Business Context and Reporting Period
Company: Amgen Inc.
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and six months ended June 30, 2001
Business Overview: Amgen is a global biotechnology company discovering, developing, manufacturing, and marketing human therapeutics. Key products include EPOGEN(R) and NEUPOGEN(R).
Key Financial Metrics
| Metric (in millions) | 3 Months Ended June 30, 2001 |
6 Months Ended June 30, 2001 |
|---|---|---|
| Total Revenues | $986.7 | $1,888.3 |
| Net Income | $321.9 | $626.8 |
| Earnings Per Share (Diluted) | $0.30 | $0.58 |
| Operating Cash Flow | N/A | $667.7 |
| Cash & Marketable Securities | $2,469.8 (Total Liquidity) | $2,469.8 (Total Liquidity) |
| Long-Term Debt | $223.0 | $223.0 |
| Commercial Paper | $99.9 | $99.9 |
| Cost of Sales Margin | 11.5% of Product Sales | 11.3% of Product Sales |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 8% year-over-year for the quarter ($986.7M vs. $914.4M) and 9% for the six-month period ($1,888.3M vs. $1,728.5M). Product sales grew 6% in the quarter and 10% in the six-month period.
- Profitability: Net income rose 6% in the quarter ($321.9M vs. $302.6M) and 10% in the six-month period ($626.8M vs. $568.8M). Operating income increased 12% in the quarter and 15% in the six-month period.
- Expense Trends: Research and development expenses increased 3% (quarter) and 6% (six months) due to higher staff costs. Selling, general, and administrative (SG&A) expenses increased 10% (quarter) and 13% (six months) driven by marketing and staff costs.
- Cash Flow: Net cash provided by operating activities decreased 18% to $667.7M for the six months ended June 30, 2001, compared to $817.5M in the prior year period.
- Stock Repurchases: The company repurchased 2.9 million shares for $167.9M in the first half of 2001, a significant reduction from 7.6 million shares ($485.1M) in the same period of 2000.
Guidance, Outlook, and Risks
Management Commentary and Guidance
- 2001 Outlook: Amgen expects total product sales and earnings per share to grow at low-double digit rates for 2001.
- Product Specifics:
- EPOGEN/ARANESP: Guidance for combined sales growth was lowered to a "low-double digit" rate (previously low-teens) due to longer-than-anticipated FDA review of ARANESP(TM) in the U.S. ARANESP was launched in the EU, Australia, and New Zealand.
- NEUPOGEN: Sales growth is expected to be in the high-single digits for 2001.
- Expense Estimates: Cost of sales is expected to be 11.0% to 12.0% of product sales. R&D and SG&A are each estimated at 25% to 27% of product sales. The effective tax rate is expected to be approximately 34%.
- Corporate Partner Revenues: Expected to be less than 2000 levels.
Risks and Contingencies
- Regulatory Approval (Plenaxis): The FDA indicated that the New Drug Application (NDA) for Plenaxis(TM) (abarelix depot) was inadequate for approval. Amgen has approximately $56 million in capitalized costs associated with this product. Management believes the ultimate resolution will not have a material adverse effect on annual financial statements.
- Legal Proceedings: Amgen has filed an arbitration demand against Johnson & Johnson to terminate their license for Epoetin alfa and recover damages, alleging J&J intentionally sold PROCRIT(R) into Amgen's exclusive dialysis market. The trial is set for September 2001.
- Reimbursement: Sales of EPOGEN and NEUPOGEN are heavily dependent on government (Medicare/Medicaid) and private payor reimbursement rates and policies.
Investor Verification Checklist
- Plenaxis(TM) Status: Verify the outcome of the FDA meeting regarding the NDA deficiencies and the potential impact on the $56 million capitalized inventory.
- J&J Arbitration: Monitor the September 2001 trial date regarding the Epoetin alfa license dispute and potential damages.
- ARANESP(TM) U.S. Launch: Track the timing of FDA approval and subsequent market transition from EPOGEN to ARANESP in the U.S.
- Wholesaler Inventory: Assess the impact of wholesaler inventory drawdowns on reported sales growth, particularly for EPOGEN.
- Stock Repurchase Program: Confirm the remaining $1.83 billion authorization and future repurchase activity through December 2002.