facilities, laboratories or processes do not comply with applicable FDA regulations and conditions of product approval, the FDA may seek civil, criminal or administrative sanctions and/or remedies against us, including the suspension of our manufacturing operations.
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Table of ContentsApproval and Post-Approval Regulation Outside the United States. In the EU countries, Switzerland, Canada and Australia, regulatory requirements and approval processes are similar in principle to those in the United States. Additionally, depending on the type of drug for which approval is sought, there are currently two potential tracks for marketing approval in the EU, including a centralized procedure. The specific requirements of each track differ depending upon the type of drug being reviewed. In the centralized procedure, a company submits a single marketing authorization application to the EMA who conducts a thorough evaluation, drawing from its scientific resources across Europe. If the drug product is proven to fulfill the requirements for quality, safety and efficacy, the CHMP adopts a positive opinion, which is transmitted to the European Commission for final approval of the marketing authorization. While the European Commission generally follows the CHMP’s opinion, it is not bound to do so. Although not all medicines have to undergo the centralized procedure, it is required of products derived from biotechnology. After evaluation and marketing authorization, various parties, including the national competent authorities, the EMA, the European Commission and the marketing authorization holders share responsibilities for the detection, assessment and prevention of adverse effects and other medicine-related problems in a process known as pharmacovigilance. Healthcare professionals and patients are also encouraged to report adverse effects and other medicine-related problems. This process includes the collection of adverse drug reaction reports as part of the follow-up on any side effects of a product, and upon assessment, the authorities can decide to demand that the product labels be updated with safety data or warnings, that safety data or warnings be provided to healthcare professionals, or recommend the temporary suspension or complete withdrawal of a product from the market. Other. We are also subject to various federal and state laws, as well as foreign laws, pertaining to healthcare “fraud and abuse,” including anti-kickback laws and false claims laws. Anti-kickback laws make it illegal to solicit, offer, receive or pay any remuneration in exchange for, or to induce, the referral of business, including the purchase or prescription of a particular drug that is reimbursed by a state or federal program. The federal government and the states have published regulations that identify “safe harbors” or exemptions for certain arrangements that do not violate the anti-kickback statute. We seek to comply with the safe harbors wherever possible. Due to the breadth of the statutory provisions and the absence of guidance in the form of regulations or court decisions addressing some of our practices, it is possible that our practices might be challenged under anti-kickback or similar laws. False claims laws prohibit anyone from knowingly and willingly presenting, or causing to be presented for payment to third-party payers (including Medicare and Medicaid), claims for reimbursed drugs or services that are false or fraudulent, claims for items or services not provided as claimed or claims for medically unnecessary items or services. Our activities relating to the sale and marketing of our products may be subject to scrutiny under these laws. Violations of fraud and abuse laws may be punishable by criminal and/or civil sanctions, including fines and civil monetary penalties, as well as the possibility of exclusion from federal healthcare programs (including Medicare and Medicaid). If the government was to allege against or convict us of violating these laws or we entered into a settlement with the government, there could be a material adverse effect on our business, including our stock price. Our activities could be subject to challenge for the reasons discussed above and due to the broad scope of these laws and the increasing attention being given to them by law enforcement authorities. Since 1991, we have participated in the Medicaid drug rebate program established in Section 1927 of the Social Security Act by the Omnibus Budget Reconciliation Act of 1990 and subsequent amendments of that law. Related to our participation in this program is a requirement that we extend comparable discounts under the Public Health Service (“PHS”) drug pricing program. Under the Medicaid drug rebate program, we pay a rebate for each unit of our product reimbursed by Medicaid. The amount of the rebate for each of our products is currently set by law as a minimum 15.1% of the Average Manufacturer Price (“AMP”) of that product, or if it is greater, the difference between AMP and the best price available from us to any non-exempt customer. The rebate amount also includes an inflation adjustment if AMP increases faster than inflation. The PHS pricing program requires that we extend discounts comparable to the Medicaid rebate to a variety of community health clinics and other entities that receive health services grants from the PHS, as well as hospitals that serve a disproportionate share of Medicare and Medicaid beneficiaries. The rebate amount is determined for each quarter based on our reports to CMS of the quarter’s AMP and best price for each of our products. The terms of our participation in the Medicaid drug rebate program impose an obligation to correct the prices reported in previous quarters, as may be necessary. Any such corrections could result in an overage or underage in our rebate liability for past
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Table of Contentsquarters, depending on the direction of the correction. In addition to retroactive rebates, if we were found to have knowingly submitted false information to the government, in addition to other penalties available to the government, the statute provides for civil monetary penalties in the amount of $100,000 per item of false information. There are also proposals related to both the Medicaid drug rebate program and the PHS drug pricing program as part of healthcare reform which could significantly alter the programs. We also make our products available to authorized users of the Federal Supply Schedule (“FSS”) of the General Services Administration. Since 1993, as a result of the Veterans Health Care Act of 1992 (the “VHC Act”), federal law has required that we offer deeply discounted FSS contract pricing for purchases by the Department of Veterans Affairs, the Department of Defense, the Coast Guard and the PHS (including the Indian Health Service) in order for federal funding to be available for reimbursement of our products under the Medicaid program or purchase of our products by these four federal agencies and certain federal grantees. FSS pricing to these four federal agencies must be equal to or less than the Federal Ceiling Price (“FCP”), which is 24% below the Non-Federal Average Manufacturer Price (“Non-FAMP”) for the prior fiscal year. The accuracy of our reported Non-FAMPs, FCPs and our FSS contract prices may be audited by the government under applicable federal procurement laws and the terms of our FSS contract. Among the remedies available to the government for inaccuracies in calculation of Non-FAMPs and FCPs is recoupment of any overcharges to the four specified Federal agencies based on those inaccuracies. Also, if we were found to have knowingly reported a false Non-FAMP, in addition to other penalties available to the government, the VHC Act provides for civil monetary penalties of $100,000 per item that is incorrect. Finally, we are required to disclose in our FSS contract proposal all commercial pricing that is equal to or less than our proposed FSS pricing, and subsequent to award of an FSS contract, we are required to monitor certain commercial price reductions and extend commensurate price reductions to the government, under the terms of the FSS contract Price Reductions Clause. Among the remedies available to the government for any failure to properly disclose commercial pricing and/or to extend FSS contract price reductions is recoupment of any FSS overcharges that may result from such omissions. We are also subject to regulation under the Occupational Safety and Health Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act and other current and potential future federal, state or local laws, rules and/or regulations. Our R&D activities involve the controlled use of hazardous materials, chemicals, biological materials and various radioactive compounds. We believe that our procedures comply with the standards prescribed by federal, state or local laws, rules and/or regulations; however, the risk of injury or accidental contamination cannot be completely eliminated. While we are not required to do so, we strive to conduct our research and manufacturing activities in a manner that meets the intents and purposes of the National Institutes of Health Guidelines for Recombinant DNA Research. Additionally, the U.S. Foreign Corrupt Practices Act (“FCPA”) prohibits U.S. corporations and their representatives from offering, promising, authorizing or making payments to any foreign government official, government staff member, political party or political candidate in an attempt to obtain or retain business abroad. The scope of the FCPA would include interactions with certain healthcare professionals in many countries. Our present and future business has been and will continue to be subject to various other U.S. and foreign laws, rules and/or regulations. Research and Development and Selected Product Candidates Our vision is to deliver therapeutics that can make a meaningful difference in patients’ lives. Therefore, we focus our R&D on novel human therapeutics for the treatment of grievous illness in the areas of oncology, hematology, inflammation, bone, nephrology and general medicine, which includes cardiology and neurology. We take a modality-independent approach to R&D — that is, we identify targets, and then choose the modality best suited to address a specific target. As such, our discovery research programs may yield targets that lead to the development of human therapeutics delivered as large molecules (such as proteins, antibodies and peptibodies) or small molecules. To execute our clinical trial programs, we need to maintain an effective development organization and associated R&D support organizations. We conduct clinical trial activities with both our internal staff and third-party contract clinical trial service providers. In order to increase the number of patients available for enrollment for
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Table of Contentsour clinical trials, we have and will continue to open clinical sites and enroll patients in a number of geographic locations. (See “Item 1A. Risk Factors — We must conduct clinical trials in humans before we can commercialize and sell any of our product candidates or existing products for new indications.”) We have major R&D centers in several locations throughout the United States and in the United Kingdom, as well as smaller research centers in Canada and Germany, and smaller development facilities throughout Europe and in Canada, Australia, Mexico, Hong Kong and India (see “Item 2. Properties”). In addition to product candidates and marketed products generated from our internal R&D efforts, we acquire companies, acquire and license certain product and technology rights and establish R&D collaborations with third parties, which enhance our strategic position within our industry by strengthening and diversifying our R&D capabilities, product pipeline and marketed product base. These licenses and collaboration agreements generally provide for non-refundable, upfront license fees, R&D and commercial performance milestone payments, cost sharing, royalty payments and/or profit sharing. (See “Business Relationships” and Note 3, “Acquisitions” to the Consolidated Financial Statements.) Some of our competitors are actively engaged in R&D in areas where we have products or where we are developing product candidates or new indications for existing products. For example, we compete with other clinical trials for eligible patients, which may limit the number of available patients who meet the criteria for certain clinical trials. The competitive marketplace for our product candidates is significantly dependent upon the timing of entry into the market. Early entry may have important advantages in gaining product acceptance, contributing to the product’s eventual success and profitability. Accordingly, we expect that in some cases, the relative speed with which we can develop products, complete clinical testing, receive regulatory approval and supply commercial quantities of the product to the market is expected to be important to our competitive position. Various public and privately owned companies, research organizations, academic institutions and governmental agencies conduct a significant amount of R&D in the biotechnology industry. We face competition in pursuing collaborative arrangements and licensing or acquisition activities from other pharmaceutical and biotechnology companies that also seek to license or acquire technologies, product candidates or marketed products from these entities. Accordingly, we may have difficulty entering into collaborative arrangements and licensing or acquiring technologies, product candidates and marketed products on acceptable terms. See “Government Regulation — Clinical Development” for a discussion of the government regulation over clinical development.
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Table of ContentsThe following table is a selection of certain of our product candidates by phase of development in our therapeutic areas of focus as of February 5, 2010. Each target indication for product candidates in phase 3 is listed separately. For products in phase 1 and 2, the most advanced indication is shown. Additional product candidate (pipeline) information can be found on our website at http://www.amgen.com. (This website address is not intended to function as a hyperlink, and the information contained on our website is not intended to be a part of this filing.)
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Table of ContentsThe following text provides additional information about selected product candidates that have advanced into human clinical trials. AMG 102 AMG 102 is a fully human monoclonal antibody that blocks the action of hepatocyte growth factor/scatter factor. It is being investigated as a cancer treatment. Phase 2 studies of single agent AMG 102 for renal cell carcinoma (“RCC”) and glioblastoma multiforme (“GBM”) were completed in 2009. Limited efficacy was seen in GBM and RCC when AMG 102 was administered in monotherapy, and the effect size was not large enough to warrant moving forward with late-stage studies in these monotherapy indications. Phase 2 combination studies with AMG 102 in the gastric, prostate, mCRC and small cell lung cancer settings continue. We expect data from the phase 2 study in mCRC to be available in 2010. AMG 108 AMG 108 is a fully human monoclonal antibody that targets inhibition of the action of interleukin-1 (“IL-1”). AMG 222 AMG 222 is an orally-administered small molecule antagonist of DPP-IV. It is being investigated as a treatment of type 2 diabetes. AMG 222 is being developed in partnership with Servier. In July 2009, we received results from a phase 2a study of AMG 222 in patients with type 2 diabetes. The results support continued phase 2 development of AMG 222. AMG 223 AMG 223 is an orally-administered polymer which binds phosphate. It is being investigated as a treatment of hyperphosphatemia in CKD patients on hemodialysis. AMG 386 AMG 386 is a peptibody that binds to and inhibits angiopoietin 1 and 2. It is being investigated as a cancer treatment. In 2007 and 2008, we initiated five randomized phase 2 studies of AMG 386 for the treatment of RCC, metastatic breast cancer, ovarian cancer, gastric cancer and colorectal cancer, and numerous other supportive studies. Based on study results, we plan to initiate a phase 3 trial in ovarian cancer. We expect the results from these other randomized phase 2 studies to be available in 2010 and 2011. AMG 479 AMG 479 is a fully human monoclonal antibody antagonist of IGF-1 receptor. It is being investigated as a cancer treatment. In 2007, we initiated a phase 2 study of AMG 479 as a potential cancer therapeutic in Ewing’s sarcoma. We also initiated, in 2008, phase 2 studies for the treatment of advanced breast, pancreatic, colorectal and small cell lung cancers. We received the results from the phase 2 pancreatic cancer study in the second half of 2009 and we plan to present the results at an upcoming medical meeting. We expect the results from the phase 2 Ewing’s sarcoma, metastatic breast cancer and mCRC studies to be available in 2010. AMG 785 AMG 785 is a humanized monoclonal antibody that targets sclerostin, a protein secreted by bone cells that inhibits bone formation. AMG 785 (also known as CDP7851) is being developed in collaboration with UCB for bone-related conditions, including PMO and fracture healing.
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Table of ContentsIn 2009, we initiated phase 2 studies of AMG 785 for the treatment of PMO and fracture healing. AMG 827 AMG 827 is a fully human monoclonal antibody that binds to and blocks signaling via the interleukin-17 (“IL-17”) receptor. It is being investigated as a treatment for a variety of inflammatory disorders. In 2009, we initiated phase 2 studies of AMG 827 as a potential treatment for psoriasis and RA. We expect data from the phase 2 study in psoriasis to be available in 2010. AMG 853 AMG 853 is an orally-administered small molecule antagonist of the CRTH2 and D-prostanoid receptors of prostaglandin D2. It is being investigated as a treatment for asthma. Phase 1 single- and multiple-ascending dose studies have been completed. A global, randomized, double-blind, placebo controlled, multiple dose phase 2 study in subjects with inadequately controlled asthma was initiated in December 2009. Aranesp® (darbepoetin alfa) Aranesp® is a recombinant human protein agonist of the erythropoietic receptor. In 2009, we announced the results from TREAT, the large, randomized, double-blind, placebo-controlled, phase 3 study of patients with CKD (not requiring dialysis), anemia and type-2 diabetes. Treatment of anemia with Aranesp® to a Hb target of 13 g/dL failed to meet either of two primary endpoints compared with placebo treatment with Aranesp® when the Hb level was less than 9 g/dL. The two primary endpoints were a composite of time to all-cause mortality or cardiovascular morbidity (including heart failure, heart attack, stroke or hospitalization for myocardial ischemia) and a composite of time to all-cause mortality or chronic renal replacement therapy. Among the components of the TREAT outcomes measures, stroke was more likely to occur in the patients who received Aranesp® (101 patients [5.0%] versus 53 patients [2.6%]; Hazard Ratio (“HR”): 1.92 [95% Confidence Interval (“CI”) 1.38 to 2.68; P<0.001]). Although stroke has been noted in the Aranesp® label since 2001, the risk of stroke observed in TREAT was of a higher magnitude than that seen in previous clinical trials in CKD patients not on dialysis. Further, among patients who reported a history of cancer, there were 60 deaths from any cause in the 188 patients assigned to Aranesp® and 37 deaths in the 160 patients assigned to placebo (P=0.13 by the log-rank test). In this subgroup, 14 of the 188 patients assigned to Aranesp® died from cancer, as compared with 1 of the 160 patients assigned to placebo (P=0.002 by the log-rank test). Aranesp® treatment was associated with a statistically significant reduction in blood transfusions. The Reduction of Events with Darbepoetin alfa in Heart Failure (“RED-HF™”) Trial phase 3 study, initiated in 2006, is a large (2,600 subjects), global, randomized, double-blind, placebo-controlled study to evaluate the effect of treatment of anemia with darbepoetin alfa on morbidity and mortality in patients with symptomatic left ventricular heart failure. The RED-HF™ Trial continues to enroll subjects. On December 8, 2009, the RED-HF™ Trial Data Monitoring Committee (“DMC”) reviewed approximately 43% of the target number of primary endpoints. After careful review of outcomes and adverse events, including the results of TREAT (which was conducted in subjects with CKD, anemia and type 2 diabetes who were not receiving dialysis), the RED-HF™ Trial DMC recommended that the study continue as designed. Conatumumab (AMG 655) Conatumumab is a fully human monoclonal antibody agonist that targets death receptor 5 (“DR5”) and induces apoptosis in sensitive tumor cells. It is being investigated as a cancer treatment. We received the results from the phase 2 NSCLC and the soft tissue sarcoma studies in the second half of 2009 and we continue to analyze the data. We also received results from the phase 2 pancreatic cancer study and we plan to present the results at an upcoming medical meeting. We expect data from an on-going phase 2 study in mCRC to be available in 2010.
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Table of ContentsDulanermin (rhApo2L/TRAIL) Dulanermin is a recombinant human protein that targets death receptors 4 (“DR4”) and DR5 and induces apoptosis in sensitive tumor cells. It is being investigated as a cancer treatment. We are developing this molecule in collaboration with Genentech, Inc., a wholly owned member of the Roche Group. Phase 2 data from the non-Hodgkin’s Lymphoma and NSCLC studies have been analyzed and we plan to present the results at an upcoming medical meeting. Denosumab Denosumab is a fully human monoclonal antibody that specifically targets a ligand known as RANKL (that binds to a receptor known as RANK) which is a key mediator of osteoclast formation, function and survival. Denosumab is being studied across a range of conditions including osteoporosis, treatment-induced bone loss, bone metastases, multiple myeloma and RA. The overall denosumab program remains on track with all completed phase 3 trials for denosumab having met all primary endpoints. The following chart is an overview of the phase 3 clinical development program for denosumab:
In 2009, we announced that a pivotal, phase 3, head-to-head trial evaluating denosumab versus Zometa® in the treatment of bone metastases in 2,046 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 in this 34 month study. The median time to first on-study SRE was not reached for denosumab and therefore could not be estimated. The median time to first on-study SRE was 26.5 months for Zometa®, the current standard of care. Overall, the incidence of adverse events and serious adverse events was consistent with what has previously been reported for these two agents. Of note, osteonecrosis of the jaw (“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 OS and the time to cancer progression. In 2009, we also announced that a pivotal, phase 3, head-to-head trial evaluating denosumab administered subcutaneously versus Zometa® administered as an intravenous infusion in the treatment of bone metastases in 1,776 advanced cancer patients with solid tumors (not including breast and prostate cancer) or multiple myeloma
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Table of Contentsmet its primary endpoint. For the primary endpoint of this study, the median time to first on-study SRE (fracture, radiation to bone, surgery to bone or spinal cord compression) was 20.6 months for those patients receiving denosumab and 16.3 months for those patients receiving Zometa® (HR: 0.84, 95% 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 was not statistically superior compared to Zometa® based upon the statistical testing strategy (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 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 OS and the time to cancer progression. On February 8, 2010, we announced that a pivotal, phase 3, head-to-head trial evaluating denosumab versus Zometa® in the treatment of bone metastases in 1,901 men with advanced prostate cancer met its primary endpoint of non-inferiority in time to first SRE and its secondary endpoints (superiority compared to Zometa® for both delaying the time to the first on-study SRE and delaying the time to the first-and-subsequent SREs). Denosumab demonstrated superiority over Zometa® 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: 0.82 [95% CI 0.71 - 0.94]). Both results were statistically significant. Overall rates of adverse events and serious adverse events, including infections, were generally similar between the two arms. ONJ was infrequent (22 patients receiving denosumab as compared with 12 patients receiving Zometa®) and there was no statistically significant difference between treatment arms. As with previous studies in advanced cancer patients, hypocalcemia was more frequent in the denosumab arm. Both OS and the time to cancer progression were balanced between treatment arms. The phase 3 ‘147 study evaluating denosumab in patients with non-metastatic prostate cancer to prevent bone metastases is ongoing. We expect to receive the results from this study the second half of 2010. Motesanib Motesanib is an orally-administered small molecule antagonist of vascular endothelial growth factor receptors 1, 2 and 3, platelet-derived growth factor receptor and stem cell factor receptor. It is being investigated as a cancer treatment. We are developing this product in collaboration with Takeda. Enrollment in the phase 3 first-line NSCLC study (MONET1) evaluating motesanib in combination with paclitaxel and carboplatin for the first-line treatment of advanced NSCLC is nearly complete. Based on current event rates, we anticipate completion of the study in 2011. In April 2009, Amgen and Millennium announced the phase 2 trial in metastatic breast cancer has been completed and the results support continued development. Nplate® (romiplostim) Nplate® is a peptibody agonist of the TPO receptor. Nplate® is the first FDA-approved agent that acts directly to increase platelet production for the treatment of thrombocytopenia in splenectomized (spleen removed) and non-splenectomized adults with chronic ITP, who have had an insufficient response to corticosteroids, immunoglobulins or splenectomy. In December 2009, we announced results from its first phase 1/2 study evaluating the safety and efficacy of Nplate® in children with chronic ITP. Results of the study showed that treatment with Nplate® appeared to be generally well-tolerated compared to placebo in children (aged 12 months to less than 18 years old) with chronic ITP (treatment related adverse events = 18% versus 20%, respectively). In addition, we announced results from three studies on the safety and efficacy of Nplate® in adult patients with myelodysplastic syndromes (“MDS”). Data from two separate phase 2 studies showed that patients with low
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Table of Contentsand intermediate risk MDS currently receiving either decitabine or lenalidomide showed reduced incidence of clinically significant thrombocytopenic events and platelet transfusions with the addition of Nplate® treatment. We are also evaluating Nplate® in chemotherapy-induced thrombocytopenia. Omecamtiv mecarbil (AMG 423) Omecamtiv mecarbil is a small molecule activator of cardiac myosin. Omecamtiv mecarbil is being investigated to improve cardiac contractility in subjects with heart failure. We are developing this product in collaboration with Cytokinetics, Inc. (“Cytokinetics”). In May 2009, Cytokinetics and Amgen Inc. announced that Amgen had exercised its option to obtain an exclusive license, worldwide (excluding Japan), to Cytokinetics’ cardiac contractility program, which includes omecamtiv mecarbil. Sensipar® (cinacalcet) Sensipar®/Mimpara® is an orally-administered small molecule that lowers PTH levels in blood by signaling through the calcium-sensing receptor in parathyroid tissue to inhibit PTH secretion. It also lowers blood calcium and phosphorous levels. The phase 3 EValuation Of Cinacalcet HCl Therapy to Lower CardioVascular Events (“E.V.O.L.V.E.™”) trial, initiated in 2006, is a large (3,800 patient), multi-center, international, randomized, double-blind study to assess the effects of Sensipar® on mortality and cardiovascular morbidity in patients with CKD undergoing maintenance dialysis. The E.V.O.L.V.E.™ study completed enrollment in January 2008. Based on current event rates, we anticipate completion of the study in dialysis patients in 2011. Vectibix® (panitumumab) Vectibix® is a fully human monoclonal antibody antagonist of the EGFr pathway. It is being investigated as a cancer treatment. In September 2009, we announced detailed results from the phase 3 ‘181 trial evaluating Vectibix® in combination with FOLFIRI (an irinotecan-based chemotherapy), as a second-line treatment for mCRC. The ‘181 trial is a global, multicenter, randomized phase 3 study. Patients enrolled in the study were randomized to receive either 6.0 milligram/kilogram of Vectibix® and FOLFIRI once every two weeks or FOLFIRI alone once every two weeks. The independently tested co-primary endpoints were PFS and OS. Secondary endpoints included objective response rate, time to progression, duration of response and safety by KRAS status. 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. Tumor KRAS status was ascertained in 91% of the 1,186 patients enrolled in this trial, the highest number ever reported for a second-line trial. In this trial, Vectibix® significantly improved PFS in patients with KRAS wild-type mCRC. The addition of Vectibix® to FOLFIRI significantly improved median PFS (co-primary endpoint) by two months (5.9 months versus 3.9 months for patients treated with FOLFIRI alone, HR: 0.73, p=0.004) in patients with KRAS wild-type mCRC. Although numerically greater (14.5 months versus 12.5 months, HR: 0.85), the improvement in median OS (co-primary endpoint) in the Vectibix® arm did not achieve statistical significance (p=0.115) in the same patient population. Further, the addition of Vectibix® to FOLFIRI resulted in greater than a three-fold improvement (35% versus 10%) in response rate in the KRAS wild-type patient population as measured by a blinded central review. In general, adverse events rates were comparable across arms with the exception of known toxicities associated with anti-EGFr therapy such as rash, diarrhea and hypomagnesemia. Vectibix®-related grade 3/4 infusion reactions were reported in less than 1% of patients. There were no differences in PFS, OS and response rates among patients with mutated KRAS who received Vectibix®. Tumor KRAS tests were finalized after the completion of enrollment and prior to the primary analysis. Also in September 2009, we announced detailed results from the phase 3 ‘203 trial evaluating Vectibix® administered in combination with FOLFOX (an oxaliplatin-based chemotherapy) as the first-line treatment of
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Table of ContentsmCRC. In this trial, Vectibix® significantly improved median PFS by 1.6 months (9.6 months versus 8.0 months for patients treated with FOLFOX alone, (HR: 0.80; p=0.02)) in patients with KRAS wild-type mCRC (primary endpoint). Further, the addition of Vectibix® to chemotherapy also increased the response rate in the KRAS wild-type patient population as measured by blinded central review (55% versus 48% in the FOLFOX only arm). Importantly, in patients with tumors harboring activating KRAS mutations, PFS was significantly inferior in the Vectibix® arm. For patients with mutant KRAS tumors, median PFS was 7.3 months with Vectibix® in combination with FOLFOX versus 8.8 months with FOLFOX alone (HR: 1.29, p=0.02). These data confirm previous findings when oxaliplatin-based chemotherapy and an anti-EGFr antibody are combined in patients bearing tumors with activating KRAS mutations. Adverse event rates were comparable across arms with the exception of known toxicities associated with anti-EGFr therapy such as rash, diarrhea and hypomagnesemia. Vectibix®-related grade 3 infusion reactions were reported for two patients (less than 1%). 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 93% of the 1,183 patients enrolled in the trial, the highest percentage ever reported. Tumor KRAS tests were finalized after the completion of enrollment and prior to the primary analysis. In November 2009, we announced that the phase 3 ‘203 trial evaluating Vectibix® administered in combination with FOLFOX (an oxaliplatin-based chemotherapy) as a first-line treatment of mCRC failed to meet a secondary endpoint of OS. The prospective analysis of the ‘203 study showed that Vectibix®, when added to a FOLFOX chemotherapy regimen in patients with KRAS wild-type mCRC, resulted in a median OS of 23.9 months compared to 19.7 months for patients treated with FOLFOX alone. The median OS difference of 4.2 months in the Vectibix® arm did not reach statistical significance (HR: 0.83, p=0.072). OS appeared to be reduced in patients with KRAS mutant tumors receiving Vectibix®. Although not statistically significant, this result emphasizes the importance, as described in product labeling, of ensuring that patients receiving Vectibix® do not bear tumors containing KRAS mutations. In 2007, we initiated a phase 3 study for the first-line treatment of metastatic squamous cell carcinoma of the head and neck (“SCCHN”) as well as two randomized phase 2 studies in locally advanced SCCHN testing Vectibix® in combination with chemoradiotherapy or with radiotherapy alone. We expect the results from this study to be available in 2010. Vectibix® is also being investigated in combination with other investigational anti-cancer therapies. Human Resources As of December 31, 2009, we had approximately 17,200 staff members, which include approximately 200 part-time staff members. There can be no assurance that we will be able to continue attracting and retaining qualified personnel in sufficient numbers to meet our needs. None of our staff members are covered by a collective bargaining agreement, and we have experienced no work stoppages. We consider our staff relations to be good. Trade secret protection for our unpatented confidential and proprietary information is important to us. To protect our trade secrets, we generally require our staff members, material consultants and scientific advisors to execute confidentiality agreements upon the commencement of employment or the consulting relationship with us. However, others could either develop independently the same or similar information or obtain access to our information. Executive Officers of the Registrant The executive officers of the Company as of January 31, 2010 are as follows: Mr. Kevin W. Sharer, age 61, has served as a director of the Company since November 1992. Chief Executive Officer and President of the Company and has also been Chairman of the Board of Directors since January 2001. From October 1992 to May 2000, Mr. Sharer served as President and Chief Operating Officer of the Company. From April 1989 to October 1992, Mr. Sharer was President of the Business Markets Division of MCI
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Table of ContentsCommunications Corporation (“MCI”). From February 1984 to March 1989, Mr. Sharer held numerous executive capacities at General Electric Company (“GE”). Mr. Sharer is a director of Chevron Corporation and Northrop Grumman Corporation. He is a trustee of the California Institute of Technology, or Caltech. Mr. David W. Beier, age 61, became Senior Vice President, Global Government and Corporate Affairs in March 2008. He joined the Company in 2003 as Senior Vice President, Global Government Affairs. Previously, Mr. Beier was a partner with the law firm of Hogan and Hartson in Washington, D.C. From 1998 to early 2001, Mr. Beier served as Chief Domestic Policy Advisor to the Vice President of the United States. He also held positions as Vice President of Government Affairs and Public Policy for Genentech and staff counsel in the U.S. House of Representatives. Mr. Beier is a director of ARYx Therapeutics, Inc. Dr. Fabrizio Bonanni, age 63, became Executive Vice President, Operations in August 2007. He has served as Senior Vice President, Manufacturing of the Company since 2004. Dr. Bonanni joined the Company in 1999 as Senior Vice President, Quality and Compliance and in June 2001 he also became the Corporate Compliance Officer. Previously, Dr. Bonanni held various management positions at Baxter International, Inc. from 1974 to 1999, including positions as Corporate Vice President, Regulatory and Clinical Affairs and Corporate Vice President, Quality System. Mr. Robert A. Bradway, age 47, became Executive Vice President and Chief Financial Officer in April 2007. He joined the Company in 2006 as Vice President, Operations Strategy. Previously, Mr. Bradway had an 18 year career at Morgan Stanley in New York and London where he was a managing director in investment banking. Mr. Bradway led Morgan Stanley’s healthcare practice in Europe for several years and also ran Morgan Stanley’s European banking department. Mr. Thomas J. Flanagan, age 60, became Senior Vice President and Chief Information Officer in October 2006. From June 2004 to October 2006, Mr. Flanagan served as Vice President, Information Systems. From December 1995 to May 2004, Mr. Flanagan served in a variety of executive positions including Chief Information Officer and Vice President, Global Service Delivery at MCI. Mr. Brian McNamee, age 53, became Senior Vice President, Human Resources in June 2001. From November 1999 to June 2001, Mr. McNamee served as Vice President of Human Resources at Dell Computer Corp. From 1998 to 1999, Mr. McNamee served as Senior Vice President, Human Resources for the National Broadcasting Corporation, a division of GE. From July 1988 to November 1999, Mr. McNamee held human resource positions at GE. Mr. George J. Morrow, age 57, became Executive Vice President of Worldwide Sales and Marketing in January 2001 and became Executive Vice President, Global Commercial Operations in April 2003. From January 1999 to December 2000, Mr. Morrow was President and Chief Executive Officer of Glaxo Wellcome Inc. (“Glaxo”), a subsidiary of GlaxoSmithKline. From January 1997 to December 1998, Mr. Morrow was Managing Director of Glaxo Wellcome U.K., also a subsidiary of GlaxoSmithKline. From May 1993 to December 1996, Mr. Morrow was Group Vice President for Commercial Operations of Glaxo. Mr. Morrow currently serves on the Board of Directors of Align Technology, Inc. Dr. Roger M. Perlmutter, age 57, became Executive Vice President, Research and Development in January 2001. From July 1999 to December 2000, Dr. Perlmutter was Executive Vice President, Worldwide Basic Research and Preclinical Development of Merck Research Laboratories. From February 1999 to July 1999, Dr. Perlmutter served as Executive Vice President of Merck Research Laboratories, and from February 1997 to January 1999, as Senior Vice President of Merck Research Laboratories. From May 1989 to January 1997, Dr. Perlmutter was also Chairman of the Department of Immunology, University of Washington, and from January 1991 to January 1997, Professor in the Departments of Immunology, Biochemistry and Medicine, University of Washington. From July 1984 to January 1997, Dr. Perlmutter served as Investigator at the Howard Hughes Medical Institute at the University of Washington. Dr. Perlmutter currently serves on the Board of Directors of StemCells, Inc. Ms. Anna S. Richo, age 49, became Senior Vice President and Chief Compliance Officer in June 2008. From December 2003 to June 2008, Ms. Richo served as Vice President, Law. Prior to Amgen, she spent 12
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Table of Contentsyears at Baxter Healthcare Corporation in roles of increasing responsibility in law, including Vice President, Law, for Baxter’s BioScience Division. Also, for more than five years, Ms. Richo served on the Board of Directors of Cytyc Corporation and was a member of the Audit and Finance Committees. Mr. David J. Scott, age 57, became Senior Vice President, General Counsel and Secretary in March 2004. From May 1999 to February 2004, Mr. Scott served as Senior Vice President and General Counsel of Medtronic, Inc. and also as Secretary from January 2000. From December 1997 to April 1999, Mr. Scott served as General Counsel of London-based United Distillers & Vintners. Mr. Scott also served in executive roles at Grand Metropolitan plc and RJR Nabisco, Inc., and was an attorney in private practice. Geographic Area Financial Information For financial information concerning the geographic areas in which we operate, see Note 21, “Segment information — Geographic information” to the Consolidated Financial Statements. Investor Information Financial and other information about us is available on our website (http://www.amgen.com) (This website address is not intended to function as a hyperlink, and the information contained in our website is not intended to be a part of this filing). We make available on our website, free of charge, copies of our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after filing or submitting such material electronically or otherwise furnishing it to the SEC. In addition, we have previously filed registration statements and other documents with the SEC. Any document we file may be inspected, without charge, at the SEC’s public reference room at 100 F Street NE, Washington, D.C. 20549 or at the SEC’s internet address at http://www.sec.gov. Information related to the operation of the SEC’s public reference room may be obtained by calling the SEC at 1-800-SEC-0330.
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. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. You should carefully consider the risks and uncertainties facing our business. The risks described below are not the only ones facing us. Our business is also subject to the risks that affect many other companies, such as employment relations, general economic conditions, geopolitical events and international operations. Further, additional risks not currently known to us or that we currently believe are immaterial also may impair our business, operations, liquidity and stock price materially and adversely. Our current products and products in development cannot be sold if we do not gain or maintain regulatory approval. Our business is subject to extensive regulation by numerous state and federal governmental authorities in the United States, including the FDA, and by foreign regulatory authorities, including the EMA. We are required in the United States and in foreign countries to obtain approval from regulatory authorities before we can manufacture, market and sell our products. Once approved, the FDA and other U.S. and foreign regulatory agencies have substantial authority to require additional testing, change product labeling or mandate withdrawals of our products. Also, regulatory agencies could add new regulations or change existing regulations at any time, which could affect our ability to obtain or maintain approval of our products. Regulatory reform efforts currently under discussion by U.S. policymakers may include changes to applicable laws and regulations that could have a significant impact on our business. For example, the 2007 creation of the FDAAA significantly added to the FDA’s authority, allowing the FDA to (i) require sponsors of marketed products to conduct post-approval clinical stud -
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Table of Contentsies; (ii) mandate labeling changes to products and (iii) require sponsors to implement a REMS for a product. Failure to comply with FDAAA requirements could result in significant civil monetary penalties, reputational harm and increased product liability risk. We are unable to predict when and whether any changes to regulatory policy affecting our business could occur, and such changes could have a material adverse impact on our business. Obtaining and maintaining regulatory approval has been and will continue to be increasingly difficult, time-consuming and costly. For example, in October 2009 we received Complete Response Letters from the FDA for the BLA for our late-stage product candidate ProliaTM in the treatment and prevention of PMO and in the treatment and prevention of bone loss due to HALT in breast and prostate cancer patients. The Complete Response Letter related to the PMO indication requested several items, including further information on the design and background adverse event rates that will inform the methodology of our previously submitted post-marketing surveillance program. The FDA also requested a new clinical program to support approval of ProliaTM for the prevention of PMO, updated safety data and stated that a REMS is necessary for ProliaTM. The Complete Response Letter related to the HALT indication requested additional information regarding the safety of ProliaTM in patients with breast cancer receiving aromatase inhibitor therapy and patients with prostate cancer receiving ADT. The FDA specifically requested results from additional adequate and well-controlled clinical trials demonstrating that ProliaTM has no detrimental effects on either time to disease progression or OS. On February 19, 2010, we announced that the FDA has evaluated the content of our Complete Response submission for ProliaTM in the treatment of PMO, which we submitted on January 25, 2010, and classified it as a Class 2 resubmission. With the Class 2 designation, the FDA set a corresponding PDUFA action date of July 25, 2010. A significant delay in regulatory approval to market and sell ProliaTM for the treatment of PMO could have a material adverse affect on our business and results of operations. In addition, some of our products are approved by U.S. and foreign regulatory authorities on a conditional basis with full approval conditioned upon fulfilling requirements of regulators. Vectibix®, for example, received conditional approval in the United States and EU, with final approval conditioned on conducting additional clinical trials of the use of Vectibix® as a therapy in treating mCRC. Our conditional approval of Vectibix® in the EU was received in December 2007 and is reviewed annually by the CHMP and in December 2008 and 2009 we received renewal of the conditional approval subject to us completing an additional clinical trial in the existing approved indication. In 2009, the CHMP approved our protocol for this additional clinical trial, which will compare the effect of Vectibix® versus Erbitux® on OS for chemorefractory mCRC patients with wild-type KRAS tumors. Further, some of our products or product candidates may be used with a companion diagnostic product, such as a test-kit, or companion device, such as an injector or other delivery system. These product candidates or expanded indications of our products may not be approved if the companion diagnostic product or companion device does not gain or maintain regulatory approval. These companion diagnostics and devices may be provided by single-source unaffiliated third-party companies. We are dependent on the sustained cooperation and effort of these third-party companies in conducting the studies required for such approval by the applicable regulatory agencies. Delays in the studies or failure of the third-party company to obtain regulatory approval of the companion diagnostic or device could negatively impact the approval of our product candidate or the expanded indication of our product and we may incur increased development costs, delays in regulatory approval, associated delays in a product candidate reaching the market or the expansion of existing product labels for new indications. The occurrence of a number of high profile safety events has caused an increased public and governmental concern about potential safety issues relating to pharmaceutical and biological products and certain of our products and product candidates. (See “— Our ESA products continue to be under review and receive scrutiny by regulatory authorities.”) As a result of this increased concern, safety signals and safety concerns resulting from clinical trials (including sub-analyses and meta-analyses), market use or other sources are receiving greater scrutiny. Actual or perceived safety problems could lead to significant revised or restrictive labeling of our approved products or a class of products, potentially including limitations on the use of approved products in certain patients because of:
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For example, on December 16, 2009, based on the TREAT results, we updated the boxed warning in the labeling information for ESAs, to reflect an increased risk of stroke when ESAs are administered to CRF patients to target Hb levels of 13 g/dL and above. (See — “Our ESA products continue to be under review and receive scrutiny by regulatory authorities.”) In addition to revised labeling for our products, discovery of new safety information or previously unknown safety concerns and/or safety signals with our products could also lead to:
Product safety concerns could cause regulatory agencies to impose risk management activities upon us (including a REMS), which may require substantial costs and resources to negotiate, develop and implement. The results of these risk management activities could:
We currently have approved REMS for our ESAs, ENBREL and Nplate® and are currently in discussions with the FDA regarding an update to the existing REMS for ENBREL and a REMS for our product candidate ProliaTM. Further, if new medical data or product quality issues suggest an unacceptable safety risk or previously unidentified side-effects, we may withdraw some or all affected product — either voluntarily or by regulatory mandate — in certain therapeutic areas, or completely recall a product presentation from the market for some period or permanently. For example, in September 2009, we initiated a voluntary recall of a limited number of ENBREL SureClick® lots due to a defect in the glass syringe barrel which resulted in a small number of broken syringes following assembly of the autoinjector device. We may experience the same or other problems in the future resulting in broader product recalls or adverse event trends, which may adversely affect the sales of our products. Additionally, if other parties (including our licensees, such as J&J and Pfizer, or independent investigators) report or fail to effectively report to regulatory agencies side effects or other safety concerns that occur from their use of our products in clinical trials or studies or from marketed use, resulting regulatory action could adversely affect the sales of our products and our business and results of operations. If regulatory authorities determine that we have not complied with regulations in the R&D of a product candidate, a new indication for an existing product or information to support a current indication, they may not
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Table of Contentsapprove the product candidate or new indication or maintain approval of the current indication in its current form or at all, and we would not be able to market and sell it. If we were unable to market and sell our products or product candidates, our business and results of operations would be materially and adversely affected. Further, safety signals, trends, adverse events or results from clinical trials or studies performed by us or by others (including our licensees or independent investigators) from the marketed use of our drugs that result in revised safety-related labeling or restrictions on the use of our approved products could negatively impact healthcare provider prescribing behavior, use of our products, regulatory or private health organization medical guidelines and reimbursement for our products all of which would have a material adverse effect on our business and results of operations. Our ESA products continue to be under review and receive scrutiny by regulatory authorities. Beginning in 2006, adverse safety results involving ESA products were observed and since that time our ESAs have been the subject of ongoing review and scrutiny from regulatory authorities. In the United States, the FDA continues to review the benefit-risk profile of ESAs, which have resulted and could result in future changes to ESA labeling and usage. For example, we revised the labeling for our ESAs in August 2008, as the FDA directed, and since that time have experienced a reduction in our ESA sales, in particular Aranesp® sales in the U.S. supportive cancer care setting. In October 2009, the results from TREAT, a phase 3 pivotal study of patients with CKD not on dialysis were published in the New England Journal of Medicine. The study failed to meet its primary objectives of demonstrating a reduction in all-cause mortality, cardiovascular morbidity, including heart failure, heart attack, stroke or hospitalization for myocardial ischemia, or time to ESRD. On December 16, 2009, based on the TREAT results, we updated the boxed warning in the labeling information for ESAs, to reflect an increased risk of stroke when ESAs are administered to CRF patients to target Hb levels of 13 g/dL and above. In an editorial published in the New England Journal of Medicine in January 2010, the FDA announced that it will call an advisory committee meeting in 2010 to re-evaluate the use of ESAs to treat anemia in patients with CKD and could consider lowering targeted Hb levels. In addition, CMS has scheduled a MEDCAC meeting for March 24, 2010 to examine currently available evidence on the use of ESAs to manage anemia in patients who have CKD, which may consider the results from the TREAT study. The FDA may also require that we update the REMS for ESAs based on the TREAT results. Although we cannot predict what impact all of these activities could have on our business, the revised ESA labeling or any future labeling changes, including any required in connection with the scheduled advisory committee meeting, our ongoing discussions with the FDA regarding the conversion of the format of our ESA U.S. labels in accordance with the PLR or other changes required by the FDA, the outcome from the MEDCAC meeting or the impact of the approved REMS for ESAs could have a material adverse impact on the coverage, reimbursement and sales of our ESAs, which would have a material adverse effect on our business and results of operations. (See “— Our current products and products in development cannot be sold if we do not gain or maintain regulatory approval.” and “Our sales depend on coverage and reimbursement from third-party payers.”) We also have ongoing PMC studies for our ESAs which must be conducted to maintain regulatory approval and marketing authorization. We have agreed with the FDA to a robust pharmacovigilance program to continue to study the safety surrounding the use of ESAs in the oncology setting and we initiated Study 782 as part of our Aranesp® pharmacovigilance program, a phase 3 non-inferiority study evaluating OS when comparing NSCLC patients on Aranesp® to patients receiving placebo. We are currently identifying clinical sites for Study 782 and have begun enrolling patients in the study. Further, in 2008 the FDA and EMA reviewed interim results from the Preoperative Epirubicin Paclitaxel Aranesp® (“PREPARE”) study in neo-adjuvant breast cancer, a PMC study, which were ultimately incorporated into the ESA labeling in both the United States and the EU. We received the final results from the PREPARE study in 2009, which were substantially consistent with the interim results, and provided that data to the FDA and EMA. Although we cannot predict the results or the outcomes of ongoing clinical trials, or the extent to which regulatory authorities may require additional labeling changes as a result of these or other trials, we cannot exclude the possibility that adverse results from clinical trials, including PMCs, could have a material adverse impact on the reimbursement, use and sales of our ESAs, which would have a material adverse effect on our business and results of operations.
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Table of ContentsRegulatory authorities outside the United States have also reviewed and scrutinized the use of our ESA products. In June 2008, the EMA recommended updating the product information for ESAs with a new warning for their use in cancer patients, which was approved by the European Commission in October 2008. The product information for all ESAs was updated to advise that in some clinical situations blood transfusions should be the preferred treatment for the management of anemia in patients with cancer and that the decision to administer ESAs should be based on a benefit-risk assessment with the participation of the individual patient. Since the October 2008 revision, we have experienced a reduction of Aranesp® sales in the supportive cancer care setting in the EU and, although we cannot predict what further impact the revised EU ESA product information could have on our business, the reimbursement, use and sales of Aranesp® in Europe could further be materially adversely affected, which would have a material adverse effect on our business and results of operations. Moreover, we continue to receive results from meta-analyses or previously initiated clinical trials using ESAs, including PMCs, and adverse results could negatively impact the use and sales of our ESAs. For example, in September 2008, we announced that we had received a summary of preliminary results from the Cochrane 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 the EMA. This Cochrane meta-analysis of patient-level data from previous studies corroborates prior analyses indicating that the use of ESAs may increase the risk of death in cancer patients. The studies in the analysis all predate the current label, which advises using the least amount of ESA necessary to avoid transfusion but they do not exclude the potential for adverse outcomes when ESAs are prescribed according to the current label. We must conduct clinical trials in humans before we can commercialize and sell any of our product candidates or existing products for new indications. Before we can sell any products, we must conduct clinical trials to demonstrate that our product candidates are safe and effective for use in humans. The results of these clinical trials are used as the basis to obtain regulatory approval from regulatory authorities such as the FDA. (See — “Our current products and products in development cannot be sold if we do not gain or maintain regulatory approval.”) We are required to conduct clinical trials using an appropriate number of trial sites and patients to support the product label claims. The length of time, number of trial sites and patients required for clinical trials vary substantially and therefore, we may spend several years and incur substantial expense in completing certain clinical trials. Delays in planned clinical trials can result in increased development costs, delays in regulatory approvals, associated delays in product candidates reaching the market and revisions to existing product labels. For example, in 2006 we delayed the start of our phase 3 trial in first-line NSCLC due to an increased frequency of cholecystitis (inflammation of the gall bladder) in patients treated with our late-stage product candidate motesanib. Following initiation of the trial in November 2008, enrollment in this phase 3 trial was temporarily suspended following a planned safety data review of 600 patients by the study’s independent DMC. In February 2009, the DMC recommended the trial resume enrollment of patients with non-squamous NSCLC only, and in June 2009, we reinitiated enrollment in this patient population following an FDA-approved revision to the study protocol. In addition, in order to increase the number of patients available for enrollment for our clinical trials, we have and will continue to open clinical sites and enroll patients in a number of new geographic locations where our experience conducting clinical trials is more limited, including Russia, India, East Asia and some Central and South American countries either through utilization of third-party contract clinical trial providers entirely or in combination with local staff. Conducting clinical trials in locations where we have limited experience requires substantial time and resources to identify and understand the unique regulatory environments of individual countries. If we fail to adequately manage the design, execution and regulatory aspects of our large, complex and regulatory diverse clinical trials, corresponding regulatory approvals may be delayed or we may fail to gain approval for our product candidates or could lose our ability to market existing products in certain therapeutic areas or altogether. If we are unable to market and sell our product candidates or are unable to obtain approvals in the timeframe needed to execute our product strategies, our business and results of operations would be materially adversely affected. Additional information on our clinical trials can be found on our website at www.amgen.com. (This website address is not intended to function as a hyperlink, and the information contained on our website is not intended to be a part of this filing.)
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Table of ContentsPatients may also suffer adverse medical events or side effects in the course of our, our licensees, partners or independent investigator’s clinical trials which could:
Clinical trials must be designed based on the current standard of medical care. However in certain diseases, such as cancer, the standard of care is evolving rapidly. In these diseases, the duration of time needed to complete certain clinical trials may result in the design of such clinical trials being based on an out of date standard of medical care, limiting the utility and application of such trials. We may not obtain favorable clinical trial results and may not be able to obtain regulatory approval for new product candidates, new indications for existing products or maintenance of our current labels on this basis. Further, clinical trials conducted by others, including our licensees, partners or independent investigators, may result in unfavorable clinical trials results that may call into question the safety of our products in off-label or on label uses that may result in label restrictions and/or additional trials. Even after a product is on the market, safety concerns may require additional or more extensive clinical trials as part of a pharmacovigilance program of our product or for approval of a new indication. For example, we are moving forward with Study 782 as part of our Aranesp® pharmacovigilance program. (See “— Our ESA products continue to be under review and receive scrutiny by regulatory authorities.”) Additional clinical trials we initiate, including those required by the FDA, could result in substantial additional expense and the outcomes could result in additional label restrictions or the loss of regulatory approval for an approved indication, each of which may have a material adverse effect on our business and results of operations. Additionally, any negative results from such trials could materially affect the extent of approvals, the use, reimbursement and sales of our products. Our sales depend on coverage and reimbursement from third-party payers. Sales of all of our principal products are dependent on the availability and extent of coverage and reimbursement from third-party payers, including government healthcare programs and private insurance plans. We rely in large part on the reimbursement of our principal products through government programs such as Medicare and Medicaid in the United States and similar programs in foreign countries. (See “Item 1. Business — Reimbursement”) The government-sponsored healthcare systems in Europe and other foreign countries are the primary payers of healthcare costs in those regions. Governments and private payers may regulate prices, reimbursement levels and/or access to our products to control costs or to affect levels of use of our products. We cannot predict the availability or level of coverage and reimbursement for our approved products or product candidates and a reduction in coverage and/or reimbursement for our products could have a material adverse effect on our product sales and results of operations. Healthcare reform, focused on expanding healthcare coverage to millions of uninsured Americans and reducing the rate of increase in the cost of healthcare, remains a priority for President Obama, U.S. Congress and a number of states. Developments in this area have been highly dynamic and difficult to predict. As recently as February 23, 2010, President Obama released a new proposal for healthcare reform which includes a combination of provisions from both the Senate and House of Representatives bills passed in late 2009. Certain healthcare reform proposals being considered, which may or may not be adopted into law, could:
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We cannot predict whether these or any future proposed reform measures will be adopted into law. Healthcare cost-containment measures or other healthcare system reforms that are adopted could have a material adverse effect on our industry generally and any changes to the current U.S. healthcare system that reduce the coverage and reimbursement of our products, or restrict the way our products are used or prescribed, could have a material adverse impact on our business. (See “— Our current products and products in development cannot be sold if we do not gain or maintain regulatory approval.”) Public and private insurers have pursued, and continue to pursue, aggressive cost containment initiatives, which could result in lower reimbursement rates for our products. For example, most of our products furnished to Medicare beneficiaries in both a physician office setting and hospital outpatient setting are reimbursed under the ASP payment methodology. The ASP payment rate for most of our products furnished in the hospital outpatient setting has been reduced twice since 2007. ASP-based reimbursements of products under Medicare may be below or could fall below the cost that some medical providers pay for such products, which would adversely affect sales of our products. We also face certain risks relating to the calculation of ASP. ASP is calculated by the manufacturer based on a statutorily defined formula and submitted to CMS. However, the statute, regulations and CMS guidance do not define specific methodologies for all aspects of the calculation of ASP. For example, in the Medicare Physician Fee Schedule Final Rule for 2010, CMS did not address a proposed methodology for treatment of bundled price concessions. Consequently, the current CMS guidance is that manufacturers may make “reasonable assumptions” in their calculation of ASP consistent with the general requirements and the intent of the Medicare statute, federal regulations and their customary business practices. As a result, we are required to apply our judgment in certain aspects of calculating ASP which are disclosed to CMS and also are subject to further CMS review. If our calculation of ASP is incorrect, we could be subject to substantial fines and penalties which could have a material adverse impact on our results of operations. Other initiatives reviewing the coverage or reimbursement of our products could result in less extensive coverage or lower reimbursement rates. For example, in March 2007, CMS announced a review of all Medicare coverage policies related to the administration of ESAs in non-renal disease applications which is a precursor to a NCD. In July 2007, CMS issued a NCD where it determined that ESA treatment was not reasonable and necessary for certain clinical conditions and established Medicare coverage parameters for FDA-approved ESA use in oncology. We believe the restrictions in the NCD on the coverage and reimbursement of ESAs has had a material adverse effect on the use, reimbursement and sales of Aranesp®, which has had a significant impact to our business. We believe that the NCD may continue to impact us in the future. In the dialysis setting, the reimbursement rates for our products may also be subject to downward pressure. In the United States, dialysis providers are primarily reimbursed for EPOGEN® by the federal government through the ESRD Program of Medicare. The ESRD Program reimburses approved dialysis providers for 80% of allowed dialysis costs while the remainder is paid by other sources, including patients, state Medicaid programs, private insurance, and to a lesser extent, state kidney patient programs. The ESRD Program reimbursement methodology is established by federal law and is monitored and implemented by CMS. Since April 2006, the Medicare reimbursement for ESAs administered to dialysis patients has been subject to an EMP, the Medicare payment review mechanism used by CMS to monitor EPOGEN® and Aranesp® utilization and hematocrit outcomes of dialysis patients. CMS revised the EMP, effective January 2008, further limiting reimbursement for EPOGEN® and Aranesp® in certain cases. Further reduction in reimbursement in the dialysis setting could have a material adverse effect on sales of EPOGEN® and Aranesp®, and our business. In addition, on July 30, 2008, CMS issued a listing of potential topics for future NCDs as a step to increase transparency in the NCD process, which included as potential topics the use of ESAs in ESRD and CKD. Medicare currently does not have a NCD for the use of ESAs for anemia in patients who have CKD and CMS has not announced whether it will proceed with a NCD for ESAs in ESRD or CKD. However, CMS announced it had scheduled a MEDCAC meeting for March 24, 2010 to review the use of ESAs to manage anemia in patients who have CKD, which may consider the results of the TREAT study. In February 2010, CMS released the voting questions the MEDCAC will address, including whether the available evidence in both CKD not on dialysis and
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Table of ContentsESRD clearly (i) demonstrates the benefits and risks of ESA therapy, (ii) supports a baseline Hb range or (iii) justifies a dose response or maximum dose. CMS will decide whether more evidence is needed to determine whether ESA treatment is reasonable and necessary to support continued Medicare coverage. CMS may consider initiating a NCA or a NCD following the MEDCAC and a NCD for ESAs in the renal setting, which may include non-coverage and/or new dosing and treatment restrictions, could negatively affect use, reimbursement and coverage, and product sales of our ESA products. Also included in the initial potential future NCD topic list is the category of thrombopoiesis stimulating agents (platelet growth factors), the category of drugs that includes Nplate® although CMS has not announced whether it will proceed with a NCD related to thrombopoiesis stimulating agents. Additional initiatives addressing the coverage or reimbursement of our products could result in less extensive coverage or lower reimbursement, which could negatively affect sales of our products. For example, on September 15, 2009, CMS released its proposed rule to implement a bundled prospective payment system for ESRD facilities as required by the MIPPA. Although we cannot predict what the final rule on the bundled payment system for ESRD facilities will include, implementation of the rule as proposed could have a material adverse impact on the coverage and reimbursement, use and sales of EPOGEN® and Sensipar®. Healthcare providers may narrow the circumstances in which they prescribe or administer our products if reimbursement rates are reduced or in anticipation of reimbursement being reduced, which could reduce the use and/or price of our products. A reduction in the use or price of our products could have a material adverse effect on us and our results of operations. If our intellectual property positions are challenged, invalidated, circumvented or expire, or if we fail to prevail in present and future intellectual property litigation, our business could be adversely affected. Our success depends in part on our ability to obtain and defend patent rights and other intellectual property rights that are important to the commercialization of our products and product candidates. The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and often involve complex legal, scientific and factual questions. Third parties may challenge, invalidate or circumvent our patents and patent applications relating to our products, product candidates and technologies. In addition, our patent positions might not protect us against competitors with similar products or technologies because competing products or technologies may not infringe our patents. For certain of our product candidates, there are third parties who have patents or pending patent applications that they may claim necessitate payment of a royalty or prevent us from commercializing these product candidates in certain territories. Patent disputes are frequent, costly and can preclude, delay or increase the cost of commercialization of products. We are currently, and in the future may be, involved in patent litigation. A patent dispute or litigation may not discourage a potential violator from bringing the product that is alleged to infringe to market and we may be subject to competition during certain periods of litigation. Further, under the Hatch-Waxman Act, products approved by the FDA under a NDA may be the subject of patent litigation with generic competitors before the five year period of data exclusivity provided for under the Hatch-Waxman Act has expired and prior to the expiration of the patents listed for the product. Moreover, if we lose or settle current or future litigations at certain stages or entirely, we could be subject to competition and/or significant liabilities; be required to enter into third-party licenses for the infringed product or technology or be required to cease using the technology or product in dispute. In addition, we cannot guarantee that such licenses will be available on terms acceptable to us, or at all. In recent years, policymakers have proposed reforming U.S. patent laws and regulations. For example, patent reform legislation was introduced in both houses of the U.S. Congress in 2009, and the Senate Judiciary Committee approved a patent reform bill on April 2, 2009. In general, the proposed legislation attempts to address issues surrounding the increase in patent litigation by, among other things, establishing new procedures for challenging patents. While we cannot predict what form any new patent reform laws or regulations ultimately may take, final legislation could introduce new substantive rules and procedures for challenging patents, and certain reforms that make it easier for competitors to challenge our patents could have a material adverse effect on our business.
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Table of ContentsWe may not be able to develop commercial products. Successful product development in the biotechnology industry is highly uncertain, and very few R&D projects produce a commercial product. We intend to continue to make significant R&D investments. Product candidates or new indications for existing products (collectively, “product candidates”) that appear promising in the early phases of development may fail to reach the market for a number of reasons, such as:
For example, after discussions with the FDA we have decided not to file for approval of motesanib in refractory thyroid cancer until there is more clarity on what would constitute an appropriate regulatory filing package for that indication. Further, several of our product candidates have failed or been discontinued at various stages in the product development process. For example, in June 2004, we announced that the phase 2 study of Glial Cell Lined-Derived Neurotrophic Factor (“GDNF”) for the treatment of advanced Parkinson’s disease did not meet the primary study endpoint upon completion of nine months of the double-blind treatment phase of the study. The conclusion was reached even though a small phase 1 pilot investigator-initiated open-label study over a three-year period appeared to result in improvements for advanced Parkinson’s disease patients. Subsequently, we discontinued clinical development of GDNF in patients with advanced Parkinson’s disease. Our business may be affected by litigation and government investigations. We and certain of our subsidiaries are involved in legal proceedings. Civil and criminal litigation is inherently unpredictable, and the outcome can result in excessive verdicts, fines, penalties and/or injunctive relief that affect how we operate our business. Defense of litigation claims can be expensive, time-consuming and distracting and it is possible that we could incur judgments or enter into settlements of claims for monetary damages or change the way we operate our business, which could have a material adverse effect on our results of operations, financial position or cash flows. In addition, product liability is a major risk in testing and marketing biotechnology and pharmaceutical products. We may face substantial product liability exposure in human clinical trials and for products that we sell after regulatory approval. Product liability claims, regardless of their merits, could be costly and divert management’s attention, and adversely affect our reputation and the demand for our products. Amgen and Immunex have previously been named as defendants in product liability actions for certain of our products. We are also involved in government investigations that arise in the ordinary course of our business. We have received subpoenas from a number of government entities, including the U.S. Attorney’s Offices for the Eastern District of New York and the Western District of Washington, as well as the Attorneys General of New
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Table of ContentsYork and New Jersey. The federal subpoenas have been issued pursuant to the Health Insurance Portability and Accountability Act of 1996 (18 U.S.C. 3486), and by a federal grand jury, while the Attorneys General subpoenas have been issued pursuant to state specific statutes relating to consumer fraud laws and state false claims acts. In general, the subpoenas request documents relating to the sales and marketing of our products, and our collection and dissemination of information reflecting clinical research as to the safety and efficacy of our ESAs. Based on representations in a U.S. government filing that became public in May 2009 relating to the Massachusetts Qui Tam Action, we now believe the subpoenas we received from the U.S. Attorney’s Offices for the Eastern District of New York and the Western District of Washington also relate to nine additional Qui Tam Actions which are purportedly pending against Amgen, including eight pending in the U.S. District Court for the Eastern District of New York and one pending in the U.S. District Court for the Western District of Washington. The U.S. government filing further alleges that a large number of states are involved in the Qui Tam investigations, led by the State of New York. These investigations are represented to be joint criminal and civil investigations. On October 30, 2009 fourteen states and the District of Columbia’s state attorneys’ general filed an amended complaint in intervention against Amgen alleging violations of the federal Anti-Kickback Statute and various state false claims acts. Additionally, the U.S. government may seek to intervene in the lawsuit filed by the states at any time. Although we cannot predict whether additional proceedings may be initiated against us, or predict when these matters may be resolved, it is not unusual for investigations such as these to continue for a considerable period of time and to require management’s attention and significant legal expense. A determination that we are in violation of the various federal and state laws that govern the sales and marketing of our products could result in federal criminal liability and/or federal or state civil or administrative liability, and thus could result in substantial financial damages or criminal penalties and possible exclusion from future participation in the Medicare and Medicaid programs. In addition, we may see new governmental investigations of or actions against us citing novel theories of recovery. Any of these results could have a material adverse effect on our results of operations, financial position or cash flows in the period in which such liabilities are incurred. Our stock price is volatile. Our stock price, like that of our peers in the biotechnology industry, is volatile. Our revenues and operating results may fluctuate from period to period for a number of reasons. Events such as a delay in product development or even a relatively small revenue shortfall may cause financial results for a period to be below our expectations or projections. As a result, our revenues and operating results and, in turn, our stock price may be subject to significant fluctuations. The capital and credit markets have experienced extreme volatility and disruption which has led to uncertainty and liquidity issues for both borrowers and investors. Historically, we have occasionally and opportunistically accessed the capital markets to support certain business activities including acquisitions, in-licensing activities, share repurchases and to refinance existing debt. In the event of adverse capital and credit market conditions, we may not be able to obtain capital market financing on similar favorable terms, or at all, which could have a material adverse effect on our business and results of operations. Changes in credit ratings issued by nationally recognized credit rating agencies could adversely affect our cost of financing and have an adverse effect on the market price of our securities. Current economic conditions may magnify certain risks that affect our business. Our operations and performance have been, and may continue to be, affected by economic conditions. Sales of our principal products are dependent, in part, on the availability and extent of reimbursement from third-party payers, including government programs such as Medicare and Medicaid and private payer healthcare and insurance programs. (See “— Our sales depend on coverage and reimbursement from third-party payers.”) As a result of the current global economic downturn, our third-party payers may delay or be unable to satisfy their reimbursement obligations. A reduction in the availability or extent of reimbursement from government and/or private payer healthcare programs could have a material adverse affect on the sales of our products, our business and results of operations.
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Table of ContentsIn addition, as a result of the economic downturn, some employers may seek to reduce costs by reducing or eliminating employer group healthcare plans or transferring a greater portion of healthcare costs to their employees. Job losses or other economic hardships may also result in reduced levels of coverage for some individuals, potentially resulting in lower levels of healthcare coverage for themselves or their families. These economic conditions may affect patients’ ability to afford healthcare as a result of increased co-pay or deductible obligations, greater cost sensitivity to existing co-pay or deductible obligations, lost healthcare insurance coverage or for other reasons. We believe such conditions have led and could continue to lead to changes in patient behavior and spending patterns that negatively affect usage of certain of our products, including delaying treatment, rationing prescription medications, leaving prescriptions unfilled, reducing the frequency of visits to healthcare facilities, utilizing alternative therapies and/or foregoing healthcare insurance coverage. In addition to its effects on consumers, the economic downturn may have also increased cost sensitivities among medical providers in the United States, such as oncology clinics, particularly in circumstances where providers may experience challenges in the collection of patient co-pays or be forced to absorb treatment costs as a result of coverage decisions or reimbursement terms. Collectively, we believe that these changes have resulted and may continue to result in reduced demand for our products, which could continue to adversely affect our business and results of operations. Any resulting decrease in demand for our products could also cause us to experience excess inventory write-offs and/or excess capacity or impairment charges at certain of our manufacturing facilities. Additionally, we rely upon third-parties for certain parts of our business, including licensees and partners, wholesale distributors of our products, contract clinical trial providers, contract manufacturers and single third-party suppliers. Because of the recent volatility in the financial markets, there may be a disruption or delay in the performance or satisfaction of commitments to us by these third-parties which could have a material adverse affect on our business and results of operations. Current economic conditions may adversely affect the ability of our distributors, customers and suppliers to obtain liquidity required to buy inventory or raw materials and to perform their obligations under agreements with us, which could disrupt our operations. Further, economic conditions appear to have affected, and may continue to affect, the business practices of our wholesale distributors in a manner that has and may continue to contribute to lower sales of our products. For example, in the first quarter of 2009, certain of our wholesale distributors lowered their levels of inventory on hand, which we believe was done to reduce their carrying costs and improve their results of operations Although we monitor our distributors’, customers’ and suppliers’ financial condition and their liquidity, in order to mitigate our business risks, some of our distributors, customers and suppliers may become insolvent, which could negatively impact our business and results of operations. We maintain a significant portfolio of investments disclosed as cash equivalents and marketable securities on our Consolidated Balance Sheet. The value of our investments may be adversely affected by interest rate fluctuations, downgrades in credit ratings, illiquidity in the capital markets and other factors which may result in other than temporary declines in the value of our investments. Any of these events could cause us to record impairment charges with respect to our investment portfolio or to realize losses on the sale of investments. We rely on single-source third-party suppliers for certain of our raw materials, medical devices and components. We rely on single-source unaffiliated third-party suppliers for certain raw materials, medical devices and components necessary for the formulation, fill and finish of our products. Certain of these raw materials, medical devices and components are the proprietary products of these unaffiliated third-party suppliers and are specifically cited in our drug application with regulatory agencies so that they must be obtained from that specific sole source and could not be obtained from another supplier unless and until the regulatory agency approved such supplier. Among the reasons we may be unable to obtain these raw materials, medical devices and components include:
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These events could adversely affect our ability to satisfy demand for our products, which could adversely affect our product sales and operating results materially. For example, we have experienced shortages in certain components necessary for the formulation, fill and finish of certain of our products in our Puerto Rico facility without impact on our ability to supply these products. However, we may experience these or other shortages in the future resulting in delayed shipments, supply constraints, contract disputes and/or stock-outs of our products. Also, certain of the raw materials required in the commercial and clinical manufacturing and the formulation of our products are sourced from other countries and/or derived from biological sources, including mammalian tissues. In addition, one of our marketed products also includes bovine serum and HSA. Some countries in which we market our products may restrict the use of certain biologically derived substances in the manufacture of drugs. We continue to investigate alternatives to certain biological sources and alternative manufacturing processes that do not require the use of certain biologically derived substances as such raw materials may be subject to contamination and/or recall. A material shortage, contamination, recall and/or restriction of the use of certain biologically derived substances or other raw materials, which may be sourced from other countries, used in the manufacture of our products could adversely impact or disrupt our commercial manufacturing of our products or could result in a mandated withdrawal of our products from the market. This could adversely affect our ability to satisfy demand for our products, which could adversely affect our product sales and operating results materially. Further, any disruptions or delays by us or by third-party suppliers or partners in converting to alternatives to certain biologically derived substances and alternative manufacturing processes or our ability to gain regulatory approval for the alternative materials and manufacturing processes could increase our associated costs or result in the recognition of an impairment in the carrying value of certain related assets, which could have a material and adverse affect on our results of operations. Manufacturing difficulties, disruptions or delays could limit supply of our products and limit our product sales. Manufacturing biologic human therapeutic products is difficult, complex and highly regulated. We currently manufacture all of our principal products and plan to manufacture many of our product candidates. In addition, we currently use third-party contract manufacturers to produce or assist in the production of ENBREL, Sensipar®/Mimpara® and Nplate® as well as our late-stage product candidate denosumab and plan to use contract manufacturers to produce a number of our other late-stage product candidates. Our ability to adequately and timely manufacture and supply our products is dependent on the uninterrupted and efficient operation of our facilities and those of our third-party contract manufacturers, which may be impacted by:
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If the efficient manufacture and supply of our products is interrupted, we may experience delayed shipments, supply constraints, stock-outs and/or recalls of our products. If we are at any time unable to provide an uninterrupted supply of our products to patients, we may lose patients and physicians may elect to prescribe competing therapeutics instead of our products, which could materially and adversely affect our product sales and results of operations. Our manufacturing processes and those of our third-party contract manufacturers must undergo a potentially lengthy FDA or other regulatory approval process and are subject to continued review by the FDA and other regulatory authorities. It can take longer than five years to build and license a new manufacturing plant and it can take longer than three years to qualify and license a new contract manufacturer. In order to maintain supply, mitigate risks associated with the majority of our formulation, fill and finish operations being performed in a single facility and to satisfy anticipated demand for our late-stage product candidates, in particular denosumab, we must successfully implement certain manufacturing projects on schedule. If regulatory authorities determine that we or our third-party contract manufacturers or certain of our third-party service providers have violated regulations or if they restrict, suspend or revoke our prior approvals, they could prohibit us from manufacturing our products or conducting clinical trials or selling our marketed products until we or the affected third-party contract manufacturers or third-party service providers comply, or indefinitely. Because our third-party contract manufacturers and certain of our third-party service providers are subject to the FDA and foreign regulatory authorities, alternative qualified third-party contract manufacturers and third-party service providers may not be available on a timely basis or at all. If we or our third-party contract manufacturers or third-party service providers cease or interrupt production or if our third-party contract manufacturers and third-party service providers fail to supply materials, products or services to us, we may experience delayed shipments, supply constraints, stock-outs and/or recalls of our products. Additionally, we distribute a substantial volume of our commercial products through a single distribution center in Louisville, Kentucky for the United States and another in Breda, the Netherlands for Europe and the rest of the world. Our ability to timely supply products is dependent on the uninterrupted and efficient operations of our distribution and logistics centers and our third-party logistics providers. We manufacture and formulate, fill and finish substantially all our products at our Puerto Rico manufacturing facility; if significant natural disasters or production failures occur at this facility, we may not be able to supply these products. We currently perform all of the formulation, fill and finish for EPOGEN®, Aranesp®, Neulasta® and NEUPOGEN®, and substantially all of the formulation, fill and finish operations for ENBREL, and all of the bulk manufacturing for Aranesp®, Neulasta® and NEUPOGEN® at our manufacturing facility in Juncos, Puerto Rico. In addition if denosumab is approved by the FDA, it will be primarily produced at the Puerto Rico facility. Our global supply of these products is significantly dependent on the uninterrupted and efficient operation of this facility. A number of factors could adversely affect our operations, including:
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Table of ContentsIn the past, the Puerto Rico facility has experienced manufacturing component shortages and there was evidence of adverse trends in the microbial bioburden of the production environment that reduced the production output. The same or other problems may result in our being unable to supply these products, which could adversely affect our product sales and operating results materially. Although we have obtained limited insurance to protect against certain business interruption losses, there can be no assurance that such coverage will be adequate or that such coverage will continue to remain available on acceptable terms, if at all. The extent of the coverage of our insurance could limit our ability to mitigate for lost sales and such losses could materially adversely affect our product sales and operating results. Our Puerto Rico facility is also subject to the same difficulties, disruptions or delays in manufacturing experienced in our other manufacturing facilities. For example, the limited number of lots of ENBREL voluntarily recalled in September 2009 were manufactured at our Puerto Rico facility and we have made commitments to the FDA to address the causes behind the recall. In future inspections, our failure to adequately address the FDA’s expectations could lead to further inspections of the facility or regulatory actions. (See “— Manufacturing difficulties, disruptions or delays could limit supply of our products and limit our product sales.”) Our marketed products face substantial competition. We operate in a highly competitive environment. Our products compete with other products or treatments for diseases for which our products may be indicated. Our competitors market products or are actively engaged in R&D in areas where we have products, where we are developing product candidates or new indications for existing products. In the future, we expect that our products will compete with new drugs currently in development, drugs currently approved for other indications that may later be approved for the same indications as those of our products and drugs approved for other indications that are used off-label. Large pharmaceutical companies and generic manufacturers of pharmaceutical products are expanding into the biotechnology field with increasing frequency. These companies may have greater resources than we do. In addition, some of our competitors may have technical or competitive advantages over us for the development of technologies and processes. These resources may make it difficult for us to compete with them to successfully discover, develop and market new products and for our current products to compete with new products or new product indications that these competitors may bring to market. As a result, our products may compete against products that have lower prices, equivalent or superior performance, are easier to administer or that are otherwise competitive with our products. We expect to face increasing competition from biosimilar products which could impact our profitability. We currently face competition in Europe from biosimilar products, and we expect to face increasing competition from biosimilars in the future. Lawmakers in the United States have proposed bills to create a regulatory pathway for the abbreviated approval of biosimilars, and the EU has already created such a regulatory pathway. To the extent that governments adopt more permissive approval frameworks and competitors are able to obtain broader marketing approval for biosimilars, our products will become subject to increased competition. Expiration or successful challenge of applicable patent rights could trigger such competition, and we could face more litigation regarding the validity and/or scope of our patents. In the EU, the European Commission has granted marketing authorizations for several biosimilars pursuant to a set of general and product class-specific guidelines for biosimilar approvals issued over the past few years. In 2006, the EMA developed and issued final regulatory guidelines related to the development and approval of biosimilar products. The final guidelines included clinical trial guidance for certain biosimilar products, including erythropoietins and G-CSFs, recommending that applicants seeking approval of such biosimilar products conduct pharmacodynamic, toxicological and clinical safety studies as well as a pharmacovigilance program. Some companies have received and other companies are seeking approval to market erythropoietin and G-CSF biosimilars in the EU, presenting additional competition for our products. (See “— Our marketed products face substantial competition.”) For example, following the expiration of the principal European patent relating to recombinant G-CSF in August 2006, the European Commission issued marketing authorizations for the first G-CSF biosimilar products and the product was launched in certain EU countries in 2008 and 2009. There are several G-CSF biosimilars available in the EU marketed by different companies and these G-CSF biosimilar
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Table of Contentsproducts compete with NEUPOGEN® and Neulasta®. We cannot predict to what extent the entry of biosimilar products or other competing products will impact future NEUPOGEN® or Neulasta® sales in the EU. Our inability to compete effectively could reduce sales, which could have a material adverse effect on our results of operations. In the United States, there is no regulatory pathway for the abbreviated approval of BLAs for biosimilars, but legislation on biosimilars has been proposed and may be enacted in the in the near future. Such biosimilars would reference biotechnology products already approved under the U.S. Public Health Service Act. Under current law, potential competitors may introduce biotechnology products in the United States only by filing a complete BLA. Before biosimilar products could enter the U.S. market through an abbreviated approval process, the U.S. Congress would need to pass legislation to create a new approval pathway and the FDA may also then promulgate associated regulations or guidance. The Obama Administration has expressed support for the creation of such an approval pathway for biosimilars, including as a part of its broader healthcare reform effort, which the Administration has identified as one of its top priorities. In late 2009, both the full House of Representatives and the Senate passed bills that would provide twelve years of data exclusivity for innovative biological products. Data exclusivity protects the data in the innovator’s regulatory application by, for a limited period of time, prohibiting others from gaining FDA approval based, in part, on reliance or reference to the innovator’s data in their application to the FDA. The debate on biosimilars continues, however, with a number of members of the U.S. Congress and the Obama administration supporting a shorter period of data exclusivity. We cannot predict what the specific provisions of any final legislation might be or the timing of implementation of the pathway by the FDA. To the extent that an abbreviated biosimilar pathway is created through legislation in the United States, we would likely face greater competition and downward pressure on our product prices, sales and revenues, subject to our ability to enforce our patents. Further, biosimilar manufacturers with approved products in Europe may seek to quickly obtain U.S. approval if an abbreviated regulatory pathway for biosimilars is adopted. However, the absence of an abbreviated approval pathway for biosimilar products may not be a complete barrier to the introduction of biosimilar-type products in the United States. Concentration of sales at certain of our wholesaler distributors and consolidation of free-standing dialysis clinic businesses may negatively impact our bargaining power and profit margins. The substantial majority of our U.S. product sales are made to three pharmaceutical product wholesaler distributors, AmerisourceBergen Corporation, Cardinal Health, Inc. and McKesson Corporation. These distributors, in turn, sell our products to their customers, which include physicians or their clinics, dialysis centers, hospitals and pharmacies. These entities’ purchasing leverage has increased due to this concentration and consolidation which may put pressure on our pricing by their potential ability to extract price discounts on our products or fees for other services, correspondingly negatively impacting our bargaining position and profit margins. One of our products, EPOGEN®, is primarily sold to free-standing dialysis clinics, which have experienced significant consolidation. Two organizations, DaVita Inc. and Fresenius North America own or manage a large number of the outpatient dialysis facilities located in the United States and account for a substantial majority of all EPOGEN® sales in the free-standing dialysis clinic setting. In October 2006, we entered into a five-year sole sourcing and supply agreement with an affiliate of Fresenius North America, on its behalf and on behalf of certain of its affiliates, whereby they have agreed to purchase, and we have agreed to supply, all of Fresenius North America’s commercial requirements for ESAs for use in managing the anemia of its hemodialysis patients in the United States and Puerto Rico, based on forecasts provided by Fresenius North America and subject to the terms and conditions of the agreement. Our marketing of ENBREL is dependent in part upon Pfizer (formerly Wyeth). On October 15, 2009, Pfizer and Wyeth completed their merger and our relationship with Pfizer may be different than our prior relationship with Wyeth. Under a co-promotion agreement, we and Pfizer market and sell ENBREL in the United States and Canada. A management committee comprised of an equal number of representatives from us and Pfizer is responsible for overseeing the marketing and sales of ENBREL including strategic planning, the approval of an annual marketing plan and the establishment of a brand team. The brand
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Table of Contentsteam, with equal representation from us and Pfizer, prepares and implements the annual marketing plan, which includes a minimum level of financial and sales personnel commitment from each party, and is responsible for all sales activities. If Pfizer fails to effectively deliver on its marketing commitments to us or if we and Pfizer fail to coordinate our efforts effectively, our sales of ENBREL may be materially adversely affected. We may be forced to undertake cost savings and/or restructuring initiatives in the future. As a result of various regulatory and reimbursement developments that began in 2007, we completed a restructuring of 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. As part of these actions, we reduced staff, made changes to certain capital projects, closed certain production operations and abandoned leases primarily for certain R&D facilities that will not be used in our operations. Our business continues to face a variety of challenges. As a result, we may be forced to undertake further cost saving and/or restructuring initiatives in the future. The current economic climate has forced many U.S. companies to cut costs in order to maintain their competitive standing, including through restructurings and reorganizations. We have worked, and we continue to work, to increase cost efficiencies and to reduce discretionary expenditures. The anticipated benefits of our cost reduction initiatives are based on forecasts which could vary substantially from actual results, and we cannot provide assurance that any such cost saving initiatives will not have a material adverse effect on our business. Guidelines and recommendations published by various organizations can reduce the use of our products. Government agencies promulgate regulations and guidelines directly applicable to us and to our products. However, professional societies, practice management groups, insurance carriers, physicians, private health/science foundations and organizations involved in various diseases from time to time may also publish guidelines or recommendations to healthcare providers, administrators and payers, and patient communities. Recommendations of government agencies or these other groups/organizations may relate to such matters as usage, dosage, route of administration and use of related therapies and reimbursement of our products by government and private payers. Recommendations or guidelines that are followed by patients and healthcare providers could result in decreased use and/or dosage of our products. Some examples of agency and organizational guidelines include:
Any recommendations or guidelines that result in decreased use, dosage or reimbursement of our products could adversely affect our product sales and operating results materially. In addition, the perception by the investment community or stockholders that such recommendations or guidelines will result in decreased use and dosage of our products could adversely affect the market price for our common stock.
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Table of ContentsOur corporate compliance and risk mitigation programs cannot guarantee that we are in compliance with all potentially applicable U.S. federal and state regulations and all potentially applicable foreign regulations and/or that we effectively manage all operational risks. The development, manufacturing, distribution, pricing, sales, marketing and reimbursement of our products, together with our general operations, are subject to extensive federal and state regulation in the United States and to extensive regulation in foreign countries. (See “— Our current products and products in development cannot be sold if we do not gain or maintain regulatory approval.” and “— Manufacturing difficulties, disruptions or delays could limit supply of our products and limit our product sales.”) While we have developed and instituted a corporate compliance program, we cannot guarantee you that we, our employees, our consultants or our contractors are or will be in compliance with all potentially applicable U.S. federal and state regulations and/or laws or all potentially applicable foreign regulations and/or laws. If we or our agents fail to comply with any of these regulations and/or laws, a range of actions could result, including, but not limited to, the termination of clinical trials, the failure to approve a product candidate, restrictions on our products or manufacturing processes, withdrawal of our products from the market, significant fines, exclusion from government healthcare programs or other sanctions or litigation. Additionally, while we have implemented numerous risk mitigation measures, we cannot guarantee that we will be able to effectively mitigate all operational risks. If we fail to effectively mitigate all operational risks, our product supply may be materially adversely affected, which could have a material adverse effect on our product sales and results of operations. Continual process improvement efforts may result in the carrying value of certain existing manufacturing facilities or other assets becoming impaired or other related charges being incurred. In connection with our continuous process improvement activities, we evaluate our processes and procedures in order to identify opportunities to achieve greater efficiencies in how we conduct our business in order to reduce costs. In particular, we evaluate our manufacturing practices and related processes to increase production yields and/or success rates as well as capacity utilization to gain increased cost efficiencies. Depending on the timing and outcomes of these process improvement initiatives, the carrying value of certain manufacturing or other assets may not be fully recoverable and could result in the recognition of impairment charges and/or the recognition of other related charges. The recognition of such charges, if any, could have a material and adverse affect on our results of operations.
None.
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The following table summarizes our significant properties and their primary functions as of December 31, 2009. For additional information regarding manufacturing initiatives see “Item 1. Business — Manufacturing, Distribution and Raw Materials.”
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Table of ContentsOur corporate headquarters are located in Thousand Oaks, California. In addition to the properties listed above, we have undeveloped land at certain locations, principally in Thousand Oaks, California; Longmont, Colorado; Louisville, Kentucky; Allentown, Pennsylvania; West Greenwich, Rhode Island; Seattle and Bothell, Washington and Juncos, Puerto Rico, to accommodate future expansion, as required. Excluded from the table above are leased properties that have been abandoned and certain buildings that we still own but are no longer used in our business. There are no material encumbrances on our properties. We believe our facilities are suitable for their intended use and, in conjunction with our third-party contracting manufacturing agreements, provide adequate capacity. We also believe that our existing facilities, third-party contract manufacturing agreements and our anticipated additions are sufficient to meet our expected needs. (See “Item 1A. Risk Factors — We manufacture and formulate, fill and finish substantially all our products at our Puerto Rico manufacturing facility; if significant natural disasters or production failures occur at this facility, we may not be able to supply these products.”, “— We rely on single-source third-party suppliers for certain of our raw materials, medical devices and components.” and “— Manufacturing difficulties, disruptions or delays could limit supply of our products and limit our product sales.”)
Certain of our legal proceedings in which we are involved are discussed in Note 20, “Contingencies and commitments” to our Consolidated Financial Statements in our 2009 Form 10-K and are hereby incorporated by reference.
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Table of ContentsPART II
Common stock Our common stock trades on The NASDAQ Stock Market under the symbol AMGN. As of February 12, 2010, there were approximately 10,685 holders of record of our common stock. No cash dividends have been paid on the common stock to date, and we currently do not intend to pay any dividends. The following table sets forth, for the periods indicated, the range of high and low quarterly closing sales prices of the common stock as quoted on The NASDAQ Stock Market:
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Table of ContentsPerformance graph The chart set forth below shows the value of an investment of $100 on December 31, 2004 in each of Amgen Common Stock, the Amex Biotech Index, the Amex Pharmaceutical Index and Standard & Poor’s 500 Index (the “S&P 500”). All values assume reinvestment of the pre-tax value of dividends paid by companies included in these indices and are calculated as of December 31st of each year. The historical stock price performance of the Company’s Common Stock shown in the performance graph below is not necessarily indicative of future stock price performance.
The material in this performance graph is not soliciting material, is not deemed filed with the SEC, and is not incorporated by reference in any filing of the Company under the Securities Act or the Exchange Act, whether made on, before or after the date of this filing and irrespective of any general incorporation language in such filing.
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Table of ContentsStock repurchase program Repurchases under our stock repurchase program reflect, in part, our confidence in the long-term value of our common stock. Additionally, we believe that it is an effective way of returning cash to our stockholders. The manner of purchases, the amount we spend and the number of shares repurchased will vary based on a number of factors including the stock price, blackout periods in which we are restricted from repurchasing shares, and our credit rating and may include private block purchases as well as market transactions. During the three months ended December 31, 2009, we had one outstanding stock repurchase program. A summary of our repurchase activity for the three months ended December 31, 2009 is as follows:
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In addition to the following notes, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and accompanying notes and previously filed Form 10-K’s for further information regarding our consolidated results of operations and financial position for periods reported therein and for known factors that will impact comparability of future results.
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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, earnings per share (“EPS”), liquidity and capital resources and trends. Except as required under the federal securities laws and the rules and regulations of the SEC, we do not have any intention or obligation to update publicly any forward looking statements after the distribution of this report, whether as a result of new information, future events, changes in assumptions or otherwise. Overview The following management’s discussion and analysis (“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 consolidated financial statements and accompanying notes. Our results of operations discussed in MD&A are presented in conformity with accounting principles generally accepted in the United States (“GAAP”). We are the largest independent biotechnology medicines company. We discover, develop, manufacture and market medicines for grievous illnesses. We concentrate on innovative novel medicines based on advances in cellular and molecular biology. Our mission is to serve patients. We operate in one business segment — human therapeutics. Therefore, our results of operations are discussed on a consolidated basis. We 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 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, delays in receiving approvals or additional safety-related requirements or restrictions on the use of our products, including expanded safety labeling, required risk management activities, including a REMS, and/or additional or more extensive clinical trials as part of PMCs, PMRs or a pharmacovigilance program. This is increasingly true of new therapies with novel mechanisms of action. While these therapies may offer important benefits and/or better treatment alternatives, they may also involve a relatively new or higher level of scientific complexity and, therefore, generate increased safety concerns. 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
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Table of Contentsproviders 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 healthcare reform, focused on expanding healthcare coverage to millions of uninsured Americans and reducing the rate of increase in the costs of healthcare, remains a priority for President Obama, U.S. Congress and a number of states. Developments in this area have been highly dynamic and difficult to predict. As recently as February 23, 2010, President Obama released a new proposal for healthcare reform which includes a combination of provisions from both the Senate and House of Representatives bills passed in late 2009. Certain healthcare reform proposals being considered, which may or may not be adopted into law, could:
At this time, we cannot predict which or whether any reform measures will be adopted into law. 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 Pfizer in the United States and Canada. Our international product sales consist principally of European sales of Aranesp®, Neulasta® and NEUPOGEN®. For additional information about our products, their approved indications and where they are marketed, see “Item 1. Business — Marketed Products and Selected Product Candidates.” Our product sales are subject to certain influences throughout the year, including wholesaler and customer buying patterns, both of which fluctuate around holidays, and contract-driven customer buying. These factors can periodically result in higher U.S. wholesaler distributor inventory levels in the United States, and therefore higher product sales. We did not experience as large of an increase in wholesaler inventory levels in the fourth quarter of 2009 as in the prior year. Worldwide product sales for the year ended December 31, 2009 were $14.4 billion, representing a decrease of 2% compared to 2008. U.S. product sales for the year ended December 31, 2009 were $11.1 billion compared to $11.5 billion in 2008, representing a decrease of 3%. The decrease in U.S. product sales was largely attributable to a 24% decline in Aranesp® sales primarily reflecting the negative impact of a product safety-related label change that occurred in August 2008. Combined sales of our other products in the United States in 2009 increased 1% compared to 2008 as increased EPOGEN® sales in 2009 largely offset the decline in ENBREL sales. This decrease in ENBREL sales primarily reflects the unfavorable change in wholesaler inventories resulting from an approximate $100 million wholesaler inventory build in 2008 related to the shift of ENBREL to a wholesaler distribution model. International product sales were relatively unchanged at $3.2 billion for the year ended December 31, 2009. International product sales for 2009 were unfavorably impacted by foreign currency exchange rate changes of $213 million. Excluding the impact of foreign currency exchange rate changes, international product sales for the year ended December 31, 2009 increased 6%. This increase in international product sales is primarily due to the launches of Vectibix®, Mimpara® and Nplate® into our existing international markets and the expansion of Neulasta® and NEUPOGEN® into new international territories. Although changes in foreign currency rates result in increases or decreases in our reported international product sales, the benefit or detriment that such movements have on our international product sales are partially offset by corresponding increases or decreases in our international operating expenses and our related foreign currency hedging activities. Our hedging activities seek to offset the impact, both positive and negative, that foreign currency exchange rate changes may have on our net income by hedging our net foreign currency exposure, primarily with respect to the Euro.
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Table of ContentsOur operating expenses for the year ended December 31, 2009 declined approximately $650 million, or 7%, over 2008 of which approximately one-half of this reduction was attributable to lower legal settlements and restructuring and related costs. In addition, cost of sales declined in 2009 principally due to improved operating efficiencies and lower sales volume, partially offset by a less favorable product mix. Our R&D expenses in 2009 also declined primarily due to lower clinical trial costs due to the completion of certain late-stage registrational studies for denosumab and Vectibix®. These decreases in our operating expenses were partially offset by a slight increase in our SG&A expenses primarily due to increased promotional expenses, including spending for activities in advance of our anticipated launch of Prolia™. This reduction in operating expenses also reflects, in part, our continuing efforts to maintain control over discretionary expenditures. For the year ended December 31, 2009, our net income was $4.6 billion, or $4.51 per share on a diluted basis, reflecting increases of 14% and 20%, respectively, compared to 2008. The growth in our net income principally reflects our reduced operating expenses, discussed above, and a reduction in our provision for income taxes primarily due to favorable income tax settlements of approximately $220 million and increased manufacturing and profits in Puerto Rico, which are taxed under an incentive grant. Our 2009 EPS also benefited from a reduction in our weighted average shares used to compute diluted EPS resulting from our stock repurchase program, including 59 million shares repurchased in 2009 at a total cost of $3.2 billion. Our financial condition remains strong. At December 31, 2009, our cash, cash equivalents and marketable securities aggregated $13.4 billion, our total debt outstanding was $10.6 billion and our stockholders’ equity aggregated $22.7 billion. In addition, our cash flow from operations for the year ended December 31, 2009 aggregated $6.3 billion, representing a 6% increase over the prior year. Capital expenditures for 2009 were approximately $530 million, which represents a decrease from $672 million in 2008 due to improved productivity and efficiency in our capital program. We believe that existing funds, cash generated from operations and existing sources of and access to financing are adequate to satisfy our working capital, capital expenditure and debt service requirements for the foreseeable future. Of our total cash, cash equivalents and marketable securities balance as of December 31, 2009, $12.1 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. Looking forward, we believe that our business will continue to face various regulatory, reimbursement and competitive challenges. In particular, our ESA products, Aranesp® and EPOGEN®, will continue to be impacted by regulatory developments, such as the REMS, which has been recently approved by the FDA, and recent or potential future product label changes, including any that may result from the advisory committee meeting proposed by the FDA to be held in 2010 to re-evaluate the use of ESAs in CKD. In the United States, we rely in large part on the reimbursement of our products through government programs such as Medicare and Medicaid. Reimbursement challenges may result from the MEDCAC meeting scheduled for March 24, 2010 to examine currently available evidence on the use of ESAs to manage anemia in patients who have CKD and the provisions of the CMS’ proposed rule to implement a bundling prospective payment system for ESRD. In addition, the outcome of the proposed healthcare reform in the United States is very much uncertain at this time. Further, certain of our products will continue to face increasing competitive pressure, including our marketed products in the United States, in particular ENBREL as well as from biosimilar and other products in Europe which compete with Aranesp®, Neulasta® and NEUPOGEN®. We also have various opportunities to grow our business in the future, primarily due to our late-stage product candidate, denosumab. We continue to work with the FDA regarding our BLA for Prolia™. On February 19, 2010, we announced that the FDA has evaluated the content of our Complete Response submission for Prolia™ in the treatment of PMO, which we submitted on January 25, 2010, and classified it as a Class 2 resubmission. With the Class 2 designation, the FDA set a corresponding PDUFA action date of July 25, 2010. Additionally, in December 2009, the CHMP announced a positive opinion for the marketing authorization for Prolia™ for the treatment of osteoporosis in postmenopausal women at increased risk of fracture and for the treatment of bone loss associated with hormone ablation in men with prostate cancer at increased risk of fractures. Furthermore, we announced positive study results from three phase 3 denosumab trials in the treatment of bone metastases that will form the basis of the clinical evidence package for denosumab in advanced cancer, which will be submitted to regulatory authorities later
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Table of Contentsin 2010. We also expect the results in 2010 of an additional phase 3 study to evaluate denosumab in patients with non-metastatic prostate cancer to prevent bone metastases. In addition, international expansion into emerging markets will also be an important opportunity for growth. Results of Operations Product sales For the years ended December 31, 2009, 2008 and 2007, worldwide product sales and total product sales by geographic region were as follows (dollar amounts in millions):
Product sales are influenced by a number of factors, some of which may impact sales of certain of our existing products more significantly than others, including: demand, third-party reimbursement availability and policies, government programs, regulatory developments or guidelines, clinical trial outcomes, clinical practice, contracting and pricing strategies, wholesaler and end-user inventory management practices, patient population growth, fluctuations in foreign currency exchange rates, new product launches and indications, expansion into new countries, competitive products, product supply and acquisitions. In addition, general economic conditions may effect, or in some cases amplify, certain of these factors with a corresponding impact on our product sales. (See “Item 1. Business — Marketed Products and Selected Product Candidates” for a discussion of our principal products and their approved indications.) Aranesp® For the years ended December 31, 2009, 2008 and 2007, total Aranesp® sales by geographic region were as follows (dollar amounts in millions):
U.S. Aranesp® sales for the year ended December 31, 2009 decreased 24%. U.S. sales of Aranesp® in 2008 benefited from certain changes in accounting estimates related to product sales return reserves. Excluding the positive impact of these changes in accounting estimates, U.S. sales of Aranesp® decreased approximately 21% compared to the year ended December 31, 2008. This decrease was principally driven by a decline in demand reflecting the negative impact, primarily in the supportive cancer care setting, of a product safety-related label change which occurred in August 2008 and a low single digit decrease in the average net sales price. In addition, the decline in sales also reflects both a decline in the segment and a slight loss of segment share.
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Table of ContentsInternational Aranesp® sales for year ended December 31, 2009 decreased 6%, due to the unfavorable impact of changes in foreign currency exchange rates. For the year ended December 31, 2009, excluding the impact of foreign currency exchange rate changes of approximately $85 million, international Aranesp® sales remained unchanged. The decrease in U.S. Aranesp® sales for the year ended December 31, 2008 reflects the negative impact on demand, primarily in the supportive cancer care setting, of physician conformance to regulatory and reimbursement developments which principally occurred in the second half of 2007, additional product label changes which occurred in 2008, and to a lesser extent, loss of segment share. The decline in demand was partially offset by an increase in the average net sales price. In addition, U.S. sales of Aranesp® for the year ended December 31, 2008 benefited from a slight change in an accounting estimate related to product sales return reserves. The regulatory and reimbursement developments negatively impacting sales, included (i) the loss of Aranesp® for use in the treatment AoC following the reported results of our AoC phase 3 study in February 2007, (ii) various ESA product safety-related label changes in the United States during 2008 and 2007 and (iii) the CMS’ NCD issued in July 2007, which significantly restricted Medicare reimbursement for use of Aranesp® in chemotherapy induced anemia (“CIA”) and which we believe has also negatively impacted Aranesp® use in CIA for patients covered by private insurance plans. The increase in international Aranesp® sales for the year ended December 31, 2008 was due to changes in foreign currency exchange rates, which positively impacted sales growth by approximately $104 million. Excluding the impact of foreign currency exchange rate changes, international Aranesp® sales decreased 5%. This decrease reflects dosing conservatism in the oncology segment and pricing pressures across all ESAs in Europe, which resulted in an overall decrease in the ESA market. In addition to other factors mentioned in the “Product sales” section above, future Aranesp® sales will be dependent, in part, on such factors as:
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Certain of the above factors could have a material adverse impact on future sales of Aranesp®. See “Item 1. Business — Key Developments,” “Item 1. Business — Marketed Products and Selected Product Candidates” and “Item 1A. Risk Factors” herein for further discussion of certain of the above factors that could impact our future product sales. EPOGEN® For the years ended December 31, 2009, 2008 and 2007, total EPOGEN® sales were as follows (dollar amounts in millions):
EPOGEN® sales for the year ended December 31, 2009 increased 5%, primarily due to an increase in demand. The increase in demand was principally due to patient population growth, increased dose utilization and an increase in the average net sales price. The 1% decrease in EPOGEN® sales for the year ended December 31, 2008 was primarily due to a decrease in demand, reflecting a decline in the average net sales price. The increase in demand resulting from patient population growth was offset by a decline in dose/utilization in certain settings. The decline in dose/utilization was related to various ESA product safety-related label changes during 2008 and 2007 and the CMS revision to its EMP, which became effective January 1, 2008. We believe that the EMP implementation significantly impacted physician behavior resulting in declines in dosing trends, as particularly noted in the quarter of implementation. However, this dose decline subsequently moderated throughout 2008. In addition to other factors mentioned in the “Product sales” section above, future EPOGEN® sales will be dependent, in part, on such factors as:
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Certain of the above factors could have a material adverse impact on future sales of EPOGEN®. See “Item 1. Business — Key Developments,” “Item 1. Business — Marketed Products and Selected Product Candidates” and “Item 1A. Risk Factors” for further discussion of certain of the above factors that could impact our future product sales. Neulasta®/NEUPOGEN® For the years ended December 31, 2009, 2008 and 2007, total Neulasta®/NEUPOGEN® sales by geographic region were as follows (dollar amounts in millions):
U.S. sales of Neulasta®/NEUPOGEN® for the year ended December 31, 2009 increased 1%, primarily due to a low single digit increase in demand partially offset by unfavorable changes in wholesaler inventories. The increase in demand was principally due to an increase in the average net sales price. International Neulasta®/NEUPOGEN® sales for the year ended December 31, 2009 decreased 3%, due to the unfavorable impact of changes in foreign currency exchange rates, partially offset by an increase in demand. For the year ended December 31, 2009, excluding the impact of foreign currency exchange rate changes of approximately $94 million,
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Table of Contentsinternational Neulasta®/NEUPOGEN® sales increased 4%. The increase in demand was primarily due to the continued conversion from NEUPOGEN® to Neulasta® and expansion into new international territories. The increase in U.S. Neulasta®/NEUPOGEN® sales for the year ended December 31, 2008 primarily reflects an increase in demand for Neulasta® driven by an increase in the average net sales price partially offset by a slight decline in units sold. The increase in international Neulasta®/NEUPOGEN® sales for the year ended December 31, 2008 reflects increased demand principally driven by continued conversion from NEUPOGEN® to Neulasta® as well as changes in foreign currency exchange rates, which positively impacted the growth in combined international sales by $86 million. Excluding the favorable impact of foreign currency exchange rate changes, international Neulasta®/NEUPOGEN® sales increased 10% compared to 2007. In addition to other factors mentioned in the “Product sales” section above, future Neulasta®/NEUPOGEN® sales will be dependent, in part, on such factors as:
See “Item 1A. Risk Factors” for further discussion of certain of the above factors that could impact our future product sales. ENBREL For the years ended December 31, 2009, 2008 and 2007, total ENBREL sales by geographic region were as follows (dollar amounts in millions):
ENBREL sales for the year ended December 31, 2009 declined 3%, which primarily reflects an unfavorable change in wholesaler inventories resulting from an approximate $100 million wholesaler inventory build in 2008
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Table of Contentsrelated to a shift of ENBREL to a wholesaler distribution model, partially offset by an increase in demand. The increase in demand was driven by a mid-single digit increase in the average net sales price partially offset by a decline in units sold due to share declines as a result of competitive activity. ENBREL continues to maintain a leading position in both the rheumatology and dermatology segments. ENBREL sales growth for the year ended December 31, 2008 reflects higher demand principally due to increases in the average net sales price. ENBREL sales were also favorably impacted by approximately $100 million due to a change in our distribution model for ENBREL. Previously, ENBREL was shipped directly to pharmacies. However, beginning in the three months ended March 31, 2008, we commenced using a wholesaler distributor model, similar to our other marketed products. Also, ENBREL sales growth for the year ended December 31, 2008 was affected by share declines in the rheumatology and dermatology segments in the United States compared to the prior year due to increased competitive activity. However, sales growth continued in both rheumatology and dermatology. In addition to other factors mentioned in the “Product sales” section above, future ENBREL sales will be dependent, in part, on such factors as:
See “Item 1A. Risk Factors” for further discussion of certain of the above factors that could impact our future product sales.
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Table of ContentsSelected operating expenses The following table summarizes our operating expenses for the years ended December 31, 2009, 2008 and 2007 (dollar amounts in millions):
Cost of sales Cost of sales, which excludes the amortization of certain acquired intangible assets, (“Cost of sales”) decreased 9% for the year ended December 31, 2009 compared to 2008. The decrease was primarily driven by lower excess capacity charges, lower royalty expenses and lower sales volume, partially offset by less favorable product mix and higher fill and finish costs resulting from lower utilization at our manufacturing facility in Puerto Rico. The decrease in Cost of sales was also driven by lower excess inventory write-offs, primarily due to the $84 million write-off of inventory in 2008 resulting from a strategic decision to change manufacturing processes. Cost of sales decreased 10% for the year ended December 31, 2008 compared to 2007. The decrease was primarily driven by lower restructuring charges incurred in 2008, as discussed below. In addition, the decline in Cost of sales was due to lower inventory write-offs and lower cost ENBREL, partially offset by higher sales volume and excess capacity charges. Cost of sales for the years ended December 31, 2009, 2008 and 2007 included $1 million, $6 million and $150 million, respectively, of restructuring and related charges. The restructuring charges incurred in the year ended December 31, 2007 primarily related to accelerated depreciation resulting from the decision to accelerate closure of one of our ENBREL commercial bulk manufacturing operations in connection with the rationalization of our worldwide network of manufacturing facilities. See Note 9, “Restructuring” to the Consolidated Financial Statements for further discussion. Research and development R&D costs are expensed as incurred and primarily include salaries, benefits and other staff-related costs; facilities and overhead costs; clinical trial and related clinical manufacturing costs; contract services and other outside costs; information systems’ costs and amortization of acquired technology used in R&D with alternative future uses. R&D expenses include costs incurred under R&D arrangements with our corporate partners, such as activities performed on behalf of KA, and costs and cost recoveries associated with collaborative R&D and in-licensing arrangements, including upfront fees and milestones paid to collaboration partners in connection with technologies that have no alternative future use. Net payment or reimbursement of R&D costs for R&D collaborations is recognized when the obligations are incurred or as we become entitled to the cost recovery. R&D expenses decreased 5% for the year ended December 31, 2009 compared to 2008. This decline was primarily attributable to lower clinical trial costs of $128 million, including those associated with our denosumab and Vectibix® registrational studies, our marketed products and the delay of the phase 3 motesanib NSCLC trial, and $14 million lower staff-related costs. Additionally, we incurred higher licensing fees, in 2009, related to the
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Table of Contents$60 million expense associated with the Array BioPharma Inc. agreement and the $50 million expense resulting from the payment to Cytokinetics, partially offset by the $100 million expense in 2008 resulting from the upfront payment associated with the Kyowa Hakko Kirin Co. Ltd. (“Kyowa Hakko”) collaboration. R&D expenses decreased 7% for the year ended December 31, 2008 compared to 2007, which was principally due to $102 million of lower staff-related costs and discretionary expenses; $133 million of lower clinical trial costs; $100 million of cost recoveries derived from our licensing agreements, primarily with Daiichi Sankyo and Takeda and a $16 million decline in restructuring-related costs, as discussed below, partially offset by a $100 million expense in the year ended December 31, 2008 for the upfront payment under our licensing agreement with Kyowa Hakko. Our clinical trial costs were lower for the year ended December 31, 2008 primarily due to the completion of enrollment of our large denosumab clinical trials and the related significant costs associated with site initiation and patient enrollment no longer being incurred, partially offset by increased clinical costs for our emerging pipeline. R&D expenses for the years ended December 31, 2009, 2008 and 2007 included $6 million, $3 million and $19 million, respectively, of restructuring and related charges. The restructuring charges incurred in the year ended December 31, 2007 primarily related to $38 million in charges related to asset impairments offset by a $19 million benefit associated with the reversal of previously accrued expenses for bonuses and stock-based compensation awards, which were forfeited as a result of the employees’ termination. See Note 9, “Restructuring” to the Consolidated Financial Statements for further discussion. Selling, general and administrative Selling, general and administrative (“SG&A”) expenses are primarily comprised of salaries, benefits and other staff-related costs associated with sales and marketing, finance, legal and other administrative personnel; facilities and overhead costs; outside marketing, advertising and legal expenses and other general and administrative costs. SG&A expenses include costs and cost recoveries associated with certain collaborative arrangements. Net payment or reimbursement of SG&A costs for collaborations is recognized when the obligations are incurred or as we become entitled to the cost recovery. In connection with a co-promotion agreement, we and Pfizer market and sell ENBREL in the United States and Canada and Pfizer is paid a share of the related profits, as defined. The share of ENBREL’s profits owed to Pfizer is included in SG&A expenses. SG&A expenses increased 1% for the year ended December 31, 2009 compared to 2008, primarily due to higher product promotional expenses of $207 million, including increased spending for activities in anticipation of the launch of Prolia™. This increase was substantially offset by lower litigation expenses of $38 million, lower expenses associated with the Pfizer profit share of $32 million, expense recoveries associated with our GSK collaboration agreement for Prolia™ in PMO in Europe, Australia, New Zealand and Mexico of $29 million, lower staff-related costs of $28 million, lower global enterprise resource planning (“ERP”) system related expenses of $28 million and lower restructuring and related costs of $8 million. For the years ended December 31, 2009 and 2008, the expense associated with the Pfizer profit share was $1,163 million and $1,195 million, respectively. SG&A expense increased 13% for the year ended December 31, 2008 compared to 2007, in part due to the impact of our restructuring plan which contributed $161 million to the increase in expenses, as discussed below. The increase was also due to higher expense associated with the Pfizer profit share of $211 million, product promotional spending of $39 million and staff-related costs of $94 million, partially offset by lower litigation expense of $50 million and lower severance costs of $21 million related to our acquisition of the remaining 51% ownership interest in Dompé. For the year ended December 31, 2007, the expense associated with the Pfizer profit share, excluding recoveries recorded as part of our restructuring, as discussed below, was $984 million. For the year ended December 31, 2009, we recorded $29 million for certain cost saving initiatives. For the year ended December 31, 2008, we recorded $37 million for certain restructuring charges, which primarily included $17 million in asset impairments, $12 million in loss accruals for leases principally related to certain facilities that will not be used in our business and $9 million in implementation costs associated with certain restructuring initiatives. For the year ended December 31, 2007, we recorded $114 million in cost recoveries for
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Table of Contentscertain restructuring charges, principally with respect to accelerated depreciation, in connection with our co-promotion agreement with Pfizer and $11 million of benefit associated with the reversal of previously accrued expenses for bonuses and stock-based compensation awards, which were forfeited as a result of the employees’ termination. See Note 9, “Restructuring” to the Consolidated Financial Statements for further discussion. Amortization of certain acquired intangible assets Amortization of certain acquired intangible assets relates to products technology rights acquired in connection with the Immunex acquisition. For the year ended December 31, 2007, amortization expense also included $3 million related to the impairment of a non-ENBREL related intangible asset previously acquired in the Immunex acquisition. Write-off of acquired in-process research and development In accordance with the accounting standards for business combinations, prior to January 1, 2009, the fair value of acquired IPR&D projects, which have no alternative future use and which have not reached technological feasibility at the date of acquisition, were immediately expensed. In 2007, we wrote-off $270 million and $320 million of acquired IPR&D related to the acquisitions of Alantos and Ilypsa, respectively. The Alantos IPR&D amount is related to an orally-administered treatment for type II diabetes that, at the date of acquisition, was in phase 2a clinical trials. The Ilypsa IPR&D amount is related to a phosphate binder that, at the date of acquisition, was in phase 2 clinical trials for the treatment of hyperphosphatemia in CKD patients on hemodialysis. We used the “income method” to determine the estimated fair values of acquired IPR&D, which uses a discounted cash flow model and applies a probability weighting based on estimates of successful product development and commercialization to estimated future net cash flows resulting from projected revenues and related costs. These success rates take into account the stages of completion and the risks surrounding successful development and commercialization of the underlying product candidates. These cash flows were then discounted to present value using a discount rate of 10%. The estimated after-tax cash flows were probability weighted at success rates of 38% for the Alantos product candidate and 77% f | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
