Amgen Inc. — FY 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011. The filing also reports fourth-quarter results. Amgen is a biotechnology medicines company focused on human therapeutics; its largest product franchises include Neulasta/NEUPOGEN, Enbrel, Aranesp and EPOGEN.
Financial performance
| Metric | FY 2011 | FY 2010 | Change |
|---|---|---|---|
| Total revenue | $15.582 billion | $15.053 billion | +4% |
| Product sales | $15.295 billion | $14.660 billion | +4% |
| Operating income | $4.312 billion | $5.545 billion | -22% |
| Net income | $3.683 billion | $4.627 billion | -20% |
| Diluted EPS | $4.04 | $4.79 | -16% |
| Operating cash flow | $5.119 billion | $5.787 billion | -12% |
Product-sales gross margin was approximately 84.1%, using reported product sales less cost of sales (which excludes separately reported acquired-intangible amortization); it was approximately 84.9% in 2010. Operating margin was approximately 27.7%, versus 36.8% in 2010. The 2011 effective tax rate was 11.3%, compared with 13.0%.
Fourth-quarter 2011 product sales were $3.907 billion, net income was $934 million, and diluted EPS was $1.08. Fourth-quarter 2010 comparatives were $3.760 billion, $1.022 billion and $1.08, respectively.
Product sales and notable movements
- Neulasta/NEUPOGEN sales rose 8% to $5.212 billion; Enbrel rose 5% to $3.701 billion.
- Aranesp sales fell 7% to $2.303 billion, and EPOGEN sales fell 19% to $2.040 billion, chiefly reflecting reduced ESA use following reimbursement changes and revised FDA labeling.
- Other product sales increased 60% to $2.039 billion, supported by newer products including Prolia and XGEVA; Sensipar/Mimpara sales were $808 million.
- Revenue growth was partly offset by lower other revenues, which fell 27% to $287 million, mainly because of milestone payments in 2010.
Balance sheet, liquidity and capital allocation
- At year-end, cash, cash equivalents and marketable securities totaled $20.641 billion, compared with total debt of $21.428 billion. Approximately $16.9 billion of the cash and securities balance was generated in foreign tax jurisdictions and intended to remain invested abroad.
- Total assets were $48.871 billion; stockholders’ equity was $19.029 billion, down from $23.944 billion. Current assets were $27.593 billion and current liabilities $5.754 billion.
- Operating cash flow was $5.119 billion. Investing activities used $786 million, including $701 million for acquisitions; financing activities used $674 million.
- Amgen issued $10.5 billion in notes during 2011 and repaid $2.5 billion of convertible notes. It repurchased $8.3 billion of shares, including a $5 billion tender offer, and paid $500 million in dividends. The quarterly dividend was raised 29% to $0.36 per share, payable in March 2012.
- Management stated that available funds, operating cash flow and access to financing should meet foreseeable needs. Planned 2012 capital spending was approximately $700 million. A $2.5 billion revolving credit facility was undrawn at year-end.
Material changes, outlook and risks
- Unusual charge and legal contingency: Amgen recorded a $780 million charge in 2011 for an agreement in principle to settle allegations concerning sales and marketing practices. The settlement was not final at filing, and certain other allegations and proceedings were outside the proposed settlement.
- ESA pressure: Dialysis bundling took effect in 2011, FDA labeling changes lowered recommended hemoglobin thresholds, and reimbursement and treatment patterns contributed to substantial declines in Aranesp and EPOGEN sales. Amgen entered a seven-year EPOGEN supply agreement with DaVita beginning in 2012.
- Pipeline and business development: Amgen reported 12 Phase 3 programs as of February 2012. It acquired BioVex and Brazilian company Bergamo in 2011 and announced an agreement to acquire Micromet for approximately $1.16 billion, subject to closing conditions. Management cited Prolia, XGEVA, later-stage pipeline programs and geographic expansion as growth opportunities.
- Clinical and regulatory uncertainty: The motesanib Phase 3 MONET1 trial did not meet its overall-survival primary objective. FDA issued Complete Response Letters for Vectibix first- and second-line colorectal cancer applications. An FDA advisory panel voted that XGEVA’s benefit in delaying prostate-cancer bone metastases was not sufficient to establish a positive risk-benefit profile without additional outcomes.
- Competitive and reimbursement risks: Amgen expects increasing biosimilar competition as patents expire; biosimilars already compete with some products in Europe. U.S. Medicare sequestration was expected to reduce payments by 2% starting in 2013, subject to implementation or revision. Pricing pressure, payer restrictions and dialysis-center purchasing concentration may further affect sales and margins.
- Operational, legal and financial risks: Manufacturing depends significantly on Puerto Rico and third-party suppliers, with prior product recalls and component or production issues. The filing also cites ongoing litigation and investigations, foreign-exchange exposure, and potential tax costs if foreign earnings are repatriated. No material off-balance-sheet arrangements were reported.
- The filing gives no clear numerical earnings or revenue guidance for 2012. It describes growth opportunities and risks but cautions that several challenges could materially affect sales, results and liquidity.
Important facts for investors to verify
- Progress and final terms of the proposed $780 million legal settlement, including the status of claims not covered by it.
- Whether ESA utilization and revenue stabilize under the revised FDA labels, dialysis bundle, and DaVita and Fresenius supply arrangements.
- Product and pipeline execution: uptake of Prolia/XGEVA, regulatory outcomes for Vectibix and XGEVA, and results from significant Phase 3 trials.
- Patent-expiry timing and the commercial impact of biosimilar entry, particularly for G-CSF and ESA products.
- Debt and capital-return sustainability after substantial borrowing and share repurchases; also assess access to the $20.641 billion liquidity balance given the foreign-held funds.
- Whether manufacturing capacity, quality controls and sole-source supply arrangements can support reliable product supply.