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    AMGN   US0311621009

AMGEN INC.

(AMGN)
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AMGEN : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

08/04/2021 | 06:07am EDT
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,
2020, and our Quarterly Report on Form 10-Q for the period ended March 31, 2021.
Our results of operations discussed in MD&A are presented in conformity with
GAAP. Amgen operates in one business segment: human therapeutics. Therefore, our
results of operations are discussed on a consolidated basis.
Forward-looking statements
This report and other documents we file with the Securities and Exchange
Commission (SEC) contain forward-looking statements that are based on current
expectations, estimates, forecasts and projections about us, our future
performance, our business, our beliefs and our management's assumptions. In
addition, we, or others on our behalf, may make forward-looking statements in
press releases, written statements or 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 they 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 and in Part I, Item 1A. Risk Factors of our
Annual Report on Form 10-K for the year ended December 31, 2020, and in Part II,
Item 1A. Risk Factors of our Quarterly Report on Form 10-Q for the period ended
March 31, 2021. 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 forecasted by our
forward-looking statements. Reference is made in particular to forward-looking
statements regarding product sales, regulatory activities, clinical trial
results, reimbursement, expenses, EPS, liquidity and capital resources, trends,
planned dividends, stock repurchases, collaborations and effects of pandemics.
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

Amgen is a biotechnology company committed to unlocking the potential of biology
for patients suffering from serious illnesses. A biotechnology pioneer since
1980, Amgen has grown to be one of the world's leading independent biotechnology
companies, has reached millions of patients around the world and is developing a
pipeline of medicines with breakaway potential.
Our principal products-those with the most significant annual commercial
sales-are ENBREL, Prolia®, Otezla®, Neulasta®, XGEVA®, Aranesp®, Repatha® and
KYPROLIS®. We also market a number of other products, including MVASI®
(bevacizumab-awwb), Nplate® (romiplostim), Vectibix® (panitumumab), KANJINTI®
(trastuzumab-anns), EPOGEN® (epoetin alfa), EVENITY® (romosozumab-aqqg),
BLINCYTO® (blinatumomab), AMGEVITA™ (adalimumab), Parsabiv® (etelcalcetide),
Aimovig®, NEUPOGEN® and Sensipar®/Mimpara™.
COVID-19 pandemic
A novel strain of coronavirus (SARS-CoV-2, or severe acute respiratory syndrome
coronavirus 2, causing coronavirus disease 19, or COVID-19) was declared a
global pandemic by the World Health Organization on March 11, 2020. Since the
onset of the pandemic in 2020, we have been closely monitoring the pandemic's
effects on our global operations. We continue to take appropriate steps to
minimize risks to our employees, a significant number of whom have continued to
work virtually. Employee access to company facilities has been in accordance
with applicable government health and safety protocols and guidance issued in
response to the COVID-19 pandemic. To date, our remote working arrangements have
not significantly affected our ability to maintain critical business operations,
and we have not experienced disruptions to or shortages of our supply of
medicines.



                                       27
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Since the beginning of the COVID-19 pandemic, we have seen changes in demand for
some of our products driven by changes in patient visits to doctors' offices
that has impacted providing treatments to existing patients and reduced
diagnoses in new patients. Through the second quarter, there has been gradual
recovery in both patients resuming treatments and in new patient starts,
although overall these remain below pre-COVID-19 levels. The cumulative decrease
in diagnoses over the course of the pandemic has suppressed the volume of new
patients starting treatment, which we expect to continue to impact our business
during the second half of the year. We are closely monitoring the effects of the
emerging COVID-19 variants on patient behavior and access.
Since early 2021, global vaccination efforts have been underway to control the
pandemic. However, uncertainty remains as to the length of time required for
vaccinating a meaningful portion of the population as well as the efficacy of
such vaccinations on the trajectory of the pandemic. Challenges to vaccination
efforts, new variants and other causes of virus spread may require governments
to issue additional restrictions and/or shutdowns in various geographies. As a
result, we expect to see continued volatility for at least the duration of the
pandemic as governments respond to current local conditions.
At this time, the clinical trials that paused at the onset of the pandemic to
ensure subject safety or data integrity have resumed. Study enrollment was most
affected negatively in the second quarter of 2020 but by the end of the year
resumed to around pre-pandemic levels. We are continuously monitoring COVID-19
infection rates and working to mitigate effects on future study enrollment. We
remain focused on supporting our active clinical sites in their providing care
for patients and in our providing investigational drug supply. In addition, our
organization is supporting efforts to combat the COVID-19 pandemic, including by
manufacturing therapeutic antibodies in a supply arrangement with Eli Lilly and
Company (Lilly) and joining a public-private partnership between leading
companies in our industry and U.S. government health agencies to develop a
strategy for a coordinated research response.
Despite the ongoing pandemic and business impacts noted above, we believe that
existing funds, cash generated from operations and existing sources of and
access to financing are adequate to satisfy our needs for working capital,
capital expenditures and debt service requirements as well as to engage in the
capital-return and other business initiatives that we plan to pursue. For a
discussion of risks the COVID-19 pandemic presents to our results, see Risk
Factors in Item 1A. Risk Factors in Part II herein and in Part I, Item 1A. Risk
Factors of our Annual Report on Form 10-K for the year ended December 31, 2020,
and in Part II, Item 1A. Risk Factors of our Quarterly Report on Form 10-Q for
the period ended March 31, 2021.

Significant developments


Following is a summary of selected significant developments affecting our
business that occurred since the filing of our Quarterly Report on Form 10-Q for
the period ended March 31, 2021. For additional developments or for a more
comprehensive discussion of certain developments discussed below, see our Annual
Report on Form 10-K for the year ended December 31, 2020, and our Quarterly
Report on Form 10-Q for the period ended March 31, 2021.
Business Development
Kyowa Kirin Co., Ltd. collaboration
•In June 2021, we and KKC, announced an agreement to jointly develop and
commercialize KKC's potential first-in-class, phase 3-ready anti-OX40 fully
human monoclonal antibody in development for the treatment of atopic dermatitis,
with potential in other autoimmune diseases. The transaction closed on July 30,
2021, upon expiration of the waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act.
Teneobio, Inc. acquisition
•In July 2021, we and Teneobio, Inc. (Teneobio), announced an agreement under
which Amgen will acquire Teneobio, a privately held, clinical stage
biotechnology company developing a new class of biologics called Human
Heavy-Chain Antibodies. Under the terms of the agreement, Amgen will acquire all
outstanding shares of Teneobio at closing in exchange for a $900 million upfront
cash payment, as well as future contingent milestone payments to Teneobio equity
holders potentially worth up to an additional $1.6 billion in cash. The
acquisition is subject to customary closing conditions, including applicable
regulatory approvals. The transaction is expected to close in the second half of
2021.
                                       28
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Products/Pipeline

Inflammation

Otezla®

•In May 2021, we announced that the U.S. Food and Drug Administration (FDA)
accepted for review the supplemental New Drug Application for Otezla® for the
treatment of adults with mild-to-moderate plaque psoriasis who are candidates
for phototherapy or systemic therapy. The FDA has set a Prescription Drug User
Fee Act (PDUFA) date of December 19, 2021.
Tezepelumab
•In May 2021, Amgen announced that its partner AstraZeneca had submitted a
Biologics License Application to the FDA for tezepelumab, a potential
first-in-class medicine in severe asthma. The submission is supported by
positive clinical trial results including a phase 3 trial, which demonstrated a
statistically significant and clinically meaningful reduction in the annualized
asthma exacerbation rate (AAER) in patients with severe, uncontrolled asthma
compared to placebo.
•In July 2021, we announced that the FDA had granted Priority Review for
tezepelumab in the treatment of asthma. The PDUFA date for a decision by the FDA
is during the first quarter of 2022.
Oncology/Hematology
LUMAKRAS™ (sotorasib)
•In May 2021, we announced that the FDA had approved LUMAKRAS™ for the treatment
of adult patients with KRAS G12C-mutated locally advanced or metastatic
non-small cell lung cancer (NSCLC), as determined by an FDA-approved test, who
have received at least one prior systemic therapy. LUMAKRAS™ received
accelerated approval based on overall response rate (ORR) and duration of
response (DoR). Continued approval for this indication may be contingent upon
verification and description of clinical benefit in a confirmatory trial or
trials.
Operations
New manufacturing facilities
We announced plans to expand our United States-based manufacturing footprint:
•In June 2021, we announced plans to build an advanced assembly and packaging
plant in Ohio. The new facility will assemble and package vials and syringes to
support the growing demand for our medicines.
•In August 2021, we announced plans to build a drug substance plant in North
Carolina that will increase our manufacturing network capacity to reliably
supply more medicines for patients.
We expect that both of these facilities will be built faster and at a lower cost
than traditional plants. Once completed, both will also utilize cutting-edge
technologies to be more efficient and environmentally friendly than traditional
plants.


                                       29
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Selected financial information
The following is an overview of our results of operations (in millions, except
percentages and per-share data):
                           Three months ended                          Six months ended
                                June 30,                                   June 30,
                            2021            2020        Change        2021          2020        Change
Product sales
U.S.                  $    4,374          $ 4,428         (1) %    $  8,277      $  8,707         (5) %
ROW                        1,740            1,480         18  %       3,429         3,095         11  %
Total product sales        6,114            5,908          3  %      11,706        11,802         (1) %
Other revenues               412              298         38  %         721           565         28  %
Total revenues        $    6,526          $ 6,206          5  %    $ 12,427      $ 12,367          -  %
Operating expenses    $    5,698          $ 3,883         47  %    $  9,470      $  7,689         23  %
Operating income      $      828          $ 2,323        (64) %    $  2,957      $  4,678        (37) %
Net income            $      464          $ 1,803        (74) %    $  2,110      $  3,628        (42) %
Diluted EPS           $     0.81          $  3.05        (73) %    $   3.65      $   6.12        (40) %
Diluted shares               576              592         (3) %         578           593         (3) %


In the following discussion of changes in product sales, any reference to unit
demand growth or decline refers to changes in the purchases of our products by
healthcare providers (such as physicians or their clinics), dialysis centers,
hospitals and pharmacies. In addition, any reference to increases or decreases
in inventory refers to changes in inventory held by wholesaler customers and end
users (such as pharmacies).
Total product sales increased for the three months ended June 30, 2021,
primarily driven by higher unit demand for certain brands, including Prolia®,
Repatha®, XGEVA® and MVASI®, partially offset by declines in the net selling
prices of certain products. Total product sales decreased for the six months
ended June 30, 2021, primarily driven by declines in the net selling price of
certain products, partially offset by higher unit demand for certain brands,
including Prolia®, Repatha® and MVASI®. There has been gradual recovery through
the second quarter of 2021 in patients resuming their treatments and in new
patient starts, although overall both remain below pre-COVID-19 levels.
During the initial stages of the COVID-19 pandemic in early 2020, we experienced
changes in demand for some of our products. The pandemic interrupted many
physician-patient interactions, which led to delays in diagnoses and treatments,
with varying degrees of impact across our portfolio. In general, sales of
negatively affected products fell the most in the early part of the second
quarter of 2020, with product demand beginning to show some recovery in the
second half of 2020. In the first half of the current year, demand has been
recovering compared with pre-pandemic levels as patients return to doctors'
offices. The cumulative decrease in diagnoses over the course of the pandemic
has suppressed the volume of new patients starting treatment, which we expect to
continue to impact our business during the second half of the year. Given the
unpredictable nature of the pandemic, we expect there could be ongoing
intermittent disruptions in physician-patient interactions, and as a result, we
continue to expect quarter-to-quarter variability. See Risk Factors in Part II,
Item 1A. of this Form 10-Q and Part I, Item 1A. Risk Factors of our Annual
Report on Form 10-K for the year ended December 31, 2020, and in Part II, Item
1A. Risk Factors of our Quarterly Report on Form 10-Q for the period ended March
31, 2021.
In addition, other changes in the healthcare ecosystem have the potential to
introduce variability into product sales trends. For example, we expect changes
in U.S. employment to lead to changes to the insured population. Growth in
numbers of Medicaid enrollees and uninsured individuals may have a negative
impact on product demand and sales. Overall, uncertainty remains around the
timing and magnitude of our sales during the COVID-19 pandemic.
Other revenues increased for the three and six months ended June 30, 2021,
primarily driven by the sale of COVID-19 antibody material.
Operating expenses increased for the three and six months ended June 30, 2021,
primarily driven by IPR&D expense related to the bemarituzumab program acquired
as part of the Five Prime acquisition.
                                       30
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Although changes in foreign currency exchange 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 is 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 impacts, 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 product sales denominated in euros.
The net impact from changes in foreign currency exchange rates was not material
for the three and six months ended June 30, 2021 and 2020.

Results of operations
Product sales
Worldwide product sales were as follows (dollar amounts in millions):
                                 Three months ended                          Six months ended
                                      June 30,                                   June 30,
                                  2021            2020        Change        2021          2020        Change
      ENBREL                $    1,144          $ 1,246         (8) %    $  2,068      $  2,399        (14) %
      Prolia®                      814              659         24  %       1,572         1,313         20  %
      Otezla®                      534              561         (5) %       1,010         1,040         (3) %
      Neulasta®                    486              593        (18) %         968         1,202        (19) %
      XGEVA®                       488              435         12  %         956           916          4  %
      Aranesp®                     367              387         (5) %         722           809        (11) %
      Repatha®                     286              200         43  %         572           429         33  %
      KYPROLIS®                    280              253         11  %         531           533          -  %
      Other products             1,715            1,574          9  %       3,307         3,161          5  %

Total product sales $ 6,114 $ 5,908 3 % $ 11,706 $ 11,802 (1) %




Future sales of our products will depend in part on the factors discussed below
and in the following sections of this report: (i) Part I, Item 2. Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Overview and Selected Financial Information; and (ii) Part II, Item
1A. Risk Factors; and in the following sections of our Annual Report on Form
10-K for the year ended December 31, 2020: (i) Item 1. Business-Marketing,
Distribution and Selected Marketed Products, (ii) Item 1A. Risk Factors and
(iii) Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations-Overview, and Results of Operations-Product Sales, as well
as in our Quarterly Report on Form 10-Q for the period ended March 31, 2021, in
(i) Part I, Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations-Results of Operations-Product Sales; and (ii) Part II,
Item 1A. Risk Factors.
ENBREL
Total ENBREL sales by geographic region were as follows (dollar amounts in
millions):
                               Three months ended                          Six months ended
                                    June 30,                                   June 30,
                                2021            2020        Change        2021          2020        Change
        ENBREL - U.S.     $    1,113          $ 1,213         (8) %    $   2,007      $ 2,330        (14) %
        ENBREL - Canada           31               33         (6) %           61           69        (12) %
        Total ENBREL      $    1,144          $ 1,246         (8) %    $   2,068      $ 2,399        (14) %



The decrease in ENBREL sales for the three and six months ended June 30, 2021,
was primarily driven by lower net selling price and unfavorable changes to
estimated sales deductions. For the remainder of 2021, we expect the trend of
net selling price declines to continue compared with the prior year.
                                       31
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We are involved in patent litigation with a company seeking to market its
FDA-approved biosimilar version of ENBREL. See Note 19, Contingencies and
commitments, to the consolidated financial statements in our Annual Report on
Form 10-K for the year ended December 31, 2020, and Note 13, Contingencies and
commitments, to the condensed consolidated financial statements in this
Quarterly Report. Companies with approved biosimilar versions of ENBREL may seek
to enter the U.S. market if we are not ultimately successful in our litigations,
or even earlier. Other companies are also developing proposed biosimilar
versions of ENBREL.
Prolia®
Total Prolia® sales by geographic region were as follows (dollar amounts in
millions):
                              Three months ended                           Six months ended
                                   June 30,                                    June 30,
                                2021             2020       Change        2021          2020        Change
       Prolia® - U.S.   $      538              $ 441         22  %    $   1,039      $   863         20  %
       Prolia® - ROW           276                218         27  %          533          450         18  %
       Total Prolia®    $      814              $ 659         24  %    $   1,572      $ 1,313         20  %



The increase in global Prolia® sales for the three and six months ended June 30,
2021, was primarily driven by higher unit demand. Although disruptions from the
effects of the COVID-19 pandemic on new and repeat patient visits have
decreased, we anticipate that such disruptions will continue to affect demand in
2021-but to a lesser degree than that experienced in 2020.
Otezla®
Total Otezla® sales by geographic region were as follows (dollar amounts in
millions):
                       Three months ended                           Six months ended
                            June 30,                                    June 30,
                         2021             2020       Change        2021          2020        Change
Otezla® - U.S.   $      423              $ 464         (9) %    $     789      $   841         (6) %
Otezla® - ROW           111                 97         14  %          221          199         11  %
Total Otezla®    $      534              $ 561         (5) %    $   1,010      $ 1,040         (3) %


The decrease in global Otezla® sales for the three and six months ended June 30,
2021, was primarily driven by lower net selling price and unfavorable changes to
estimated sales deductions, partially offset by higher unit demand.
For a discussion of ongoing litigation related to Otezla®, see Note 19,
Contingencies and commitments, to the consolidated financial statements in our
Annual Report on Form 10-K for the year ended December 31, 2020, and Note 12,
Contingencies and commitments, to the condensed consolidated financial
statements in our Quarterly Report on Form 10-Q for the period ended March 31,
2021, and Note 13, Contingencies and commitments, to the condensed consolidated
financial statements in this Quarterly Report.
Neulasta®
Total Neulasta® sales by geographic region were as follows (dollar amounts in
millions):
                              Three months ended                            Six months ended
                                   June 30,                                     June 30,
                                2021             2020       Change          2021           2020        Change
     Neulasta® - U.S.   $      434              $ 520        (17) %    $    855          $ 1,054        (19) %
     Neulasta® - ROW            52                 73        (29) %         113              148        (24) %
     Total Neulasta®    $      486              $ 593        (18) %    $    968          $ 1,202        (19) %



The decrease in global Neulasta® sales for the three and six months ended June
30, 2021, was driven by the impact of biosimilar competition on net selling
price and unit demand, partially offset by favorable changes to estimated sales
deductions.
                                       32
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Increased competition in the United States and Europe as a result of biosimilar
versions of Neulasta® has had and will continue to have a significant adverse
impact on brand sales, including additional net price erosion. We also expect
other biosimilar versions to be approved in the future. For a discussion of
ongoing patent litigations related to these and other biosimilars, see Note 19,
Contingencies and commitments, to the consolidated financial statements in our
Annual Report on Form 10-K for the year ended December 31, 2020, Note 12,
Contingencies and commitments, to the condensed consolidated financial
statements in our Quarterly Report on Form 10-Q for the period ended March 31,
2021, and Note 13, Contingencies and commitments, to the condensed consolidated
financial statements in this Quarterly Report.
XGEVA®
Total XGEVA® sales by geographic region were as follows (dollar amounts in
millions):
                            Three months ended                             Six months ended
                                 June 30,                                      June 30,
                              2021             2020       Change           2021            2020       Change
      XGEVA® - U.S.   $      355              $ 318         12  %    $     689            $ 673          2  %
      XGEVA® - ROW           133                117         14  %          267              243         10  %
      Total XGEVA®    $      488              $ 435         12  %    $     956            $ 916          4  %



The increase in global XGEVA® sales for the three months ended June 30, 2021,
was driven by higher unit demand. The increase in global XGEVA® sales for the
six months ended June 30, 2021, was primarily driven by higher unit demand,
partially offset by lower net selling price.
Aranesp®
Total Aranesp® sales by geographic region were as follows (dollar amounts in
millions):
                             Three months ended                             Six months ended
                                  June 30,                                      June 30,
                               2021             2020       Change           2021            2020       Change
     Aranesp® - U.S.   $      135              $ 156        (13) %    $     260            $ 331        (21) %
     Aranesp® - ROW           232                231          -  %          462              478         (3) %
     Total Aranesp®    $      367              $ 387         (5) %    $     722            $ 809        (11) %



The decrease in global Aranesp® sales for the three months ended June 30, 2021,
was driven by lower net selling price due to competition. The decrease in global
Aranesp® sales for the six months ended June 30, 2021, was primarily driven by
lower net selling price and unit demand due to competition.
Aranesp® continues to face competition from a long-acting
erythropoiesis-stimulating agent (ESA) and also faces competition from a
biosimilar version of EPOGEN®, which will continue to impact sales in the
future.
Repatha®
Total Repatha® sales by geographic region were as follows (dollar amounts in
millions):
                             Three months ended                             Six months ended
                                  June 30,                                      June 30,
                               2021             2020       Change           2021            2020       Change
     Repatha® - U.S.   $      143              $ 115         24  %    $     282            $ 239         18  %
     Repatha® - ROW           143                 85         68  %          290              190         53  %
     Total Repatha®    $      286              $ 200         43  %    $     572            $ 429         33  %



The increase in global Repatha® sales for the three and six months ended June
30, 2021, was driven by higher unit demand, partially offset by lower net
selling price. We expect further reduction in the net selling price on a
sequential basis as the number of Medicare Part D patients receiving Repatha®
increases.
                                       33
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For a discussion of ongoing litigation related to Repatha®, see Note 19,
Contingencies and commitments, to the consolidated financial statements in our
Annual Report on Form 10-K for the year ended December 31, 2020; Note 12,
Contingencies and commitments, to the condensed consolidated financial
statements for the period ended March 31, 2021; and Note 13, Contingencies and
commitments, to the condensed consolidated financial statements in this
Quarterly Report.
KYPROLIS®
Total KYPROLIS® sales by geographic region were as follows (dollar amounts in
millions):
                             Three months ended                             Six months ended
                                  June 30,                                      June 30,
                               2021             2020       Change           2021            2020       Change
    KYPROLIS® - U.S.   $      190              $ 167         14  %    $     349            $ 354         (1) %
    KYPROLIS® - ROW            90                 86          5  %          182              179          2  %
    Total KYPROLIS®    $      280              $ 253         11  %    $     531            $ 533          -  %



The increase in global KYPROLIS® sales for the three months ended June 30, 2021,
was primarily driven by higher unit demand and an increase in net selling price.
Global KYPROLIS® sales for the six months ended June 30, 2021 remained
relatively flat compared with the prior period.
We are engaged in litigation with two companies that are challenging certain of
our patents related to KYPROLIS® and that are seeking to market generic
carfilzomib products. Separately, we have entered into confidential settlement
agreements with other companies developing generic carfilzomib products, and the
court has entered consent judgments enjoining those companies from infringing
certain of our patents, subject to terms of the confidential settlement
agreements. See Note 19, Contingencies and commitments, to the consolidated
financial statements in our Annual Report on Form 10-K for the year ended
December 31, 2020; Note 12, Contingencies and commitments, to the condensed
consolidated financial statements for the period ended March 31, 2021, and Note
13; Contingencies and commitments, to the condensed consolidated financial
statements in this Quarterly Report. The FDA has reported that it has granted
tentative or final approval of ANDAs for generic carfilzomib products filed by a
number of companies. The date of approval of those ANDAs for generic carfilzomib
products is governed by the Hatch-Waxman Act and any applicable settlement
agreements between the parties.
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Other products
Other product sales by geographic region were as follows (dollar amounts in
millions):
                                     Three months ended                          Six months ended
                                          June 30,                                   June 30,
                                      2021            2020        Change        2021          2020        Change
  MVASI® - U.S.                 $      206          $   149         38  %    $     430      $   257         67  %
  MVASI® - ROW                          88               23             *          158           30             *
  Nplate® - U.S.                       136              107         27  %          248          234          6  %
  Nplate® - ROW                        109               86         27  %          224          177         27  %
  Vectibix® - U.S.                      92               79         16  %          171          159          8  %
  Vectibix®- ROW                       147              116         27  %          259          238          9  %
  KANJINTI® - U.S.                     132              101         31  %          262          197         33  %
  KANJINTI® - ROW                       24               22          9  %           55           45         22  %
  EPOGEN® - U.S.                       130              161        (19) %          255          316        (19) %
  EVENITY® - U.S.                       79               40         98  %          136           77         77  %
  EVENITY®- ROW                         52               61        (15) %          102          124        (18) %
  BLINCYTO® - U.S.                      62               56         11  %          127          113         12  %
  BLINCYTO® - ROW                       46               37         24  %           88           74         19  %
  AMGEVITA™ - ROW                      107               62         73  %          213          148         44  %
  Parsabiv® - U.S.                      37              160        (77) %           83          306        (73) %
  Parsabiv® - ROW                       34               26         31  %           67           55         22  %
  Aimovig® - U.S.                       82               98        (16) %          148          169        (12) %
  NEUPOGEN® - U.S.                      36               28         29  %           54           73        (26) %
  NEUPOGEN® - ROW                       15               21        (29) %           31           41        (24) %
  Sensipar® - U.S.                       4               32        (88) %            4           74        (95) %
  Sensipar®/Mimpara™ - ROW              20               49        (59) %           43          130        (67) %
  Other - U.S.                          47               23             *           89           47         89  %
  Other - ROW                           30               37        (19) %           60           77        (22) %
  Total other products          $    1,715          $ 1,574          9  %    $   3,307      $ 3,161          5  %

Total U.S. - other products $ 1,043 $ 1,034 1 %

$ 2,007 $ 2,022 (1) %

  Total ROW - other products           672              540         24  %        1,300        1,139         14  %
  Total other products          $    1,715          $ 1,574          9  %    $   3,307      $ 3,161          5  %

* Change in excess of 100%.

                                       35
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Operating expenses
Operating expenses were as follows (dollar amounts in millions):
                                               Three months ended                                     Six months ended
                                                    June 30,                                              June 30,
                                              2021              2020             Change             2021             2020             Change
Operating expenses:
Cost of sales                             $   1,637          $ 1,488                 10  %       $ 3,127          $ 3,001                  4  %
% of product sales                             26.8  %          25.2  %                             26.7  %          25.4  %
% of total revenues                            25.1  %          24.0  %                             25.2  %          24.3  %
Research and development                  $   1,082          $   964                 12  %       $ 2,049          $ 1,916                  7  %
% of product sales                             17.7  %          16.3  %                             17.5  %          16.2  %
% of total revenues                            16.6  %          15.5  %                             16.5  %          15.5  %
Acquired in-process research and
development                               $   1,505          $     -               NM            $ 1,505          $     -               NM
% of product sales                             24.6  %             -  %                             12.9  %             -  %
% of total revenues                            23.1  %             -  %                             12.1  %             -  %

Selling, general and administrative $ 1,384 $ 1,295

          7  %       $ 2,638          $ 2,611                  1  %
% of product sales                             22.6  %          21.9  %                             22.5  %          22.1  %
% of total revenues                            21.2  %          20.9  %                             21.2  %          21.1  %
Other                                     $      90          $   136                (34) %       $   151          $   161                 (6) %


NM - Not meaningful

Cost of sales
Cost of sales increased to 25.1% and 25.2% of total revenues for the three and
six months ended June 30, 2021, respectively, primarily driven by unfavorable
product mix and by higher profit share and royalty expenses, partially offset by
lower amortization expense from acquisition-related assets.
Research and development
The increases in R&D expense for the three and six months ended June 30, 2021,
were primarily driven by higher research and early pipeline spend and late-stage
program support, including recent business development activities.
Acquired in-process research and development
Acquired IPR&D expense for the three and six months ended June 30, 2021, is
related to the bemarituzumab program acquired as part of the Five Prime
acquisition.
Selling, general and administrative
The increase in Selling, general and administrative (SG&A) expense for the three
months ended June 30, 2021, was driven by higher marketed-product support.
The increase in SG&A expense for the six months ended June 30, 2021, was driven
by higher marketed-product support, partially offset by favorable adjustments to
estimated U.S. healthcare reform federal excise fees.
Other
Other operating expenses for the three and six months ended June 30, 2021,
consisted primarily of expenses related to cost savings initiatives. Other
operating expenses for the three and six months ended June 30, 2020, consisted
of legal settlement expenses.

                                       36
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Nonoperating expense/income and income taxes
Nonoperating expense/income and income taxes were as follows (dollar amounts in
millions):
                                           Three months ended            Six months ended
                                                June 30,                     June 30,
                                           2021           2020          2021          2020

Interest expense, net $ (281) $ (296) $ (566) $ (642)

          Other income, net            $      11        $    3       $     

24 $ 14

          Provision for income taxes   $      94        $  227       $    305       $  422
          Effective tax rate                16.8   %      11.2  %        12.6  %      10.4  %


Interest expense, net
The decrease in Interest expense, net, for the three months ended June 30, 2021,
was primarily due to lower LIBOR rates in the current year period on debt for
which we effectively pay a variable rate of interest through the use of interest
rate swaps, partially offset by higher overall debt outstanding in the current
year period.
The decrease in Interest expense, net, for the six months ended June 30, 2021,
was primarily due to net costs associated with the early retirement of debt in
the first quarter of the prior year and lower LIBOR rates in the current year
period on debt for which we effectively pay a variable rate of interest through
the use of interest rate swaps, partially offset by higher overall debt
outstanding in the current year period.
Other income, net
The increase in Other income, net, for the three months ended June 30, 2021, was
primarily due to lower losses in connection with our BeiGene investment,
partially offset by gains recognized on our investments in limited partnerships
in the prior year period.
The increase in Other income, net, for the six months ended June 30, 2021, was
primarily due to higher gains recognized on our investments in limited
partnerships in the current year, partially offset by gains recognized in the
prior year period on our interest-bearing securities.
Income taxes
The increase in our effective tax rate for the three and six months ended June
30, 2021, was primarily due to the non-deductible IPR&D expense arising from the
acquisition of Five Prime.
The Administration and Congress are considering significant changes to existing
tax law, including an increase in the corporate tax rate and the tax rate on
foreign earnings. These changes could substantially increase U.S. taxation of
our operations both in and outside the United States, including the U.S.
territory of Puerto Rico. In addition, the Organization for Economic
Co-operation and Development (OECD) recently reached agreement to align
countries on a minimum corporate tax rate and an expansion of the taxing rights
of market countries. If enacted, this agreement could result in tax increases in
both the United States and foreign jurisdictions.
In 2017, we received an RAR and a modified RAR from the IRS for the years 2010,
2011 and 2012 proposing significant adjustments that primarily relate to the
allocation of profits between certain of our entities in the United States and
the U.S. territory of Puerto Rico. We disagreed with the proposed adjustments
and calculations and pursued a resolution with the IRS administrative appeals
office. As previously reported, we were unable to reach resolution with the IRS
appeals office. In July 2021, we filed a petition in the U.S. Tax Court to
contest two duplicate Notices for 2010, 2011 and 2012 that we received in May
and July 2021. The duplicate Notices seek to increase our U.S. taxable income by
an amount that would result in additional federal tax of approximately $3.6
billion, plus interest. Any additional tax that could be imposed would be
reduced by up to approximately $900 million of repatriation tax previously
accrued on our foreign earnings. In any event, we firmly believe that the IRS's
positions in the Notices are without merit and we will vigorously contest the
Notices through the judicial process.
In addition, in 2020, we received an RAR and a modified RAR from the IRS for the
years 2013, 2014 and 2015 also proposing significant adjustments that primarily
relate to the allocation of profits between certain of our entities in the
United States and the U.S. territory of Puerto Rico, similar to those proposed
for the years 2010, 2011 and 2012. We disagree with the proposed adjustments and
calculations and are pursuing resolution with the IRS administrative appeals
office. We are currently under examination by the IRS for the years 2016, 2017
and 2018. We are also currently under examination by a number of other state and
foreign tax jurisdictions.
                                       37
--------------------------------------------------------------------------------

Final resolution of these complex matters is not likely within the next 12
months. We believe our accrual for income tax liabilities is appropriate based
on past experience, interpretations of tax law, application of the tax law to
our facts and judgments about potential actions by tax authorities; however, due
to the complexity of the provision for income taxes and uncertain resolution of
these matters, the ultimate outcome of any tax matters may result in payments
substantially greater than amounts accrued as noted above and could have a
material adverse impact on our condensed consolidated financial statements.
See Note 4, Income taxes, to the condensed consolidated financial statements for
further discussion.

Financial condition, liquidity and capital resources Selected financial data were as follows (in millions):

                                                               June 30, 2021           December 31, 2020
Cash, cash equivalents and marketable securities             $        8,082          $           10,647
Total assets                                                 $       59,773          $           62,948
Current portion of long-term debt                            $        4,324          $               91
Long-term debt                                               $       28,458          $           32,895
Stockholders' equity                                         $        8,247          $            9,409



Cash, cash equivalents and marketable securities
Our balance of cash, cash equivalents and marketable securities was $8.1 billion
at June 30, 2021. The primary objective of our investment portfolio is to
maintain safety of principal, prudent levels of liquidity and acceptable levels
of risk. Our investment policy limits interest-bearing security investments to
certain types of debt and money market instruments issued by institutions with
investment-grade credit ratings, and it places restrictions on maturities and
concentration by asset class and issuer.
Capital allocation
We intend to continue to invest in our business while returning capital to
stockholders through the payment of cash dividends and stock repurchases,
thereby reflecting our confidence in the future cash flows of our business and
our desire to optimize our cost of capital. The timing and amount of future
dividends and stock repurchases will vary based on a number of factors,
including future capital requirements for strategic transactions, availability
of financing on acceptable terms, debt service requirements, our credit rating,
changes to applicable tax laws or corporate laws, changes to our business model
and periodic determination by our Board of Directors that cash dividends and/or
stock repurchases are in the best interests of stockholders and are in
compliance with applicable laws and the Company's agreements. In addition, the
timing and amount of stock repurchases may also be affected by our overall level
of cash, stock price and blackout periods, during which we are restricted from
repurchasing stock.
In March 2021 and December 2020, the Board of Directors declared a quarterly
cash dividend of $1.76 per share of common stock, which were paid on June 8,
2021 and March 8, 2021, respectively, an increase of 10% over the quarterly cash
dividend paid in each quarter in 2020. In July 2021, the Board of Directors
declared a quarterly dividend of $1.76 per share, which will be paid on
September 8, 2021.
We also returned capital to stockholders through our stock repurchase program.
During the six months ended June 30, 2021, we executed trades to repurchase $2.5
billion of common stock. As of June 30, 2021, $3.9 billion of authorization
remained available under our stock repurchase program.
As a result of stock repurchases and quarterly dividend payments, we have an
accumulated deficit as of June 30, 2021 and December 31, 2020. Our accumulated
deficit is not anticipated to affect our future ability to operate, repurchase
stock, pay dividends or repay our debt given our continuing profitability and
strong financial position.
                                       38
--------------------------------------------------------------------------------

We believe that existing funds, cash generated from operations and existing
sources of and access to financing are adequate to satisfy our needs for working
capital, to meet capital expenditure and debt service requirements, to fund our
plans to pay dividends and repurchase stock and to fulfill other business
initiatives we expect to strategically pursue, including acquisitions and
licensing activities. We anticipate that our liquidity needs can be met through
a variety of sources, including cash provided by operating activities, sales of
marketable securities, equity markets and borrowings (including commercial paper
and/or syndicated credit facilities and access to other domestic and foreign
debt markets). See our Annual Report on Form 10-K for the year ended December
31, 2020, Part I, Item 1A. Risk Factors-Global economic conditions may
negatively affect us and may magnify certain risks that affect our business.
Certain of our financing arrangements contain nonfinancial covenants. In
addition, our revolving credit agreement includes a financial covenant that
requires us to maintain a specified minimum interest coverage ratio of (i) the
sum of consolidated net income, interest expense, provision for income taxes,
depreciation expense, amortization expense, unusual or nonrecurring charges and
other noncash items (Consolidated EBITDA) to (ii) Consolidated Interest Expense,
each as defined and described in the credit agreement. We were in compliance
with all applicable covenants under these arrangements as of June 30, 2021.
Cash flows
Our summarized cash flow activity was as follows (in millions):
                                                          Six months ended
                                                              June 30,
                                                         2021          2020
Net cash provided by operating activities             $  4,035      $  

4,976

Net cash provided by (used in) investing activities $ 890 $ (2,389) Net cash (used in) provided by financing activities $ (4,561) $ 521

Operating

Cash provided by operating activities is expected to be our primary recurring
source of funds. Cash provided by operating activities during the six months
ended June 30, 2021, decreased primarily due to a difference in the timing of
payments to tax authorities and the monetization of interest rate swaps in the
prior year, partially offset by the timing of collections from customers, in
part, as a result of the impact of the Otezla® acquisition in the prior year.
Investing
Cash provided by investing activities during the six months ended June 30, 2021,
was primarily due to net cash inflows related to marketable securities of $2.9
billion, partially offset by the acquisition of Five Prime for $1.6 billion and
capital expenditures of $351 million. Cash used in investing activities during
the six months ended June 30, 2020, was primarily due to our $2.6 billion equity
investment in BeiGene and capital expenditures of $300 million, partially offset
by net cash inflows related to marketable securities of $607 million. We
currently estimate 2021 spending on capital projects to be approximately $900
million.
Financing
Cash used in financing activities during the six months ended June 30, 2021, was
primarily due to payments to repurchase our common stock of $2.5 billion and the
payment of dividends of $2.0 billion. Cash provided by financing activities
during the six months ended June 30, 2020, was primarily due to net proceeds
from the issuance of debt of $9.0 billion, partially offset by the repayment of
debt of $5.0 billion, the payment of dividends of $1.9 billion and payments to
repurchase our common stock of $1.5 billion. See Note 9, Financing arrangements,
and Note 10, Stockholders' equity, to the condensed consolidated financial
statements for further discussion.

Critical accounting policies
The preparation of our condensed consolidated financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and the notes to the financial
statements. Some of those judgments can be subjective and complex, and therefore
actual results could differ materially from those estimates under different
assumptions or conditions. A summary of our critical accounting policies is
presented in Part II, Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations, of our Annual Report on Form 10-K for the
year ended December 31, 2020.
                                       39

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