Amgen Inc. — 2013 Form 10-K Summary
Business context and reporting period. Amgen is a biotechnology company focused on discovering, developing, manufacturing and commercializing human therapeutics. It reports one business segment. This filing covers the fiscal year ended December 31, 2013; quarterly figures below are unaudited. On October 1, 2013, Amgen acquired Onyx Pharmaceuticals, adding Kyprolis and oncology pipeline and collaboration assets.
Key financial results
| Metric | 2013 | 2012 | Change |
|---|---|---|---|
| Total revenue | $18.676 billion | $17.265 billion | +8% |
| Product sales | $18.192 billion | $16.639 billion | +9% |
| Operating income | $5.867 billion | $5.577 billion | +5% |
| Net income | $5.081 billion | $4.345 billion | +17% |
| Diluted EPS | $6.64 | $5.52 | +20% |
| Operating cash flow | $6.291 billion | $5.882 billion | +$409 million |
- Margins: Cost of sales was 18.4% of product sales, versus 19.2% in 2012. Operating margin was approximately 31.4% of total revenue; net margin was approximately 27.2%.
- Cash and liquidity: Cash, cash equivalents and marketable securities were $19.401 billion; including restricted investments, total cash and investments were $22.813 billion, versus $24.061 billion in 2012. Current assets were $27.367 billion and current liabilities $7.947 billion.
- Debt and equity: Total debt rose to $32.128 billion from $26.529 billion. Stockholders’ equity was $22.096 billion. Onyx-related financing included a $3.1 billion repurchase obligation and a $5.0 billion term loan; the term loan bears floating interest and is due in 2018.
- Cash uses: Investing activities used $8.469 billion, including $9.434 billion for acquisitions, net of cash acquired. Capital expenditures were $693 million. Financing provided $2.726 billion; Amgen paid $1.415 billion in dividends and repurchased $832 million of shares.
- Quarterly context: Fourth-quarter 2013 product sales were $4.799 billion versus $4.337 billion a year earlier; net income was $1.021 billion versus $788 million, and diluted EPS was $1.33 versus $1.01.
Material changes versus 2012
- Growth was broad-based, with U.S. product sales up 10% and rest-of-world sales up 8%. XGEVA sales rose 36%, Prolia 58%, and Sensipar/Mimpara 15%. Aranesp sales fell 6%; EPOGEN was up 1%.
- NEUPOGEN and Neulasta combined sales increased 8%, but NEUPOGEN’s U.S. growth was significantly affected by a $155 million government stockpile order; excluding it, U.S. sales grew 1% and global sales declined 1%.
- R&D expense increased 21% to $4.083 billion, mainly from later-stage clinical programs, including evolocumab and Kyprolis. SG&A rose 8%, including Onyx costs; $215 million of acquisition-related SG&A was described as nonrecurring.
- Net income benefited from a 3.5% effective tax rate, down from 13.3%. The 2013 rate included tax benefits associated with Onyx, an IRS examination settlement and reinstated R&D credits; it is not necessarily indicative of a recurring rate.
- Three large wholesalers accounted for approximately 75% of worldwide gross revenue and 93% of U.S. gross product sales, underscoring customer concentration.
Outlook, risks and unusual items
- Management characterized 2014 as a “data-rich year” and cited growth opportunities in XGEVA, Prolia, later-stage pipeline assets, emerging markets and business development. No formal full-year revenue or EPS guidance is provided in the supplied filing text.
- Management estimated 2014 capital spending of approximately $800 million and said it did not expect significant share repurchases in 2014 or 2015. A quarterly dividend of $0.61 per share was declared for payment in March 2014; future dividends remain subject to Board approval.
- Competitive and patent risks are material: U.S. filgrastim patents expired in December 2013; the Neulasta U.S. patent listed expires in 2015. Amgen expected MIRCERA to enter the U.S. market in the second half of 2014, and warned of increasing biosimilar and other competition.
- The FDA issued a January 27, 2014 warning letter concerning device components and quality systems for certain combination products; Amgen said it was working with the FDA to address the concerns.
- Amgen remains subject to extensive pricing, reimbursement and regulatory pressures, clinical-development uncertainty, manufacturing and sole-source supplier risks, and legal proceedings. Its U.S. sales are highly concentrated among three wholesalers; EPOGEN also has concentrated dialysis-provider customers.
- In 2013, operating cash flow improved in part because 2012 included a litigation-settlement payment and higher tax payments. Amgen’s 2011 results included a $780 million legal settlement charge. Southern European receivables totaled $419 million, of which $301 million was past due; the company reported no significant losses to date.
- Approximately $20.9 billion of cash and investments was generated in foreign tax jurisdictions and intended to remain offshore. Amgen disclosed that repatriation could trigger additional taxes; it estimated approximately $9.1 billion of additional tax on cumulative indefinitely reinvested earnings at current rates.
- The 2012 U.S. government settlement concerning sales and marketing allegations included a five-year corporate integrity agreement. The filing also describes ongoing securities, derivative, ERISA and acquisition-related litigation; outcomes and potential losses are uncertain.
Important facts for investors to verify
- How much of 2013 growth and earnings reflects durable product demand versus pricing, the government stockpile order, Onyx’s partial-year contribution and favorable tax items.
- Progress and regulatory timing for evolocumab, Kyprolis, talimogene laherparepvec and other late-stage programs, including required outcomes data and conditional approval obligations.
- Actual impact and timing of biosimilar competition, patent expirations and the anticipated MIRCERA launch on key products.
- Onyx integration results, acquired-asset valuations, related debt and contingent milestone obligations; the filing reports up to approximately $3.3 billion of potential third-party milestone payments overall.
- Liquidity and refinancing needs, floating-rate exposure, offshore cash availability, and the company’s ability to sustain dividends while managing higher debt.
- Resolution of the FDA warning-letter matters, legal proceedings, manufacturing and supply risks, and collection of past-due European receivables.
The filing reports unqualified audit opinions on the consolidated financial statements and internal control over financial reporting as of December 31, 2013.