Business context and reporting period
Amgen Inc. is a global biotechnology company focused on human therapeutics, operating as one business segment. This Form 10-K covers the fiscal year ended December 31, 2012; the filing also reports unaudited fourth-quarter results. Its principal products include Neulasta, NEUPOGEN, ENBREL, Aranesp, EPOGEN, XGEVA and Prolia.
Financial performance
Amounts are in millions of dollars except per-share data. Fiscal-year comparisons are 2012 versus 2011.
| Metric | 2012 | 2011 | Change / context |
|---|---|---|---|
| Total revenue | $17,265 | $15,582 | Up 11% |
| Product sales | $16,639 | $15,295 | Up 9%; U.S. up 9%, rest of world up 7% |
| Operating income | $5,577 | $4,312 | Up 29%; operating margin 32.3% versus 27.7% |
| Net income | $4,345 | $3,683 | Up 18%; net margin 25.2% versus 23.6% |
| Diluted EPS | $5.52 | $4.04 | Up 37%, reflecting higher income and fewer diluted shares |
| Operating cash flow | $5,882 | $5,119 | Up from prior year |
| Cash, cash equivalents and marketable securities | $24,061 | $20,641 | Includes $18.9 billion generated in foreign tax jurisdictions and intended to remain invested abroad |
| Total debt | $26,529 | $21,428 | Up $5,101; reported cash and securities were below total debt |
Operating expenses were $11,688, up 4%. Cost of sales was $2,918 (17.5% of product sales); R&D was $3,380 (20.3%); and SG&A was $4,801 (28.9%). Interest expense, net, rose to $1,053 from $610, primarily due to higher average debt. The effective tax rate was 13.3%, compared with 11.3%.
Fourth-quarter 2012 product sales were $4,337, net income was $788 and diluted EPS was $1.01. Fourth-quarter 2011 net income included a $780 legal settlement charge ($705 net of tax); therefore, quarterly earnings comparisons are affected by an unusual prior-year item.
Material changes versus the prior comparable period
- Growth was led by ENBREL, up 14% to $4,236; Sensipar/Mimpara, up 18% to $950; and other products, up 25% to $1,850. XGEVA and Prolia grew rapidly from smaller bases, reaching $748 and $472, respectively.
- Neulasta/NEUPOGEN sales rose 3% to $5,352. European sales faced biosimilar share losses; U.S. NEUPOGEN patent protection was due to expire in December 2013, with competition expected from the fourth quarter of 2013.
- Aranesp fell 11% to $2,040 and EPOGEN fell 5% to $1,941, following reduced ESA use and dose utilization associated with 2011 label and reimbursement changes. EPOGEN unit demand fell 23% in 2012.
- Other revenue increased to $626 from $287, principally reflecting $232 from modification of the Takeda motesanib collaboration and milestone receipts.
- Net income improved despite higher interest expense; 2011 included the $780 legal settlement charge. Diluted shares declined 14%, supporting EPS growth.
- Cash from operations increased, while cash used in investing rose to $9,990, including $2,390 for acquisitions and $6,875 in net purchases of marketable securities. Amgen repurchased 62.3 million shares for $4,662 and paid $1,118 in dividends.
Outlook, management commentary and key risks
- Management identified continued growth opportunities in XGEVA and Prolia, pipeline development, international expansion and business development. It emphasized cost efficiencies to support investment. No specific 2013 revenue or EPS guidance is provided in the supplied filing text; estimated 2013 capital spending was approximately $700.
- Pipeline progress included advancing AMG 145, brodalumab, rilotumumab and romosozumab into Phase 3. The Sensipar E.V.O.L.V.E. trial did not meet its primary endpoint; the XGEVA application to prevent bone metastases in high-risk prostate cancer received an FDA Complete Response Letter. In January 2013, the Aranesp RED-HF trial also failed its primary endpoint.
- Patent expirations and biosimilar competition are substantial risks, particularly for NEUPOGEN, EPOGEN and Aranesp. The filing also flags pricing and reimbursement pressure, including U.S. dialysis payment changes, scheduled Medicare sequestration and international austerity measures.
- Amgen finalized a government settlement in December 2012: approximately $612 million to resolve civil claims and $150 million for criminal liability, plus accrued interest. The company pleaded guilty to a misdemeanor misbranding count relating to Aranesp and entered a five-year corporate integrity agreement. Some related matters remained unresolved.
- Liquidity risks include $400 million of receivables from Greece, Italy, Spain and Portugal, of which $281 million was past due at year-end; management reported no significant losses to date. Contractual obligations totaled $48,547, including $44,885 of scheduled debt principal and interest. Approximately $1.1 billion of unrecognized tax benefits and up to $2.5 billion of contingent milestone payments were outside that obligations total.
- Manufacturing concentration is a risk: substantial commercial formulation, fill and finish operations are in Puerto Rico, and clinical manufacturing is concentrated in Thousand Oaks. The Puerto Rico excise tax increased 2012 cost of sales by $343 million, with an offsetting $337 million tax benefit; the filing notes a proposed Puerto Rico tax-rate increase.
- Amgen reported effective disclosure controls and internal control over financial reporting, with an unqualified auditor opinion.
Most important facts for investors to verify
- Whether product growth, especially ENBREL, XGEVA, Prolia and newer products, can offset ESA declines and expected biosimilar competition.
- The timing and commercial impact of U.S. patent expirations, including NEUPOGEN competition beginning as early as late 2013.
- ESA demand, dose trends, regulatory study outcomes and any further changes to labels or reimbursement.
- Debt service and capital allocation after the February 2013 cash settlement of the $2.5 billion convertible notes, alongside repurchases and dividends.
- Collection of overdue Southern European receivables and the effect of the Puerto Rico excise tax and any proposed amendment.
- Remaining legal and compliance exposure, including unresolved qui tam matters and obligations under the corporate integrity agreement.