Amgen Inc. — Q1 2021 Form 10-Q Summary
Business context and reporting period
Amgen is a global biotechnology company operating in one segment: human therapeutics. This unaudited filing covers the three months ended March 31, 2021, with comparisons to Q1 2020. All dollar amounts are in U.S. dollars.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $5.901 billion | $6.161 billion | (4%) |
| Product sales | $5.592 billion | $5.894 billion | (5%) |
| Operating income | $2.129 billion | $2.355 billion | (10%) |
| Net income | $1.646 billion | $1.825 billion | (10%) |
| Diluted EPS | $2.83 | $3.07 | (8%) |
| Cash from operations | $2.104 billion | $2.134 billion | (1%) |
Calculated operating margin was approximately 36.1%, versus 38.2% in Q1 2020; net margin was approximately 27.9%, versus 29.6%. Cost of sales was 25.2% of revenue, up from 24.6%. R&D expense rose 2% to $967 million; SG&A declined 5% to $1.254 billion. Net interest expense fell to $285 million from $346 million. The effective tax rate increased to 11.4% from 9.7%.
Cash and marketable securities totaled $10.566 billion at March 31, 2021, compared with $10.647 billion at year-end 2020. Total debt carrying value was $32.685 billion, versus $32.986 billion; $1.556 billion was current, compared with $91 million at year-end. Current assets were $21.299 billion and current liabilities $12.869 billion. Q1 investing cash outflow was $319 million and financing cash outflow was $1.939 billion. Capital expenditures were $166 million. The company repurchased $865 million of shares and paid $1.016 billion in dividends.
Material changes and operating drivers
- U.S. product sales fell 9%, while rest-of-world sales rose 5%. Management attributed the overall product-sales decline mainly to lower net selling prices, partly offset by unit-demand growth for certain products; continuing COVID-19 effects on patient visits, diagnoses and treatment also weighed on demand.
- Major product movements included Prolia up 16% to $758 million and Repatha up 25% to $286 million. ENBREL fell 20% to $924 million, Neulasta fell 21% to $482 million, Aranesp fell 16% to $355 million and KYPROLIS fell 10% to $251 million.
- Other revenue increased 16% to $309 million, primarily on higher royalties. Operating expenses declined 1%, mainly because of lower amortization of acquisition-related assets; cost-of-sales percentage nevertheless increased due to product mix and higher profit-share and royalty expense.
- Net cash from operations was nearly flat year over year. Investing cash use was $319 million versus $230 million; Q1 2020 included a $2.6 billion BeiGene equity investment. Financing cash use rose to $1.939 billion from $254 million, as prior-year debt issuance and repayments did not recur.
Outlook, risks and notable items
- No numerical full-year revenue or EPS guidance is provided in the supplied filing text. Amgen expects continued quarter-to-quarter sales variability while the pandemic affects patient access and clinical activity, and anticipates further recovery in some demand as conditions improve.
- Management expects operating expenses to be higher in the remaining quarters of 2021 as it invests in innovation and long-term growth. It expects a Q2 R&D charge related to the Five Prime acquisition. Estimated 2021 capital-project spending is approximately $900 million.
- Amgen completed its acquisition of Five Prime Therapeutics on April 16, 2021, for approximately $1.9 billion in cash. It expected to account for the transaction as an asset acquisition and include it in Q2 financial statements.
- COVID-19 remains a risk to patient access, product demand, clinical-trial enrollment, operations and supply chains. The company reported no significant supply disruption to date, but noted continued uncertainty, including possible renewed restrictions and effects from virus variants.
- Key commercial risks include biosimilar and other competition, pricing and reimbursement pressure, and U.S. policy changes affecting drug prices and coverage. Management specifically cited expected continued declines for ENBREL, Neulasta and Aranesp; Parsabiv sales have been materially affected by a Medicare payment change.
- Amgen faces significant IRS disputes over the allocation of profits between U.S. entities and Puerto Rico for tax years 2010–2015, as well as ongoing examinations. The company contests proposed adjustments; ultimate tax payments could substantially exceed accruals and materially affect results.
- Litigation includes patent disputes affecting Repatha, KYPROLIS and other products, and antitrust matters. The filing states that potential losses generally cannot be estimated or are not material at this stage, but adverse outcomes in pending matters could materially affect results, financial position or cash flows.
- The company said existing funds, operating cash flow and financing access should be adequate for working capital, capital spending, debt service, dividends, repurchases and planned business initiatives. It reported compliance with applicable debt covenants at March 31, 2021.
Important facts for investors to verify
- Whether product-sales trends, particularly declines in mature brands and growth in Prolia and Repatha, persist in subsequent quarters.
- The magnitude and timing of the Five Prime acquisition accounting and Q2 R&D charge.
- COVID-19 effects on patient access, demand, clinical programs and supply chains, alongside any recovery in diagnoses and treatment.
- Developments in biosimilar competition, drug-pricing and reimbursement policy, and material patent or antitrust litigation.
- Progress and potential financial exposure in IRS tax disputes, and the amount and timing of current-maturity debt repayment or refinancing.
- Capital-return plans: the quarterly dividend was $1.76 per share, and $5.5 billion of repurchase authorization remained at March 31, 2021.