Business combinations

Onyx Pharmaceuticals

On October 1, 2013, we acquired all of the outstanding stock of Onyx Pharmaceuticals, Inc. (Onyx), a global biopharmaceutical company engaged in the development and commercialization of innovative therapies for improving the lives of people afflicted with cancer. Onyx has a multiple myeloma franchise, with Kyprolis^® for Injection (marketed by Onyx, an Amgen subsidiary) already approved in the United States, and with oprozomib being evaluated in clinical trials for patients with hematologic malignancies. In addition, Onyx has three partnered oncology assets: Nexavar^® tablets (an Onyx and Bayer compound), Stivarga^® tablets (a Bayer compound), and palbociclib (a Pfizer, Inc. (Pfizer) compound). This transaction, which was accounted for as a business combination, provides us with an opportunity to expand our oncology franchise. Onyx’s operations have been included in our consolidated financial statements commencing on the acquisition date.

The aggregate consideration to acquire Onyx was paid in cash and consisted of (in millions):



Total consideration transferred	$	9,517
Compensation expense	197
Total cash paid	$	9,714

The $9,517 million cash payment consisted of a $9,186 million cash payment to the outstanding common stockholders and a $331 million cash payment to the Onyx equity award holders for services rendered prior to October 1, 2013 under the Onyx equity award plans. The remaining $197 million of cash, which related to the accelerated vesting of the remaining Onyx equity awards, was recognized as compensation expense during the three months ended December 31, 2013. This amount was included primarily in Selling, general and administrative expense in the Consolidated Statement of Income.

The consideration to acquire Onyx was allocated to the acquisition date fair values of assets acquired and liabilities assumed as follows (in millions):



Cash and cash equivalents	$	319
Marketable securities	337
Inventories	170
Indefinite-lived intangible assets - IPR&D	1,180
Finite-lived intangible assets - Developed product technology rights	6,190
Finite-lived intangible assets - Licensing rights	2,792
Goodwill	2,402
Convertible debt	(742		)
Assumed contingent consideration	(261		)
Deferred income taxes, net	(3,011		)
Other assets (liabilities), net	141
Total consideration	$	9,517

Onyx’s preliminary goodwill at December 31, 2013 was reduced during the year ended December 31, 2014, by $124 million due primarily to revisions which increased the acquisition date fair values of developed product technology rights by $280 million and deferred income taxes by $93 million, and decreased inventory by $80 million. The adjustments did not have a material effect on our current or prior period financial statements.

The developed product technology rights acquired relate to Kyprolis^® which is approved in the United States. This product technology is being amortized on a straight-line basis over the estimated useful life of 12 years.

Licensing rights acquired represent the aggregate estimated fair values of receiving future milestone, royalty and/or profit sharing payments associated with various contract agreements that were entered into by Onyx prior to the acquisition. The weighted-average useful life of these finite-lived intangible assets is ten years and they are being amortized on a straight-line basis.

The fair values of the developed product technology rights and licensing rights acquired were determined by estimating the probability-weighted net cash flows attributable to these rights discounted to present value using a discount rate that represents the estimated rate that market participants would use to value these intangible assets.

The estimated fair values of acquired IPR&D are related to: (i) the development of Kyprolis^® in the territories outside the U.S. (excluding Japan), where regulatory approval to market the product has not been received, and (ii) oprozomib. The estimated fair values were determined using a probability-weighted income approach, which discounts expected future cash flows to present value using a discount rate that represents the estimated rate that market participants would use to value the assets. The projected cash flows from these projects were based on certain assumptions, including estimates of future revenues and expenses, the time and resources needed to complete development and the probabilities of obtaining marketing approval from regulatory agencies. In January 2015, we and Onyx announced the submission of a Marketing Authorization Application (MAA) for Kyprolis^® in the European Union (EU) for the treatment of patients with relapsed multiple myeloma who have received at least one prior therapy, and the granting of an accelerated assessment by the European Medicines Agency (EMA).

We assumed contingent consideration obligations upon the acquisition of Onyx arising from Onyx's 2009 acquisition of Proteolix, Inc. There were two separate milestone payments of $150 million each which were to be triggered if Kyprolis^® received specified marketing approvals for relapsed multiple myeloma on or before March 31, 2016, by each of the U.S. Food and Drug Administration (FDA) and the EMA. The assumed contingent consideration value was determined by discounting probability-adjusted cash outflows to present value using a discount rate that represents the estimated rate that market participants would use. In December 2014, we renegotiated the terms of these milestones and have settled the contingent consideration obligations with the former shareholders of Proteolix, Inc. by agreeing to make a single payment of $225 million, which is currently expected to occur during the first quarter of 2015. See Note 16, Fair value measurement.

The excess of the acquisition date consideration over the fair values assigned to the assets acquired and the liabilities assumed of $2.4 billion was recorded as goodwill, which is not deductible for tax purposes and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized and the expected synergies and other benefits that we believe will result from combining the operations of Onyx with our operations.

We incurred $36 million of transaction-related expense which was recorded in Selling, general, and administrative expenses in the Consolidated Statement of Income for the year ended December 31, 2013.

The following table presents supplemental pro forma information as if the acquisition of Onyx had occurred on January 1, 2012 (in millions, unaudited):



	Years ended December 31,
	2013		2012
Pro forma net revenues	$	19,141	$	17,616
Pro forma net income	4,848		3,700

The unaudited pro forma consolidated results include pro forma adjustments that assume the acquisition occurred on January 1, 2012. The primary adjustments include: (i) the $197 million cash payment that was paid and recognized as compensation expense during the fourth quarter of 2013 related to the accelerated vesting of the remaining Onyx equity awards was included in the net income attributable to Amgen for the year ended December 31, 2012, and (ii) additional intangible amortization expense of $488 million and $412 million was included in the year ended December 31, 2013 and 2012, respectively. The adjustments also include the impact of additional interest expense on debt issued in connection with the acquisition of Onyx assuming the debt was incurred on January 1, 2012. The unaudited pro forma consolidated results are not necessarily indicative of what our consolidated results of operations actually would have been had we completed the acquisition on January 1, 2012. In addition, the unaudited pro forma consolidated results do not purport to project the future results of operations of the combined company nor do they reflect the expected realization of any cost savings associated with the acquisition.

Filgrastim and pegfilgrastim rights acquisition

In October 2013, we entered into an agreement to acquire the licenses to filgrastim and pegfilgrastim effective January 1, 2014 (acquisition date), that were held by F. Hoffmann-La Roche Ltd. (Roche) in approximately 100 markets in Eastern Europe, Latin America, Asia, the Middle East and Africa (Product Rights), and to settle our preexisting relationship related to the Product Rights for total consideration of $497 million. The acquisition of the Product Rights was accounted for as a business combination as the acquired rights and processes are capable of producing an immediate return to us, and the settlement of the preexisting relationship was accounted for separately from the business combination.

This transaction provides us with an opportunity to expand our geographic presence and reach more patients in more countries that could benefit from our therapies. The operations of the acquired set of activities have been included in our financial statements commencing on the acquisition date. Pro forma results of operations for this acquisition have not been presented because this acquisition is not material to our consolidated results of operations.

The aggregate consideration transferred consisted of (in millions):



Total consideration transferred	$	497
Settlement of preexisting relationship at fair value	(99		)
Total consideration transferred to acquire the Product Rights	$	398

The settlement of the preexisting relationship relates to a supply contract between Amgen and Roche that was terminated as a result of the acquisition of the Product Rights. The fair value of the contract of $99 million was recognized in Cost of sales in the Consolidated Statement of Income for the year ended December 31, 2014.

The consideration to acquire the Product Rights was allocated to the acquisition date fair values of assets as follows (in millions):



Finite-lived intangible assets - Marketing-related rights	$	363
Finite-lived intangible assets - Developed product technology rights	11
Goodwill	3
Other assets	21
Total consideration	$	398

The marketing-related and developed product technology rights acquired relate to the Product Rights and are being amortized on a straight-line basis over their estimated useful lives of five years and three and one-half years, respectively.

deCODE Genetics

On December 10, 2012, we acquired for cash all of the outstanding stock of deCODE Genetics (deCODE), a privately held company that is a global leader in human genetics. The transaction provides us with an opportunity to enhance our efforts to identify and validate human disease targets. Consideration was allocated primarily to a finite-lived intangible asset of discovery capacity in the genetics of human diseases with an estimated useful life of 10 years.

KAI Pharmaceuticals

On July 5, 2012, we acquired for cash all of the outstanding stock of KAI Pharmaceuticals (KAI), a privately held biotechnology company that developed AMG 416, its lead product candidate, which is now in phase 3 clinical development for the treatment of secondary hyperparathyroidism in patients with chronic kidney disease (CKD) who are on dialysis. The transaction provides us with an opportunity to further expand our nephrology pipeline. The acquired IPR&D is related to AMG 416.

Goodwill is attributable primarily to expected synergies and other benefits from combining KAI with our nephrology development and commercialization activities.

Mustafa Nevzat Pharmaceuticals

On June 12, 2012, we acquired for cash substantially all of the outstanding stock of Mustafa Nevzat Pharmaceuticals (MN), a privately held company that is a leading supplier of pharmaceuticals to the hospital sector and a major supplier of injectable medicines in Turkey. The transaction provides us with the opportunity to expand our presence in Turkey and the surrounding region.

The finite-lived intangible assets acquired are related primarily to the fair values of MN's regulatory approvals and customer relationships with regard to the marketing of pharmaceutical products and are being amortized on a straight-line basis over their estimated useful lives. The weighted-average useful life of these intangible assets is eight years.

Goodwill is attributable primarily to MN's expected continued commercial presence in Turkey and other benefits.

Micromet, Inc.

On March 7, 2012, we acquired for cash consideration Micromet, Inc. (Micromet), a publicly held biotechnology company focused on the discovery, development and commercialization of innovative antibody-based therapies for the treatment of cancer. This transaction provides us with an opportunity to further expand our oncology pipeline.

The estimated fair value of acquired IPR&D is related to blinatumomab and outlicense agreements entered into by Micromet prior to our acquisition of the company where we continue to play an active role in the development of the respective programs. In December 2014, we announced that the FDA has granted approval of BLINCYTO^™ for the treatment of patients with Philadelphia chromosome-negative (Ph-) relapsed or refractory B-cell precursor acute lymphoblastic leukemia (ALL).

During 2014 and 2012, we wrote-off non-key IPR&D outlicensing programs resulting in impairment charges of $46 million and $19 million, respectively. Both of these charges were included in Other operating expenses in the Consolidated Statements of Income.

The R&D technology rights acquired relate to Micromet's BiTE^® technology platform which has produced various product candidates that are currently being developed as cancer treatments by the Company and others and may lead to the development of additional product candidates. The fair value of this technology is being amortized on a straight-line basis over its estimated useful life of 10 years.

Goodwill is attributable primarily to expected synergies and other benefits from combining Micromet with our oncology development and commercialization activities.

The consideration to acquire deCODE, KAI, MN, and Micromet was allocated to the acquisition date fair values of the assets acquired and liabilities assumed as follows (in millions):



	deCODE			KAI			MN			Micromet
IPR&D	$	—		$	240		$	—		$	570
Developed product technology rights	—			—			81			—
R&D technology rights	465			—			—			350
Marketing-related rights	—			—			82			—
Deferred income taxes, net	(37		)	(59		)	(45		)	(191		)
Other assets (liabilities), net	(29		)	26			179			170
Goodwill	—			125			380			247
Total consideration	$	399		$	332		$	677		$	1,146

The estimated fair values of intangible assets were primarily determined using a probability-weighted income approach, which discounts expected future cash flows to present value by using a discount rate that represents the estimated rate that market participants would use to value this intangible asset. The projected cash flows were based on certain assumptions, including estimates of future revenues and expenses, the time and resources needed to complete development and the probabilities of obtaining marketing approval from the FDA and other regulatory agencies.

For all IPR&D projects in the acquisitions discussed above, including Onyx, there are major risks and uncertainties associated with the timely and successful completion of development and commercialization of these product candidates, including our ability to confirm their safety and efficacy based on data from clinical trials, our ability to obtain necessary regulatory approvals and our ability to successfully complete these tasks within budgeted costs. We are not able to market a human therapeutic without obtaining regulatory approvals, and such approvals require completing clinical trials that demonstrate a product candidate is safe and effective. Consequently, the eventual realized value, if any, of these acquired IPR&D projects may vary from their estimated fair values at the dates of acquisition.