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 þ No o

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 þ No o

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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(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 o No þ

As of April 29, 2011, the registrant had 929,730,507 shares of common stock, $0.0001 par value, outstanding.

 

 

AMGEN INC.

INDEX

			Page No.
PART I – FINANCIAL INFORMATION					1
Item 1.	FINANCIAL STATEMENTS				1
	CONDENSED CONSOLIDATED STATEMENTS OF INCOME				1
	CONDENSED CONSOLIDATED BALANCE SHEETS				2
	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS				3
	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS				4
Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS				22
Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK				34
Item 4.	CONTROLS AND PROCEDURES				34
PART II – OTHER INFORMATION					35
Item 1.	LEGAL PROCEEDINGS				35
Item 1A.	RISK FACTORS				35
Item 6.	EXHIBITS				37
SIGNATURES					38
INDEX TO EXHIBITS					39
EX-2.1
EX-2.2
EX-10.2
EX-10.3
EX-10.5
EX-10.9
EX-31
EX-32
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I — FINANCIAL INFORMATION

See accompanying notes.

AMGEN INC.

AMGEN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

of accounting is then recognized as the related goods or services are delivered limited to the consideration that is not contingent upon future deliverables.

For multiple-element arrangements entered into prior to January 1, 2011 and not materially modified thereafter, we continue to apply our prior accounting policy with respect to such arrangements. Under this policy, in general, revenue from non-refundable, upfront fees related to intellectual property rights/licenses where we have continuing involvement is recognized ratably over the estimated period of ongoing involvement because there is no objective and reliable evidence of fair value for any undelivered item to allow the delivered item to be considered a separate unit of accounting. This requirement with respect to the fair value of undelivered items was eliminated in the newly issued accounting standard. In general, the consideration with respect to the other deliverables is recognized when the goods or services are delivered.

Under all of our multiple-element arrangements, consideration associated with at risk substantive performance milestones is recognized as revenue upon the achievement of the related milestone, as defined in the respective agreements.

The impact of adopting this new accounting standard is dependent on the terms and conditions of any future arrangement that we may enter into that includes multiple-deliverables, however, its adoption is not expected to have a material impact on our consolidated results of operations or financial position. The primary impact of adopting the new accounting standard is expected to be the earlier recognition of revenue associated with delivering rights to the underlying intellectual property.

The adoption of this accounting standard did not have a material impact on our condensed consolidated results of operations or financial position for the three months ended March 31, 2011. Our consolidated results of operations or financial position for 2010 also would not have been materially impacted if the accounting standard had been adopted on January 1, 2010.

Inventories

Inventories are stated at the lower of cost or market. Cost, which includes amounts related to materials, labor and overhead, is determined in a manner which approximates the first-in, first-out method. Cost also includes the impact of the recently enacted Puerto Rico excise tax related to our manufacturing operations in Puerto Rico. The Company capitalizes inventories produced in preparation for product launches when the related product candidates are considered to have a high probability of regulatory approval and the related costs are expected to be recoverable through the commercialization of the product. See Note 7, Inventories.

Property, plant and equipment, net

Property, plant and equipment is recorded at historical cost, net of accumulated depreciation and amortization of $5.3 billion and $5.2 billion as of March 31, 2011 and December 31, 2010, respectively.

Business combinations

Business combinations are accounted for using the acquisition method of accounting. Under the acquisition method, assets acquired, including in-process research and development (IPR&D) projects, and liabilities assumed are recorded at their respective fair values as of the acquisition date in our condensed consolidated financial statements. The excess of the acquisition date fair value of consideration over the fair value of the net assets acquired is recorded as goodwill. Contingent consideration obligations incurred in connection with a business combination are recorded at their fair values on the acquisition date. We revalue these obligations each subsequent reporting period until the related contingencies are resolved and record changes in their fair values in earnings. See Note 2, Acquisitions.

AMGEN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.

Acquisitions

On March 4, 2011, we acquired all of the outstanding stock of BioVex Group, Inc. (BioVex), a privately held biotechnology company developing treatments for cancer and the prevention of infectious disease, including OncoVEX ^GM-CSF , a novel oncolytic vaccine in phase 3 clinical development for the treatment of melanoma and head and neck cancer. This transaction, which was accounted for as a business combination, provides us with an opportunity to expand our efforts to bring novel therapeutics to market. Upon its acquisition, BioVex became a wholly owned subsidiary of Amgen.

The aggregate acquisition date consideration to acquire BioVex consisted of (in millions):

The cash consideration reflects a reduction in the purchase price related to changes in working capital and excludes amounts that have been and may be paid to the employees of BioVex who became Amgen employees upon the acquisition, including $7 million paid to settle unvested employee options to acquire stock in BioVex which we expensed at the acquisition date.

In connection with this acquisition, we are obligated to make additional payments to the former shareholders of BioVex of up to $575 million contingent upon the achievement of certain regulatory and sales milestones with regard to OncoVEX ^GM-CSF , including the filing of a biologics license application with the U.S. Food and Drug Administration (FDA), the first commercial sale in each of the United States and the European Union following receipt of marketing approval, which includes use of the product in specified patient populations, and upon achieving specified levels of sales. The estimated aggregate fair value of the contingent consideration obligations as of the acquisition date of $190 million was determined using a combination of valuation techniques. The contingent consideration obligations to make regulatory milestone payments were valued based on assumptions regarding the probability of achieving the milestones and making the related payments with such amounts discounted to present value. The contingent consideration obligations to make sales milestone payments were valued based on assumptions regarding the probability of achieving specified product sales thresholds to determine the required payments with such amounts discounted to present value.

We allocated the total consideration to the acquisition date fair values of assets acquired and liabilities assumed as follows (in millions):

Intangible assets are composed of the estimated fair value of acquired IPR&D related to OncoVEX ^GM-CSF . The estimated fair value was determined using a probability-weighted income approach, which discounts expected future cash flows to present value. The estimated net cash flows were discounted to present value using a discount rate of 11%, which is based on the estimated weighted average cost of capital for companies with characteristics similar to BioVex. This is comparable to the estimated internal rate of return on BioVex operations and represents the rate that market participants would use to value the intangible assets. The projected cash flows from OncoVEX ^GM-CSF were based on certain key assumptions, including estimates of future revenue and expenses taking into account the stage of development of OncoVEX ^GM-CSF at the acquisition date, the time and resources needed to complete development and the probabilities of obtaining marketing approval from the FDA and other regulatory agencies. IPR&D intangible assets acquired in a business combination are considered to be indefinite-lived until the completion or abandonment of the associated R&D efforts.

The excess of the acquisition date consideration over the fair values assigned to the assets acquired and the liabilities assumed of $170 million was recorded as goodwill, which is not deductible for tax purposes. Goodwill is primarily attributable to the deferred tax consequences of acquired IPR&D recorded for financial statement purposes.

The amounts initially recorded for acquired IPR&D intangible assets and tax-related liabilities are preliminary. The amounts will be finalized upon collection of the appropriate information with respect to the BioVex intercompany arrangements related to the acquired IPR&D and the tax impacts thereof.

BioVex is included in our condensed consolidated financial statements commencing on the acquisition date. Pro forma supplemental condensed consolidated financial information assuming the acquisition occurred on January 1, 2011 and 2010 is not provided as the impact would not be material to our condensed consolidated results of operations.

AMGEN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. Income taxes

The effective tax rates for the three months ended March 31, 2011 and 2010 are different from the statutory rates primarily as a result of indefinitely invested earnings of our foreign operations. We do not provide for U.S. income taxes on undistributed earnings of our foreign operations that are intended to be invested indefinitely outside the United States. The effective tax rate for the three months ended March 31, 2011 was further reduced by foreign tax credits associated with the new Puerto Rico excise tax.

Commencing January 1, 2011, Puerto Rico imposes a temporary excise tax on the purchase of goods and services from a related manufacturer in Puerto Rico. This excise tax is currently scheduled to expire in 2016. We account for the excise tax as a manufacturing cost that is capitalized in inventory and expensed in cost of sales when the related products are sold. For U.S. income tax purposes, a significant portion of the excise tax results in tax credits that are recognized in our provision for income taxes when the excise tax is paid. Our effective tax rate for the three months ended March 31, 2011 without the impact of the tax credits associated with the new Puerto Rico excise tax would have been 18.8%.

One or more of our legal entities file income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions and certain foreign jurisdictions. Our income tax returns are routinely audited by the tax authorities in those jurisdictions. Significant disputes may arise with these tax authorities involving issues of the timing and amount of deductions, the use of tax credits and allocations of income among various tax jurisdictions because of differing interpretations of tax laws and regulations. We are no longer subject to U.S. federal income tax examinations for years ended on or before December 31, 2006 or to California state income tax examinations for years ended on or before December 31, 2003.

The Internal Revenue Service (IRS) is currently examining our U.S. income tax returns for the years ended December 31, 2007, 2008 and 2009. As of March 31, 2011, the Company and the IRS have agreed to certain transfer pricing adjustments for the year ended December 31, 2009 and the Company has, accordingly, adjusted its liability for unrecognized tax benefits (UTBs) as discussed below. The remainder of this examination is expected to be completed in 2012.

During the three months ended March 31, 2011, the gross amount of our UTBs increased by approximately $72 million as a result of tax positions taken during the current year. During the three months ended March 31, 2011, the gross amount of our UTBs decreased by approximately $201 million as a result of resolving certain transfer pricing matters related to prior years. Substantially all of the UTBs as of March 31, 2011, if recognized, would affect our effective tax rate.

AMGEN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Earnings per share

The computation of basic earnings per share (EPS) is based upon the weighted-average number of our common shares outstanding. The computation of diluted EPS is based upon the weighted-average number of our common shares and dilutive potential common shares outstanding. Dilutive potential common shares outstanding, determined using the treasury stock method, principally include: shares that may be issued under our stock option, restricted stock and performance unit awards; our 2011 Convertible Notes and 2013 Convertible Notes, as discussed below; and our outstanding warrants (collectively “dilutive securities”). The convertible note hedges purchased in connection with the issuance of our convertible notes are excluded from the calculation of diluted EPS as their impact is always anti-dilutive.

Upon conversion of our 2011 Convertible Notes (while they were outstanding) and 2013 Convertible Notes, the principal amount would be settled in cash and the excess of the conversion value, as defined, over the principal amount may be settled in cash and/or shares of our common stock. Therefore, only the shares of our common stock potentially issuable with respect to the excess of the notes’ conversion value over their principal amount, if any, are considered as dilutive potential common shares for purposes of calculating diluted EPS.

The following table sets forth the computation for basic and diluted EPS (in millions, except per share data):

For the three months ended March 31, 2011 and 2010, there were employee stock options, calculated on a weighted average basis, to purchase 39 million and 40 million shares of our common stock, respectively, with exercise prices greater than the average market prices of our common stock for these periods that are not included in the computation of diluted EPS as their impact would have been anti-dilutive. In addition, shares of our common stock which may be issued upon exercise of our warrants are not included in the computation of diluted EPS for any of the periods presented above as their impact would have been anti-dilutive.

AMGEN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. Cost savings initiatives

Manufacturing operations at Fremont, California

As part of continuing efforts to optimize our network of manufacturing facilities and improve cost efficiencies, on January 18, 2011, we entered into an agreement whereby Boehringer Ingelheim (BI) agreed to acquire all of our rights in and substantially all assets at our manufacturing operations located in Fremont, California. The transaction was approved by Amgen’s Board of Directors in December 2010 and closed in March 2011. In connection with the closing of this transaction, BI has or will assume our obligations under the facility’s operating lease agreements and has entered into an agreement to manufacture certain quantities of our marketed product Vectibix ^® , for us at this facility through December 31, 2012 (the “supply agreement”).

Due to the lack of sufficient initial investment by BI in the acquisition of this facility and our ongoing involvement with these operations, the transaction did not meet the accounting requirements to be treated as a sale involving real estate. As a result, the related assets will continue to be carried on our Condensed Consolidated Balance Sheet.

We considered this transaction with BI to be a potential indicator of impairment and, accordingly, we performed an impairment analysis of the carrying values of the related fixed assets as of December 31, 2010. Based on this analysis, we determined that no future economic benefit would be received from a manufacturing line at the facility that had not yet been completed. As a result, we wrote off its entire carrying value, which aggregated $118 million for the three months ended December 31, 2010.

The carrying values of the remaining fixed assets, aggregating approximately $133 million, were determined to be fully recoverable. However, as a result of this transaction, we reduced the estimated remaining useful lives of these fixed assets to coincide with the period covered by the supply agreement. During the three months ended March 31, 2011, we recorded incremental depreciation in excess of what otherwise would have been recorded of approximately $10 million. This amount is included in Cost of sales (excludes amortization of certain acquired intangible assets presented below) in the Condensed Consolidated Statement of Income. In addition, due to the assignment to BI of the obligations under certain of the facility’s operating leases in March 2011, we recorded a charge of approximately $11 million in the three months ended March 31, 2011 with respect to the lease period beyond the end of the supply agreement. This amount is recorded in Cost of sales (excludes amortization of certain acquired intangible assets presented below) in the Condensed Consolidated Statement of Income.

Other

As part of continuing efforts to improve cost efficiencies in our manufacturing operations, we also recorded certain charges aggregating $16 million during the three months ended March 31, 2011, which are included in Other in the Condensed Consolidated Statement of Income.

For the three months ended March 31, 2011 and 2010, realized gains totaled $89 million and $21 million, respectively, and realized losses totaled $8 million and $2 million, respectively. The cost of securities sold is based on the specific identification method.

The primary objective of our investment portfolio is to enhance overall returns in an efficient manner while maintaining safety of principal, prudent levels of liquidity and acceptable levels of risk. Our investment policy limits debt security investments to certain types of debt and money market instruments issued by institutions with primarily investment grade credit ratings and places restrictions on maturities and concentration by type and issuer.

We review our available-for-sale investments for other-than-temporary declines in fair value below our cost basis each quarter and whenever events or changes in circumstances indicate that the cost basis of an asset may not be recoverable. This evaluation is based on a number of factors, including the length of time and extent to which the fair value has been below our cost basis and adverse conditions related specifically to the security, including any changes to the credit rating of the security by a rating agency. As of March 31, 2011 and December 31, 2010, we believe the cost bases for our available-for-sale investments were recoverable in all material respects.

7. Inventories

Inventories consisted of the following (in millions):

8. Financing arrangements

The following table reflects the carrying values and the fixed contractual coupon rates of our borrowings under our various financing arrangements (dollar amounts in millions):

The holders of our zero coupon convertible notes due in 2032 have the right to put the debt to us for repayment on March 1, 2012. Accordingly the debt is classified as a current liability as of March 31, 2011.

Debt repayments

In February 2011, the 2011 Convertible Notes became due, and we repaid the $2.5 billion aggregate principal amount. As these convertible notes were cash settleable, the debt and equity components of these notes were bifurcated and accounted for separately. The discounted carrying value of the debt component resulting from the bifurcation was accreted back to the principal amount over the period the notes were outstanding. The total aggregate amount repaid, including the amount related to the debt discount of $643 million resulting from the bifurcation, is included in Cash flows from financing activities in the Condensed Consolidated Statements of Cash Flows.

Shelf registration statement

In March 2011, we filed a shelf registration statement with the Securities and Exchange Commission (SEC) to replace an existing shelf registration statement that was scheduled to expire in April 2011. This shelf registration allows us to issue an unspecified amount of: debt securities; common stock; preferred stock; warrants to purchase debt securities, common stock, preferred stock or depository shares; rights to purchase common stock or preferred stock; securities purchase contracts; securities purchase units; and depository shares. Under this registration statement, all of the securities available for issuance may be offered from time to time with terms to be determined at the time of issuance. This shelf registration expires in March 2014.

In December 2009, the Board of Directors authorized us to repurchase up to an additional $5.0 billion of our common stock of which a total of $2.2 billion remains available as of March 31, 2011. In addition, in April 2011, the Board of Directors authorized us to repurchase up to an additional $5.0 billion of our common stock.

10. Fair value measurement

We use various valuation approaches in determining the fair value of our financial assets and liabilities within a hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances. The fair value hierarchy is broken down into three levels based on the source of inputs as follows:

The availability of observable inputs can vary among the various types of financial assets and liabilities. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for financial statement disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is categorized is based on the lowest level of input used that is significant to the overall fair value measurement.

The following fair value hierarchy tables present information about each major class of the Company’s financial assets and liabilities measured at fair value on a recurring basis (in millions):

AMGEN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The fair value of our U.S. Treasury securities, money market mutual funds and equity securities are based on quoted market prices in active markets with no valuation adjustment.

Substantially all of our other government related and corporate debt securities are investment grade with maturity dates of five years or less. Our other government related debt securities portfolio is comprised of securities with a weighted average credit rating of “AAA” or equivalent by Standard and Poor’s (S&P), Moody’s Investors Services, Inc. (Moody’s) or Fitch, Inc. (Fitch), and our corporate debt securities portfolio has a weighted average credit rating of “A” or equivalent by S&P, Moody’s or Fitch. We estimate the fair value of these securities taking into consideration valuations obtained from third-party pricing services. The pricing services utilize industry standard valuation models, including both income and market based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades and broker/dealer quotes of the same or similar securities, issuer credit spreads, benchmark securities and other observable inputs.

Our mortgage and asset backed securities portfolio is comprised entirely of senior tranches, with a credit rating of “AAA” or equivalent by S&P, Moody’s or Fitch. We estimate the fair value of these securities taking into consideration valuations obtained from third-party pricing services. The pricing services utilize industry standard valuation models, including both income and market based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades and broker/dealer quotes of the same or similar securities, issuer credit spreads, benchmark securities, prepayment/default projections based on historical data and other observable inputs.

We value our other short-term interest bearing securities at amortized cost which approximates fair value given their near term maturity dates.

Substantially all of our foreign currency forward and option derivatives contracts have maturities of three years or less and all are entered into with counterparties that have a minimum credit rating of “A-” or equivalent by S&P, Moody’s or Fitch. We estimate the fair value of these contracts taking into consideration valuations obtained from a third-party valuation service that utilizes an income-based industry standard valuation model for which all significant inputs are observable, either directly or indirectly. These inputs include quoted foreign currency spot rates, forward points, London Interbank Offered Rate (LIBOR) and swap curves and obligor credit default swap rates. In addition, inputs for our foreign currency option contracts also include implied volatility measures. These inputs, where applicable, are at commonly quoted intervals. As of March 31, 2011 and December 31, 2010, we had open foreign currency forward contracts with notional amounts of $3.4 billion and $3.2 billion, respectively, and open foreign currency option contracts with notional amounts of $300 million and $398 million, respectively, that were primarily Euro-based and were designated as cash flow hedges. In addition, as of March 31, 2011 and December 31, 2010, we had $788 million and $670 million, respectively, of open foreign currency forward contracts to reduce exposure to fluctuations in value of certain assets and liabilities denominated in foreign currencies that were primarily Euro-based and that were not designated as hedges. (See Note 11, Derivative instruments.)

Our interest rate swap contracts are entered into with counterparties that have a minimum credit rating of “A-” or equivalent by S&P, Moody’s or Fitch. We estimate the fair value of these contracts using an income-based industry standard valuation model for which all significant inputs are observable either directly or indirectly. These inputs include LIBOR and swap curves and obligor credit default swap rates. We had interest rate swap agreements with an aggregate notional amount of $3.6 billion as of March 31, 2011 and December 31, 2010 that were designated as fair value hedges. (See Note 11, Derivative instruments.)

Contingent consideration obligations in connection with a business combination were incurred as a result of our acquisition of BioVex in March 2011. The fair value measurements of contingent consideration obligations are based on significant unobservable inputs, and accordingly, such amounts are considered Level 3 measurements. There was no material change in the fair values of these obligations from the acquisition date through March 31, 2011. For a description of the valuation methodology and related assumptions used to estimate the fair values of the contingent consideration obligations, see Note 2, Acquisitions.

There have been no transfers of assets or liabilities between the fair value measurement levels and there were no material remeasurements to fair value during the three months ended March 31, 2011 and 2010 of assets and liabilities that are not measured at fair value on a recurring basis.

AMGEN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Summary of the fair value of other financial instruments

Short-term assets and liabilities

The estimated fair values of cash equivalents, accounts receivable and accounts payable approximate their carrying values due to the short-term nature of these financial instruments.

Borrowings

We estimate the fair value of our convertible notes using an income-based industry standard valuation model for which all significant inputs are observable either directly or indirectly, including benchmark yields adjusted for our credit risk (Level 2). The fair values of our convertible notes exclude their equity components and represent only the liability components of these instruments as their equity components are included in Common stock and additional paid-in capital in the Condensed Consolidated Balance Sheets. We estimate the fair value of our other long-term notes taking into consideration indicative prices obtained from a third party financial institution that utilizes industry standard valuation models, including both income and market based approaches, for which all significant inputs are observable, either directly or indirectly. These inputs include reported trades and broker/dealer quotes of the same or similar securities, credit spreads, benchmark yields and other observable inputs (Level 2). The following tables present the carrying values and estimated fair values of our borrowings (in millions):

AMGEN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. Derivative instruments

The Company is exposed to risks related to its business operations, certain of which are managed through derivative instruments. The risks that we manage by using derivative instruments are foreign exchange rate risk and interest rate risk. We use financial instruments including foreign currency forward, foreign currency option, forward interest rate and interest rate swap contracts to reduce our risk to these exposures. We do not use derivatives for speculative trading purposes.

We recognize all of our derivative instruments as either assets or liabilities at fair value in the Condensed Consolidated Balance Sheets (see Note 10, Fair value measurement). The accounting for changes in the fair value of a derivative instrument depends on whether it has been formally designated and qualifies as part of a hedging relationship under the applicable accounting standards and, further, on the type of hedging relationship. For derivatives formally designated as hedges, we assess both at inception and quarterly thereafter, whether the hedging derivatives are highly effective in offsetting changes in either the fair value or cash flows of the hedged item. Our derivatives that are not designated and do not qualify as hedges are adjusted to fair value through current earnings.

Cash flow hedges

We are exposed to possible changes in values of certain anticipated foreign currency cash flows resulting from changes in foreign currency exchange rates, associated primarily with our international product sales denominated in Euros. Increases or decreases in the cash flows associated with our international product sales due to movements in foreign currency exchange rates are partially offset by the corresponding increases and decreases in our international operating expenses resulting from these foreign currency exchange rate movements. To further reduce our exposure to foreign currency exchange rate fluctuations on our international product sales, we enter into foreign currency forward and option contracts to hedge a portion of our projected international product sales primarily over a three-year time horizon with, at any given point in time, a higher percentage of nearer term projected product sales being hedged than successive periods. As of March 31, 2011 and December 31, 2010, we had open foreign currency forward contracts with notional amounts of $3.4 billion and $3.2 billion, respectively, and open foreign currency option contracts with notional amounts of $300 million and $398 million, respectively. These foreign currency forward and option contracts, primarily Euro-based, have been designated as cash flow hedges, and accordingly, the effective portion of the unrealized gains and losses on these contracts are reported in Accumulated Other Comprehensive Income (AOCI) in the Condensed Consolidated Balance Sheets and reclassified to earnings in the same periods during which the hedged transactions affect earnings.

In connection with the anticipated issuance of long-term fixed-rate debt, we occasionally enter into forward interest rate contracts in order to hedge the variability in cash flows due to changes in the applicable Treasury rate between the time we enter into these contracts and the time the related debt is issued. Gains and losses on such contracts, which are designated as cash flow hedges, are reported in AOCI and amortized into earnings over the lives of the associated debt issuances.

The following table reflects the effective portion of the unrealized gain/(loss) recognized in Other Comprehensive Income for our cash flow hedge contracts (in millions):

The following table reflects the location in the Condensed Consolidated Statements of Income and the effective portion of the loss reclassified from AOCI into earnings for our cash flow hedge contracts (in millions):

AMGEN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

No portions of our cash flow hedge contracts are excluded from the assessment of hedge effectiveness and the ineffective portions of these hedging instruments were approximately $1 million of expense and approximately $1 million of income for the three months ended March 31, 2011 and 2010, respectively. As of March 31, 2011, the amounts expected to be reclassified from AOCI into earnings over the next 12 months are approximately $104 million of losses on foreign currency forward and option contracts and approximately $1 million of losses on forward interest rate contracts.

Fair value hedges

To achieve a desired mix of fixed and floating interest rate debt, we have entered into interest rate swap agreements, which qualify and have been designated as fair value hedges. The terms of these interest rate swap agreements correspond to the related hedged debt instruments and effectively convert a fixed interest rate coupon to a floating LIBOR-based coupon over the lives of the respective notes. The rates on these swaps range from LIBOR plus 0.3% to LIBOR plus 2.6%. We had interest rate swap agreements with aggregate notional amounts of $3.6 billion as of March 31, 2011 and December 31, 2010. The interest rate swap agreements as of March 31, 2011 and December 31, 2010 were for our notes due in 2014, 2017, 2018 and 2019. For derivative instruments that are designated and qualify as a fair value hedge, the unrealized gain or loss on the derivative resulting from the change in fair value during the period as well as the offsetting unrealized loss or gain of the hedged item resulting from the change in fair value during the period attributable to the hedged risk are recognized in current earnings. For the three months ended March 31, 2011 and 2010, we included the unrealized gain on the hedged debt of $47 million and the unrealized loss on the hedged debt of $17 million, respectively, in the same line item, Interest expense, net in the Condensed Consolidated Statements of Income, as the offsetting unrealized loss of $47 million and the unrealized gain of $17 million, respectively, on the related interest rate swap agreements.

Derivatives not designated as hedges

We enter into foreign currency forward contracts to reduce our exposure to foreign currency fluctuations of certain assets and liabilities denominated in foreign currencies which are not designated as hedging transactions. These exposures are hedged on a month-to-month basis. As of March 31, 2011 and December 31, 2010, the total notional amounts of these foreign currency forward contracts, primarily Euro-based, were $788 million and $670 million, respectively.

The following table reflects the location in the Condensed Consolidated Statements of Income and the amount of gain/(loss) recognized in earnings for the derivative instruments not designated as hedging instruments (in millions):

						Three months ended
						March 31,
Derivatives not designated as hedging instruments		Statements of Income location				2011				2010
Foreign currency contracts		Interest and other income, net				$	(51	)		$	23

Our derivative contracts that were in a liability position as of March 31, 2011 contain certain credit risk related contingent provisions that are triggered if (i) we were to undergo a change in control and (ii) our or the surviving entity’s creditworthiness deteriorates, which is generally defined as having either a credit rating that is below investment grade or a materially weaker creditworthiness after the change in control. If these events were to occur, the counterparties would have the right, but not the obligation, to close the contracts under early termination provisions. In such circumstances, the counterparties could request immediate settlement of these contracts for amounts that approximate the then current fair values of the contracts.

The cash flow effects of our derivatives contracts are included within Net cash provided by operating activities in the Condensed Consolidated Statements of Cash Flows.

12. Contingencies and commitments

In the ordinary course of business, we are involved in various legal proceedings and other matters, including those discussed in this Note, which are complex in nature and have outcomes that are difficult to predict. We record accruals for such contingencies to the extent that we conclude that it is probable that a liability will be incurred and the amount of the related loss can be reasonably estimated. While it is not possible to accurately predict or determine the eventual outcome of these items, one or more of these items currently pending could have a material adverse effect on our consolidated results of operations, financial position or cash flows.

Certain of our legal proceedings and other matters are discussed below:

Roche U.S. International Trade Commission Complaint

On March 11, 2011, the U.S. International Trade Commission issued an order to show cause why the investigation should not be terminated without a determination of violation or by way of consent order in view of the resolution of the U.S. District Court for the District of Massachusetts proceedings. In response, on April 21, 2011, the parties filed a joint response requesting termination of the investigation on the basis of a proposed Consent Order and Stipulation.

Teva Matters

Sensipar ^® Abbreviated New Drug Application Litigation

On April 19, 2011, Teva Pharmaceuticals USA, Inc., Teva Pharmaceutical Industries Ltd. and Barr Laboratories, Inc. filed an unopposed motion for voluntary dismissal of their appeal. On April 20, 2011, the U.S. Court of Appeals for the Federal Circuit granted the motion and dismissed the appeal.

Simonian v. Amgen Inc.

On April 12, 2011, Amgen and Mr. Simonian reached a settlement and the U.S. District Court for the Northern District of Illinois dismissed the case with prejudice.

Average Wholesale Price Litigation

Plaintiffs continue to file for extensions for the final approval hearing of the Track II settlement due to continued deficiencies in executing notices, and the final approval hearing is currently scheduled for June 13, 2011.

Birch v. Sharer, et al.

On February 24, 2011, plaintiff filed a notice of appeal with the California State Appellate Court. The schedule for briefing the appeal has not yet been set.

Third-Party Payers Litigation

No appeal was filed with the U.S. Supreme Court by the plaintiffs and the deadline for doing so has passed.

Qui Tam Actions

On April 26, 2011, the Massachusetts District Court changed the trial date to be set for the running trial list starting on October 3, 2011.

On February 11, 2011, the states of New York, Massachusetts, California, Illinois and Indiana, on behalf of the states of Georgia and New Mexico, and the relator filed reply briefs and oral argument was heard by the U.S. Court of Appeals for the First Circuit on April 6, 2011. On April 11, 2011, the U.S. District Court for the District of Massachusetts heard summary judgment arguments on the fourth amended complaint from Amgen, Integrated Nephrology Network and the relator.

Other

In March 2011, the U.S. Attorney’s Office of the Western District of Washington informed Amgen that the subject matter of its investigation would be transferred to the U.S. Attorney’s Office of the Eastern District of New York.

13. Subsequent events

In April 2011, we announced our acquisition of Laboratorio Quimico Farmaceutico Bergamo Ltda (Bergamo), a privately-held Brazilian pharmaceutical company, for approximately $215 million in cash. Bergamo is a leading supplier of medicines to the hospital sector in Brazil with capabilities in oncology medicines. The company has approximately 400 staff, a portfolio of marketed products and manufacturing facilities in the state of Sao Paulo, Brazil. Upon its acquisition, Bergamo became a wholly owned subsidiary of Amgen. This acquisition will provide us with direct access to the Brazilian pharmaceutical market. This transaction will be accounted for as a business combination and included in our condensed consolidated financial statements commencing on the acquisition date.

Pro forma supplemental condensed consolidated financial information for Amgen including the results of Bergamo assuming an acquisition date of January 1, 2011 and 2010 is not provided as the impact to our condensed consolidated results of operations would not be material, either individually or when aggregated with the acquisition of BioVex (see Note 2, Acquisitions).

 

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

Forward looking statements

This report and other documents we file with the SEC contain forward looking statements that are based on current expectations, estimates, forecasts and projections about us, our future performance, our business 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. Such words as “expect,” “anticipate,” “outlook,” “could,” “target,” “project,” “intend,” “plan,” “believe,” “seek,” “estimate,” “should,” “may,” “assume,” and “continue,” as well as variations of such words and similar expressions are intended to identify such forward looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. We describe our respective risks, uncertainties and assumptions that could affect the outcome or results of operations in Item 1A. Risk Factors in Part II herein. We have based our forward looking statements on our management’s beliefs and assumptions based on information available to our management at the time the statements are made. We caution you that actual outcomes and results may differ materially from what is expressed, implied or forecast by our forward looking statements. Reference is made in particular to forward looking statements regarding product sales, regulatory activities, clinical trial results, reimbursement, expenses, EPS, liquidity and capital resources and trends, including use of capital. Except as required under the federal securities laws and the rules and regulations of the SEC, we do not have any intention or obligation to update publicly any forward looking statements after the distribution of this report, whether as a result of new information, future events, changes in assumptions or otherwise.

Overview

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to assist the reader in understanding Amgen’s business. MD&A is provided as a supplement to, and should be read in conjunction with, our Annual Report on Form 10-K for the year ended December 31, 2010. Our results of operations discussed in MD&A are presented in conformity with GAAP.

Amgen Inc. (including its subsidiaries, referred to as “Amgen,” “the Company,” “we,” “our” or “us”) is 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 operate in one business segment — human therapeutics. Therefore, our results of operations are discussed on a consolidated basis.

Currently, we market primarily recombinant protein therapeutics in supportive cancer care, nephrology and inflammation. Our principal products are: Aranesp ^® (darbepoetin alfa) and EPOGEN ^® (Epoetin alfa), erythropoiesis-stimulating agents (ESAs); Neulasta ^® (pegfilgrastim); NEUPOGEN ^® (Filgrastim); and Enbrel ^® (etanercept), all of which are sold in the United States. We market ENBREL under a collaboration agreement with Pfizer Inc. (Pfizer) in the United States and Canada. Our international product sales consist principally of European sales of Aranesp ^® , Neulasta ^® and NEUPOGEN ^® . For the three months ended March 31, 2011 and 2010, our principal products represented 89% and 92% of worldwide product sales, respectively. Our other marketed products include Sensipar ^® /Mimpara ^® (cinacalcet), Vectibix ^® (panitumumab), Nplate ^® (romiplostim), Prolia ^® (denosumab) and XGEVA ^™ (denosumab).

Significant developments

The following is a list of selected significant developments that occurred to date during 2011 affecting our business:

ESAs

•

We continue to work closely with the FDA to finalize ESA labeling changes that could further limit ESA treatment in chronic kidney disease (CKD) patients both on dialysis and not on dialysis.

•

The Centers for Medicare & Medicaid Services’ Final Rule on Bundling in Dialysis became effective on January 1, 2011 and provides a single payment for all dialysis services, including drugs that were previously reimbursed separately (except for oral drugs without intravenous equivalents for which the bundling rules have been postponed). Substantially all dialysis providers in the United States opted into the bundled payment system in its entirety on January 1, 2011. As expected, the bundled payment system has decreased dose utilization of EPOGEN ® , and this decrease has had a material adverse impact on our EPOGEN ® sales.

•

In 2010 and in early 2011, the Centers for Medicare & Medicaid Services (CMS) engaged in a number of activities to examine the use of ESAs in certain patients with kidney disease, including holding a March 2010 meeting of the Medicare Evidence Development & Coverage Advisory Committee (MEDCAC), opening a National Coverage Analysis (NCA) in June 2010 to examine the use of ESAs to manage anemia in patients with CKD and dialysis-related anemia, as well as holding another MEDCAC meeting in January 2011 to review the impact of ESA use on renal transplant graft survival. On March 16, 2011, CMS issued a Proposed Decision Memorandum (PDM) as part of its ongoing NCA proposing that a National Coverage Determination (NCD) not be issued at that time. CMS solicited public comments on their proposal and indicated that they would respond to these comments and conclude the NCA process on or before June 16, 2011, but CMS could propose an NCD at any time prior to that deadline.

The above factors, individually or in combination, may have a material adverse impact on future sales of our ESA products.

Prolia ^®

•

We estimate that the large majority of Prolia ® usage to date has been through the buy and bill process under Medicare Part B. However, we believe that primary care physicians may have a preference to write a prescription for Prolia ® and utilize the pharmacy benefit, most frequently the prescription drug benefit under Medicare Part D. We are in the process of securing Part D coverage with what we believe to be affordable patient co-pays and prior authorizations consistent with product labeling.

Vectibix ^®

•

On March 18, 2011, we received notice that the Committee for Medicinal Products for Human Use of the European Medicines Agency (EMA) has adopted a negative opinion for Amgen’s application to extend the marketing authorization in Europe for Vectibix ® to include its use in combination with chemotherapy for the treatment of patients with wild-type KRAS metastatic colorectal cancer. On March 30, 2011, we announced we had submitted a request to the EMA for a re-examination of the negative opinion.

Pipeline

•

On March 30, 2011, we along with our partner Takeda Pharmaceutical Company Limited/Millennium Pharmaceuticals announced top-line results from the MONET1 pivotal phase 3 trial evaluating motesanib administered in combination with paclitaxel and carboplatin in 1,090 patients with advanced non-squamous non-small cell lung cancer. The trial did not meet its primary objective of demonstrating an improvement in overall survival.

Dividend and Stock Repurchases

•

On April 20, 2011, the Board of Directors approved a dividend policy related to our common stock and authorized us to repurchase up to an additional $5.0 billion of our common stock. We expect to announce our initial quarterly dividend in connection with our second quarter of 2011 earnings announcement.

Acquisition

•

On March 4, 2011, we acquired BioVex, a privately held biotechnology company developing treatments for cancer and the prevention of infectious disease, including OncoVEX GM-CSF , a novel oncolytic vaccine in phase 3 clinical development for the treatment of melanoma and head and neck cancer. Under the terms of this transaction, we paid $407 million in cash and incurred contingent consideration obligations to make up to $575 million in additional payments upon the achievement of certain regulatory and sales milestones with regard to OncoVEX GM-CSF . The aggregate fair value as of the acquisition date of these contingent consideration obligations was $190 million. These obligations are revalued each subsequent reporting period until the underlying contingencies are resolved, with any resulting changes in their fair values recorded in earnings. In connection with the acquisition, we also recorded intangible assets of $675 million with respect to the IPR&D project for OncoVEX GM-CSF . The addition of this IPR&D project to our ongoing clinical development programs is not anticipated to materially increase our ongoing R&D expenses. For a more detailed description of this transaction, see Note 2, Acquisitions to our condensed consolidated financial statements.

The following discusses certain key changes in our results of operations for the three months ended March 31, 2011 as well as our financial condition as of March 31, 2011.

Our results of operations for the three months ended March 31, 2011 were impacted by a new excise tax in Puerto Rico. Commencing January 1, 2011, Puerto Rico imposes a temporary excise tax on the purchase of goods and services from a related manufacturer in Puerto Rico. This tax is currently scheduled to expire in 2016. We account for the excise tax as a manufacturing cost that is capitalized in inventory and expensed in cost of sales when the related products are sold. For U.S. income tax purposes, a significant portion of the excise tax results in tax credits that are recognized in our provision for income taxes when the excise tax is paid. This excise tax will have a significant adverse impact on our cost of sales and a significant favorable impact on our provision for income taxes. In addition, the overall impact of the excise tax will vary period to period as a result of the timing difference between recognizing the expense and the applicable tax credit. For the three months ended March 31, 2011, operating expenses were adversely impacted by $13 million and the provision for income taxes was favorably impacted by $67 million as a result of this excise tax.

The increase in U.S. product sales for the three months ended March 31, 2011 was driven primarily by increases in sales of Neulasta ^® /NEUPOGEN ^® , ENBREL, XGEVA ^™ and Prolia ^® , offset partially by decreases in sales of EPOGEN ^® and Aranesp ^® .

International product sales decreased slightly for the three months ended March 31, 2011 driven by decreases in Aranesp ^® and Neulasta ^® /NEUPOGEN ^® sales, largely offset by increases in sales of our other marketed products.

The increase in operating expenses for the three months ended March 31, 2011 was driven primarily by higher SG&A costs of $139 million and higher R&D costs of $90 million.

The decrease in net income for the three months ended March 31, 2011 was due primarily to lower operating income offset partially by higher net realized gains on investments and a lower effective income tax rate, due primarily to higher tax credits in 2011 associated with the new Puerto Rico excise tax.

The increase in diluted EPS for the three months ended March 31, 2011 was due to the reduction in the number of shares used in the calculation of diluted EPS, offset partially by the reduction in net income. The decrease in the number of shares used in the computation of diluted EPS reflects the impact of our stock repurchase program. Due to the timing difference noted above associated with the new Puerto Rico excise tax, our diluted EPS for the first quarter of 2011 were favorably impacted by approximately $0.06.

As of March 31, 2011, our cash, cash equivalents and marketable securities totaled $15.4 billion and total debt outstanding was $10.9 billion. Of our total cash, cash equivalents and marketable securities balances as of March 31, 2011, approximately $13.6 billion was generated from operations in foreign tax jurisdictions and is intended to be invested indefinitely outside of the United States. Under current tax laws, if these funds were repatriated for use in our U.S. operations, we would be required to pay additional U.S. federal and state income taxes at the applicable marginal tax rates.

Product sales

Worldwide product sales 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. For a list of certain of these factors, see Results of Operations — Product Sales in our Annual Report on Form 10-K for the year ended December 31, 2010.

Aranesp ^®

Total Aranesp ^® sales by geographic region were as follows (dollar amounts in millions):

The decrease in U.S. Aranesp ^® sales for the three months ended March 31, 2011 was due principally to a mid-teens percentage point decrease in unit demand, offset partially by an increase in the average net sales price. This sales decrease reflects an overall decline in the segment.

The decrease in international Aranesp ^® sales for the three months ended March 31, 2011 was due principally to decreases in both unit demand and the average net sales price, reflecting an overall decline in the segment.

Future Aranesp ^® sales will depend, in part, on the factors as set forth in our Annual Report on Form 10-K for the year ended December 31, 2010 and such factors as:

•

regulatory developments, including:

-

product label changes, including those that we are working with the FDA to finalize that could further limit ESA treatment in CKD patients both on dialysis and not on dialysis;

-

the ongoing compliance requirements for our ESA risk evaluation and mitigation strategy;

•

reimbursement developments, including the potential imposition of an NCD or other developments resulting from the NCA opened by CMS in June 2010 and the associated MEDCAC meetings; and

•

development of new protocols, tests and/or treatments for cancer and/or new chemotherapy treatments or alternatives to chemotherapy that may have reduced and may continue to reduce the use of chemotherapy in some patients.

Certain of the above factors, individually or in combination, could have a material adverse impact on future sales of Aranesp ^® .

EPOGEN ^®

Total EPOGEN ^® sales were as follows (dollar amounts in millions):

		Three months ended
		March 31,
		2011				2010				Change
EPOGEN ® — U.S.		$	535			$	623				(14	)%

The decrease in EPOGEN ^® sales for the three months ended March 31, 2011 was due primarily to a decline in unit demand, offset slightly by an increase in the average net sales price. The decrease in unit demand reflects a decrease in dose utilization as healthcare providers continued to implement new dose regimens in connection with the implementation of the bundled payment system, offset slightly by patient population growth.

Future EPOGEN ^® sales will depend, in part, on the factors as set forth in our Annual Report on Form 10-K for the year ended December 31, 2010 and such factors as:

•

product label changes, including those that we are working with the FDA to finalize that could further limit ESA treatment in CKD patients both on dialysis and not on dialysis;

•

reimbursement developments, including those resulting from:

-

CMS’s Final Rule on Bundling in Dialysis;

-

Other CMS activities, including the potential imposition of an NCD or other developments resulting from the NCA opened by CMS in June 2010 and the associated MEDCAC meetings;

•

changes in dose fluctuations as healthcare providers continue to refine their treatment practices in accordance with approved labeling; and

•

adoption of alternative therapies or development of new modalities to treat anemia associated with chronic renal failure.

Certain of the above factors, individually or in combination, could have a material adverse impact on future sales of EPOGEN ^® .