Amgen Inc. Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2011. Amounts are in millions of dollars except per-share data. Amgen operates in one segment, human therapeutics.
Financial performance
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Total revenue | $3,944 | $3,816 | $11,609 | $11,212 |
| Operating income | $525 | $1,479 | $3,150 | $4,477 |
| Net income | $454 | $1,236 | $2,749 | $3,605 |
| Diluted EPS | $0.50 | $1.28 | $2.96 | $3.71 |
| Operating cash flow | Not separately stated for the quarter | $3,535 | $3,779 |
- Q3 total revenue increased 3%; nine-month revenue increased 4%. Product sales rose 3% and 4%, respectively, while nine-month other revenue declined 29%, principally due to milestone payments recorded in 2010.
- Reported operating income fell 65% in Q3 and 30% for the nine months. Results included a $780 legal-settlement charge in Q3; higher SG&A and R&D also weighed on earnings. The settlement charge reduced Q3 net income by $705 after tax and diluted EPS by $0.77.
- Cost of sales was 15.6% of product sales in Q3 and for the nine months. The Puerto Rico excise tax increased cost of sales by $74 in Q3 and $132 year to date, while related tax credits reduced income-tax provisions by $106 and $259, respectively.
- Effective tax rates were 0.0% in Q3 and 11.3% year to date, versus 13.8% and 16.5% in the prior-year periods. Excluding the specified settlement and Puerto Rico excise-tax effects, Amgen reported rates of 13.9% and 17.1%.
Products and material period-over-period changes
- Worldwide product sales grew 3% in Q3 and 4% year to date. U.S. sales grew 2% and 4%; international sales grew 9% and 6%, with foreign exchange contributing to international growth.
- Neulasta/NEUPOGEN sales increased 6% in Q3 and 8% year to date. ENBREL grew 1% and 6%; Q3 U.S. demand was weaker, particularly in dermatology, partly offset by higher net pricing.
- Aranesp sales declined 4% in Q3 and 5% year to date. EPOGEN sales fell 27% and 20%, primarily due to lower unit demand associated with dialysis reimbursement changes, label changes and lower dose utilization.
- Other product sales increased 72% in Q3 and 56% year to date, reflecting growth in products including Sensipar, Nplate and Vectibix and sales of newly launched Prolia and XGEVA.
- Research and development expense rose 6% in Q3 and 14% year to date, reflecting increased support for later-stage clinical programs. SG&A increased 18% and 16%, including healthcare reform fees, ENBREL profit share, product launches, international expansion and foreign exchange effects.
Liquidity, debt and capital allocation
- At September 30, cash, cash equivalents and marketable securities totaled $17,676, compared with $17,422 at December 31, 2010. Approximately $16.8 billion was held in foreign tax jurisdictions and intended to remain invested abroad; repatriation could incur additional U.S. taxes.
- Total debt was approximately $14.3 billion, including $13,965 of long-term debt and $300 of commercial paper. Long-term debt carrying value increased from $13,362 at year-end, following new debt issuance and repayment of $2.5 billion of 2011 convertible notes. A zero-coupon convertible note is classified as current because holders may put it to Amgen for repayment in March 2012.
- Current assets were $24,430 and current liabilities $5,315. Amgen reported compliance with applicable financing covenants and stated that it had no financial covenants.
- Nine-month operating cash flow was $3,535, down from $3,779. Investing activities used $566, including $701 for acquisitions and $343 in capital expenditures. Financing activities used $2,365, including $3,017 of share repurchases, $2,500 of debt repayment and $255 of dividends, partly offset by debt and commercial-paper proceeds.
- Amgen estimated 2011 capital spending at approximately $600. The Board increased the share-repurchase authorization to $10 billion in October 2011. The company paid a $0.28-per-share dividend in September and declared another $0.28 dividend for payment in December.
Outlook, developments and risks
- Management expected EPOGEN dose utilization to decline 20%–25% in 2011 versus 2010, with patient growth and higher average net sales price expected to partly offset the sales impact. Most changes were expected to be implemented by year-end, with some residual impact in early 2012.
- Amgen said existing funds, operating cash flow and financing access were adequate for foreseeable needs, including debt service, capital spending, dividends, repurchases and strategic investments. The filing does not provide a clear overall revenue or EPS forecast.
- Amgen reached an agreement in principle to resolve specified federal investigations, related state Medicaid claims and certain qui tam actions. The proposed settlement remained subject to ongoing discussions, documentation and other review; no assurance was given that it would become final. The company also disclosed other sealed qui tam actions, including allegations relating to ENBREL and Aranesp that may fall outside the proposed settlement.
- Key risks include reimbursement and pricing pressure, ESA utilization and regulatory changes, biosimilar and other competition, patent challenges and expirations, clinical-trial and regulatory uncertainty, tax changes, and economic or financial stress affecting payers and business partners. Amgen noted a potentially adverse panitumumab study result in an unapproved indication and ongoing scrutiny of ESA products.
- Acquisitions included BioVex, with $597 of acquisition-date consideration and up to $575 in additional milestone payments, plus businesses and assets in Brazil and an Irish manufacturing facility. Amgen reported that the acquisitions’ pro forma impact was not material to the periods presented.
Important facts for investors to verify
- Whether the proposed $780 million legal settlement is finalized, what claims it covers, and the status and potential exposure of other investigations and qui tam cases.
- Whether ESA dose-utilization declines and reimbursement changes track management’s 20%–25% EPOGEN expectation, and how those trends affect Aranesp and EPOGEN sales.
- Underlying earnings trends excluding the Q3 settlement charge, alongside continuing R&D, SG&A and Puerto Rico excise-tax impacts.
- Debt maturities and refinancing needs, including the March 2012 holder put right, and the effect of repurchases and dividends on liquidity and leverage.
- Product launch performance, pipeline and regulatory milestones, and exposure to patent expiration, biosimilar competition and payer pricing actions.