Amgen Inc. — 2018 Form 10-K Summary
Business context and reporting period. Amgen is a global biotechnology company focused on discovering, developing, manufacturing and commercializing human therapeutics. It reports one business segment. This annual filing covers the fiscal year ended December 31, 2018; quarterly figures below are for the fourth quarter ended December 31, 2018. Dollar figures are U.S. dollars.
Financial performance
| Metric | 2018 | 2017 |
|---|---|---|
| Total revenue | $23.747 billion | $22.849 billion |
| Product sales | $22.533 billion | $21.795 billion |
| Operating income | $10.263 billion | $9.973 billion |
| Net income | $8.394 billion | $1.979 billion |
| Diluted EPS | $12.62 | $2.69 |
| Cash from operations | $11.296 billion | $11.177 billion |
| Cash, cash equivalents and marketable securities, year-end | $29.304 billion | $41.678 billion |
| Total debt, year-end | $33.929 billion | $35.342 billion |
- Revenue increased 4%; product sales rose 3%, including U.S. growth of 2% and rest-of-world growth of 9%. Management attributed sales growth mainly to higher unit demand, partly offset by lower net selling prices.
- Operating expenses increased 5% to $13.484 billion. Operating margin was approximately 43.2% of revenue, versus 43.6% in 2017.
- The 2018 effective tax rate was 12.1%, compared with 79.4% in 2017. The 2017 result included a $6.1 billion charge related to the 2017 Tax Act; the year-over-year net income and EPS increase is therefore not a like-for-like measure of underlying growth.
- Fourth-quarter 2018 product sales were $6.001 billion, net income was $1.928 billion, and diluted EPS was $3.01. The comparable fourth-quarter 2017 figures were $5.569 billion, a net loss of $4.264 billion, and diluted loss per share of $5.89, including the tax-reform charge.
- Year-end current assets were $37.618 billion and current liabilities were $13.488 billion. The resulting current ratio was approximately 2.8. Cash and marketable securities were below total debt by approximately $4.6 billion.
- Financing cash outflow was $22.490 billion, primarily reflecting $17.794 billion of share repurchases and $3.507 billion of dividends. Amgen repurchased 94.5 million shares for $17.9 billion during 2018. Capital expenditures were $738 million.
- Total sales deductions rose to 39% of gross product sales from 35% in 2017; the year-end accrual for sales deductions was $3.170 billion, up from $2.247 billion.
Material changes versus the prior year
- Product growth was led by Prolia ($2.291 billion, up 16%), XGEVA ($1.786 billion, up 13%), and other products (up 26% to $4.306 billion). Repatha sales grew, while Aimovig and Parsabiv contributed as newer launches.
- Mature products faced pressure: ENBREL sales fell 8% to $5.014 billion; Aranesp fell 9% to $1.877 billion; and EPOGEN fell 8% to $1.010 billion. Neulasta sales declined 1% to $4.475 billion.
- Cash and marketable securities declined $12.374 billion, while equity declined $12.741 billion, reflecting, among other factors, substantial share repurchases and dividends. Debt declined $1.413 billion.
- Amgen acquired Kirin-Amgen’s remaining 50% interest, making it a wholly owned subsidiary; the transaction generated an $80 million net gain recorded in interest and other income.
- R&D spending increased 5% to $3.737 billion, with higher investment in early pipeline and later-stage programs. SG&A rose 9% to $5.332 billion, primarily supporting product launches and marketed products.
Outlook, commentary, risks and unusual items
- Management expected net selling prices to continue declining in 2019. It also anticipated lower sales for ENBREL, Neulasta in Europe, Aranesp in the U.S., Sensipar, and EPOGEN, citing competition, generic entry, purchasing patterns or pricing terms. No company-wide numerical 2019 revenue or earnings guidance is provided in the supplied filing text.
- Management described 2018 execution as strong and highlighted new product launches, pipeline investment, biosimilar expansion and next-generation manufacturing. It estimated 2019 capital-project spending at approximately $700 million.
- Competition and patent exposure are significant, including U.S. biosimilar launches for Neulasta and EPOGEN and generic-entry litigation affecting Sensipar. Amgen noted that an at-risk generic Sensipar launch occurred in late 2018; the company settled with that manufacturer in January 2019, while related disputes remained.
- Pricing, reimbursement and formulary restrictions may weigh on access and sales. Amgen highlighted payer pressure on Repatha and ENBREL, increased rebates and discounts, and potential U.S. and international policy changes.
- Three wholesalers accounted for 84% of worldwide gross revenues and 98% of U.S. gross product sales in 2018. DaVita accounted for approximately 70% of EPOGEN sales, creating customer concentration exposure.
- Amgen cited dependence on manufacturing operations in Puerto Rico and Thousand Oaks, sole-source suppliers and devices, and potential disruption from utilities, natural disasters, regulatory issues or supply shortages. The Puerto Rico electric grid remained a risk after Hurricane Maria.
- The IRS proposes substantial adjustments for 2010–2012, primarily involving profit allocation between U.S. entities and Puerto Rico. Amgen disputes the adjustments; final resolution could materially affect its financial statements. The filing does not provide a clear estimate of the potential exposure.
- Other notable items include a $330 million impairment charge for a discontinued development program and a $42 million favorable net change in contingent consideration fair values. The company disclosed up to $7.5 billion of potential future milestone and contingent payments, subject to uncertain events, and $6.739 billion of remaining U.S. repatriation-tax payments.
- Amgen reported that pending legal matters could have a material adverse effect, but stated that it generally could not estimate a range of possible losses for the described matters. The filing also identifies regulatory, clinical-development, cybersecurity, foreign-exchange and tax risks.
Most important facts for investors to verify
- Whether 2019 price and biosimilar or generic pressures are reducing sales faster than newer products and international growth can offset.
- Developments in Sensipar generic litigation and launches, and the commercial impact of Neulasta and EPOGEN biosimilars.
- Trends in rebates and other sales deductions, particularly given the increase to 39% of gross product sales.
- Resolution and potential financial consequences of the IRS transfer-pricing dispute and other tax matters.
- Liquidity and capital-allocation priorities after the 2018 repurchases, including debt maturities, dividends and remaining repurchase authorization.
- Manufacturing continuity in Puerto Rico and progress on the Rhode Island facility, together with any material supplier or product-quality issues.