Amgen 2012 Annual Report Download - page 27

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countries. These price-referencing rules are increasing in complexity as payers seek lower-price benchmarks against which to
compare themselves. Trends across Europe are also leading toward increased price transparency, with the development of databases
to include prices across Europe and requests from specific national payers that manufacturers provide commercially confidential
net price information. Additional cost-containment measures can include therapeutic reference pricing (e.g., setting the
reimbursement rate for a given class of agents at the lowest price within the class), increasing mandates or incentives for generic
substitution and biosimilar usage, and government-mandated price cuts. In addition, healthcare reform and related legislative
proposals in such countries as France, Germany, and Poland, as well as austerity plans in a number of countries, including Spain,
Greece, Italy, Ireland and Portugal, have targeted the pharmaceutical sector with multiple mechanisms to reduce government
healthcare expenditures. We expect that countries will continue to take aggressive actions to reduce expenditures on drugs and
biologics, including mandatory price reductions, clawbacks of payments made to companies when drug spending thresholds are
exceeded, preferences for biosimilars, changes in international price referencing, price transparency to achieve prices similar to
those in lower-priced countries, and reductions in the amount of reimbursement, sometimes with the imposition of patient
copayments. Similarly, fiscal constraints may also impact the extent to which countries are willing to reward new innovative
therapies and/or allow access to new technologies. This could impact coverage, price, time to achieve reimbursement, and ultimate
level of reimbursement.
In many countries, the influence of regional and hospital payers also contributes to whether patients have access to certain
products. For example, a product may be listed successfully on a national formulary, but may also be subject to further evaluations
or competitive bidding by payers at a regional or hospital level. The impact of multiple layers of assessment can result in delay
or failure to secure access and/or net price pressure.
Payers in some countries are using and others are beginning to experiment with alternative payment mechanisms (e.g.,
payment caps, risk sharing) as a means to achieve or maintain access to innovative therapies while increasing their budget certainty.
Requirements for such payment mechanisms can adversely impact Amgen’s business through increased net price concessions and
added administrative burden.
While we cannot fully predict either the extent of further price reductions and/or reimbursement restrictions taken by
governmental payers outside the United States or the impact such actions will have on our business, such reductions in price and/
or the coverage and reimbursement for our products could have a material adverse effect on the sales of our products, our business
and results of operations.
Fraud and Abuse Regulations Related to Reimbursement
As participants in government reimbursement programs, we are subject to various U.S. federal and state laws, as well as
foreign laws, pertaining to healthcare “fraud and abuse,” including anti-kickback laws and false claims laws. (See Government
Regulation — Other.) Violations of fraud and abuse laws can result in stringent enforcement penalties up to and including complete
exclusion from federal healthcare programs (including Medicare and Medicaid).
Manufacturing, Distribution and Raw Materials
Manufacturing
Biological products, which are produced in living systems, are inherently complex due to naturally-occurring molecular
variations. Highly specialized knowledge and extensive process and product characterization are required to transform laboratory-
scale processes into reproducible commercial manufacturing processes. Our manufacturing operations consist of bulk
manufacturing, formulation, fill and finish and distribution activities. Bulk manufacturing includes fermentation and/or cell culture
— processes by which our proteins are produced — and also includes purification of the proteins to a high quality. The proteins
are then formulated into stable forms. The fill process dispenses the formulated bulk protein into vials or syringes. Finally, in the
finish process, our products are packaged for distribution.
We operate a number of commercial and/or clinical manufacturing facilities, and our primary facilities are located in the
United States, Puerto Rico and the Netherlands. (See Item 2. Properties.) We also use and expect to continue to use third-party
contract manufacturers to produce or assist in the production of certain of our large molecule marketed products as well as a
number of our clinical product candidates. Manufacturing of Sensipar®/Mimpara®, our small molecule product, is currently
performed by third-party contract manufacturers, except for certain fill and finish activities performed by us in Puerto Rico.
The global supply of our products depends on actively managing the inventory produced at our facilities and by third-party
contract manufacturers and the uninterrupted and efficient operation of these facilities. During the manufacturing scale-up process,
and even after achieving sustainable commercial manufacturing, we may encounter difficulties or disruptions due to defects in
raw materials or equipment, contamination or other factors that could impact product availability. See Item 1A. Risk
Factors — Manufacturing difficulties, disruptions or delays could limit supply of our products and limit our product sales and — We
rely on third-party suppliers for certain of our raw materials, medical devices and components.