ORROCK HIGSON & KURTA, P.C. DANIEL A. HIGSON (71212) 1835 Knoll Drive Ventura, CA 93003 Telephone: 805/642-6405 MILBERG WEISS BERSHAD HYNES & LERACH LLP WILLIAM S. LERACH (68581) JAN M. ADLER (105266) KATHERINE L. BLANCK (149110) 600 West Broadway, Suite 1800 San Diego, CA 92101 LAW OFFICES OF CURTIS V. Telephone: 619/231-1058 TRINKO LLP - and - CURTIS V. TRINKO KAREN T. ROGERS (185465) 310 Madison Avenue 355 South Grand Avenue Suite 1401 Suite 4170 New York, NY 10017 Los Angeles, CA 90071 Telephone: 212/490-9550 Telephone: 213/617-9007 Attorneys for Plaintiffs [Additional counsel appear on signature page.] SUPERIOR COURT OF THE STATE OF CALIFORNIA COUNTY OF VENTURA PETER Y.C. LAU, IRA and BARBARA ) Case No. CIV 183029 EMMARINO, On Behalf of Themselves and All ) Others Similarly Situated, ) CLASS ACTION ) Plaintiffs, ) ) COMPLAINT FOR DAMAGES vs. ) BASED UPON: ) (1) VIOLATION OF CAL. AMGEN, INC., GORDON M. BINDER, KEVIN ) CORP. CODE §§25400 AND W. SHARER, ROBERTS. ATTIYEH, LARRY ) 25500; AND A. MAY, N. KIRBY ALTON, BRUCE W. ) (2) VIOLATION OF CAL. CIV. ALTROCK, STAN BENSON, DENNIS M. ) CODE §§1709-1710 FENTON, DARYL D. HILL, LINDA WUDL ) [filed Aug. 7, 1998] and DOES 1-25, inclusive, ) ) Defendants. ) __________________________________________ ) Plaintiffs Demand A Trial By Jury OVERVIEW OF THE ACTION Summary 1. This is a class action against Amgen, Inc. ("Amgen" or the "Company") and several of its senior executives arising out of false statements disseminated in and from California between 1/23/97 and 8/11/97 (the "Class Period") regarding (i) the demand for and sales growth of Amgen's two flagship products -- Epogen and Neupogen -- blockbuster billion-dollar drugs that had made Amgen a successful biotech company and enabled it to report strong earnings per share ("EPS") growth in the past; (ii) an arbitration proceeding between Amgen and Johnson & Johnson regarding entitlement to millions of dollars in "spill-over" sales of Epogen; (iii) Amgen's 4thQ 96 and 1stQ and 2ndQ 97 results which reported strong EPS for Amgen; and which, in combination (iv) allowed Amgen to forecast strong EPS growth in 97 to $2.75-$2.85 and 15%-20% EPS growth for the next three to five years. These positive representations, financial statements and forecasts were false and artificially inflated Amgen's stock from $52-1/2 in mid-1/97 to $69-3/8 in 5/97 and kept it trading at over $58 per share through the end of the Class Period, enabling (i) top Amgen executives to unload 525,595 shares of their Amgen stock, 40%-98% of their individual and 62% of their collective stock ownership, pocketing $32.4 million in illegal insider-trading proceeds; and (ii) Amgen to avoid a huge loss of up to $158 million on speculative put option contracts on Amgen stock, which would have been triggered had Amgen's stock fallen below $58 when those put options expired in early 8/97. On 8/12/97, Amgen revealed much weaker Epogen and Neupogen sales and 97 EPS -- well below the levels forecast during the Class Period. Amgen also disclosed that even though Amgen had won the Johnson & Johnson Epogen "spill-over" sales arbitration and was the prevailing party, it had to pay Johnson & Johnson $96 million, resulting in a huge $.35 charge against Amgen's EPS. As a result, Amgen suffered a major EPS decline in 97, not the 15%+ increase to $2.75-$2.85 forecast throughout the Class Period. Amgen's stock fell sharply, initially to $49-5/8 and later to $44-7/8, as Amgen stock purchasers during the Class Period suffered millions in damages, while Amgen and its top insiders benefited by close to $200 million. Background 2. By fall, 96, Amgen's ability to report revenue and EPS growth was completely dependent upon continued strong sales growth of Epogen and Neupogen, which provided 95% of Amgen's 96 revenues. While Amgen was attempting to develop new drugs, none of them was close to commercial readiness or would produce significant revenues in the near term. Thus, Amgen's ability to achieve ongoing EPS growth -- at least in the short term -- depended on Epogen and Neupogen continuing to achieve in 97 the type of strong growth they had in the past, i.e., about 20% and 10% per year, respectively. However, by late 96, Epogen and Neupogen were increasingly viewed as "maturing" drugs and the investment community was concerned that the strong growth rates of Epogen and Neupogen were going to slow dramatically and that this would adversely impact Amgen's EPS growth. 3. By late 96, Amgen's top insiders knew that proposed regulations of the Health Care Financing Administration ("HCFA") -- the agency that administered the federal Medicare program -- based on the Dialysis Outcome Quality Institute ("DOQI") study, would have a very negative impact on the growth of Epogen sales during 97. Amgen's top insiders also knew that the increasing success of physicians in treating AIDS patients with new "cocktails" of AIDS drugs and protease inhibitors would dramatically slow the growth in sales of Neupogen to treat AIDS -- 15%-20% of the revenues which then came from the sale of Neupogen were for "off- label" uses in treating AIDS patients. As a result of these converging negative factors, Amgen's top insiders realized that Amgen's 97 EPS would very likely be adversely affected. In order to try to offset the anticipated negative trend in the growth of sales of Epogen and Neupogen, in the fall of 96 Amgen's insiders caused Amgen to enter into extremely risky transactions involving Amgen's common stock pursuant to which Amgen sold put options on its own common stock to Goldman Sachs -- an investment bank -- via a transaction from which Amgen would be able to record significant income if, but only if, Amgen's stock could be maintained above $58 into early 8/97, when the put option contracts expired. However, these extremely risky put option contracts exposed Amgen to a huge loss of up to $158 million if Amgen's stock price fell below $58 when the put options expired in early 8/97. Thus, the defendants were determined to do whatever was necessary to keep Amgen's stock trading above $58 during 97 or at least until the put option contracts expired in early 8/97. 4. In late 96 and early 97, Amgen suffered several setbacks, which put downward pressure on its common stock and increased the pressure on Amgen's top executives to keep the stock inflated up over $58 through 8/97 and thus avoid the disastrous impact of being required to honor the speculative put option contracts they had caused Amgen to enter into. In 9/96, Amgen's MGDF, a new drug to treat a form of acute leukemia, proved ineffective in its new drug testing. On 1/12/97, Amgen announced that its highly-touted BDNF drug, which was intended to treat Lou Gehrig's disease, had also failed to prove effective in its new drug test. These disappointments in Amgen's new drug pipeline, combined with the maturation of Amgen's Epogen and Neupogen drug products, caused increased concern in the investor/analyst community. For instance, on 1/13/97, Robertson Stephens downgraded Amgen's stock, commenting that it had suffered a. "major setback" in the BDNF drug failure and that Amgen stock was a "dead stock," going forward. At this same time, Lehman Brothers issued a report noting that the BDNF failure was "clearly a blow to confidence in their pipeline and will have a psychologically negative impact." Several analysts cut their 97 EPS forecasts for Amgen. The predicament Amgen found itself in was summarized by a 1/13/97 Rodman & Renshaw report: With the announcement that BDNF showed no statistically significant benefit in Phase III, clinical trials . . . we are taking this opportunity to downgrade AMGN's rating. . . . [T]his reduces AMGN's double-digit sales and RPS growth down to a single driver over the next four to eight quarters, that being Epogen sales. This exposes the company's earnings outlook to greater risks since Neupogen's growth here and abroad has been lagging. 5. Just prior to the BDNF test failure in 12/96, testimony in the Johnson & Johnson Epogen "spill-over" sales arbitration concluded. Amgen's top insiders now knew, due to the advanced state of the arbitration, that even if Amgen won the arbitration and its audit methodology to calculate the payments between Johnson & Johnson and Amgen prevailed, Amgen would still have to make a payment of almost $100 million (after tax) to Johnson & Johnson, which would have a very adverse impact an Amgen's 97 EPS. As a result, by 1/97, Amgen's top executives knew Amgen faced a catastrophic situation as (i) its new drug pipeline had suffered very serious setbacks with the failure of the MGDF and BDNF products; (ii) the growth rates of Amgen's core products, Epogen and Neupogen, were threatened; and (iii) they knew Amgen would be required to make a huge payment in the Johnson & Johnson arbitration proceeding, even if Amgen won and was the prevailing party. Thus, unless Amgen's senior executives could persuade the investment community that Epogen and Neupogen would continue to show strong revenue growth (at least until Amgen's other new products were able to come to market and help generate new revenue and thus enable Amgen to report EPS growth during 97), Amgen's stock would surely decline below $58 and would expose Amgen to a huge $158+ million loss on the put option contracts. Such a loss would also expose the top executives of Amgen to a huge personal liability to Amgen should it or its shareholders sue them for their causing Amgen to enter into such a speculative transaction. The Class Period 6. By mid-1/97, Amgen's stock had fallen to $52-1/2. To get Amgen's stock price up above the critical $58 level, Amgen and its top officers stated throughout the Class Period that Epogen and Neupogen were continuing to deliver solid sales growth, that Amgen expected continuing increases in product sales of Epogen and Neupogen and that growth in Epogen and Neupogen sales would allow Amgen to achieve double-digit sales growth in 97 of about 15%. 7. During the first part of the Class Period, i.e., through 6/16/97, Amgen reported 4thQ 96 EPS of $.67 and 96 EPS of $2.571 -- increases over its prior years' results -- and assured investors that its "core businesses of Epogen and Neupogen continue to be strong," "there is a lot of growth left in" them and the "fundamental drivers" of Epogen sales growth remained in place. Amgen represented that Epogen sales would benefit from proposed HCFA regulations as the change in the HCFA regulations would increase the average dose of Epogen per patient. Thus, while Amgen said the 97 sales growth rate of Epogen would slow, it assured the market that sales would "slow only slightly" and would still achieve 18% year-over-year growth. Amgen also assured investors that Neupogen sales were not being hurt by the introduction of new AIDS drugs, including protease inhibitors. As a result, Amgen saw "continued strong growth" from both its top drugs with "no substantial decline" in their sales growth rates in 97. Thus, Amgen was "comfortable with" and "endorsed" 97 EPS forecasts of $2.75-$2.85 and double-digit EPS growth over the next three to five years. When Amgen reported better-than-expected 1stQ 97 EPS of $.68, a strong increase over $.54 in the prior year, Amgen increased its 97 revenue and EPS forecast to $2.32-$2.38 billion and $2.80-$2.85, respectively, as Epogen was "still going very strong." 8. During the second part of the Class Period, i.e., 6/16/97-8/11/97, while Amgen disclosed that it anticipated a "modest reduction" in the rate of growth of Epogen in the second half of 97 due to the "temporary" withholdings of Epogen doses due to the new HCFA regulations. it assured investors this was a "one-time" event which would not "materially" impact Epogen sales or Amgen's 97 results. Amgen represented that its "core business trends remained in place" and any negative impact of the HCFA regulations would be limited to the 2ndQ 97 as Amgen now forecasted 15% Epogen sales growth in the second half of 97. While Amgen also disclosed that Neupogen sales were being hurt by the success and increased sales of new AIDS treatment drugs, it represented that increased Neupogen sales to treat cancer were "more than" offsetting the decline in AIDS-related sales. Amgen reported strong 2ndQ 97 EPS of $.76, a 13% increase over the prior year and told investors it was "comfortable with" and "endorsed" 97 EPS forecasts of $2.80-$2.85 and double-digit EPS growth over the next three to five years. Throughout the Class Period, Amgen assured investors that the arbitration with Johnson & Johnson over Epogen "spill-over" sales would not result In any negative impact on Amgen if its audit methodology was accepted and it prevailed -- a small one time payment to Johnson & Johnson at worst. 9. These representations inflated the price of Amgen's stock from $52-1/2 in mid-1/97 to a Class Period high of $69-3/8 in 5/97. Amgen's senior executives took advantage of this artificial inflation in Amgen's stock to unload 525,595 shares of their own Amgen shares at as high as $67-3/8, pocketing $32+ million in illegal insider-trading proceeds. Amgen's senior executives -- its CPO, Chairman, President/COO, Senior VP-Development, Senior VP-Sales, Senior VP-Operations, Senior VP-Quality and Compliance, and Controller -- sold off 90%, 40%, 95%, 74%, 98%, 55%, 96% and 64% of the Amgen shares they actually owned! Defendants' positive statements and Amgen's strong EPS as reported during the first half of 97 also enabled defendants to keep Amgen stock trading at inflated levels through 8/97, which allowed Amgen to avoid making a $158 million payment to certain investment banks. Falsity 10. The statements made by defendants between 1/23/97 and 8/97 were each false and misleading when made. They also failed to disclose the following adverse facts which were then known by or available to defendants, including: (a) That the fundamental drivers behind historic Epogen sales growth were no longer in place and as a result of new negative HCFA regulations regarding reimbursement of Epogen use, Epogen sales would be materially adversely affected during 97, which would adversely affect Amgen's financial results; (b) That new HCFA regulations on Epogen reimbursement would have and were having an adverse impact on Epogen sales and were a fundamental negative development which, unless and until changed, would negatively impact Epogen use and virtually eliminate Epogen sales growth going forward; (c) That sales of Neupogen for off-label uses in treating AIDS were diminishing materially due to the introduction of and success of new AIDS treatment drugs, including protease inhibitors, which would have a material negative impact on Neupogen sales going forward; (d) That even if Amgen's audit methodology was adopted in the Johnson & Johnson Epogen spill-over sales arbitration, Amgen would be required to pay Johnson & Johnson close to $100 million, which would have a material adverse effect on Amgen's 97 results; (e) That Amgen's reported EPS for the 4thQ 96 and lstQ and 2ndQ 97 were overstated because of Amgen's failure to timely accrue and record a reserve for the payment it would have to make even if its audit methodology was adopted in the Johnson & Johnson Epogen spill-over sales arbitration as detailed in ¶¶105-115; (f) As a result of the foregoing, defendants' forecasts of double-digit or 15%-18% Epogen sales growth during 97 were false when made, as such sales growth could not be and would not be achieved under the facts then existing; (g) As a result of the foregoing negative factors, defendants' forecasts that continued sales growth of Epogen and Neupogen would enable Amgen to report double-digit EPS growth over the next three to five years were false as such EPS growth could not be achieved under the facts then existing and known to the individual defendants; and (h) As a result of the foregoing, defendants' forecasts that Amgen would achieve 97 revenues of $2.32-$2.38 billion and 97 EPS of $2.75-$2.85, were known by them to be false when made, as such EPS growth and results could not be achieved under the facts then existing, as they were known to the individual defendants. The Concealed Information Becomes Public 11. Amgen stock closed at $59 on 8/6/97 and traded as high as $58-5/8 on 8/8/97. However, on 8/12/97, just after the large put option contracts expired, Amgen disclosed that sharply declining growth rates for Epogen and Neupogen sales would result in much lower than earlier forecast 97 EPS. Amgen's stock immediately plunged to $49-5/8 on huge volume of more than 22 million shares, and to $48 on 8/13 on 14 million shares volume and continued to fall to as low as $44-7/8 in 10/97. Amgen also revealed that even though it "won" its legal dispute with Johnson & Johnson over "spill-over" sales of Epogen, and the arbitrator adopted Amgen's audit methodology, Amgen had to pay $96 million to Johnson & Johnson which required Amgen to take a multi-million dollar special charge -- $.35 per share after tax -- which had an adverse impact on Amgen's 3rdQ 97 and 97 results. Ninety days later, i.e., 11/12/97, Amgen's stock closed at $49-1/2. Epogen and Neupogen showed virtually no sales growth at all in the second half of 97 and, as a result of these poor sales and the Johnson & Johnson arbitration charge, Amgen's 97 EPS declined to $2.44 per share from $2.57 in 96, a 5% decline, rather than the "double-digit" increase that had been repeatedly forecast throughout the Class Period. 12. Amgen's stock would have collapsed even further and its 97 EPS would have been just $2.32 had defendants not used $526 million of Amgen funds to repurchase an astonishing 10.2 million shares of Amgen stock during Amgen's 3rdQ and 4thQ 97 -- unprecedently huge stock repurchases -- which brought Amgen's total 97 stock repurchases to $737 million, 163% higher than the $450 million originally authorized and forecasted by Amgen for 97. 13. The adverse impact of the flattening sales of Epogen and Neupogen and the large charge against Amgen's EPS results from the Johnson & Johnson arbitration on Amgen's 97 net income and EPS are shown below: Amgen, Inc. Quarterly and Annual Results (in thousands. except EPS)2 1996 03/31 06/30 09/30 12/31 Year Product sales $476,900 $518,900 $533,300 $559,100 $2,088,200 Net income $143,000 $178,700 $179,500 $178,000 $ 679,800 EPS $.54 $.67 $.68 $.67 $2.57 1997 03/31 06/30 09/30 12/31 Year Product sales $536,000 $566,700 $552,800 $564,300 $2,219,800 Net income $180,300 $200,500 $ 83,800 $179,700 $ 644,300 EPS $.68 $.76 $.32 $.69 $2.44 14. The massive insider bailout by Amgen's top executives during the Class Period to take advantage of their manipulation and artificial inflation of Amgen's stock price is shown below: Total Insider % Of Stock Shares Trading Actually Defendant/Position Sold Proceeds Owned Sold Alton/Senior VP- Development 65,685 $ 3,923,028 74% Altrock/Senior VP 20,000 $ 1,226,690 46% Attiyeh/CFO & Senior VP-Finance/Corp. Development 45,909 $ 2,759,672 90% Benson/Senior VP- Sales 40,000 $ 2,538,900 98% Binder/CEO and Chairman of Board 112,000 $ 6,902,830 40% Fenton/Senior VP- Operations 39,960 $ 2,470,247 55% Hill/Senior VP- Quality and Compliance 11,344 $ 704,576 96% May/VP, Controller & Chief Accounting Officer 82,000 $ 4,949,400 64% Sharer/President & COO 75,000 $ 4,999,700 95% Wudl/VP 33,697 $ 1,949,935 63% TOTALS: 525,595 $32,424,977 62% 15. At the same time defendants were issuing false statements in and from California, the Individual Defendants were selling off 525,595 shares of their Amgen shares into the open market and causing Amgen to repurchase approximately 3.5 million shares of Amgen common stock on the open market for $210 million -- thus helping to artificially inflate and manipulate Amgen's stock higher while they were unloading their own holdings. 16. The graph below demonstrates the price action of Amgen's stock during 97 as Amgen's top, insiders sold off 525,595 of their own Amgen shares for Illegal insider-trading proceeds of more than $32 million in and from California, and the sharp decline of Amgen's stock as the previously concealed facts about Amgen's business emerged: Amgen, Inc. January 2, 1997 - October 18, 1997 Daily Common Stock Prices JURISDICTION AND VENUE 17. The claims asserted herein arise under §§25400 and 25500 of the Cal. Corp. Code and §§1709-1710 of the Cal. Civ. Code. This Court has jurisdiction pursuant to the California Constitution, Article V1, §10, because this case is a cause not given by statute to other trial courts. 18. Each of the individual defendants reside in and are citizens of California. Amgen's principal place of business is in Thousand Oaks, CA, and is a citizen of California. Each of the false statements were made by the defendants in and from California to facilitate the sale and/or induce he purchase of Amgen securities sold in and from this state -- California. The amount in controversy of each of the named plaintiffs' claims are less than $75,000, exclusive of interest and costs. This action is not removable to federal court. PARTIES 19. (a) Plaintiff Peter Y.C. Lau, IRA, a resident and citizen of California, purchased 1,600 shares of Amgen common stock on 7/23/97 at $61-3/8 per share, 400 shares of Amgen stock on 7/23/97 at $61-1/4 per share and 200 shares of Amgen stock on 7/25/97 at $59-5/8 per share. Plaintiff was damaged thereby. (b) Plaintiff Barbara Emmarino, a resident and citizen of New York, purchased 200 shares of Amgen stock on 6/17/97 at $59-7/8 per share. Plaintiff was damaged thereby. 20. (a) Defendant Amgen maintains its executive offices in Thousand Oaks, California. Amgen's primary revenue producers are Epogen and Neupogen. Epogen stimulates the production of red blood cells, which carry oxygen through the body and is used primarily to treat anemia in kidney dialysis patients. Neupogen stimulates infection-fighting white blood cells called centrophils. Amgen stock is traded in an efficient market on the NASDAQ National Market System. As of 2/28/97, Amgen had more than 265 million shares outstanding. (b) Throughout the Class Period. Amgen sold common stock through its stock option plan. By inflating and manipulating the market price of Amgen's stock above the exercise price of most of the options held by Amgen's executives, Amgen raised millions in new capital by having its executives exercise their stock options and immediately re-sell the stock they acquired to the investing public. Amgen admitted in its 1stQ 97 Form 10-Q filed with the SEC that "[t]he company receives cash from the exercise of employee stock options. During the three months ended March 31, 1997, stock options and related tax benefits provided $32.9 million of cash. . . ." In Amgen's 2ndQ 97 Form 10-Q, Amgen admitted that "[t]he company 30, 1997 [sic], stock options and their related tax benefits provided $87.6 million of cash. . . ." In Amgen's 3rdQ 97 Form 10-Q the Company admitted that "[t]he company receives cash from the exercise of employee stock options. During the nine months ended September 30, 1997, stock options and their related tax benefits provided $127.6 million of cash. . . ." Had defendants not manipulated and artificially inflated Amgen's stock price during the Class Period, these executive and managerial stock options would not have been exercised and Amgen would not have received the $248 million in cash it received from these exercises. A significant motivating factor in defendants' desire to manipulate and artificially inflate the market price of Amgen's common stock was its ability to raise significant amounts of cash from the exercise of Amgen stock options. (c) Early in 97, Amgen told analysts that it intended to repurchase $450 million worth of Amgen common stock on the open market during 97, as this was the amount of stock repurchases that were authorized by Amgen's Board. Thus Amgen and analysts factored in this amount of stock repurchases (about 8 million shares) into their forecasts of Amgen's 97 EPS of $2.75-$2.85. In fact, when Amgen's stock price declined sharply in 8/97, defendants quickly got Amgen's Board to authorize a vastly increased stock purchase as this would help them manipulate and artificially inflate Amgen's stock price. Defendants caused Amgen to greatly step up its common stock repurchase program after 8/12/97, to try to cushion or reduce the adverse impact on Amgen's EPS due to the disastrous shortfall of sales growth for Epogen and Neupogen and limit the decline in its stock price, as by reducing the number of Amgen common shares outstanding, defendants lessened the adverse impact on Amgen's EPS of the Epogen and Neupogen revenue shortfalls and the Johnson & Johnson arbitration proceeding award. Compared with the $450 million of stock repurchases defendants originally intended to have Amgen make during 97, defendants caused Amgen to repurchase an astonishing $737.9 million of its common stock during 97, with $527 million of those share repurchases coming in the second half of 97, which substantially lessened the adverse impact on Amgen's reported 97 EPS of the huge Epogen/Neupogen sales growth shortfalls. Had these extra stock repurchases not been made, Amgen's 97 EPS would have fallen from $2.57 in 96 to about $2.32 per share instead of the $2.44 actually reported; which EPS would have much more accurately showed the serious problems with Amgen's core business. 21. (a) Defendant Gordon M. Binder ("Binder") is Amgen's CEO and Chairman of it Board. During the Class Period, Binder sold 112,000 shares, or 40% of the Amgen shares owned by him, for proceeds of more than $6.9 million and participated in Amgen's sale of $100 million of debt securities. (b) Defendant Kevin W. Sharer ("Sharer") is President of Amgen and its COO. During the Class Period, Sharer sold 75,000 shares, or 95% of the Amgen shares owned by him, for proceeds of more than $4.99 million and participated in Amgen's sale of $100 million of debt securities. (c) Defendant Robert S. Attiyeh ("Attiyeh") is Amgen's CFO and Senior VP-Finance/Corp. Development. During the Class Period, Attiyeh sold 45,909 shares, or 90% of the Amgen shares owned by him, for proceeds of more than $2.75 million and participated in Amgen's sale of $100 million of debt securities. (d) Defendant Larry A. May ("May") is Amgen's VP. Controller and Chief Accounting Officer. During the Class Period, May sold 82,000 shares, or 64% of the Amgen shares owned by him, for proceeds of more than $4.94 million and participated in Amgen's sale of $100 million of debt securities. (e) Defendant N. Kirby Alton ("Alton") is Amgen's Senior VP-Development. During the Class Period, Alton sold 65,685 shares, or 74% of the Amgen shares owned by him, for proceeds of more than $3.9 million and participated in Amgen's sale of $100 million of debt securities. (f) Defendant Bruce W. Altrock ("Altrock") was, at all relevant times, an Amgen Senior VP-Development. During the Class Period, Altrock sold 20,000 shares, or 46% of the Amgen shares owned by him, for proceeds of more than $1.2 million and participated in Amgen's sale of $100 million of debt securities. (g) Defendant Stan Benson ("Benson") is Amgen's Senior VP-Sales and Marketing. During the Class Period, Benson sold 40,000 shares, or 98% of the Amgen shares owned by him, for proceeds of more than $2.5 million and participated in Amgen's sale of $100 million of debt securities. (h) Defendant Dennis M. Fenton ("Fenton") is Amgen's Senior VP- Operations. During the Class Period, Fenton sold 39,960 shares, or 55% of the Amgen shares owned by him, for proceeds of more than $2.4 million and participated in Amgen's sale of $100 million of debt securities. (i) Defendant Daryl D. Hill ("Hill") is Amgen's Senior VP-Quality and Compliance. During the Class Period, Hill sold 11,344 shares, or 96% of the Amgen shares owned by him, for proceeds of more than $704,000 and participated in Amgen's sale of $100 million of debt securities. (j) Defendant Linda Wudl ("Wudl") is Amgen's Vice President. During the Class Period, Wudl sold 33,697 shares, or 63% of the Amgen shares owned by her, for proceeds of more than $1.9 million and participated in Amgen's sale of $100 million of debt securities. (k) The defendants named in ¶21(a)-(j) are referred to herein as the "Individual Defendants." 22. Because of Binder's, Sharer's, Attiyeh's, May's, Alton's, Altrock's, Benson's, Fenton's, Hill's and Wudl's positions, they knew or should have known the adverse non-public information about the business of Amgen as well as its finances, markets and present and future business prospects via access to internal corporate documents (including the Company's operating plans, budgets and forecasts and reports of actual operations compared thereto), conversations and connections with other corporate officers and employees, attendance at management and/or Board of Directors' meetings and committees thereof and via reports and other information provided to them in connection therewith. During the Class Period, Binder, Sharer, Attiyeh, May, Alton, Altrock, Benson, Fenton, Hill and Wudl willfully participated in the issuance of statements which were false and/or misleading for the purpose of offering to sell and selling Amgen securities. Binder's, Sharer's, Attiyeh's, May's, Alton's, Altrock's, Benson's, Fenton's, Hill's and Wudl's willful participation included the preparation of false and misleading press releases, the falsification of Amgen's 1stQ and 2ndQ 97 EPS as publicly reported, and dissemination of false statements during analyst conference calls and/or during individual conversations with securities analysts. 23. The true names and capacities of defendants sued herein under California Code of Civil Procedure §474 as Does 1 through 25, inclusive, are presently not known to plaintiffs, who therefore sue these defendants by such fictitious names. Plaintiffs will seek to amend this complaint and include those Doe defendants' true names and capacities when they are ascertained. Each of the fictitiously named defendants is responsible in some manner for the conduct alleged herein and for the injuries suffered by the Class. MOTIVE AND OPPORTUNITY AND COMMON COURSE OF CONDUCT 24. Each defendant is liable for making false statements or for failing to disclose adverse facts while selling Amgen stock (thus committing manipulative acts) and for participating in a scheme to defraud purchasers of Amgen stock by artificially inflating Amgen stock throughout the Class Period, which permitted the defendants to sell 525,595 shares of Amgen stock at artificially inflated prices for $32+ million in proceeds, keep Amgen's stock price inflated to over $58 prior to the expiration of the huge put option contracts in early 8/97 and to sell $100 million in Amgen debt securities at more favorable interest rates than would otherwise have been possible. 25. Defendants' fraudulent scheme was an enormous success -- for them. Amgen sold $100 million in new debt securities raising millions in needed new capital at favorable interest rates. The Individual Defendants sold 525,595 shares of their Amgen stock at artificially inflated prices, pocketing $32+ million In illegal insider-trading proceeds. Amgen also avoided $158 million in losses on the put option contracts, and defendants avoided exercise of an unsecured personal liability to Amgen for those losses. 26. Each of the Individual Defendants participated directly in the management of the Company, was involved directly in the day-to-day operations of the Company at the highest levels, and was privy to confidential proprietary information concerning the Company and its operations, finances, products, and business prospects as alleged herein. They were involved in drafting, producing, reviewing and/or disseminating the false and misleading statements alleged herein, were aware that the false and misleading statements were being issued regarding the Company and approved or ratified these statements, in violation of law. 27. Each of the defendants is liable for negligently, recklessly or intentionally making false and misleading statements, and/or willfully participating in a scheme or conspiracy and/or aiding and abetting the violations of California law that damaged Class members by making false and misleading statements for the purpose of selling their own shares of Amgen stock, as well as selling Amgen securities at prices artificially inflated by their false and misleading statements. In committing the wrongful acts alleged, the defendants willfully participated in the dissemination of false statements to the investing public regarding Amgen's 97 revenue growth and Amgen's future EPS prospects, and pursued a scheme and conspiracy in order to inflate the price of Amgen stock and sell Amgen securities and/or induce the purchase of Amgen securities by plaintiffs and the Class in and from California. 28. Binder, Sharer, Attiyeh, May, Alton, Altrock, Benson, Fenton, Hill and Wudl were the top executives of Amgen. They ran Amgen as "hands-on" managers, dealing with important issues facing Amgen's business, i.e., sales of Epogen and Neupogen, new federal regulations impacting Epogen and Neupogen, the status of the Johnson & Johnson arbitration, and the impact of these factors on Amgen's business. 29. Amgen's sales of Epogen were very much dependent upon reimbursement from the federal government under the Medicaid program, as Epogen was used to treat individuals on kidney dialysis. Because Amgen sold approximately $1 billion worth of Epogen a year and it provided over half of Amgen's revenues, Amgen's top officers were constantly fixated on the federal government's position with respect to reimbursement for Epogen prescriptions. To make sure that Amgen knew the probable changes in or modifications of the federal government's reimbursement policies regarding Epogen, Amgen employed a team of specialists to monitor the actions of the government and analyze any proposed changes or modifications to determine their impact on Amgen and also to determine ways that Amgen, through a highly paid coterie of Washington-based lobbyists, could influence and/or impact any such changes to benefit Amgen. As a result of these activities, Amgen's top executives were in a position to obtain and did obtain information about the government's thinking and proposals regarding Epogen reimbursement before it became public and also to use their unique knowledge of Amgen's business to evaluate the actual impact of any such proposed changes or any changes that were actually implemented on Amgen's business. 30. Because of the tremendous success of Epogen, it had become the source of a significant dollar outflow for the federal government's Medicaid program. Thus, analysts and industry observers feared that Epogen would become a target of utilization controls or cutbacks by the federal government which could have a very adverse impact on Amgen's ability to achieve ongoing strong revenue and EPS growth. Thus, the investment community was acutely sensitive to information regarding the intentions of Medicaid officials in this regard and even more importantly, the evaluation of the impact of such actions on Amgen, as provided by Amgen's top insiders who, after all, were uniquely well positioned to ascertain that impact and under a legal obligation to truthfully disclose that impact if they chose to speak publicly about it. 31. Amgen's other major drug, Neupogen, generated approximately $1 billion in annual revenues, 15%-20% of which was for an "off-label" use, i.e., treating AIDS patients. A significant portion of Neupogen's success and sales growth in recent years had come from doctors prescribing it for treatment of AIDS patients in combination with other drugs in an attempt to provide effective treatment for that disease. This so-called "off-label" use of Neupogen was very important to the continued growth of that drug, and thus Amgen's top insiders closely monitored the continued use by physicians of Neupogen for AIDS treatment. 32. In 96, Amgen obtained more than 95% of its revenue from the sale of Neupogen and Epogen. Amgen sales, which sales totaled $2 billion. Amgen's financial health -- and its ability to continue to grow its EPS -- hinged entirely on the sales of these two drugs. 33. During the first 10 months of 96, Amgen's stock was unable to maintain a sustained advance. It traded at $59-1/2 on 1/2/96 and in 12/96 was still trading at $59-$62. This was because investors were concerned that Epogen and Neupogen were maturing, their sales growth would slow and Amgen's revenues and EPS would not grow at the same high rate as in the past. 34. During 96, Amgen's executives became concerned that Epogen/Neupogen sales would slow in 97-98, in part due to Medicare reimbursement reductions or increasingly stringent treatment standards for patients with elevated red blood cell levels who received Epogen treatments which would result in denied reimbursement. To offset an anticipated decline in Amgen's net income due to these developments, defendants caused Amgen to enter into the highly speculative put and call option contracts on 4 million Amgen shares, which expired in early 8/97, and which, if they could keep Amgen's stock over $58 through 8/97 would provide income to Amgen to offset any revenue and income declines resulting from slowing Epogen/Neupogen sales. However, in order for this gamble on Amgen's stock to succeed, defendants had to keep Amgen stock over $58 until the expiration of the option contracts in early 8/97. 35. In late 96 and early 97, Amgen's business suffered a series of significant setbacks. which put pressure on its common stock and greatly increased the pressure on Amgen's top executives to somehow keep the stock price inflated up over $58 per share through 8/97 and thus avoid the disastrous impact of being required to honor the speculative put/call option contracts they had caused Amgen to enter into in connection with the common stock. In 9/96, Amgen's MGDF, a drug to treat a form of acute leukemia, failed in its new drug test and proved to be ineffective in treating the disease. 36. In late 96, Amgen's senior executives learned that proposed medicare reimbursement guidelines for the Company's flagship drug, Epogen, would be implemented sooner than previously expected, and would have a very adverse impact on the growth in Epogen sales and would likely result in declines in Epogen revenues and operating EPS in 97. To make matters worse, in 1/97, Amgen's Phase III trials of one of its most important new drugs, BDNF showed no efficacy, meaning that Amgen's pipeline of new drugs was also faltering. Amgen's stock declined to as low as $52-1/2 in 1/97. This exposed Amgen to a huge loss on the put option contracts and exposed the Individual Defendants to personal liability to Amgen for having caused it to take such a risky gamble on a speculative transaction in its stock. The stock drop also negatively impacted the value of the Amgen stock and options to purchase Amgen stock held by numerous senior Amgen executives, especially Binder, the Chairman and CEO, who had during 7/96-10/96 been granted options to purchase 112,600 shares of Amgen stock at $55.75-$61.38. 37. During late 96 and early 97, Amgen shares declined significantly, falling from $64-3/8 in 10/96 to as low as $52-1/2 on 1/13/97. As a result, by mid-1/97, Amgen's top executives faced a potentially catastrophic situation where the new drug pipeline had suffered a very serious setback with the disapproval of MGDF and BDNF and the growth rate of its core products, Epogen and Neupogen, appeared to be under serious threat. They knew that unless something dramatic was done to persuade the investment community that Epogen and Neupogen could continue to show strong revenue growth until Amgen's new products were able to come to market and help generate new revenue and thus sustain Amgen's EPS growth during this transition period, Amgen's stock would likely decline very sharply and to well below $58, which would expose Amgen to a huge $150+ million loss on the speculative put option contracts defendants had caused Amgen to enter into with relation to Amgen's common stock and also expose these Individual Defendants to personal liability of at least $150 million to Amgen should it or its shareholders sue it for their causing Amgen to enter into such an ill-advised and speculative securities transaction. Thus, by the beginning of the Class Period on 1/23/97, the defendants were under excruciating pressure to keep the price of Amgen stock up until at least 8/97 when Amgen's high-stakes put/call option contracts would expire. 38. By the spring of 97, defendants realized that the cumulative impact of the negative HCFA regulations on Epogen sales, the decline in Neupogen sales for off-label treatment of AIDS and the large impending payment Amgen would have to make to Johnson & Johnson, even if it won the Epogen spill-over sales arbitration, meant that their continued misrepresentations about the matters to the marketplace to manipulate and artificially inflate Amgen's stock above $58 per share would ultimately come unwound later in 97 and likely expose Amgen to securities fraud suits. Amgen and its top insiders had previously been sued for securities fraud and were therefore sensitive to the fact that sharp drops in the stock of a publicly traded company, like Amgen, often result in securities fraud class action suits being filed, especially where, as here, the insiders were unloading their stock onto the open market while utilizing the Company's stock to repurchase shares at the same time and the insiders were falsifying the Company's financial reports to inflate its EPS. In addition, Amgen was being sued for securities fraud by a partnership that had invested $52 million with Amgen in an attempt to develop a drug known as Antril for treatment of blood infections in a class action suit which had gone very poorly for Amgen and Amgen knew it was going to have to pay several million dollars to settle. 39. Therefore, to try to insulate Amgen and themselves from liability for the ongoing violation of the securities laws which they knew they were engaged in and try to cover up their wrongdoing, in 5/97, Amgen undertook a major company-wide mandatory purging of employee files, including electronically stored data, pursuant to which hundreds of thousands and perhaps millions of documents were destroyed. This document destruction effort was led by Thomas Hardy, a top-level corporate officer, who was assigned this task because he had been working on litigations against Amgen (including the aforementioned class action suit) in which thousands of internal Company documents had been subpoenaed or been produced and which turned out to be very damaging to Amgen's litigation position. In destroying these documentary materials and electronically-stored data, Amgen not only used paper shredders but also "shredding software," which provided an effective tool for eliminating information off Amgen's computer system. As part of this document evidentiary destruction effort, numerous "file coordinators" worked together on one or more "trash/bash days" who were trained in the details of what documents and data especially needed to be located and destroyed to protect Amgen and its insiders from potential liability under the federal securities laws. In one day alone in 5/97, over 250 employees undertook a coordinated evidentiary destruction program that filled 100 insta-shred containers with 9,000 kilograms of destroyed documents -- about 36 kilograms per employee. As part of this evidentiary destruction program, so-called "pack-rats" in the Finance Department located as many as 5,000 e-mail messages going back three years or more and had them erased or destroyed using "shredding software." Employees were incentivized to be effective and diligent in this evidentiary destruction program by having those who finished their document destruction quickly awarded a "trash/bash day" t-shirt. Those employees who were not effective or did not cooperate in destroying materials were called "scofflaws" and their names were posted in their offices. As one corporate officer was quoted as saying. "It's less than a corporate felony, but more than a misdemeanor" to not actively participate in the evidentiary destruction. FALSE STATEMENTS FOR THE PURPOSE OF SELLING AMGEN SECURITIES DURING THE CLASS PERIOD 40. Between 1/13/97-1/22/97, Amgen stock traded between $52-1/2 and $55-7/8 per share. On 1/23/97, Amgen reported its 4thQ 96 and year-end 96 results. Amgen announced that its 4thQ 96 EPS rose to $.67 and its 96 EPS rose to $2.57,3 primarily due to increased sales of Epogen and Neupogen, via a release that stated: "Our core businesses of EPOGEN and NEUPOGEN continue to be strong, reflecting our focused marketing initiatives and additional indications," said Gordon Binder, chairman and chief executive officer. In publicly reported remarks, Binder also reassured investors that despite the strong growth in revenue from Epogen and Neupogen in 96, "there is still a lot of growth left [in Epogen and Neupogen], and they are performing very nicely." 41. On 1/23/97, Amgen executives Binder and Attiyeh conducted a conference call from Amgen's headquarters for securities analysts, large Amgen shareholders, money and portfolio managers and stock traders. During the conference call and in subsequent one-on-one conversations with analysts, they stated: * All the fundamental drivers of Epogen sales growth remained in place and the product was continuing to enjoy strong demand and sales growth. While Epogen and Neupogen sales growth would slow in 97, they would slow only slightly, there would be no substantial decline In the rate of Epogen oor Neupogen sales growth, and they would continue to show continued strong growth. Thus, the Company's core business trends remained strong. * Based on Amgen's management's contacts with government officials, they were confident that the DOQI guidelines for treating dialysis patients, to be issued in 2/98, would be positive for Amgen. * The new HCFA reimbursement regulations governing Epogen reimbursement, to be issued shortly, would be favorable for Amgen and Epogen usage and would not result in any significant decrease in the rate of growth of Epogen sales. * Epogen sales would not decrease as some feared because HCFA still would provide reimbursement for patients with hematocrit4 levels over 36% who received Epogen treatments, provided that a patient's 90-day rolling average hematocrit level did not exceed 36%. * Epogen sales would actually benefit from the HCFA guidelines as patients receiving Epogen who had hematocrit levels over 36% would still be reimbursed, as long as the rolling three-month average did not exceed 36%. Therefore, the average dose of Epogen would increase. * Based on the progress of the Johnson & Johnson Epogen "spill-over" sales arbitration, if Amgen prevailed and its audit methodology was accepted by the arbitrator, Amgen would not have to make any significant payment to Johnson & Johnson and the outcome of the arbitration would not have any material adverse impact on Amgen's results from operations in 97. * The Johnson & Johnson Epogen "spill-over" sales arbitration had been mostly concluded. Amgen was confident its audit methodology would prevail. The worst down-side outcome was a small, one-time payment from Amgen to Johnson & Johnson and the arbitration outcome would not adversely impact Amgen's 97 results. * Amgen forecasted Epogen sales growth during 97 of at least 18%. * Amgen forecasted Neupogen sales growth of at least 7% going forward. * The introduction of new AIDS treatment drugs including protease inhibitors was not having any significant adverse impact on Neupogen sales for off-label uses of treating AIDS patients and therefore Neupogen's sales growth remained intact. * As a result of the foregoing positive factors, Amgen was forecasting 97 EPS of $2.75-$2.85 and was thus comfortable with and endorsed analysts' EPS estimates in that range. * As a result of the foregoing positive factors, Amgen was confident it would achieve double-digit EPS growth over the next several years. 42. On 1/23/97 the Dow Jones News Service ran the following item on Amgen: Amgen Inc. is comfortable with the middle of estimates that it will earn between $2.75 and $2.80 a shares this year, according to its chairman and chief executive. "The majority of analysts' estimates fall between $2.75 and $2.85 a share and we're comfortable with the middle of that range," said Gordon Binder, Amgen's CEO. 43. On 1/24/97, Oppenheimer & Co. issued a report by M. Geller, which was based on and repeated the information provided to him in the 1123/97 conference call and in follow-up conversations with Binder and Attiyeh. The report forecast 97 and 98 EPS of $2.81 and $3. 10, respectively, for Amgen and stated: We feel somewhat reassured that the effects of the Dialysis Outcomes Quality Initiative (DOQI) may not be as serious as we initially feared. Therefore, we are raising our projections for annual growth in Epogen sales for 1997, 1998, 1999 to 16.5%. 14.5% and 12% from 15.0%. 13.0% and 11.0%, respectively. This, along with an increase in growth of domestic Neupogen sales for 1997 over 1996, to 8.5% from 4.9%, brings our projections in line with Company guidance foi total sales of at least $2.35 billion in 1997. The Company is comfortable with earnings estimates in the middle of the $2.75-$2.85 range for 1997. Therefore, we are raising our 1997 earnings estimate from $2.75 to $2.81 per share. We are also adjusting revenue growth and earnings slightly upward for 1998 and 1999. . . . MARKETED PRODUCTS . . . Although 78% of dialysis patients now have hematocrits over 30%, the average hematocrit is approximately 32%. Less than half of dialysis patients are in the recommended 33-36% range. (Hematocrit is a measure of red cell number.) Therefore, the average dose of Epogen is likely to increase. DOQI guidelines should be available in February. HCFA reimburses providers for administration of Epogen up to a hematocrit of 36%. The agency will now reimburse providers for patients with hematocrits over 36%, provided the 3-month rolling average for the patient remains below this level. 44. On 1/24/97, Cowen issued a report on Amgen written by Lonergan, which was based on and repeated information provided her in the 1/23/97 conference call and in follow-up conversations with Binder or Attiyeh. The report forecast 97 and 98 EPS of $2.80 and $3.15, respectively, for Amgen and stated: Earnings Picture Extremely Solid Near-Term * * * High confidence in our '96-99 EPS growth of 16-18%. . . . * * * * Epogen Growth Continues 20%+ Pace. . . . Updated HCFA payment guidelines (revised to temper the penalty for overshooting hematocrit targets) appear to be very positive for AMGN. Overall, we believe near-term prospects for Epogen sales estimate, up 16% Y/Y. * Overall Neupogen Growth Better Than Expected. . . . Off-label uses account for about 20% of sales in the U.S. . . . Neupogen sales are quite profitable and provide excellent operating leverage. 45. On 1/24/97, Schroder Wertheim issued a report, which repeated the information provided its analyst in the 1/23/97 conference call and in follow-up conversations with Binder or Attiyeh. The report forecast 97 and 98 EPS of $2.80 and $3.22, respectively, for Amgen and stated: Epogen growth drivers continue to be dialysis patient population growth of about 8-10% and increased dosing per patient. The new draft of the Dialysis Outcomes Quality Initiative (DOQI) guidelines for treating dialysis patients is due to come out in February. Management remains confident that the guidelines will be positive for Epogen. . . . Expect target hematocrit to be raised to 33-36, from the current 30-36. Nearly 50% of dialysis patients are below the 33-36 range, supporting 14-18% growth over the next three years. 46. On 1/24/97, Bear Stearns issued a report on Amgen, written by Molowa, which was based on and repeated information provided him in the 1/23/98 conference call and in follow-up conversations with Binder or Attiyeh. The report forecast 97 EPS of $2.81 and $3.20, respectively, and the following quarterly 97 EPS for Amgen: 97 Q1 $ .62 Q2 $ .71 Q3 $ .71 Q4 $ .77 Year $2.81 The report also stated: Management has stated that it is comfortable with the Mid-point of analysts' current $2.75 to $2.85 range of EPS estimates for 1997. . . . [W]e continue to be impressed with Amgen's ability to deliver strong earnings growth. . . . 47. On 1/24/97, DLJ Securities issued a report on Amgen, written by To, which was based on and repeated information provided him in the 1/23/97 conference call and in follow-up conversations with Binder or Attiyeh. The report forecast 97 and 98 EPS of $2.80 and $3.15, respectively, a 16% five-year growth rate and the following quarterly 97 EPS for Amgen: 97 Q1 $ .62 Q2 $ .70 Q3 $ .73 Q4 $ .75 Year $2.80 The report also stated: The company expects double digit revenue growth in 1997 and the management is comfortable with earnings estimates about $2.80 per share in 1997. 48. On 1/24/97, Lehman Brothers issued a report on Amgen, written by Butler, which was based on and repeated information provided him in the 1/23/97 conference call and in follow-up conversations with Binder or Attiyeh. The report forecast 97 and 98 EPS of $2.77 and $3.05, respectively, a 16% five-year EPS growth rate and the following quarterly 97 and 98 EPS for Amgen: 97 98 Q1 $ .62 $ .69 Q2 $ .71 $ .77 Q3 $ .71 $ .81 Q4 $ .73 $. 80 Year $2.77 $3.05 The report also stated: Amgen has begun to provide Wall Street with guidance for 1997 financial results at the mid-point of the $2.75 to $2.85 per share range. Thus we remain comfortable with our current estimate reflecting $2.77 for the year. 49. On 1/24/97, Salomon issued a report on Amgen, written by Meirav, which was based on and repeated information provided him in the 1/23/97 conference call and in follow-up conversations with Binder or Attiyeh. The report forecast 97 and 98 EPS of $2.80 and $3.25, respectively, for Amgen and stated: Management stated that it felt comfortable near the midpoint of the current range of estimates of $2.75-$2.85, near our 1997 EPS estimate of $2.80. . . . SALES OF EXISTING PRODUCTS/INDICATIONS Neupogen U.S. sales grew by 13.1% over fourth quarter 1995. . . . In 1997, we project Neupogen U.S. sales growth of 8.7%. * * * Epogen's year over year sales growth remained very strong at 21.6%. . . . We expect Epogen sales growth to slightly slow to a rare of 18.2% in 1997 and 17.5% in 1998. 50. On 1/24/97, Robertson Stephens issued a report on Amgen, written by Hurwitz, which was based on and repeated information provided him in the 1/23197 conference call and in follow-up conversations with Binder or Attiyeh. The report forecast 97 revenue, of $2.2 billion and 97 EPS of $2.79 for Amgen and stated: Management expresses comfort with consensus 1997 sales and earnings estimates. . . . On the investor conference call, management exuded confidence that the company's core business trends remain strong and that it was comfortable with consensus sales and earnings estimates for 1997 of $2.35B and the mid-point of the $2.75 to $2.85 per share range. 51. On 1/24/97, Rodman & Renshaw issued a report on Amgen, written by Keeney, which was based on and repeated information provided him in the 1/23/97 conference call and in follow-up conversations with Binder or Attiyeh. The report forecast 97 and 98 EPS of $2.80 and $3.20, respectively, a 16% three-year EPS growth rate for Amgen, and also stated: - For the upcoming year, company guidance on its post-marker conference call yesterday coincides with our present $2.80 (+16%) forecast, or midway between the $2.75-2.85 analyst range. * * * There is still considerable expansion potential ahead for both products. . . . 52. On 1/24/97, an article ran on Reuters Financial Service entitled "Interview - Amgen Optimistic on Key Drugs," which stated: Amgen Inc Chief Executive Officer Gordon Binder said Friday he expects the strong sales growth rate of the company's two key drugs, Epogen and Neupogen, to slow, but only slightly. "We are anticipating the growth rate will be less, but not that much less," Binder told Reuters in an interview. In the 1996 fourth quarter, sales of Epogen rose 22 percent and sales of Neupogen were up 10 percent. The company attributed the growth to "focused marketing initiatives and additional indications." * * * Going forward, Binder said he expects other "small things" -- such as aggressive marketing and more favorable reimbursement policies -- to add up to continued strong growth in sales of the two drugs. He said Epogen sales should benefit from changes in Medicare policies for reimbursing dialysis patients. 53. On 1/29/97, Goldman Sachs issued a report on Amgen, written by its analyst, which was based on and repeated information provided the analyst in the 1/23/97 conference call and in follow-up conversations with Binder or Attiyeh. The report forecast 97 and 98 EPS of $2.85 and $3.23, respectively, for Amgen and stated: Based on higher sales trends of Epogen and Neupogen, we have increased our 1997 estimate by 3¢ to $2.85. We have also introduced our 1998 estimate of $3.23. . . . The average three-year earnings growth is estimated to be 15%-16%. * * * Outlook for Epogen We expect Epogen sales to grow 18% to reach $117 billion in 1997. 54. On 2/3/97, Argus Research issued a report on Amgen. written by Eade, after he had extensive discussions with Binder and Attiyeh, which was based on and repeated information provided him by them. Binder or Attiyeh reviewed this report before it was issued and assured Eade it was accurate knowing it would be publicly issued and affect the total mix of information impacting Amgen's stock price. The report forecast 97 EPS of $2.80, a 17% five-year EPS growth rate for Amgen and stated: We boosted our EPS forecast for 1997 to $2.80, up from $2.75 and a 16% increase over last year's total. Our assumptions, which have been approved by management, include l5% sales growth, well-managed expenses, and a 2% decline in shares outstanding. We have established a preliminary 1998 estimate of $3.25. 55. On 2/21/97, Bear Stearns issued a report on Amgen, written by Molowa, after he had extensive discussions with Binder and Attiyeh, which was based on and repeated information provided him by them. Binder or Attiyeh reviewed this report before it was issued and assured Molowa it was accurate, knowing it would be publicly issued and affect the total mix of information impacting Amgen's stock price. The report forecast 97 and 98 EPS of $2.81 and $3.25, respectively, and stated: Yesterday, we had the opportunity to meet with Amgen management and came away highly optimistic regarding the continued commercial success of Amgen's two key profit centers -- domestic sales of Epogen and Neupogen. We are consequently upgrading shares of Amgen . . . on our belief that domestic Epogen and Neupogen sales drivers remain essentially unchanged, and that this will allow Amgen's earnings growth to exceed current expectations for the predictable future. We are raising our 1998 EPS estimate from $3.20 to $3.25 to reflect our more bullish outlook, although our EPS estimate for 1997 remains unchanged at $2.81. . . . [O]ur analysis, . . . is predicated on a continued greater than 18% growth rate for Epogen and an approximate 7% growth rate for Neupogen in the US: Epogen In our estimation, the fundamental drivers of Epogen growth will remain materially unchanged for the next several years. . . . [T]he average dose of Epogen administered should also continue to climb. This should perpetuate Epogen's current >18% underlying growth rate for several years in our estimation. * * * Separately, we note that the ongoing arbitration hearings with Johnson and Johnson should conclude later this year. Amgen and JNJ have an ongoing dispute regarding whether each has been selling into one another's market; under the two companies' original agreement, Amgen received rights to the US dialysis market, while JNJ received rights to all other markets, including the important cancer chemotherapy market. In our opinion, the potential downside for Amgen is most likely limited to a small, one-time compensatory payment to JNJ. . . . Neupogen As with Epogen, we believe that the sources of Neupogen growth remain intact in the US -- the market that supplies Amgen with the vast majority of its Neupogen profits. It now appears that there is little impact on Neupogen's use in AIDS patients in the US, despite the introduction of the new HIV protease inhibitor drugs. The AIDS market accounts for about 20% of US Neupogen sales. . . . [W]e believe Amgen should have little trouble maintaining Neupogen's current 7% annual growth rate for the foreseeable future. 56. These very positive assurances eased concerns about Amgen's ongoing growth, successfully reversing the late-96/early-97 decline in Amgen's stock price. By 2/21197, Amgen stock had recovered to $63-1/8 from its 1/97 low of $52-1/2 and was again trading at above the critical $58 level. 57. On 3/5/97, Bear Stearns issued a report on Amgen, written by Molowa, which was based on and repeated information provided him in the 3/4/97 analyst conference and in follow-up conversations with Binder or Attiyeh. The report forecast 97 and 98 EPS of $2.81 and $3.25, respectively, and the following quarterly 97 and 98 EPS for Amgen: 97 98 Q1 $ .62 $ .70 Q2 $ .70 $ .80 Q3 $ .73 $ .85 Q4 $ .76 $ .89 Year $2.81 $3.25 The report also stated: Amgen hosted a very upbeat analyst meeting. . . . The company went to great lengths to demonstrate that its current business remains strong. . . . We came away from the meeting believing that that near-, mid- and long-term outlook appear extremely bright for Amgen. In our opinion, Epogen and Neupogen can drive 14% top line and greater than 15% bottom line growth over the next three years. . . . Epogen The drivers for Epogen growth remain intact. The dialysis patient population continues to grow 8-10% per year while the average patient hematocrit remains below 32%. The recent change in reimbursement practices by HCFA and pending DOQI (Dialysis Outcome Quality Initiative) guidelines suggesting a target hematocrit of 33-36% should increase Epogen utilization. We estimate that Epogen sales will grow 19.4% in 1997 to $1.28 billion. 58. On 3/5/97, DLJ issued a report on Amgen, written by To, which was based on and repeated information provided him in the 3/4/97 analyst conference and in follow-up conversations with Binder or Attiyeh. The report forecast 97 and 98 EPS of $2.80 and $3.15, respectively, a 16% five-year EPS growth rate and the following quarterly 97 EPS for Amgen: 97 Q1 $ .62 Q2 $ .70 Q3 $ .73 Q4 $ .75 Year $2.80 The report also stated: Amgen had its annual analyst meeting yesterday. Amgen's core business is well on track. The company is comfortable with the middle of the range of street estimates on 1997 EPS, which is $2.75 to $2.85. . . . 1. Core Business Well on Track. Amgen's sales in Epogen and Neupogen continue to grow at a steady pace. More favorable Medicare reimbursement practices should help the growth rate of Epogen sales in mid-teens this year. 59. On 3/5/97, Cowen issued a report on Arneyen, written by Lonergan, which was based on and repeated Information provided her in the 3/4/97 analyst conference and in follow-up conversations with Binder or Attiyeh. The report forecast 97 and 93 EPS of $2.80 and $3.15, respectively, and the following quarterly 97 EPS for Amgen: 97 Q1 $ .67 Q2 $ .69 Q3 $ .72 Q4 $ .73 Year $2.80 The report also stated: 2. Business Looks Even Better Than Expected, Good For EPS. . . . * * * Epogen and Neupogen and EPS look better than expected. . . . * * * Business Review Highlights Upside Potential In EPS Forecast -- AMGN's business review suggests upside to our Epogen and Neupogen forecasts for '97+. This puts our EPS forecast on solid footing. . . . Management signed off on $2.75-$2.85 street consensus for EPS. Dialysis Guidelines Looking Less Onerous, A Plus For Epogen Growth -- We forecast $1.2B in '97 Epogen sales, up 16% Y/Y, growing to $1.6B in '99 (12-16% sequential growth). . . . "Revitalized" Neupogen Sales A Big Plus. AMGN notes that Neupogen use in AIDS does not seem to be experiencing the anticipated protease inhibitor slow down. . . . These drivers suggest upside potential for our Neupogen estimates, keyed to better marketing. 60. On 3/5/97, PaineWebber issued a report on Amgen, written by Lind, which was based on and repeated information provided him in the 3/4/97 analyst conference and in follow-up conversations with Binder or Attiyeh. The report forecast 97 and 98 EPS of $2.81 and $3.08, respectively, for Amgen and stated: 1. Epogen and Neupogen sales on target. Amgen confirmed yesterday (3/4/97) at its business review meeting its continued comfort with current consensus 1997 EPS range of $2.75-2.85, and indicated that it anticipates "no substantial decline in Epogen and Neupogen revenue growth during 1997." Our estimated 20% and 8% year-over-year growth rates provide sales of $1.3 billion and $1.1 billion at year end 1997 for Epogen and Neupogen, respectively. * * * 5. Thesis intact. We continue to believe Amgen's core business, represented by Epogen and Neupogen, is intact. . . . Amgen yesterday held its annual business review meeting for the investment community. The tone was upbeat. . . . The company confirmed that Epogen and Neupogen, continue to post strong sales growth, increasing our confidence that revenues will meet our projections. 61. On 3/12/97, DLJ issued a report on Amgen, written by To, which was based on and repeated information provided him in the 3/4/97 analyst conference and in follow-up conversations with Binder or Attiyeh. The report forecast 97 and 98 EPS of $2.80 and $3.15, respectively, for Amgen and stated: After an upbeat analysts meeting last week, we expect 1997 sales of the company's two blockbuster drugs Epogen and Neupogen will remain on track with Epogen sales potentially beating expectations. * * * Epogen is Amgen's billion dollar block-buster drug for use in stimulating red blood cell growth. Amgen has successfully marketed the product in the kidney dialysis market, where patients are typically anemic. As the drug approaches maturity, it is clear that Epogen will have difficulty maintaining its three-year average growth rate of 22%. We are encouraged, however, by Amgen's continued aggressive marketing and sales strategy, and we do see opportunities for solid double-digit growth resulting in an estimated 16% increase in revenues for 1997. We believe that sales in 1997 for Epogen will exceed our original expectations based on three core drivers: a more favorable Medicare reimbursement policy regarding Epogen; increase drug usage by "difficult to treat" patients currently on Epogen, and the growing number of patients on dialysis in the United States. 62. These very positive statements, forecasts and assurances during 2/97 and 3/97 helped push the price of Amgen shares up to as high as $63-1/8. Capitalizing on this artificial inflation in Amgen's stock between 1/28/97-3/11/97, the Individual Defendants unloaded 134,040 shares of their stock at as high as $63, pocketing $8.1 million in illegal insider-trading proceeds. While Amgen's top insiders were unloading their own shares during the 1stQ 97, the Individual Defendants caused Amgen to spend $101 million in cash to repurchase 1.7 million shares of Amgen's stock on the open market to help manipulate and artificially inflate Amgen's stock. 63. On 3/29/97, in order to capitalize on the market's perception that Amgen was continuing to achieve strong revenues and EPS growth, Amgen filed a Prospectus for the sale of $100 million of Amgen debt securities. On 4/4/97, Amgen completed the issuance and sale of $100 million in Amgen debt securities. Amgen would not have been able to sell these debt securities at the favorable interest rate Amgen obtained on this note sale absent these positive statements. 64. By 4/15/97, Amgen's stock had fallen to $55-1/2, below the critical $58 level, due to continuing concerns over Epogen and Neupogen sales. Amgen was about to report is 1stQ 97 results and Amgen's top insiders realized it was imperative that Amgen report strong EPS growth and forecast strong 97 Epogen and Neupogen sales and strong EPS so Amgen's stock price would move back above the critical threshold, at least until 8/97. 65. On 4/17/97, Amgen reported its results for the 1stQ 97, the quarter ended 3/31/97, reporting that sales of Epogen and Neupogen increased 19% and 5%, respectively, and EPS of $.68, an increase over $.54 in the 1stQ of 96. This release stated that "'sales of Epogen and Neupogen produced another solid quarter.'" Amgen reported EPS of $.655 -- a 27% increase over the prior year. 66. On 4/17/97, in connection with the release of Amgen's results for the quarter ended 3/31/97, Binder and Attiyeh conducted a conference call from Amgen's headquarters for securities analysts, money and portfolio managers, large Amgen shareholders and stock traders. During the conference call and in subsequent one-on-one conversations with analysts, they stated: * All the fundamental drivers of Epogen sales growth remained in place and the product was continuing to enjoy strong demand and sales growth. While Epogen and Neupogen sales growth would slow in 97, they would slow only slightly, there would be no substantial decline in the rate of Epogen or Neupogen sales growth, and they would continue to show continued strong growth. Thus, the Company's core business trends remained strong. * Based on Amgen's management's contacts with government officials, they were confident that the DOQI guidelines for treating dialysis patients, to be issued in 2/98, would be positive for Amgen. * The new HCFA reimbursement regulations governing Epogen reimbursement would be favorable for Amgen and Epogen usage and would not result in any significant decrease in the rate or growth of Epogen sales. * Epogen sales would not decrease as some feared because HCFA still would provide reimbursement for patients with hematocrit levels over 36% who received Epogen treatments, provided that a patient's 90-day rolling average hematocrit level did not exceed 36%. * Epogen sales would actually benefit from the HCFA guidelines as patients receiving Epogen who had hematocrit levels over 36% would still be reimbursed, as long as the rolling three-month average did not exceed 36%. Therefore, the average dose of Epogen would increase. * Based on the progress of the Johnson & Johnson Epogen "spill-over" sales arbitration, if Amgen prevailed and its audit methodology was accepted by the arbitrator, Amgen would not have to make any significant payment to Johnson & Johnson and the outcome of the arbitration would not have any material adverse impact on Amgen's results from operations in 97. * The Johnson & Johnson Epogen "spill-over" sales arbitration had been mostly concluded. Amgen was confident its audit methodology would prevail. The worst down-side outcome was a small, one-time payment from Amgen to Johnson & Johnson and the arbitration outcome would not adversely impact Amgen's 97 results. * Amgen forecasted Epogen sales growth during 97 of at least 18%. * Amgen forecasted Neupogen sales growth of at least 7% going forward. * The introduction of new AIDS treatment drugs, Including protease inhibitors, was not having any significant adverse impact on Neupogen sales for off-label uses of treating AIDS patients and therefore Neupogen's sales growth remained intact. * As a result of the foregoing positive factors, Amgen was forecasting 97 EPS of $2.80-$2.85 and was thus comfortable with and endorsed analysts' EPS estimates in that range. * As a result of the foregoing positive factors, Amgen was confident it would achieve double-digit EPS growth over the next several years. 67. On 4/17/97, Reuters Financial Service ran an article entitled "Interview - Amgen Comfortable With Estimates" which stated: Amgen Inc is comfortable with analyst estimates for earnings of $2.80 to 2.85 a share in 1997 on revenues of $2.32 to $2.38 billion, President and Chief operating Officer Kevin Sharer told Reuters. * * * In the first quarter just ended, the company beat by two cents a share Wall Street's estimate $0.63, but also showed a slowdown in the growth rate in the sales of two key products. Sharer said the slower growth of Neupogen sales was due largely to unfavorable foreign exchange rates. Neupogen, which boosts white blood cell count and helps alleviate the side effects of chemotherapy, showed a five percent increase in worldwide sales in the first quarter, down from a 10 percent growth rate in the fourth quarter of 1996. * * * "U.S. sales (of Neupogen) were consistent with past trends." he said. Sales growth of Amgen's other key product. Epogen, "is still going very strong," he added. Epogen's first quarter growth rate of 19 percent was down from 22 percent in the fourth quarter, but Sharer did not consider the difference material. The company is continuing to market aggressively the drug to insure its continued growth. 68. On 4/18/97, Morgan Stanley issued a report on Amgen, written by Lind, which was based on and repeated information provided him in the 4/17/97 conference call and in follow-up conversations with Binder or Attiyeh. The report forecast 97 and 98 EPS of $2.83 and $3.05, respectively, for Amgen and stated: Epogen grew at an annual rate of 19.5% at $291.6 million, slightly higher than our estimates, and Neupogen grew at a rate of 5%, at $244.4 million, slightly lower than our estimates. . . . 1997 and 1998 EPS projections both increased $0.01, to $2.83 and $3.05, respectively. The Dialysis Outcome Quality Studies (DOQI) were released, and in our view, are positive for Amgen and EPO use. The studies encourage physicians to begin patients on dialysis earlier and to be more aggressive in dialysis treatment. 72. The statements made by defendants between 1/23/97 and 4/97 were each false and misleading when made. They also failed to disclose the following adverse facts which were then known by or available to defendants, including: (a) That the fundamental drivers behind historic Epogen sales growth were no longer in place and as a result of new negative HCFA regulations regarding reimbursement of Epogen use, Epogen sales would be materially adversely affected during 97, which would adversely impact Amgen's financial results; (b) That new HCFA regulations on Epogen reimbursement would have an adverse impact on Epogen sales and were a fundamental negative development which, unless and until changed, would negatively impact Epogen use and virtually eliminate Epogen sales growth going forward; (c) That sales of Neupogen for off-label uses in treating AIDS patients were diminishing materially due to the introduction and success of new AIDS treatment drugs, including protease inhibitors, which was having a material negative impact on Neupogen sales going forward; (d) That even if Amgen's audit methodology was adopted in the Johnson & Johnson Epogen spill-over sales arbitration, Amgen would be required to pay Johnson & Johnson close to $100 million, which would have a material adverse effect on Amgen's 97 results; (e) That Amgen's reported EPS for the 4thQ 96 and 1stQ 97 were overstated because of Amgen's failure to timely accrue and record a reserve for the payment it would have to make even if its audit methodology was adopted in the Johnson & Johnson Epogen spill-over sales arbitration as detailed in ¶¶105-115, (f) As a result of the foregoing, defendants actually knew the forecasts of double-digit or 18% Epogen sales growth during 97 were false when made, as such sales growth could not be and would not be achieved under the facts then existing; (g) As a result of the foregoing negative factors, defendants actually knew the forecasts that continued sales growth of Epogen and Neupogen would enable Amgen to report double-digit EPS growth over the next three to five years were false as such EPS growth could not be achieved under the facts then existing; and (h) As a result of the foregoing, defendants' forecasts that Amgen would achieve 97 EPS of $2.75-$2.85 were actually false when made, as such EPS growth and results could not be achieved under the facts then existing. 73. On 5/8/97, Binder, Sharer and Attiyeh orchestrated and appeared at the Amgen Annual Shareholder Meeting in Los Angeles. In connection with the shareholder meeting and one-on-one conversations with securities analysts and money and portfolio managers at the meeting, these defendants stated: * All the fundamental drivers of Epogen sales growth remained in place and the product was continuing to enjoy strong demand and sales growth. While Epogen and Neupogen sales growth would slow in 97, they would slow only slightly, there would be no substantial decline in the rate of Epogen or Neupogen sales growth, and they would continue to show continued strong growth. Thus, the Company's core business trends remained strong. * Amgen's management was confident that the DOQI guidelines for treating dialysis patients, to be issued in 2/98, would be positive for Amgen. * The new HCFA reimbursement regulations governing Epogen reimbursement were favorable for Amgen and Epogen usage and would not result in any significant decrease in the rate of growth of Epogen sales. * Epogen sales would not decrease as some feared because HCFA still would provide reimbursement for patients with hematocrit levels over 36% who received Epogen treatments, provided that a patient's 90-day rolling average hematocrit level did not exceed 36%. * Epogen sales would actually benefit from the HCFA guidelines as patients receiving Epogen who had hematocrit levels over 36% would still be reimbursed, as long as the rolling three-month average did not exceed 36%. Therefore, the average dose of Epogen would increase. * Based on the progress of the Johnson & Johnson Epogen "spill-over" sales arbitration, if Amgen prevailed and its audit methodology was accepted by the arbitrator, Amgen would not have to make any significant payment to Johnson & Johnson and the outcome of the arbitration would not have any material adverse impact on Amgen's results from operations in 97. * The Johnson & Johnson Epogen "spill-over" sales arbitration had been mostly concluded. Amgen was confident its audit methodology would prevail. The worst down-side outcome was a small, one-time payment from Amgen to Johnson & Johnson and the arbitration outcome would not adversely impact Amgen's 97 results. * Amgen forecasted Epogen sales growth during 97 of at least 18%. * Amgen forecasted Neupogen sales growth of at least 7% going forward. * The introduction of new AIDS treatment drugs, including protease inhibitors, was not having any significant adverse impact on Neupogen sales for off-label uses of treating AIDS patients and therefore Neupogen's sales growth remained intact. * As a result of the foregoing positive factors, Amgen was forecasting 97 EPS of $2.80-$2.85 and was thus comfortable with and endorsed analysts' EPS estimates in that range. * As a result of the foregoing positive factors, Amgen was confident it would achieve double-digit EPS growth over the next several years. 74. On 5/14/97, Ladenburg Thalmann issued a report "initiating coverage" on Amgen, written by Garnet, but only after Garnet had extensive discussions with Binder and Attiyeh, which was based on and repeated information provided Garnet by them. Binder or Attiyeh reviewed this report before it was issued and assured Garnet it was accurate, knowing it would be publicly issued and affect the total mix of information impacting Amgen's stock price. The report forecast 97 and 98 EPS of $2.84 and $3.15, respectively, for Amgen and stated: Summary and Investment Conclusion We are initiating Research coverage of Amgen with a Long-Term Buy recommendation.... . . . Its management has stated for the record its expectation of sustained double-digit growth in Amgen's sales and earnings over the next five years, and we think this goal is realistic and achievable. * * * Amgen has the largest sales revenues in the biotechnology industry. Its 1996 revenues of $2.2 billion ... provide it with a solid base for continued growth driven by increased sales of its existing products EPOGEN® and NEUPOGEN® -- for current as well as new uses. . . . The double-digit growth expected at the company therefore appears achievable from current and additional uses of its existing products over the next two years. 75. On 5/14/97, PaineWebber issued a report "re-initiating coverage" on Amgen, written by Wang, but only after Wang had extensive discussions with Binder and Attiyeh and was based on and repeated information provided by them. Binder or Attiyeh reviewed this report before it was issued and assured Wang it was accurate, knowing it would be publicly issued and affect the total mix of information impacting Amgen's stock price. Subsequent to the release of this report, Amgen copied and distributed it, thus adopting it as its own. The report forecast 97 and 98 EPS of $2.83 and $3.16, respectively, a 17-1/2% five-year EPS growth rate and the following 97 quarterly results for Amgen: EPS/1998 QTR. 1st: $ .63A 2nd: $ .74 3rd: $ .71 4th: $ .72 Year: $2.83 The report also stated: 1. We are reinitiating coverage of AMGN. . . . As the flagship biotechnology company, Amgen has built a strong base of business with its two $1.0 billion blockbuster products, Epogen and Neupogen. However, the company is facing a challenging period as sales growth for its two lead products is decelerating and the prospects from its pipeline are promising yet uncertain at this stage. Our financial projections assume a 5-year revenue growth rate for Epogen and Neupogen of 15% and 5.8%, respectively, with major contributions from new products not expected until the year 2000. . . . 2. Two blockbuster products driving earnings growth and strong cash flow. -- EPOGEN. Increased dosing and baseline patient growth continues to drive sales growth. . . . Although this growth is expected to decelerate over time, we do not expect sales to flatten due to a number of factors: * * * Consequently, we believe that these trends point to more aggressive use of Epogen and as a result, continued growth in sales of Epogen over the next few years. Our estimate for 1997 Epogen sales is $1.26 billion representing growth of 18% year-to-year. 76. As a result of defendants' very positive statements and forecasts during 5/97, Amgen's stock hit its Class Period high of $69-3/8 on 5/21/97. 77. The statements made by defendants in 5/97 were each false and misleading when made. Defendants also failed to disclose the following adverse facts which were then known by defendants, including: (a) That the fundamental drivers behind historic Epogen sales growth were no longer in place and as a result of new negative HCFA regulations regarding reimbursement of Epogen use, Epogen sales were being materially adversely affected which would adversely impact Amgen's 97 financial results; (b) That new HCFA regulations on Epogen reimbursement would have an adverse impact on Epogen sales and were a fundamental negative development which, unless and until changed, would negatively impact Epogen use and virtually eliminate Epogen sales growth going, forward; (c) That sales of Neupogen for off-label uses in treating AIDS patients were diminishing materially due to the introduction and success of new AIDS treatment drugs, including protease inhibitors, which was having a material negative impact on Neupogen sales going forward; (d) That even if Amgen's audit methodology was adopted in the Johnson & Johnson Epogen spill-over sales arbitration, Amgen would be required to pay Johnson & Johnson close to $100 million, which would have a material adverse effect on Amgen's 97 results; (e) That Amgen's reported EPS for the 4thQ 96 and 1stQ 97 were overstated because of Amgen's failure to timely accrue and record a reserve for the payment it would have to make even if its audit methodology was adopted in the Johnson & Johnson Epogen spill-over sales arbitration as detailed in ¶¶105-115; (f) As a result of the foregoing, defendants' knew the forecasts of double-digit or 18% Epogen sales growth during 97 were false when made, as such sales growth could not be and would not be achieved under the facts then existing; (g) As a result of the foregoing negative factors, defendants knew the forecasts that continued sales growth of Epogen and Neupogen would enable Amgen to report double-digit EPS growth over the next three to five years were false as such EPS growth could not be achieved under the facts then existing; and (h) As a result of the foregoing, defendants' forecasts that Amgen would achieve 97 EPS of $2.75-$2.85 were known by defendants to be false when made, as such EPS growth and results could not be achieved under the facts then existing. 78. Amgen stock fell sharply from $67-1/2 on 5/30/97 to $60-1/2 on 6/5/97 due to rumors affecting the sales of Epogen. On 6/16/97, Amgen issued a release to dispel concerns about the actions being taken by dialysis providers in response to the new Medicare reimbursement guidelines, stating: Amgen Monday said that it anticipates a modest reduction in the year- over-year growth rate of sales of EPOGEN® for fiscal 1997, due to actions taken by dialysis providers in response to the previously-announced Medicare Hematocrit Measurement Audit (HMA) reimbursement guidelines, now scheduled to take effect on Aug. 1. Prior to this change, the Health Care Financing Administration (HCFA) fiscal intermediaries were authorized to pay for patients whose hematocrits were above the HCFA-approved level of 36 percent with adequate medical justification. Under the new rules, medical justification will no longer be accepted for payment of claims for hematocrits above 36 percent, and reimbursement will be denied if hematocrits exceed 36.5 percent on a 90-day "rolling average" basis. In anticipating implementation of the new guidelines, some dialysis providers are temporarily withholding doses of EPOGEN from some patients whose hernatocrits exceed 36 percent and will administer reduced doses to some patients in the future. Amgen said the effect of the rules change on EPOGEN sales is not expected to be material for the year. Amgen remains comfortable with the current range of analysts' estimates for earnings per share of $2.80 to $2.85 for the year. . . . 79. In connection with the 6/16/97 release, Binder, Attiyeh, Sharer and May spoke with large Amgen shareholders, securities analysts and money and portfolio managers via a conference call and disseminated important information to the market by stating: * The fundamental drivers of Epogen sales growth remained in place and the product was continuing to enjoy strong demand and sales growth. While Epogen and Neupogen sales growth would slow in the second half of 97, they would slow only slightly, and there would be no substantial decline in the rate of Epogen or Neupogen sales growth. Thus, the Company's core business trends remained strong. * Amgen's management was confident that the DOQI guidelines for treating dialysis patients would not have tiny material adverse impact on Amgen on an ongoing basis. * The new HCFA reimbursement regulations governing Epogen reimbursement would be favorable for Amgen and Epogen usage in the long term and would not result in any significant decrease in the rate of growth of Epogen sales. * While the new HCFA Epogen reimbursement regulations had had a negative impact on Epogen usage and sales growth during the 2ndQ 97, this impact was temporary only and a one-time event, as physicians lowered Epogen injections to bring patients' hematocrits into the reimbursable range and thus HCFA regulations would not have any material adverse impact on Epogen sales growth going forward. * Amgen forecasted Epogen sales growth of at least 15% during the second half of 97. * While Neupogen sales for the off-label use of treating AIDS patients was being adversely affected by new and more effective drugs for treating AIDS, this sales decline was being more than offset by increased Neupogen use to treat cancer. * As a result of the foregoing positive factors, Amgen was still maintaining its 97 EPS forecast of $2.80-$2.85 per share and was thus comfortable with and endorsed analysts' EPS estimates for Amgen in that range. * As a result of the foregoing positive factors, Amgen was confident it would achieve double-digit EPS growth over the next several years. 80. On 6/17/97, Oppenheimer issued a report an Amgen, written by Seiler, which was based on and repeated information provided her in the 6/16/97 conference call and in follow-up conversations with Binder or Attiyeh. The report forecast 97 and 98 EPS of $2.85 and $3.10, respectively, for Amgen and stated: Last night, after the close, Amgen held a conference call to discuss two news items. The conference call underscored our concerns: The company announced that, due to new reimbursement guidelines scheduled to take effect on August 1, it now anticipates "a modest reduction in the year-over-year growth sales of Epogen for fiscal 1997." . . . Amgen remains comfortable with EPS estimates of . . . $2.80-$2.85 for 1997. . . . New Reimbursement Guidelines for Epogen * * * Previously, reimbursement for dosing of Epogen to a hematocrit (red blood cell level) exceeding 36% was allowed if a physician provided adequate medical justification. Under the new rules, medical justification will no longer be accepted for payment of claims of hematocrits over 36%. Roughly 10%-15% of dialysis patients currently have hematocrits over 36%. Providers have begun to withhold Epogen from such patients for a week or two so that their hernatocrits will fall back into the reimbursable range, and will use lower doses to maintain lower hematocrits going forward. * * * DOQI Guidelines To Be Published in October Publication of the final version of the Dialysis Outcomes Quality Initiative (DOQI) guidelines on anemia is expected in October 1997. We believe that recommendation for subcutaneous (SC) rather than intravenous (IV) dosing of Epogen combined with a greater emphasis on iron supplementation will put additional pressure on sales of Epogen. Slowing Sales Growth for Epogen Epogen sales grew at an annual rate of 21.5% in 1996. Growth in sales of Epogen have been based on growth in the number of dialysis patients (approximately 10% per year) coupled with growth in the average dose of Epogen per patient (approximately 10% per year). Although, 50% of patients remain below the DOQ1-recommended hematocrit range of 33%-36%, we believe that, overall, the new HCFA and DOQI guidelines will result in lower average doses of Epogen. We currently project sales growth of 17.8% in 1997, 14.5% in 1998 and 11.5% in 1999. 81. On 6/17/97, Lehman Brothers issued a report on Amgen, written by Butler, which was based on and repeated information provided him in the 6/16/97 conference call and in follow-up conversations with Binder and Attiyeh. The report forecast 97 and 98 EPS of $2.80 and $3.05, respectively, a 16% five-year EPS growth rate and the following quarterly 97 and 98 EPS for Amgen: 97 98 Q1 $ .65A $ .69 Q2 $ .71 $ .77 Q3 $ .71 $ .81 Q4 $ .73 $ .80 Year $2.80 $3.05 The report also stated: * Amgen announced at the close yesterday that it anticipates modest reductions in the year-over-year growth rate of sales of Epogen for fiscal 1997, owing to reimbursement guidelines scheduled to take effect on August 1. * The level of EPO sales reduction is unclear and may be offset by increasing overall dosage to achieve higher hematocrit levels. Our rate of growth this year over last remains at 20%. * * * * We are not changing revenue or earnings assumptions for the company based on these events, and the company appears comfortable with current consensus estimates. . . . EPOGEN SUMMARY On August 1 of this year, the Medicare Hematocrit Measurement Audit reimbursement guidelines will take effect. Essentially, patients who have hematocrit levels above 36.5% on a 90-day "rolling average " will be withdrawn from Epogen use until that level drops below 36% (which should take roughly 10 to 14 days).... This change affects roughly 10-15% of the 130,000 patients currently receiving Epogen, of a total dialysis market of a 230,000 in the US. If we assume that these guideline adjustments affect roughly 13,000 to 20,000 patients who will not be given the drug for two weeks, we project an impact in the current quarter to be approximately $5-10 million, which is likely not material to Amgen's top line. Moreover, the impact on 3Q97 is likely no more than $10-20 million. We believe these guidelines will have minimal impact on 4Q97 and beyond because dialysis centers will dose accordingly. Amgen management also believes that the change in the HCFA rules will not be material to earnings this year, and thus remains comfortable with the Street range of estimates in the second-quarter of $0.70 to $0.73 and of $2.80 to $2.85 for the year. 82. On 6/17/97, DLJ issued a report on Amgen, written by To, which was based on and repeated information provided him in the 6/16/97 conference call and in follow-up conversations with Binder or Attiyeh. The report forecast 97 and 98 EPS of $2.82 and $3.15, respectively, a 16% five-year EPS growth rate and the following quarterly 97 EPS for Amgen: 97 Q1 $ .65 Q2 $ .61 Q3 $ .71 Q4 $ .75 Year $2.82 The report also stated: Amgen also announced that it anticipates a moderate reduction in the year over year growth rate of Epogen sales due to new Medicare reimbursement guidelines. In our previous estimates, we had taken such policy changes into consideration. The company's earnings guidelines that it announced yesterday exceed our expectations. Consequently, we are increasing our EPS estimates in 2Q97 and the full year by $0.02. * * * . . . Amgen announced yesterday that it was comfortable with the EPS estimates range of $2.80 to $2.85 for the year. . . . As a result, we are increasing our estimates . . . from $2.80 to $2.82 for the full year. 83. On 6/17/97, Robertson Stephens issued a report on Amgen, written by Silverman, which was based on and repeated information provided him in the 6/16/97 conference call and in follow-up conversations with Binder or Attiyeh. The report forecast 97 and 98 EPS of $2.85 and $3.15, respectively, and the following quarterly 97 EPS for Amgen: 97 Q1 $ .65A Q2 $ .72 Q3 $ .71 Q4 $ .76 Year $2.85 The report also stated: 3. Epogen Sales Growth Expected To Slow "Modestly" Due To HCFA's Dealings With High Hematocrit Patients. Health Care Financing Administration's (HCFA) guidelines for reimbursement of Epogen for dialysis patients take effect August 1. As had been previously announced by HCFA, patients who are managed at a hematocrit level (red blood cell count) of higher than 36.5% (3 month rolling average) will no longer be reimbursed for Epogen. The recommended level is 33-36%. About 50% of dialysis patients are below 33%, while 10-15% are above 36%. Amgen announced today that some centers with patients above the 36% mark are beginning to take those patients off Epogen altogether to reduce their hematocrit levels to fall within the reimbursement range, and will resume treating them once their hematocrit is lower. As a result, Amgen is predicting a modest decline in Epogen sales growth, but the decline is not expected to be material to Epogen sales. Our estimate for Epogen sales for 1997 has incorporated a slowdown and remains unchanged at $1.26 billion, although we have shifted some sales from 3Q into 4Q to reflect patients who will be temporarily taken off of Epogen. Management indicated it is comfortable with the current 1997 EPS consensus of $2.80 to $2.85. . . . 84. On 6/17/97, The Wall Street Journal ran an article about Amgen which stated as follows: Amgen Inc. said it expects a "modest reduction" in the growth rate of its top-selling Epogen product, reflecting a policy change by the U.S. Health Care Financing Administration, which pays for the anemia drug through a special Medicare program for dialysis patients. * * * Amgen said it doesn't expect the impact of the Medicare change to be material to its results this year. Epogen "sales will be a little less than expected, but profits will still be in line," Mr. Binder said. Amgen remains comfortable with analysts' per-share estimates of between $2.80 and $2.85 for the year, he said. 85. As a result of Amgen's mid-6/97 disclosures and reassuring statements, Amgen's stock fell from $61-1/8 on 6/16/97 to $58-5/8, but by 6/17/97 and 6/24/97; was trading above $60 per share again. Amgen's shares continued to trade at artificially inflated levels throughout the remainder of the Class Period as defendants continued to make false statements and conceal the true facts. 86. The statements made by defendants during 6/97 were each false and misleading when made, as they concealed the true facts which were then known by defendants: (a) That the fundamental drivers behind historic Epogen sales growth were no longer in place and as a result of new negative HCFA regulations regarding reimbursement of Epogen use, Epogen sales were being materially adversely affected, which would adversely affect Amgen's 97 financial results; (b) That the adverse impact of the new HCFA regulations on Epogen reimbursement and thus sales growth was not a temporary adverse impact or a one-time event but was, in fact, a fundamental negative development which, unless and until changed, would negatively impact Epogen use and virtually eliminate sales growth going forward; (c) That sales of Neupogen for off-label uses in treating AIDS patients were diminishing materially due to the introduction of and success of new AIDS treatment drugs, including protease inhibitors, which was having a material negative impact on Neupogen sales going forward; (d) That sales of Neupogen for cancer treatment were not increasing sufficiently to offset the decline in Neupogen sales for the off-label use of treating AIDS patients; (e) That even if Amgen's audit methodology was adopted in the Johnson & Johnson Epogen spill-over sales arbitration, Amgen would be required to pay Johnson & Johnson close to $100 million, which would have a material adverse effect on Amgen's 97 results; (f) As a result of the foregoing, defendants' forecasts of double-digit or 15% Epogen sales growth during the second half of 97 were false when made, as such sales growth could not be and would not be achieved under the facts then existing; (g) As a result of the foregoing negative factors, defendants' forecasts that continued sales growth of Epogen and Neupogen would enable Amgen to report double-digit EPS growth over the next three to five years were false as such EPS growth could not be achieved under the facts then existing; and (h) As a result of the foregoing, defendants' forecasts that Amgen would achieve 97 EPS of $2.80-$2.85 were known by them to be false when made, as such EPS growth and results could not be achieved under the facts then existing. 87. Between 4/11/97 and 6/30/97, the Individual Defendants unloaded 305,870 shares of their Amgen stock at as high as $67.38 per share, pocketing $19 million in illegal insider-trading proceeds, at the same time as defendants were causing Amgen to spend $109 million in cash to purchase 1.8 million shares of Amgen stock at an average price of approximately $61 per share to help manipulate and artificially inflate Amgen's stock price up above $58 per share. 88. During the first week of 7/97, Binder and Attiyeh conferred with securities analysts, including Smith Barney analyst Chovav. Morgan Stanley analyst Lind, Oppenheimer analyst Seiler and Cowen analyst Lonergan. These conversations were to continue to "guide" analysts to a modest reduction in Epogen sales in the second half of 97 and a sales growth of 15%+ which would enable Amgen to still achieve 97 EPS $2.40-$2.85. Based upon what Binder and Attiyeh told them, these analysts issued reports, including the following, which were based on and repeated the information Binder or Attiyeh gave them: (a) On 7/8/97, Smith Barney issued a report by Chovav, which stated: Our earnings per share estimates for Amgen are $2.85 in 1997, $3.23 in 1998, and $3.70 in 1999. . . . We project Amgen's EPS growth rate at 15% during the 1997-2000 period. . . . * * * Amgen's current earnings are driven by its two blockbuster products, Epogen and Neupogen, each of which records over $1 billion a year in sales. The combination of Epogen and Neupogen should support double-digit top-line growth in the next several years. We expect Epogen sales in grow by 15.2% this year, 14.5% in 1998 and 14.0% in 1999. * * * Amgen/Johnson & Johnson's Dysfunctional Relationship * * * In 1996, Johnson & Johnson, Amgen's licensee for the non-dialysis U.S. market and the European market, sold close to $1 billion of EPO under the names Procrit® and Eprex®. Johnson & Johnson pays Amgen a 10% royalty on U.S. sales. There is no love lost between Amgen and Johnson & Johnson. The two companies have been in arbitration regarding spillover sales in the U.S. market for many years. . . . Long-delayed judgment is expected this fall. Amgen does not expect material adverse impact. * * * Recent changes have occurred in HCFA's reimbursement guidelines. Previously, patients with an average hematocrit above 36.0 (the FDA label limit) could receive Epogen reimbursement with medical justification. Going forward. patients whose three-month hematocrit rolling average exceeds 36.5 -- a group that represents about 10%-15% of all Epogen recipients -- will be denied reimbursement. Therefore, some providers are temporarily withholding Epogen from these patients to lower their hematocrit. As a result, Epogen sales growth will slow in 1997 to 15.2%, with the impact hitting the second and third quarters. We expect the Epogen growth rate to be 14.5% in 1998 and 14.0% in 1999. (b) On 7/8/97, Morgan Stanley issued a report by Lind, which forecast 97 and 98 EPS of $2.83 and $3.01 -- very slight decreases -- and stated: Trimming 1997 EPS estimates by $0.02, to $2.83 from $2.85, based on previously discussed new HCFA Epogen reimbursement policy on not accepting "medical" rational for maintaining some patient hematocrits above labeled indication range of 33-36%. 1998 EPS goes to $3.01 from $3.05. * * * Epogen growth has also been trimmed, based on recent company guidance on the impact of new HCFA reimbursement policies that no longer allow medical justification for some patients who are maintained with hematocrits above the currently accepted range of 33-36%. This change could affect up to 15% of patients currently using the drug, who would be taken off the drug until their hematocrit comes within the target range. We believe our new numbers fully reflect the impact of this reimbursement policy change. We do not anticipate the need for subsequent revisions. 89. Between mid-6/97 and mid-7/97, Amgen's stock declined from over $62 to as low as $55, below the critical $58 level necessary to void a large loss on the put option contracts. Thus, when Amgen reported its 2ndQ 97 results, it was imperative that it show strong EPS growth and that Epogen and Neupogen sales were still growing and thus Amgen would still report strong 97 EPS and thus push its stock price back up higher! 90. On 7/15/97, Amgen announced its results for the quarter ended 6/30/97 -- EPS of $.72,6 an increase of 13% over the year earlier EPS -- and again reassured investors that changes in Medicare's reimbursement policies would not significantly affect the Company. Amgen reiterated that it expected sales of Epogen to grow 15% in the second half of 97. Binder commented that: "'We are pleased with the solid bottom-line performance we achieved during the second quarter, despite the impact of the new Medicare regulations. . . .'" 91. On 7/15/97, Binder, Attiyeh, Sharer and May held a conference call from Amgen's headquarters for portfolio managers, brokers, traders, large Amgen stockholders and securities analysts. During the conference call and in follow-up one-on-one conversations with analysis they stated: * The withholding of Epogen to bring patients' hematocrit levels down to reimbursable levels was a one-time event and was now behind the Company. * The impact of the new reimbursement guidelines had been short-lived as most dialysis providers had implemented the HCFA guidelines almost immediately. Consequently, because the impact of the new reimbursement guidelines had already been felt, Epogen revenue growth had resumed and was on track to generate revenue growth of least 15% during the second half of 97. * While the new HCFA Epogen reimbursement regulations had had a negative impact on Epogen usage and sales growth during the 2ndQ 97, this impact was temporary only and a one-time event, as physicians lowered Epogen injections to bring patients hematocrits into the reimbursable range and thus HCFA regulations would not have any material adverse impact on Epogen sales growth going forward. * Amgen forecasted Epogen sales growth of at least 15% during the second half of 97. * While Neupogen sales for the off-label use of treating AIDS patients was being adversely affected by new and more effective drugs for treating AIDS, this sales decline was being more than offset by increased Neupogen use to treat cancer. * As a result of the foregoing positive factors, Amgen was still maintaining its 97 EPS forecast of $2.80-$2.85 per share and was thus comfortable with and endorsed analysts' EPS estimates for Amgen in that range. * As a result of the foregoing positive factors, Amgen was confident it would achieve double-digit EPS growth over the next several years. 92. On 7/16/97, the Dow Jones News Service issued an item on Amgen, which stated: Amgen Inc.'s shares rose 3.9% after the company reported second-quarter earnings that slightly exceeded analysts' expectations. * * * . . . During the conference call, Amgen officials said the use of protease inhibitors has affected Neupogen usage by AIDS patients, but that appears to be offset by sales growth among cancer patients, Lonergan said. 93. On 7/16/97, Hambrecht & Quist issued a report on Amgen, written by Malloy, which was based on and repeated information provided her in the 7/15/97 conference call and in follow-up conversatios with Binder or Attiyeh. The report forecast 97 and 98 EPS of $2.83 and $3. 15, respectively, a 16% five-year EPS growth rate and the following quarterly 97 EPS for Amgen: 97 Q1 $ .65 Q2 $ .72 Q3 $ .72 Q4 $ .75 Year $2.83 The report also stated: EPOGEN EPOGEN is a natural protein that is produced by the kidney to stimulate the production of red blood cells. EPOGEN is sold primarily to dialysis patients. In the second quarter, EPOGEN growth moderated to 12% due to anticipated changes in Medicare reimbursement. . . . The major impact of the change should have occurred in the second quarter, since the means of lowering hematocrit is to stop therapy and then to resume therapy to maintain the new target. Several factors should support growth in EPOGEN sales. First, the dialysis population is growing between 7-9%. Second, over 50% of dialysis patients have hematocrit levels that are below the 33-36% range currently recommended in the DOQI draft guidelines. The average hematocrit today approximates 32%. The final Dialysis Outcome Quality Initiative (DOQI) guidelines are scheduled to be published in the late October and early November issues of the American Journal of Kidney Disease. These guidelines should facilitate higher hematocrit and dosing in the dialysis population. We are slightly lowering our EPOGEN sales estimate for 1997 to $1.23 billion from $1.26 billion, to reflect the lower growth rate in the second quarter. Company guidance on the second quarter call was for EPOGEN growth in the 15% range in the second half of 1997, as in the first. NEUPOGEN . . . NEUPOGEN sales were up 7% for the quarter to $272 million from $255 million in the same quarter of 1996. Management did note that usage of NEUPOGEN therapy in AIDS patients has moderated somewhat with triple combination therapy. 94. On 7/16/97, Oppenheimer issued a report on Amgen, written by Geller, which was based on and repeated information provided him in the 7/15/97 conference call and in follow-up conversations with Binder or Attiyeh. The report forecast 97 and 98 EPS of $2.84 and $3.06, respectively, and stated: Amgen had guided analysts down to current estimates in a June 16 conference call. On the call the company discussed new Medicare guidelines restricting reimbursement to dialysis providers and indicated that these guidelines would lead to "a modest reduction in the year-over-year growth rate of sales of Epogen for fiscal 1997." Epogen sales increased 11.7% over the second quarter of 1996. Amgen now expects 15% year-over-year growth for Epogen in the second half of 1997. We now project growth in Epogen sales at 15.2% for 1997, down from 16.1% before Amgen's second-quarter earnings report and from 17.2% following Amgen's first-quarter earnings report. * * * Amgen is still comfortable with EPS estimates in the $2.80-$2.85 range for 1997. . . . We are lowering our earnings estimates for the third and fourth quarters of 1997 from $0.72 to $0.71 and from $0.77 to $0.76, respectively. We are also lowering our 1998 earnings estimate from $3.10 to $3.06. * * * Epogen sales slowing Sales of Epogen increased 11.8% during the quarter, to $295.0 million from $264.2 million in the second quarter of 1996. As detailed in our report of June 6, the Healthcare Finance Administration (HCFA) will change its reimbursement guidelines for Epogen, effective September 1. Second-quarter sales of Epogen were hurt by actions taken by dialysis providers in response to these changes. Previously, reimbursement for dosing of Epogen to a hematocrit (red blood cell level) exceeding 36% was allowed if a physician provided adequate medical justification. Under the new rules, medical justification will no longer be accepted for payment of claims of hematocrits over 36%. Roughly 10%-15% of dialysis patients bad hematocrits over 36% when the new reimbursement guidelines were announced. Providers have begun to withhold Epogen from such patients for a week or two so that there [sic] hematocrits will fall back into the reimbursable range, and will use lower doses to maintain lower hematocrits going forward. * * * . . . [A]pproximately 50% of patients still have hematocrits below the recommended 33%-36% range. Amgen anticipates 15% growth in Epogen sales for the second half of 1997. . . . Neupogen growth stronger for cancer, weaker for AIDS Sales of Neupogen increased 6.8% for the quarter, to $272.0 million from $254.7 million in the same quarter of 1996. Increased use of more effective AIDS therapeutics, especially protease inhibitors has decreased sales of Neupogen to AIDS patients. . . . Weaker sales of Neupogen for AIDS were offset by increased use of Neupogen for oncology indications, largely due to the introduction of new and more myelosuppressive chemotherapy agents. * * * Amgen expects Epogen sales to grow at the rate of 15% for the second half of 1997 and declined to give specific guidance on sales of Neupogen. However the company expects overall 1997 sales growth to be at or close to double-digit levels. We currently project 1997 sales growth at 10.6%. The company is still confident that it will achieve double-digit growth in sales and earnings over the next five years. 95. On 7/16/97, PaineWebber issued a report on Amgen, written by Wang, which was based on and repeated information provided her in the 7/15/97 conference call and in follow-up conversations with Binder or Attiyeh. The report forecast 97 and 98 EPS of $2.84 and $3.20, respectively, and the following quarterly 97 EPS for Amgen: 97 Q1 $ .65 Q2 $ .72 Q3 $ .73 Q4 $ .74 Year $2.85 PaineWebber actually increased its 97 EPS to $2.84 and its 3rdQ and 4thQ 97 EPS forecast by $.02 per quarter. The report also stated: KEY POINTS 1. Second quarter financial results of $0.72 beat our expectations and street consensus by $0.01. Reported net income growth of 12% and earnings per share growth of 13% year over year. * * * 3. Raising 1997 estimates from $2.80 to $2.84 and 1998 estimates from $3.16 to $3.20. * * * . . . Based on management guidance that Epogen sales in the second half of 1997 are expected to grow 15% year over year, we have slightly adjusted our 1997 Epogen sales estimate upward to reflect this trend. Our previous estimate assumed Epogen sales growth of 13% in the second half of 1997 relative to the prior year. * * * RAISE 1997 ESTIMATES We have increased our 1997 EPS estimate from $2.80 to $2.84 per share based on slightly higher Epogen and Neupogen product sales. During the earnings conference call, management reiterated its comfort with street consensus range of $2.80-2.85 per share for 1997. 96. On 7/16/97, Smith Barney issued a report on Amgen, written by Chovav, which was based on and repeated information provided him in the 7/15/97 conference call and in follow-up conversations with Binder or Attiyeh. The report forecast 97 and 98 EPS of $2.85 and $3.23, respectively, a 20% five-year EPS growth rate and the following quarterly 97 EPS for Amgen: 97 Q1 $ .65A Q2 $ .72A Q3 $ .73 Q4 $ .75 Year $2.85 The report also stated: Epogen's year over year sales growth was stronger than expected at 11.6%, with second quarter sales of $294.9 million. This relatively modest quarter-to-quarter increase stems from changes in Epogen dosing which occurred in second quarter in anticipation of government reimbursement changes effective September 1. Beginning September 1, the Health Care Financing Association (HCFA) will no longer reimburse dialysis centers for Epogen used in patients with three-month rolling average hematocrit which exceed 36%. In preparation for this change (which was originally planned to go into effect on July 1), many dialysis centers withheld Epogen doses until patient hematocrit fell below 36%. With most of this adjustment period, falling in the second quarter, we expect Epogen sales growth to average 15% in the second half of 1997. 97. On 7/16/97, Brown Brothers Harriman issued a report on Amgen, written by LeBoyer, which was based on and repeated information provided him in the 7/15/97 conference call and in follow-up conversations with Binder or Attiyeh. The report forecast 97 and 98 EPS of $2.85 and $3.15, respectively, and stated: The company believes the effect of the new Epogen guidelines will be largely contained within the second quarter. Patients who were above the labeled range and had their doses withheld should resume Epogen at somewhat lower doses once they are below the 36.5 hematocrit level. These guidelines are now scheduled to go into effect in September rather than August, as originally planned. This additional time allows the dialysis centers to give lower doses to lower hematocrit gradually rather than withhold doses entirely. we expect Epogen growth to resume in the third quarter with 14.5% year-over-year growth, and to show the expected gradual slowing year-over-year growth in future quarters. 98. On 7/16/97, Morgan Stanley issued a report on Amgen, written by Lind, which was based on and repeated information provided him in the 7/15/97 conference call and in follow-up conversations with Binder or Attiyeh. The report forecast 97 and 98 EPS of $2.84 and $3.03, respectively, and the following quarterly 97 EPS for Amgen: 97 Q1 $ .65 Q2 $ .72 Q3 $ .72 Q4 $ .76 Year $2.84 The report also stated: During a conference call, management affirmed guidance offered earlier in the year for EPS to fall in the range of $2.80-$2.85 for 1997. . . . Guidance was also offered on Epogen revenue growth for the remainder of the year of 15%. Epogen revenue growth was decreased significantly at 11.6% vs. 19.5% last quarter, as expected, due to a response by dialysis centers to rapidly lower hematocrit levels to within the therapeutic range of 33-36% accepted for reimbursement by Medicare. This affected approximately 15% of all dialysis patients on Epogen who no longer qualify for higher hematocrits based on medical waiver. The impact of this change appears to be a one-time event which was fully reflected during the quarter, and is unlikely to have material impact on Epogen growth moving forward, in our opinion. . . . Neupogen revenues grew 7% year over year, slightly higher than we had expected. Management indicated that the drug is being used less in HIV patients as use of HIV protease inhibitors has prevented progression of the disease, but this effect has been offset by increased use of Neupogen in new chemotherapy regimens in cancer. * * * Conclusion: Overall it was a clean quarter. We are raising our 1997 EPS estimates by a penny to $2.84 and our 1998 estimates to $3.03 from $3.01 based on slightly higher Epogen projections. 99. On 7/16/97, Robertson Stephens issued a report on Amgen, written by Silverman, which was based on and repeated information provided him in. the 7/15/97 conference call and in follow-up conversations with Binder or Attiyeh. The report forecast 97 and 98 EPS of $2.83 and $3.15, respectively, and the following quarterly 97 EPS for Amgen: 97 Q1 $ .65A Q2 $ .72A Q3 $ .72 Q4 $ .74 Year $2.83 The report also stated: 2. Epogen Slowdown Due to HMA Should Re Behind Us. Epogen growth, as expected, was affected by the Hematocrit Measurement Audit provision of the National Kidney Foundation's DOQI (Dialysis Outcomes Quality Initiative) guidelines. As previously announced (see our note 6/17/97), Medicare will no longer reimburse patients who are managed (on a 90 day rolling average) at a hematocrit count above 36.5%. As a result, some centers are withholding Epogen treatment for these patients (~15% of total) for a few weeks in order to bring hematocrit levels below the reimbursable level. Patients are then put back on Epogen at a lower dose and kept within the 33-36% range. Amgen believes that the majority of the response to this change in reimbursement structure is behind it and Epogen sales should not be affected materially going forward. We are adjusting our Epogen sales number slightly this year ($1.23 billion), but reducing next year by $60 million to $1.40 billion (+14% y/y). 100. In late 7/97 or early 8/97, First Boston sponsored a dinner for Amgen's executives with securities analysis. During that dinner, Binder told analysts that Amgen was confident that Epogen would show 15% growth in the second half of 97 and that Amgen endorsed 97 EPS forecasts of $2.80-$2.85. With these strong EPS reassurances and forecasts, the decline in Amgen's stock was halted and Amgen's stock rebounded from $55 on 7/14/97 to over $62 by late 7/97. 101. The statements made by defendants between 7/97 and 8/97 were each false and misleading when made, as they concealed the following true facts which were then known by or available to defendants: (a) That the fundamental drivers behind historic Epogen sales growth were no longer in place and as a result of new negative HCFA regulations regarding reimbursement of Epogen use. Epogen sales were being materially adversely affected which would adversely affect Amgen's 97 financial results; (b) That the adverse impact of the new HCFA regulations on Epogen reimbursement and thus sales growth was not a temporary adverse impact or a one-time event but was, in fact, a fundamental negative development which, unless and until changed, would negatively impact Epogen use and virtually eliminate sales growth going forward; (c) That sales of Neupogen for off-label uses in treating AIDS patients were diminishing materially due to the introduction and success of new AIDS treatment drugs, including protease inhibitors, which was having a material negative impact on Neupogen sales going forward; (d) That sales of Neupogen for cancer treatment were not increasing sufficiently to offset the decline in Neupogen sales for off-label use of treating AIDS patients; (e) That even if Amgen's audit methodology was adopted in the Johnson & Johnson Epogen spill-over sales arbitration, Amgen would be required to pay Johnson & Johnson close to $100 million, which would have a material adverse effect on Amgen's 97 results; (f) That Amgen's reported EPS for the 2ndQ 97 were overstated because of Amgen's failure to timely accrue and record a reserve for the payment it would have to make even if its audit methodology was adopted in the Johnson & Johnson Epogen spill-over sales arbitration as detailed in ¶¶105-115; (g) As a result of the foregoing, defendants' forecasts of double-digit or 15% Epogen sales growth during the second half of 97 were false when made, as such sales growth could not be and would not be achieved under the facts then existing; (h) As a result of the foregoing negative factors, defendants' forecasts that continued sales growth of Epogen and Neupogen would enable Amgen to report double-digit EPS growth over the next three to five years wwere false as such EPS growth could not be achieved under the facts then existing and known to the Individual Defendants; and (i) As a result of the foregoing, defendants' forecasts that Amgen would achieve 97 EPS of $2.80-$2.85 were known by them to be false when made, as such EPS growth and results could not be achieved under the facts then existing, as they were known or available to the Individual Defendants. 102. By late 7/97, as a result of defendants' continued positive statements, assurances and forecasts, Amgen stock was still trading at as high as $62-1/8. During 7/18/97-7/23/97, the Individual Defendants unloaded another 85,685 shares of their Amgen stock at as high as $61-1/4 per share, pocketing another $5.1 million in illegal insider-trading proceeds. During 7/97, while the Individual Defendants were unloading their stock, they caused Amgen to spend $50+ million in cash, repurchasing at least 1 million shares of its stock on the open market, thus helping to manipulate and artificially inflate Amgen's common stock. THE ADVERSE FACTS BEGIN TO BE REVEALED 103. On 8/11/97, Amgen stock traded as high as $57-5/8. After the close of trading on 8/11/97, Amgen disclosed in a report on Form 10-Q for the quarter ended 6/30/97 f1led with the SEC and in individual conversations with analysts that Amgen now expected Epogen sales in the second half of 97 to be much less than 15%, that growth in Neupogen sales was being hurt by decreased off-label uses for treating AIDS patients, which decrease was not being offset by increased use in cancer therapy, that Amgen now expected total product sales growth in 97 to be much lower than earlier forecast and, as a result, Amgen would not achieve the level of EPS previously forecast. As a result of these shocking revelations, which completely contradicted the representations made by Amgen's top insiders as recently as two weeks earlier, Amgen's stock price collapsed, failing to $49-5/8 on 8/12/97, on an astonishing volume of 22 million shares. Analysts were furious at having been misled by the Company and Hambrecht & Quist, Morgan Stanley, Vector Securities, Smith Barney, Merrill Lynch, First Boston, A.G. Edwards and Cowen all downgraded Amgen's stock and slashed their 97 EPS forecasts for Amgen. According to the Dow Jones, these revelations came as an "unpleasant surprise to investors." Analysts were similarly shocked. Hambrecht & Quist noted the disclosures "came as a surprise," while Montgomery Securities noted they "create a lot of misunderstanding and confusion," while Furman Selz noted that the sharp reduction in Epogen/Neupogen sales growth was a "startling and unprecedented development." With respect to Amgen's lowered 97 EPS forecasts, analysts noted this "was a big drop" and a "[m]ajor change." Later, Amgen reported even worse-than-anticipated 3rdQ 97 results, with EPS of only $.32 versus $.68 in 96, with the large drop due to a significant charge being taken due to the Johnson & Johnson Epogen litigation,7 for which, even though Amgen stated it had won and was the prevailing party, it nevertheless was required to make payments to Johnson & Johnson of at least $96 million -- a huge amount of money and much more than Amgen had ever indicated it would have to pay, assuming it prevailed in the arbitration! Amgen's 4thQ 97 results were also very disappointing, showing virtually no growth in Epogen or Neupogen sales, meaning that instead of growing at least 15% as Amgen had forecasted throughout the Class Period, Epogen sales were virtually flat and showed no growth at all during the second half of 97. As a result of the disastrous slowdown in Epogen/Neupogen sales and the huge special charge Amgen took, even though it prevailed in the Johnson & Johnson arbitration, Amgen's 97 EPS were just $2.44, compared to the $2.57 reported for 96, and compared to the defendants' forecasts of $2.75-$2.85 made during the Class Period. In other words, instead of showing strong EPS growth of at least double-digits for 97 over 96, Amgen suffered 5% EPS decrease in 97. 104. During the last half of 97, in an effort to avert a total collapse in Amgen stock and thereby avoid a suit from defrauded investors, defendants caused Amgen to expend $526 million to prop up the price of Amgen stock by buying back 6.3 million Amgen shares in the open market. By the end of 97, Amgen had used $738 million to buy back 13.7 million shares, or almost $300 million more than defendants represented they "expected" Amgen to buy back during the Class Period. This dramatic increase in share repurchases during the second half of 97 -- by 300%, as compared to the first half of 97 -- was also undertaken to hold up Amgen's EPS which would have been only $2.32 and fallen even further short of defendants' EPS forecasts had Amgen only repurchased as much stock as it had said it would. AMGEN'S FALSE FINANCIAL REPORTING DURING THE CLASS PERIOD 105. In order to inflate the price of Amgen's stock, defendants caused the Company to falsely report its financial results during the Class Period through its unjustifiable failure to accrue a loss for its dispute with Johnson & Johnson, thereby materially overstating its net income and EPS. Ultimately, Amgen recorded a charge of $157 million (pre-tax) related to the arbitration with Johnson & Johnson even though the arbitrator had ruled in favor of Amgen's methodology. This charge was equivalent to 17% of all the net income Amgen reported during the Class Period. 106. Amgen reported the following net income and EPS during the Class Period for the quarterly periods indicated: 12/31/96 3/31/97 6/30/97 Net Income $178.0M $180.3M $200.5M EPS8 $.67 $.68 $.76 107. The Company's inclusion of these results in press releases and SEC filings and representations concerning the results were false and misleading when made, as Amgen's financial results reported during the Class Period were not a fair presentation of Amgen's results and were presented in violation of Generally Accepted Accounting Principles ("GAAP") and SEC rules. 108. GAAP are those principles recognized by the accounting profession as the conventions, rules and procedures necessary to define accepted accounting practice at a particular time. SEC Regulation S-X (17 C.F.R. §210.4-01(a)(1)) states that financial statements filed with the SEC which are not prepared in compliance with GAAP are presumed to be misleading and inaccurate, despite footnote or other disclosure. Regulation S-X requires that interim financial statements must also comply with GAAP, with the exception that interim financial statements need not include disclosure which would be duplicative of disclosures accompanying annual financial statements. 17 C.F.R. §210.10-01(a). 109. The Individual Defendants caused Amgen to falsify its reported financial results through its failure to record an accrual for the minimum loss the defendants knew it would suffer in the Company's arbitration with Johnson & Johnson. 110. GAAP, asset forth in FASB Statement of Financial Accounting Standard (SFAS) No. 5, Accounting for Contingencies, requires that an estimated loss from a loss contingency be accrued as a charge to income when it is probable that a loss has been incurred and the amount of loss can be reasonably estimated. SFAS No. 5, ¶8. 111. The litigation was commenced because Amgen and Johnson & Johnson could not agree on the audit methodology to calculate the compensation Amgen and Johnson & Johnson owed each other for sales of Epogen in each other's markets. An arbitration commenced in 3/96 and testimony in the case ended in 12/96. Thus, by the time Amgen reported its results for the quarter and year ended 12/31/96, the Individual Defendants were aware of the testimony which was before the arbitrator. Johnson & Johnson was seeking in excess of $423 million. Despite the fact that even if Amgen prevailed it would end up having to pay Johnson & Johnson hundreds of millions of dollars (pre-tax), Amgen accrued no loss in its financial results but included a footnote which represented that: While it is impossible to predict accurately or determine the outcome of these proceedings, based primarily upon the merits of its claims and based upon certain liabilities established due to the inherent uncertainty of any arbitrated result, the Company believes that the outcome of these proceedings will not have a material adverse effect on its financial statements. 112. Even though Amgen did not know the exact amount it would ultimately have to pay, it was still required to accrue for a reasonable estimate of the liability. SFAS No. 5 gives as an example a litigation claim that probably will result in a liability of $2 million, but could result in a liability of $8 million. If $2 million is a reasonable estimate, that amount must be accrued even though the total liability may ultimately be much higher. SFAS No. 5, ¶39. 113. Ultimately, when the arbitrator issued an opinion in 9/97, Amgen announced that it had prevailed in the arbitration and the arbitrator had adopted Amgen's audit methodology. In the press release, Amgen referred to itself as the "prevailing party," but also stated that Amgen would be accruing a large charge to account for payments to Johnson & Johnson and interest on the amount owed to Johnson & Johnson. Thus, even though Amgen won the case. it was still required to make payments to Johnson & Johnson of more than $96 million (after tax). Amgen's 4thQ 96 and 1stQ 97 and 2ndQ 97 EPS ($2.11) were overstated by $.35 -- 16.5%. Had Amgen properly and timely record this loss, it would not have been able to report consistent EPS growth in the three quarters or had each quarter show EPS increases over the same quarter in the prior year. These EPS gains were indispensable to keeping Amgen's stock price inflated over $58 per share. 114. Due to these accounting improprieties, the Company presented its financial results and statements in a manner which violated GAAP, including the following fundamental accounting principles: (a) The principle that interim financial reporting should be based upon the same accounting principles and practices used to prepare annual financial statements (APB No. 28, ¶10); (b) The principle that financial reporting should provide information that is useful to present and potential investors and creditors and other users in making rational investment, credit and similar decisions was violated (FASB Statement of Concepts No. 1, ¶34); (c) The principle that financial reporting should provide information about the economic resources of an enterprise, the claims to those resources, and effects of transactions. events and circumstances that change resources and claims to those resources was violated (FASB Statement of Concepts No. 1, ¶40); (d) The principle that financial reporting should provide information about how management of an enterprise has discharged its stewardship responsibility to owners (stockholders) for the use of enterprise resources entrusted to it was violated. To the extent that management offers securities of the enterprise to the public, it voluntarily accepts wider responsibilities for accountability to prospective investors and to the public in general (FASB Statement of Concepts No. 1, ¶50); (e) The principle that financial reporting should provide information about an enterprise's financial performance during a period was violated. Investors and creditors often use information about the past to help in assessing the prospects of an enterprise. Thus, although investment and credit decisions reflect investors' expectations about future enterprise performance, those expectations are commonly based at least partly on evaluations of past enterprise performance (FASB Statement of Concepts No. 1, ¶42); (f) The principle that financial reporting should be reliable in that it represents what it purports to represent was violated. That information should be reliable as well as relevant is a notion that is central to accounting (FASB Statement of Concepts No. 2, ¶¶58-59); (g) The principle of completeness, which means that nothing is left out of the information that may be necessary to insure that it validly represents underlying events and conditions was violated (FASB Statement of Concepts No. 2, ¶79); and (h) The principle that conservatism be used as a prudent reaction to uncertainty to try to ensure that uncertainties and risks inherent in business situations are adequately considered was violated. The best way to avoid injury to investors is to try to ensure that what is reported represents what it purports to represent (FASB Statement of Concepts No. 2, ¶¶95, 97). 115. Further, the undisclosed adverse information concealed by defendants during the Class Period is the type of information which, because of SEC regulations, regulations of the national stock exchanges and customary business practice, is expected by investors and securities analysts to be disclosed and is known by corporate officials and their legal and financial advisors to be the type of information which is expected to be and must be disclosed. INSIDER TRADING 116. Each of the Individual Defendants willfully participated in the dissemination of the false statements complained of herein in order to inflate the price of Amgen securities to allow the Individual Defendants to sell $32+ million of their own Amgen stock at prices as high as $67 per share, allow Amgen to sell $100 million of debt securities on favorable terms and enable Amgen stock to continue to trade at artificially inflated levels long enough to allow the put options on millions of shares of Amgen stock which Amgen had sold to expire, thereby allowing Amgen to avoid expending $158 million of Amgen cash to Goldman Sachs. 117. At the same time that defendants were concealing the truth about Epogen and issuing false favorable statements about the Company's business, Amgen's senior executives, each of whom had access to confidential information and was aware of the truth about Amgen's declining Epogen and Neupogen sales and the likelihood that Amgen would have to make a very large payment to Johnson & Johnson even if Amgen "won" its arbitration over Epogen "spill-over" sales, were benefiting from their illegal course of conduct by selling huge amounts of their own shares of Amgen stock at artificially inflated prices without disclosing the material adverse facts about Amgen to which they were privy. Such sales were unusual in their amount and timing. The following table shows the insider trading of the Individual Defendants during the Class Period: SHARES DATE SOLD PRICE PROCEEDS Binder 03/04/97 5,000 $62.00 $ 310,000 03/04/97 10,000 $61.75 617,500 03/05/97 5,000 $62.25 311,250 03/10/97 5,000 $63.00 315,000 03/10/97 5,000 $62.50 312,500 04/30/97 5,000 $58.50 290,000 04/30/97 5,000 $58.25 291,250 04/30/97 5,000 $58.00 292,500 04/30/97 4,000 $57.63 230,520 04/30/97 1,000 $57.75 57,750 05/02/97 5,000 $59.50 295,000 05/02/97 5,000 $59.00 297,500 05/05/97 10,000 $62.50 625,000 05/05/97 5,000 $62.00 310,000 05/05/97 5,000 $61.75 308,750 05/05/97 5,000 $61.50 307,500 05/05/97 5,000 $61.25 306,250 05/14197 5,000 $63.50 317,500 05/14/97 5,000 $63.00 315,000 05/16/97 6,000 $64.63 387,780 05/20/97 6,000 $67.38 404,290 112,000 $ 6,902,830 % of Shares Actually Owned Sold: 40% Hill 01/28/97 3,200 $55.50 $ 177,600 05/05/97 1,000 $61.13 61,130 05/19/97 4,006 $64.00 256,384 05/28197 3,138 $66.75 209,482 11,344 $ 704,576 % of Shares Actually Owned Sold: 96% Attiyeh 02/28/97 5,000 $60.25 $ 301,250 04/28/97 10,000 $57.00 570,000 04/28/97 5,000 $57.13 285,650 04/28/97 5,000 $57.25 286,250 05/05/97 10,000 $62.00 620,000 05/08/97 909 $60.75 55,222 05/19/97 10,000 $64.13 641,300 45,909 $ 2,759,672 % of Shares Actually Owned Sold: 90% May 03/03/97 5,000 $60.63 $ 303,150 03/03/97 15,200 $61.00 927,200 03/03/97 11,800 $60.50 713,900 03/03/97 5,000 $60.38 301,900 03/03/97 25,000 $60.13 1,503,250 03/03/97 20,000 $60.00 1,200,000 82,000 $ 4,949,400 % of Shares Actually Owned Sold: 64% Fenton 03/10/97 3,105 $62.75 $ 194,839 03/10/97 1,021 $62.75 64,068 03/10/97 145 $62.75 9,099 03/11/97 9,569 $61.75 590,886 05/19/97 6,120 $63.13 386,358 07/23/97 20,000 $61.25 1,225,000 39,960 $ 2,470,247 % of Shares Actually Owned Sold: 55% Wudl 04/11/97 1,881 $56.00 $ 105,336 04/22/97 5,528 $57.25 316,478 04/24/97 26,288 $58.13 1,528,121 33,697 $ 1,949,935 % of Shares Actually Owned Sold: 63% Altrock 05/07/97 7,000 $61.50 $ 430,500 05/07/97 3,000 $61.63 184,890 05/08/97 10,000 $61.13 611,300 20,000 $ 1,226,690 % of Shares Actually Owned Sold: 46% Benson 05/14/97 10,000 $63.63 $ 636,300 05/14/97 20,000 $63.38 1,267,600 05/14/97 10,000 $63.50 635,000 40,000 $ 2,538,900 % of Shares Actually Owned Sold: 98% Sharer 05/22/97 60,000 $66.63 $ 3,997,800 05/22/97 10,000 $66.75 667,500 05/22/97 5,000 $66.88 334,400 75,000 $ 4,999,700 % of Shares Actually Owned Sold: 95% Alton 07/18/97 5,000 $59.00 $ 295,000 07/18/97 4,000 $59.06 236,240 07/18/97 1,000 $59.13 59,130 07/18/97 5,685 $59.50 338,258 07/18/97 10,000 $59.75 597,500 07/18/97 10,000 $59.81 598,100 07/18/97 10,000 $59.88 598,800 07/18/97 20,000 $60.00 1,200,000 65,685 $ 3,923,028 % of Shares Actually Owned Sold: 74% GRAND TOTALS: 525,595 $32,424,977 62% 118. Virtually every one of the Individual Defendants sold 100% of the Amgen shares of stock they acquired by option exercise during the Class Period. The Individual Defendants listed below exercised the number of options shown at as low as $2.25 per share and then immediately sold off those shares as high as $67.38, thus pocketing millions in risk-free insider-trading profits: Individual Defendant Options Exercised & Sold Alton 60,685 Attiyeh 45,000 Benson 40,000 Binder 154,904 Fenton 39,960 Hill 7,338 May 10,200 Sharer 75,000 Wudl 33,697 119. Central to defendants' wrongful acts was their willful participation in the dissemination of false statements which inflated Amgen's stock price and helped them engage in their insider selling and limit Amgen's stock price decline upon the ultimate revelation of Amgen's disastrous Epogen and Neupogen sales shortfall. As part of their wrongful conduct, the defendants also used Amgen's cash to repurchase at least 3.5 million shares of its stock on the open market at or about the time these defendants were selling their Amgen stock and another 8+ million shares after the 8/11/97 revelations to try to cushion and limit the collapse of Amgen's stock. These expenditures were made to benefit these corporate insiders and assist them in their scheme, even though they knew that Amgen stock would sell at much lower prices upon the disclosure of the adverse corporate information which they alone knew, than the prices they were causing Amgen to pay for the stock, it was repurchasing on the open market. 120. (a) Defendants' sales of Amgen stock during the Class Period were unusual in timing and amount and inconsistent with their prior transactions in Amgen stock. During the entire Class Period, none of the Individual Defendants purchased a single share of Amgen stock on the open market; (b) All the stock sales by the Individual Defendants occurred in a period during which the Individual Defendants were causing Amgen to spend $210 million of its cash to repurchase 3.5+ million shares of its own stock on the open market, thus helping to manipulate and artificially inflate the price of Amgen stock, while the Individual Defendants were selling off their own holdings; and (c) The Individual Defendants, as fiduciaries of Amgen, were causing it to spend millions of its dollars to purchase Amgen stock (presumably because the stock was undervalued and was a good investment of or use of Amgen's cash) while, at the same time, they were selling off their own shares, knowing the stock was about to plunge in price when the negative conditions adversely affecting Amgen's business (which were known only to Amgen's insiders) became public. 121. Sophisticated members of the investment community closely monitor the stock transactions of corporate insiders in an effort to ascertain insiders' sentiment regarding their companies' prospects. The Wall Street Journal and Barron's carry a weekly column and other data on significant insider trading and several services exist which publish information about stock sales by corporate insiders. Large amounts of stock sales by insiders attract attention, resulting in negative publicity for the company and can generate large amounts of selling by other investors, resulting in a sharp decline in the company's stock price. Thus, information about insiders' stock sales can adversely affect a company's stock price. Thus, the Individual Defendants (and other Amgen executives whose stock sales were reported) sold in the aggregate the maximum amount of shares or near the maximum amount of shares that they could have sold during the Class Period without attracting such attention or generating such negative publicity that their selling would have caused widespread concern among Amgen shareholders, generating selling by them and driving Amgen's stock price much lower and resulting in major embarrassment to the Individual Defendants. CLASS ACTION ALLEGATIONS 122. Plaintiffs bring this action as a class action pursuant to California Code of Civil Procedure §382 on behalf of all persons who purchased or otherwise obligated themselves to purchase the publicly traded securities of Amgen, including its common stock between 1/23/97 and 8/11/97, inclusive (the "Class"). Excluded from the Class are each of the defendants, members of their families and any entity in which a defendant has an interest. 123. The Class is composed of numerous residents of California, as well as persons dispersed throughout the United States, the joinder of whom in one action is impracticable. The disposition of their claims in a class action will provide substantial benefits to the parties and the Court. During the Class Period, Amgen had more than 265 million shares of stock outstanding, owned by thousands of shareholders. 124. There is a well-defined community of interest in the questions of law and fact involved in this case. The questions of law and fact common to the members of the Class, which predominate over questions which may affect individual Class members, include the following: (a) Whether defendants misrepresented material facts; (b) Whether defendants' statements omitted material facts necessary to make the statements made, in light of the circumstances under which they were made, not misleading; (c) Whether defendants knew or should have known that their statements were false and misleading; (d) Whether defendants violated Cal. Corp. Code §§25400 and 25500 and Cal. Civ. Code §§1709-1710; (e) Whether the price of Amgen stock was artificially inflated during the Class Period; and (f) The extent of damage sustained by Class members and the appropriate measure of damages. 125. Plaintiffs' claims are typical of those of the Class because plaintiffs and the Class sustained damages from defendants' wrongful conduct. 126. Plaintiffs will adequately protect the interests of the Class. They have retained counsel who are experienced in class action securities litigation. Plaintiffs have no interests which conflict with those of the Class. 127. A class action is superior to other available methods for the fair and efficient adjudication of this controversy. 128. The prosecution of separate actions by individual Class members would create a risk of inconsistent and varying adjudications. FIRST CAUSE OF ACTION Violation Of §§25400/25500 Of The California Corporations Code 129.Plaintiffs incorporate ¶¶1-128. 130. Acting individually and pursuant to a common course of conduct, defendants concealed and/or misrepresented material adverse information and/or willfully participated in the issuance of statements about Amgen and its business, which statements were false and/or misleading and were made for the purpose of offering to sell and/or selling $100 million of Amgen securities to investors, allowing the Amgen insiders to dump $32+ million of dollars of their own Amgen stock at inflated prices and inducing offers to purchase the Amgen securities sold by defendants. Defendants' wrongdoing included the making of, and/or willful participation in the making of, untrue statements of material facts and the omission to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading, and engaging in acts, practices and a wrongful course of conduct in order to induce the purchase of Amgen stock, by plaintiffs and the members of the Class. Each of the false statements alleged herein was made for the purpose of selling and/or offering to sell securities and was prepared in and/or disseminated from Amgen's Thousand Oaks headquarters. The false oral statements were made in calls which took place in this County or in nationwide conference calls originating from this County. 131. Plaintiffs and the members of the Class have suffered substantial damages because they paid artificially inflated prices for Amgen stock. Plaintiffs and the members of the Class would not have purchased Amgen stock at the prices they paid, or at all, if they had been aware that the market price had been artificially and falsely inflated by defendants' misleading statements and concealments. At the time of the purchases by plaintiffs and the members of the Class of Amgen stock, the fair market value of said stock was substantially less than the prices paid by them. 132. By reason of the foregoing, defendants violated §25400 of the Cal. Corp. Code, thereby entitling plaintiffs and the members of the Class to recover damages pursuant to §25500. SECOND CAUSE OF ACTION Violation Of §§1709-1710 Of The California Civil Code 133. Plaintiffs incorporate ¶¶1-128. 134. For the purpose of inducing public investors, including plaintiffs and other members of the Class, to purchase or otherwise acquire Amgen stock, and with intent to deceive such investors, the defendants engaged in a deceitful course of conduct and/or a conspiracy to defraud as a part of which said defendants made, participated in the making of, or aided and abetted the making of, the misrepresentations of fact and concealed the true facts and omitted to state material facts as set forth above. Said representations and statements were not true and defendants did not believe them to be true. Said acts by defendants were fraudulent, oppressive and malicious. 135. Plaintiffs and the Class members each relied on one or more of the false statements alleged herein and were damaged thereby. PRAYER FOR RELIEF WHEREFORE, plaintiffs pray for judgment as follows: 1. Declaring this action to be a proper class action on behalf of the Class defined herein; 2. Awarding plaintiffs and the members of the Class compensatory and/or punitive damages; 3. Awarding plaintiffs and the members of the Class pre-judgment and post-judgment interest, as well as reasonable attorneys' fees, expert witness fees and other costs; 4. Awarding extraordinary, equitable and/or injunctive relief as permitted by law and/or equity; and 5. Awarding such other relief as this Court may deem just and proper. JURY DEMAND Plaintiffs demand a trial by jury. DATED: August 6, 1998 ORROCK HIGSON & KURTA, P.C. DANIEL A. HIGSON 1835 Knoll Drive Ventura, CA 93003 Telephone: 805/642-6405 MILBERG WEISS BERSHAD HYNES & LERACH LLP WILLIAM S. LERACH JAN M. ADLER KATHERINE L. BLANCK /s/ _______________________________ WILLIAM S. LERACH 600 West Broadway, Suite 1800 San Diego, CA 92101 Telephone: 619/231-1058 MILBERG WEISS BERSHAD HYNES & LERACH LLP KAREN T. ROGERS 355 South Grand Avenue Suite 4170 Los Angeles, CA 90071 Telephone: 213/617-9007 LAW OFFICES OF CURTIS V. TRINKO LLP CURTIS V. TRINKO 310 Madison Avenue Suite 1401 New York, NY 10017 Telephone: 212/490-9550 LAW OFFICES OF ALFRED G. YATES, JR. ALFRED G. YATES, JR. 519 Allegheny Building 429 Forbes Avenue Pittsburgh, PA 15219 Telephone: 412/391-5164 Attorneys for Plaintiffs ------------------------------------------------------------------------ 1 EPS figures have been adjusted to reflect Amgen's adoption of SFAS No. 128, Earnings Per Share, as of 12/31/97. 2 EPS figures have been adjusted to reflect Amgen's adoption of SFAS No. 128, Earnings Per Share, as of 12/31/97. 3 During 97, SFAS No. 128, which directed how public companies compute and report their EPS, was issued. Amgen's originally reported 96 EPS of $2.42 were then adjusted to $2.57 and its originally reported 4EhQ 96 BPS of $.64 were then adjusted to $.67. 4 Hematocrit is a measurement of the amount of red blood cells in the blood. 5 This amount was later adjusted to $.68 due to the Company's adoption of SFAS No. 128. 6 This amount was later adjusted to $.76 due to the Company's adopting of SFAS No. 128. 7 On 9/15/97, Amgen announced that the arbitrator in the Johnson & Johnson Epogen spill-over arbitration had "issued an opinion adopting Amgen's audit methodology to allocate the sales of Epogen alfa (EPO) between the two companies." The release stated Amgen was the "prevailing party" and that: "We believed that our audit more accurately reflected the true division of the market and are very pleased that the Arbitrator has agreed. * * * . . . Amgen estimates that the effect of the ruling will be a one-time net spillover payment to (Johnson & Johnson) . . . of approximately $78 million . . . Amgen will pay interest on this amount of $18 million. . . . * * * Amgen will take an accounting charge in its third quarter for the spillover payment and interest of $0.35 per share. . . . 8 EPS amounts are adjusted pursuant to the Company's adoption of SFAS No. 128. Securities Class Action U.S.D.C. Robert Crown Stanford University Clearinghouse N.D. Cal. Law Library School of Law inquiries@securities.stanford.edu Source: Scanned paper copy of court-stamped document