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Executive Summary

AMGEN PUERTO RICO MANUFACTURING PLANT COULD REDUCE TAX RATE TO 28% from the current 37% if Sec. 936 possessions tax credits are not changed, Amgen said Feb. 25. Amgen has completed the $100 mil. injectable drug finishing and filling facility in Puerto Rico and is conducting validation. The firm expects the plant to be operational in 1994 or 1995 following FDA approval. If Amgen had realized a 28% tax rate in 1992, the company's earnings of $357.6 mil. would have been some $50 mil. higher. The outcome of the current Administration and congressional efforts to reduce Sec. 936 tax credits to U.S. industries with facilities in Puerto Rico will not affect Amgen's plans to operate the facility, the company said. The Clinton Administration has proposed a 65% wage credit as part of his budget proposal; Sen. Pryor (D-Ark.) is proposing a cap of 40% of wages ("The Pink Sheet" Feb. 22, p. 6). Amgen currently contracts with Parke-Davis for finishing and filling of its two products, Epogen and Neupogen. The firm noted that the switch to in-house manufacturing will yield some savings regardless of tax credits and will provide operational advantages by giving Amgen total control over the manufacturing of its products. The 400,000 sq. ft. plant will employ 300 people, Amgen said. Attempts to garner revenue by reducing the Sec. 936 credits target the drug industry's most portable element: manufacturing. Amgen noted that, in the absence of the credits, the firm would consider building future manufacturing facilities in other locations in the U.S. and overseas instead of expanding its Puerto Rico presence. The tax havens of Ireland and Singapore are often mentioned by the industry as possible sites for manufacturing relocation. The North American Free Trade Agreement could also make Mexico a candidate to replace Puerto Rico as a low-cost manufacturing site. While possible reductions in the 936 tax credit affect most of the industry along with Amgen, the biotech firm is also facing a specific reduction in Epogen reimbursement as part of the Clinton package ("The Pink Sheet" Feb. 22, p. 8). Amgen has faced the threat of reduced reimbursement for Epogen before. In November, the company told securities analysts that the proposal would effectively limit dialysis center reimbursement to the list price of the drug ("The Pink Sheet" Oct. 26, 1992, T&G-14). The "uncertainty" of the current health care policy environment may "possibly" be affecting Neupogen sales in the current quarter, Amgen said Feb. 24. "The daily rate of domestic Neupogen sales...through mid- February is lower than street expectations, although still running at a rate 30% above the first quarter of 1992," Amgen said. Amgen warned investors that the firm expects earnings to be up by 15%- 25% in the quarter, but 10%-15% below current average street estimates of .60 per share. "It appears that several factors may be affecting Neupogen sales, including seasonal variability of sales, changes in distributor inventories, variations in field sales force effort between our two products, and, possibly, the uncertainty of future health care policy," Amgen said. "In the past few weeks, sales by wholesalers to end users have returned to normal levels; however, it is too early to know whether this trend will continue."

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