Amgen Inc. — Q2 2021 Form 10-Q
Business context and reporting period
Amgen is a global biotechnology company operating in one segment, human therapeutics. This unaudited quarterly report covers the three and six months ended June 30, 2021; comparisons are with the corresponding 2020 periods unless noted. Dollar amounts are in millions except per-share data.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $6,526 (+5%) | $6,206 | $12,427 (flat) | $12,367 |
| Product sales | $6,114 (+3%) | $5,908 | $11,706 (-1%) | $11,802 |
| Operating income | $828 (-64%) | $2,323 | $2,957 (-37%) | $4,678 |
| Net income | $464 (-74%) | $1,803 | $2,110 (-42%) | $3,628 |
| Diluted EPS | $0.81 (-73%) | $3.05 | $3.65 (-40%) | $6.12 |
| Operating margin | 12.7% | 37.4% | 23.8% | 37.8% |
| Net margin | 7.1% | 29.1% | 17.0% | 29.3% |
| Operating cash flow | Not separately presented for Q2 | $4,035 | $4,976 |
Q2 operating expenses rose 47% to $5,698, mainly because of a $1,505 acquired in-process R&D charge for Five Prime Therapeutics’ bemarituzumab program. That charge was not tax deductible. Cost of sales was 26.8% of product sales in Q2 versus 25.2% a year earlier; the filing cites product mix and higher profit-share and royalty expenses, partly offset by lower acquired-asset amortization.
- Cash flow: First-half capital expenditures were $351; operating cash flow less capital expenditures was approximately $3,684, versus $4,676 in 2020. Investing activities provided $890, including $2.9 billion of net cash inflows from marketable securities, partly offset by the $1.6 billion Five Prime acquisition. Financing activities used $4,561, including $2.5 billion of repurchases and $2.0 billion of dividends.
- Liquidity: Cash, cash equivalents and marketable securities were $8,082 at June 30, versus $10,647 at year-end. Current assets were $19,099 and current liabilities $14,585, a derived current ratio of about 1.31x.
- Debt: Total debt carrying value was $32,782, compared with $32,986 at December 31, 2020. The current portion increased to $4,324 from $91, reflecting debt classified as due within a year; long-term debt was $28,458. Amgen reported compliance with applicable debt covenants.
- Capital return: Amgen repurchased 10.2 million shares for approximately $2.5 billion in the first half. It paid dividends of $1.76 per share in each of Q1 and Q2 and declared another $1.76 dividend for September 2021. Repurchase authorization remaining at quarter-end was $3.9 billion.
Material changes and operating drivers
- Q2 product-sales growth was driven primarily by higher demand for Prolia, Repatha, XGEVA and MVASI, partly offset by net-price declines. First-half product sales declined 1%, with lower prices partly offset by demand gains.
- Q2 sales increased for Prolia (+24%), Repatha (+43%) and XGEVA (+12%); decreased for ENBREL (-8%), Neulasta (-18%) and Otezla (-5%). Neulasta was pressured by biosimilar competition; ENBREL by lower net prices and sales deductions. First-half Prolia and Repatha sales rose 20% and 33%, respectively, while ENBREL and Neulasta fell 14% and 19%.
- Other revenue rose 38% in Q2 and 28% in the first half, primarily due to sales of COVID-19 antibody material.
- Five Prime was acquired on April 16 for $1.6 billion net of cash acquired, funded with cash on hand. The $1.5 billion bemarituzumab IPR&D charge was expensed immediately. Amgen also settled two Novartis collaboration claims, paying $48 million for the 2018 budget dispute; Novartis was transitioning U.S. commercial operations for Aimovig to Amgen.
Outlook, commentary and material risks
- Management said patient visits, treatment resumption and new starts gradually recovered through Q2 but remained below pre-pandemic levels. The cumulative reduction in diagnoses is expected to weigh on new starts in the second half, with continued quarter-to-quarter sales volatility possible. Amgen reported no material medicine-supply disruption to date.
- The filing does not provide a clear numeric full-year revenue or EPS guidance value in the text supplied. Amgen estimated 2021 capital-project spending of approximately $900 million and said available funds, operating cash flow and financing access should meet expected working-capital, capital, debt-service, dividend, repurchase and business-development needs.
- Amgen completed a Kyowa Kirin collaboration on July 30, after quarter-end, with a $400 million upfront payment expected to be recognized as Q3 2021 R&D expense. A proposed Teneobio acquisition announced in July would require $900 million upfront and potentially up to $1.6 billion in contingent milestone payments; it remained subject to closing conditions.
- Tax dispute: In July, Amgen petitioned the U.S. Tax Court regarding IRS notices for 2010–2012 seeking approximately $3.6 billion of additional federal tax plus interest; up to approximately $900 million of previously accrued repatriation tax could reduce the amount. Amgen disputes the IRS position. Related IRS adjustments for 2013–2015 and examinations for 2016–2018 are also ongoing. The company warns ultimate tax payments could substantially exceed accruals and materially affect results.
- Other risks: COVID-19 effects on diagnoses, patient access, clinical trials and supply chains; biosimilar and generic competition; pricing and reimbursement pressure and potential policy changes; product patent litigation; cybersecurity and third-party service interruptions; and possible changes in U.S. and international tax laws. Amgen said it could not estimate a range of possible losses for the described legal matters, or amounts were not material, but adverse outcomes could materially affect results, financial position or cash flows.
Important facts for investors to verify
- Track the Tax Court case and related IRS examinations, including potential interest and the treatment of previously accrued repatriation tax.
- Assess whether recovery in patient visits and diagnoses offsets continuing price declines and biosimilar pressure, particularly for ENBREL, Neulasta and other exposed products.
- Monitor pipeline and transaction execution: bemarituzumab’s development progress, the Kyowa Kirin collaboration expense, and the proposed Teneobio acquisition’s closing terms and contingent payments.
- Review the $4.3 billion current debt portion, upcoming maturities, liquidity after capital returns and planned capital spending.
- Follow the outcome of material patent and commercial litigation, including Otezla, Repatha, ENBREL and generic carfilzomib matters.