Amgen Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Amgen is a global biotechnology company operating in one segment: human therapeutics. Financial amounts below are in millions of dollars, except per-share data and percentages.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $6,652 | $6,706 | $19,484 | $19,133 |
| Operating income | $2,660 | $2,378 | $7,336 | $5,335 |
| Net income | $2,143 | $1,884 | $4,936 | $3,994 |
| Diluted EPS | $3.98 | $3.31 | $9.11 | $6.93 |
| Operating margin | 40.0% | 35.5% | 37.6% | 27.9% |
| Net margin | 32.2% | 28.1% | 25.3% | 20.9% |
- Revenue mix: Q3 product sales were $6,237, down 1%; other revenue was $415, up 8%. Nine-month product sales were $18,249, up 1%; other revenue was $1,235, up 12%.
- Cash flow: Nine-month operating cash flow was $7,072, versus $6,453. Investing used $2,571, compared with $963 provided in 2021; financing used $2,988, versus $1,713 used.
- Liquidity and debt: At September 30, cash, cash equivalents and marketable securities totaled $11,478. Current assets were $24,062 and current liabilities $14,331. Debt carrying value was $38,704, including $1,543 current and $37,161 long-term, versus $33,309 at year-end 2021. Stockholders’ equity was $3,653, down from $6,700.
- Capital returns: Amgen repurchased $6,310 of stock and paid $3,156 in dividends during the first nine months. Quarterly dividend declared was $1.94 per share. The October 2022 board authorization added $2,400 to the repurchase program.
Changes and notable drivers
- Q3 operating income increased 12%, net income 14% and diluted EPS 20% year over year, despite a 1% revenue decline. Nine-month operating income rose 38% and diluted EPS 31%.
- Lower Q3 product revenue reflected price declines, unfavorable foreign exchange, inventory and estimated sales deductions, partly offset by demand growth in selected brands. For the first nine months, growth in demand for products including Prolia, Repatha, EVENITY, LUMAKRAS/LUMYKRAS, KYPROLIS and Otezla outweighed some price, currency and inventory headwinds.
- Product results were mixed: Q3 Prolia rose 7%, Repatha 14%, KYPROLIS 9% and Otezla 3%; ENBREL fell 14% and Neulasta 40%. Management cited biosimilar competition and price erosion as continuing pressures on Neulasta.
- Operating expenses fell 8% in Q3 and 12% for the nine-month period. Lower R&D and SG&A included comparison against 2021 licensing costs; the nine-month comparison also benefited from the absence of the $1,505 Five Prime acquired IPR&D charge.
Outlook, risks and unusual items
- Management expects portfolio-level net selling prices to continue declining and international sales to remain adversely affected by foreign exchange for the rest of 2022; currency effects are partly offset by lower international operating expenses and hedging. Estimated 2022 capital-project spending is approximately $950. The supplied filing text does not provide a clear quantified full-year revenue or EPS forecast.
- Management said existing funds, operating cash generation and financing access were adequate for working capital, capital expenditures, debt service, dividends, repurchases and planned business initiatives. The company reported compliance with applicable debt covenants.
- The $565 nine-month loss on the Gensenta divestiture, primarily related to accumulated foreign-currency translation losses, was a significant unusual item. The sale closed November 2, 2022. Amgen also completed its approximately $3,700 cash acquisition of ChemoCentryx on October 20, 2022; its results are included starting in Q4.
- Q3 interest expense rose to $368 from $296, mainly due to higher debt and higher LIBOR on debt effectively bearing variable rates. Nine-month other expense, net was $747, including losses on strategic equity investments and BeiGene; Q3 included a $78 gain on debt extinguishment.
- Tax exposure: IRS disputes for 2010–2012 and 2013–2015 involve proposed additional federal taxes of approximately $3,600 and $5,100, respectively, plus interest; the latter also asserts approximately $2,000 in penalties. Potential repatriation-tax offsets may reduce amounts. Amgen contests the notices and says resolution is unlikely within 12 months, while warning outcomes could materially exceed accruals. The company also expects a Puerto Rico tax change to increase tax expense beginning in 2023.
- Pricing and access: The Inflation Reduction Act introduces Medicare drug-price negotiation, inflation-related rebates and Part D redesign. Management says the impact remains uncertain but could materially affect sales and results. Pricing, reimbursement, payer restrictions, biosimilar competition, foreign exchange and residual pandemic-related variability are additional risks.
- Clinical and pipeline updates included positive Phase 3 LUMAKRAS/LUMYKRAS results versus docetaxel and positive top-line results for biosimilar candidate ABP 959 versus SOLIRIS. These are development updates, not reported financial results.
Investor verification priorities
- Track product-level sales, particularly ongoing ENBREL and Neulasta declines, and whether growth brands offset price erosion and foreign-exchange pressure.
- Review subsequent-quarter effects of the ChemoCentryx acquisition and Gensenta divestiture, including purchase accounting and cash/debt implications.
- Monitor progress and potential exposure in the IRS tax litigation, plus the expected 2023 Puerto Rico tax treatment.
- Assess the implementation and product-specific effects of the Inflation Reduction Act and other payer, reimbursement and pricing changes.
- Reconcile earnings growth with operating cash flow, debt growth, capital returns and the carrying-value changes in strategic investments, including BeiGene.