Amgen 2002 Annual Report Download - page 58

Page 56
AMGEN 2002 ANNUAL REPORT
During the year ended December 31, 2002, the
Company recorded a benefit of $40.1 million related to the
finalization of the termination of certain of these collabo-
ration agreements which resulted in the recovery of certain
expenses accrued in the fourth quarter of 2001. The bene-
fit principally related to the settlement of the Praecis col-
laboration agreement. At December 31, 2002, substantially
all remaining amounts have been paid to the respective
third parties.
Legal award, net
In September 1985, the Company granted Johnson &
Johnson’s affiliate, Ortho Pharmaceutical Corporation, a
license relating to certain patented technology and know-
how of the Company to sell Epoetin alfa throughout the
United States for all human uses except dialysis and diag-
nostics. A number of disputes have arisen between Amgen
and Johnson & Johnson as to their respective rights and
obligations under the various agreements between them,
including the agreement granting the license (the “License
Agreement”). The disputes between Amgen and Johnson
& Johnson have been resolved through binding arbitration,
with an arbitrator (the “Arbitrator”) presiding over both
disputes discussed below.
License Agreement arbitration
A dispute arose related to the alleged violation of the License
Agreement by Johnson & Johnson. In October 2002, the
Arbitrator issued a final order awarding the Company $150
million for Johnson & Johnson’s breach of the License
Agreement. The legal award of $151.2 million, which
included interest, was recorded in the fourth quarter of
2002. Subsequent to year end, the Company was awarded
reimbursement of its costs and expenses, as the successful
party in the arbitration. The Arbitrator will determine the
final amount of the Company’s recovery of such costs and
expenses. At December 31, 2002, no amounts have been
recorded related to the reimbursement for costs and expenses.
Spillover audit methodology arbitration
A dispute arose related to the audit methodology currently
employed by the Company to account for Epoetin alfa sales.
Under the License Agreement, the Company and Johnson
& Johnson are required to compensate each other for Epoetin
alfa sales that either party makes into the other party’s
exclusive market, sometimes described as spillover. The
Company has established and is employing an audit method-
ology to measure each party’s spillover and to allocate the
net profits from those sales to the appropriate party. The
Arbitrator issued a final order adopting the Company’s
audit methodology with certain adjustments and also found
that the Company was the successful party in the arbitra-
tion. Pursuant to the final order, an independent panel was
formed principally to refine the procedures for measuring
the erythropoietin market as may be necessary.
Because the Arbitrator ruled that the Company was
the successful party in the arbitration, Johnson & Johnson
was ordered to pay to the Company the costs and expenses
that the Company incurred in the arbitration as well as
one-half of the audit costs. In July 2000, the Arbitrator
issued a final order awarding the Company approximately
$78 million in such costs and expenses (the “Fee Award”).
As a result, the Company recorded a net $73.9 million
legal award, which represents the Fee Award reduced by
minor amounts related to other miscellaneous disputes with
Johnson & Johnson, in the third quarter of 2000.
Amgen Foundation contribution
In 2002 and 2000, the Company contributed $50 million
and $25 million, respectively, to the Amgen Foundation.
These contributions will allow the Amgen Foundation to
continue its support of non-profit organizations that focus
on issues in health and medicine, science education, and other
activities that strengthen local communities.