Amgen Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; unaudited. Amgen reports as one segment: human therapeutics. Dollar figures are in millions unless stated otherwise.
Financial performance
- Revenue: $7,447, up 22% from $6,105. Product sales rose 22% to $7,118, with U.S. sales up 25% and rest-of-world sales up 15%. Management attributed product-sales growth primarily to 25% volume growth; Horizon-acquired products contributed $914. Portfolio net selling price was relatively unchanged.
- Products: Notable growth included Repatha (+33%), EVENITY (+35%), BLINCYTO (+26%) and TEZSPIRE (+80%). TEPEZZA ($424) and KRYSTEXXA ($235) contributed following the Horizon acquisition; neither was included in the prior-year quarter. Nplate declined 12%, partly reflecting an $82 U.S. government order in Q1 2023.
- Profit and margins: Operating income fell 48% to $991 from $1,921; operating margin was approximately 13.3%, versus 31.5%. Net loss was $113, compared with net income of $2,841. Diluted loss per share was $0.21, versus diluted EPS of $5.28. Cost of sales rose 86% to $3,200 and equaled 43.0% of revenue, versus 28.2%.
- Costs and nonoperating items: R&D increased 27% to $1,343 and SG&A increased 44% to $1,808. Higher Horizon-related amortization and acquisition costs contributed to expense growth. Net interest expense rose to $824 from $543. Other expense was $235, versus prior-year other income of $2,064; the comparison primarily reflects unrealized losses on strategic equity investments, notably BeiGene, versus prior-year gains. Q1 2024 included a $133 gain on debt extinguishment.
- Cash flow: Operating cash flow was $689, down from $1,064. The company cited an $800 IRS advance deposit, partly offset by working-capital timing. Investing cash outflow was $217, including $230 of capital expenditures. Financing cash outflow was $1,708, primarily dividends of $1,208 and debt extinguishment of $410. Cash declined by $1,236 to $9,708.
- Liquidity and debt: Current assets were $28,029 and current liabilities $19,714. Debt carrying value totaled $64,020 ($3,959 current and $60,061 long-term), compared with $64,613 at year-end. Stockholders’ equity was $5,022, down from $6,232. Amgen said it was in compliance with applicable debt covenants and considers existing funds, operating cash flow and financing access adequate for its needs.
Material changes and business developments
- The Horizon acquisition, completed October 6, 2023 for approximately $27.8 billion, added products and increased amortization, operating costs and interest expense. The acquisition added $914 of Q1 product sales; purchase accounting remains preliminary.
- Operating cash flow was lower year over year, while the prior-year comparison included $23.8 billion of debt issuance proceeds and $1.7 billion of net marketable-securities inflows.
- On May 2, 2024, Amgen reported completion of an interim analysis of its Phase 2 MariTide obesity study and said it expects to initiate a broad Phase 3 program. It also plans a dedicated Phase 2 diabetes study and will not pursue further development of obesity candidate AMG 786.
Outlook, risks and contingencies
- For the remainder of 2024, management expects Horizon-product sales growth and volume growth from other brands to be partly offset by portfolio-level net selling-price declines. The filing does not provide a clear full-year revenue or EPS guidance figure.
- Management estimates 2024 capital-project spending of approximately $1.1 billion. It intends to invest in the business, reduce debt and return capital through dividends and share repurchases. No shares were repurchased in Q1; $7.0 billion of authorization remained. A $2.25-per-share dividend was declared for payment in June 2024.
- Pricing and reimbursement pressure, government cost-containment measures and the Inflation Reduction Act may weigh on sales and profitability. ENBREL is among the first 10 drugs in Medicare price negotiations; CMS was expected to publish negotiated prices by September 1, 2024 for application beginning in 2026. Amgen also cited payer restrictions, state pricing initiatives and international reference-pricing risks.
- The IRS disputes tax allocations for 2010–2012 and 2013–2015 seek approximately $3.6 billion and $5.1 billion of additional federal tax, respectively, plus interest; the latter notice also asserts approximately $2.0 billion of penalties. Previously accrued repatriation tax could reduce amounts. The cases are consolidated, with trial scheduled to begin November 4, 2024. Amgen contests the IRS positions but says an adverse outcome could materially affect results and cash flows.
- Other risks include product competition and patent litigation, clinical and regulatory uncertainty, manufacturing and supplier concentration, cybersecurity and third-party service disruptions, macroeconomic and geopolitical conditions, and integration of Horizon. Amgen reported that the Change Healthcare ransomware disruption caused lost sales and operational impacts but was immaterial to the company.
- In the Prolia/XGEVA biosimilar dispute, a judgment and settlement permit Sandoz to launch its denosumab biosimilars in the U.S. on May 31, 2025, unless accelerated under confidential terms. Amgen also disclosed other ongoing legal matters whose outcomes or potential losses are not clearly estimable.
Key facts for investors to verify
- Whether Horizon products sustain growth and whether acquisition-related amortization and other costs moderate.
- Product volume, net-price trends and the effects of Medicare negotiations, payer coverage and biosimilar competition.
- Cash generation, debt repayment and the ability to meet the near-term maturity profile while maintaining dividends and investment plans.
- Developments in the IRS tax cases, potential exposure after applicable offsets, and any resulting cash payments.
- Progress and results of MariTide studies and the timing and investment required for the planned clinical programs.