Business context and reporting period
Amgen Inc. filed its Form 10-K for the fiscal year ended December 31, 2009. The company is a global biotechnology medicines business operating in one segment, human therapeutics. Its principal products include Aranesp, EPOGEN, Neulasta/NEUPOGEN and Enbrel. This summary covers the full fiscal year; fourth-quarter figures are identified separately.
Financial performance and position
| Metric | FY 2009 | FY 2008 |
|---|---|---|
| Total revenue | $14.642 billion | $15.003 billion |
| Product sales | $14.351 billion | $14.687 billion |
| Operating income | $5.506 billion | $5.214 billion |
| Net income | $4.605 billion | $4.052 billion |
| Diluted EPS | $4.51 | $3.77 |
| Cash from operations | $6.336 billion | $5.988 billion |
| Cash, cash equivalents and marketable securities | $13.442 billion | $9.552 billion |
| Total debt | $10.601 billion | $9.352 billion |
Operating margin was approximately 37.6% of revenue, compared with 34.8% in 2008; net margin was approximately 31.5%, versus 27.0%. Current assets were $18.932 billion and current liabilities $3.873 billion, for working capital of about $15.1 billion. Capital expenditures were $530 million. Amgen reported no material off-balance-sheet arrangements.
Fourth-quarter 2009 product sales were $3.743 billion and net income was $931 million, compared with $3.674 billion and $925 million, respectively, in fourth-quarter 2008. Diluted EPS was $0.92 versus $0.87.
Material changes versus prior comparable period
- Full-year product sales declined 2%, with U.S. product sales down 3% and international sales essentially unchanged as reported. International sales increased 6% excluding $213 million of unfavorable foreign-exchange effects.
- Aranesp sales fell 15% to $2.652 billion; U.S. sales fell 24%, chiefly reflecting safety-related labeling and reimbursement changes. EPOGEN sales rose 5% to $2.569 billion, while combined Neulasta/NEUPOGEN sales were approximately flat at $4.643 billion.
- Enbrel sales declined 3% to $3.493 billion, partly because 2008 included an approximately $100 million wholesaler inventory build following a distribution-model change. Sensipar sales increased 9% to $651 million.
- Operating expenses decreased approximately $653 million, or 7%, including lower cost of sales, R&D and restructuring/legal charges. R&D declined 5%; SG&A increased 1%, partly due to higher promotional spending ahead of a potential Prolia launch.
- Net income rose 14% and diluted EPS 20%. The increase reflected lower operating expenses, a lower effective tax rate and fewer weighted-average shares after repurchases. The effective tax rate was 11.5%, compared with 19.2% in 2008; favorable tax settlements contributed about $220 million of tax benefit, and the rate also benefited from Puerto Rico manufacturing profits.
- Amgen repurchased 59.2 million shares for $3.208 billion in 2009. The board authorized an additional $5 billion repurchase program in December; $6.0 billion remained authorized at year-end.
Outlook, management commentary, risks and unusual items
- Management said existing funds, operating cash generation and financing access should meet working-capital, capital-expenditure and debt-service needs for the foreseeable future. 2010 capital spending was estimated at approximately $600 million. The filing does not provide a clear numerical revenue or EPS forecast.
- Management identified denosumab as a key growth opportunity. FDA review of Prolia for postmenopausal osteoporosis remained ongoing; the FDA’s July 25, 2010 action date applied to the treatment indication resubmission. The FDA had requested a new clinical program for prevention and additional evidence for hormone-ablation indications. European regulators had issued a positive committee opinion, subject to European Commission approval and country-level reimbursement.
- Denosumab’s phase 3 cancer bone-metastasis studies met primary non-inferiority endpoints versus Zometa; some showed statistically significant superiority on skeletal-related-event timing. Hypocalcemia and osteonecrosis of the jaw remain relevant safety considerations. Amgen planned regulatory submissions for advanced cancer in 2010.
- ESA safety and reimbursement developments are significant risks. TREAT did not meet its primary endpoints and showed more strokes in the Aranesp group; labeling was updated to warn of stroke risk and reinforce approved hemoglobin guidance. An FDA advisory committee and CMS evidence review were expected in 2010, while a proposed ESRD bundled-payment system was scheduled to begin in 2011.
- Other major risks include biosimilar and branded competition, pricing and payer cost controls, dependence on three wholesalers (71% of worldwide gross revenues combined), manufacturing concentration in Puerto Rico, single-source suppliers, product safety and regulatory approvals, and foreign-exchange exposure.
- Amgen faced multiple legal matters and government investigations, including ESA marketing-related inquiries and qui tam actions. Outcomes and potential financial effects were uncertain. Separately, the Roche patent dispute settled without financial payments; Roche could begin U.S. sales of peg-EPO under a limited license in mid-2014.
- Unusual accounting and other items include $250 million of non-cash interest expense from the convertible-debt accounting change; $33 million of legal settlement accruals and $70 million of restructuring charges; and a significant tax-rate benefit from settlements. Amgen also had $258 million of capitalized Prolia inventory subject to regulatory and commercial-launch risk.
Most important facts for investors to verify
- Whether ESA safety findings, REMS requirements, label changes and Medicare reimbursement actions further affect Aranesp and EPOGEN utilization, pricing or sales.
- Regulatory decisions and launch timing for Prolia, including whether additional studies, safety restrictions or reimbursement delays affect the opportunity and the $258 million of capitalized inventory.
- Whether denosumab’s oncology results translate into approvals, commercial uptake and acceptable safety outcomes.
- Sales trends and competitive pressure across the largest products, especially Aranesp, Enbrel and European Neulasta/NEUPOGEN, including biosimilar entry.
- Cash availability and debt obligations: $12.1 billion of year-end cash and securities was generated in foreign jurisdictions and intended for foreign operations; repatriation could incur additional U.S. taxes.
- Developments in pending government investigations, litigation and manufacturing or supply risks, and any resulting financial or operational impact.