Amgen Inc. — FY2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. The filing also reports unaudited fourth-quarter results. Amgen operates in one segment: human therapeutics.
Financial performance
| Metric | FY2015 | FY2014 | Change |
|---|---|---|---|
| Total revenue | $21.662 billion | $20.063 billion | +8% |
| Product sales | $20.944 billion | $19.327 billion | +8% |
| Operating income | $8.470 billion | $6.191 billion | +37% |
| Net income | $6.939 billion | $5.158 billion | +35% |
| Diluted EPS | $9.06 | $6.70 | +35% |
| Operating cash flow | $9.077 billion | $8.555 billion | +6% |
| Capital expenditures | $594 million | $718 million | −17% |
| Cash, equivalents and marketable securities | $31.382 billion | $27.026 billion | +$4.356 billion |
| Total debt | $31.556 billion | $30.715 billion | +$841 million |
Operating margin was approximately 39.1%, versus 30.9% in 2014; net margin was approximately 32.0%, versus 25.7%. Cost of sales fell to 19.5% of revenue from 22.0%, while R&D expense declined to $4.070 billion from $4.297 billion. The effective tax rate rose to 13.0% from 7.6%; management attributed the increase mainly to changes in the jurisdictional mix of income and lower domestic restructuring costs. The 2014 and 2013 tax rates included significant favorable tax items.
At year-end, current assets were $38.518 billion and current liabilities $8.667 billion. Debt included $2.250 billion classified as current. Cash and marketable securities were approximately equal to total debt, but about $29.0 billion of the cash and securities was generated in foreign jurisdictions and intended to remain invested abroad; repatriation would trigger additional U.S. tax under current law. The company reported investment-grade ratings and compliance with debt covenants.
In unaudited Q4 2015, product sales were $5.329 billion versus $5.174 billion in Q4 2014; net income was $1.800 billion versus $1.294 billion, and diluted EPS was $2.37 versus $1.68.
Material changes and business developments
- U.S. product sales increased 12% to $16.523 billion; rest-of-world sales decreased 4% to $4.421 billion, reflecting foreign exchange and lower net selling prices, partly offset by demand growth.
- Growth was led by Prolia (+27%), Sensipar/Mimpara (+22%), XGEVA (+15%) and ENBREL (+14%). Other product sales increased 24%, including growth in Kyprolis. EPOGEN sales fell 9% and NEUPOGEN sales fell 9%.
- EPOGEN’s U.S. decline accelerated to 37% in Q4 year over year, amid competition and a shift in dialysis sales to Aranesp. Amgen’s final material U.S. EPOGEN patent expired in May 2015; its final material U.S. Neulasta patent expired in October 2015.
- Amgen launched or expanded several products and indications, including U.S. approvals for Corlanor, Repatha, Kyprolis combination therapy and IMLYGIC. Repatha’s cardiovascular outcomes benefit had not been established at filing.
- Amgen advanced its pipeline and biosimilar program. Parsabiv applications were under review; the FDA accepted ABP 501, a Humira biosimilar candidate, for review. Phase 3 results were positive for certain programs, including romosozumab and a biosimilar bevacizumab candidate.
Cash returns, outlook and unusual items
- Operating cash flow funded investment and shareholder returns. Amgen paid $2.396 billion in dividends and repurchased $1.867 billion of shares in 2015. The quarterly dividend was raised to $1.00 per share for Q1 2016; $4.9 billion remained under the repurchase authorization at year-end.
- Management expected legacy products to continue generating significant cash flow and highlighted new launches, pipeline development, biosimilars and manufacturing improvements as growth opportunities. The filing provides no specific 2016 revenue or EPS guidance. Estimated 2016 capital spending was approximately $700 million.
- A restructuring and process-improvement plan carries expected pretax charges of $800 million to $900 million; $672 million had been incurred through year-end 2015, with most remaining costs expected in 2016–2017. Management said savings were not significant in 2015 because of investment in launches, late-stage trials and business development.
- Puerto Rico is a key manufacturing location. The territory’s fiscal and liquidity crisis could affect utilities, services, operating costs or workforce availability. Amgen was pursuing additional capacity and licensure in Puerto Rico, Ireland and Singapore.
- Major risks include pricing and reimbursement pressure, biosimilar and other competition, patent challenges, clinical and regulatory uncertainty, manufacturing or supplier disruptions, and dependence on three wholesalers for a large share of sales. Litigation and investigations remain ongoing; the filing states that it could not estimate possible losses for certain matters. Amgen’s Corporate Integrity Agreement runs through December 2017.
Important facts for investors to verify
- Whether biosimilar entry and post-patent competition accelerate declines in Neulasta, EPOGEN and NEUPOGEN, and whether growth products offset those declines.
- Whether revenue growth and margins persist after the effects of restructuring, product launches, pricing and foreign exchange.
- How much of the $31.4 billion cash and securities balance is practically available to U.S. operations, given the stated indefinite foreign investment intent and potential repatriation taxes.
- Debt maturities, interest costs and the company’s capacity to maintain dividends and repurchases while funding R&D, acquisitions and manufacturing investment.
- Clinical and regulatory progress for Repatha outcomes, Parsabiv, biosimilar candidates and other major pipeline programs, along with any material litigation, compliance or Puerto Rico developments.