Amgen 2013 Annual Report Download - page 32

A substantial portion of our U.S. business relies on reimbursement from U.S. federal government healthcare programs. Further, as the federal agency
responsible for administering Medicare, Medicaid and the new Health Insurance Exchanges, CMS has substantial power to quickly implement policy changes
that can significantly affect how our products are covered and reimbursed. Additionally, there is an increased focus in the United States on analyzing the
impact of various government programs on the federal deficit, which has resulted in increased pressure on federal programs to reduce costs. Private payers
also continue to seek to reduce their costs. Additionally, the implementation of ACA’s Health Insurance Exchanges, where plans are required to meet certain
coverage and cost sharing requirements in the face of increased regulation of rates and profits, could drive consolidation in the insurance industry. The
resulting consolidated entities could have greater leverage in making coverage and reimbursement decisions and exert additional pressure on our ability to price
and secure patient access for our products. Further, the current Health Care Exchange offerings have very high deductibles and cost-sharing requirements for
drugs; if private payers were to broadly adopt these benefit levels for other plans, such change would have a material adverse effect on the sales of our
products, our business and results of operations. Outside the United States, we expect that countries will continue to take aggressive actions to reduce their
healthcare expenditures. (See Item 1. Business — Reimbursement.) Any deterioration in the coverage and reimbursement available for our products or in the
timeliness or certainty of payment by payers to physicians and other providers could negatively impact the ability or willingness of healthcare providers to
prescribe our products for their patients or otherwise negatively affect the use of our products or the prices we receive for them. Such changes could have a
material adverse effect on the sales of our products, our business and results of operations.
We also face risks relating to the reporting of pricing data that affects the U.S. reimbursement of and discounts for our products. Pricing data that we
submit impacts the prices providers are paid, rebates we pay, and discounts we are required to provide under Medicare, Medicaid and other government drug
programs, and the calculations are complex. Price reporting regulations require a manufacturer to update certain previously submitted data. Our price reporting
data calculations are reviewed on a quarterly basis, and based on such reviews we have on occasion restated previously reported pricing data to reflect changes
in calculation methodology, reasonable assumptions, and/or underlying data. If our submitted pricing data are incorrect, we may become subject to substantial
fines and penalties or other government enforcement actions, which could have a material adverse impact on our business and results of operations. In
addition, if our pricing calculations are incorrect, we also may be required to pay additional rebates and provide additional discounts.
We rely on third-party suppliers for certain of our raw materials, medical devices and components.
We rely on unaffiliated third-party suppliers for certain raw materials, medical devices and components necessary for the manufacturing of our
commercial and clinical products. Certain of those raw materials, medical devices and components are the proprietary products of those unaffiliated third-
party suppliers and are specifically cited in our drug application with regulatory agencies so that they must be obtained from that specific sole source or
sources and could not be obtained from another supplier unless and until the regulatory agency approved such supplier. Also, certain of the raw materials
required in the commercial and clinical manufacturing of our products are sourced from other countries and/or derived from biological sources, including
mammalian tissues, bovine serum and human serum albumin.
Among the reasons we may be unable to obtain these raw materials, medical devices and components include:
•regulatory requirements or action by regulatory agencies or others;
•adverse financial or other strategic developments at or affecting the supplier;
•unexpected demand for or shortage of raw materials, medical devices or components;
•failure to comply with our quality standards which results in quality and product failures, product contamination and/or recall;
•a material shortage, contamination, recall and/or restrictions on the use of certain biologically derived substances or other raw materials;
•discovery of previously unknown or undetected imperfections in raw materials, medical devices or components; and
•labor disputes or shortages, including the effects of a pandemic flu outbreak, natural disaster, or otherwise.
These events could negatively impact our ability to satisfy demand for our products, which could materially and adversely affect our product use and
sales and our business and operating results. For example, in prior years we have experienced shortages in certain components necessary for the formulation,
fill and finish of certain of our products in our Puerto Rico facility. Further quality issues which result in unexpected additional demand for certain
components may lead to shortages of required raw materials or components (such as we have experienced with EPOGEN ® glass vials). We may experience or
continue to experience these or other shortages in the future resulting in delayed shipments, supply constraints, contract disputes and/or stock-outs of our
products. We continue to investigate alternatives to certain biological sources and alternative manufacturing processes that do not require
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