Amgen Inc. — Q2 2022 Form 10-Q Summary
Business context and reporting period
Amgen is a global biotechnology company operating in one segment, human therapeutics. This unaudited quarterly report covers the three and six months ended June 30, 2022, compared with the same 2021 periods. Amounts below are in U.S. dollars; financial statement amounts are in millions unless noted.
Financial results and liquidity
| Metric | Q2 2022 | Q2 2021 | Change |
|---|---|---|---|
| Total revenues | $6,594 | $6,526 | +1% |
| Product sales | $6,281 | $6,114 | +3% |
| Operating income | $2,176 | $828 | More than doubled |
| Net income | $1,317 | $464 | More than doubled |
| Diluted EPS | $2.45 | $0.81 | More than doubled |
| Operating margin | 33.0% | 12.7% | Calculated as operating income / revenue |
- For the first six months, revenue was $12,832, up 3%; operating income was $4,676, up 58%; net income was $2,793, up 32%; and diluted EPS was $5.13, up 41%.
- Q2 cost of sales was 22.9% of revenue, compared with 25.1% a year earlier. For the first half, it was 23.9%, versus 25.2%.
- Six-month operating cash flow was $4,094, compared with $4,035. Capital expenditures were $436; operating cash flow less capital expenditures was approximately $3,658. Cash and cash equivalents declined to $5,203 from $7,989 at year-end 2021; cash, cash equivalents and marketable securities totaled $7,183.
- At June 30, 2022, current assets were $19,322 and current liabilities were $12,618. Total debt carrying value was $36,522, including $817 current and $35,705 long-term, versus total debt of $33,309 at December 31, 2021. Stockholders’ equity was $2,419, down from $6,700.
- Six-month financing cash outflows were $4,576: $6,360 of share repurchases and $2,118 of dividends, partly offset by $3,954 of debt issuance proceeds. The company repurchased 24.6 million shares in Q1 through its repurchase program; $4.6 billion of authorization remained at June 30.
Material changes and operating drivers
- Product sales growth reflected higher demand for several medicines, including Prolia, Repatha, EVENITY, LUMAKRAS/LUMYKRAS and KYPROLIS. Growth was partly offset by lower net selling prices for certain products and unfavorable foreign exchange.
- Sales increased 13% for Prolia, 14% for Repatha, 13% for KYPROLIS and 16% for Nplate in Q2. Neulasta sales fell 36% and ENBREL fell 8%; the filing cites competition, lower prices and/or lower demand. Management expects portfolio-level net selling prices to continue declining in the remainder of 2022, driven by competition.
- Operating expenses declined 22% in Q2, primarily because the prior-year period included $1,505 of acquired in-process R&D expense for Five Prime. This comparison was partly offset by a $560 loss on the Gensenta divestiture in Q2 2022, recorded in other operating expenses.
- Other expense, net, was $317 in Q2, versus income of $11 a year earlier; for the first half it was expense of $847, versus income of $24. Amgen attributed the deterioration mainly to losses on strategic equity investments and higher losses associated with BeiGene. Q2 net income also reflected a $106 unrealized loss on publicly traded equity securities.
Outlook, risks and unusual items
- Management estimated 2022 capital-project spending of approximately $950. It stated that existing funds, operating cash flow and financing access should be adequate for working capital, capital expenditures, debt service, dividends, repurchases and planned business initiatives. The filing text does not provide a clear full-year revenue or EPS guidance figure.
- Management reported that patient visits and demand had generally improved toward pre-pandemic levels in Q2, while cumulative pandemic-related declines in diagnoses continued to weigh on new treatment starts. It cited continued uncertainty and possible quarter-to-quarter sales variability, with sustained lockdown effects in parts of Asia Pacific.
- The Gensenta sale, agreed in June and expected to close in Q3 subject to Turkish regulatory approval, was expected to yield $135 in cash. Amgen recorded a $560 loss, primarily reflecting cumulative foreign-currency translation losses and valuation adjustments.
- Amgen announced a proposed ChemoCentryx acquisition on August 4, 2022, after quarter-end, for $52 per share in cash, or approximately $4.0 billion; closing was expected in Q4, subject to conditions.
- Significant tax disputes remain pending in U.S. Tax Court. IRS notices for 2010–2012 assert approximately $3.6 billion of additional federal tax plus interest; notices for 2013–2015 assert approximately $5.1 billion of tax plus interest and $2.0 billion of penalties. Previously accrued repatriation tax could reduce additional tax, and Amgen says it believes the IRS positions are without merit. The company cautions that ultimate payments could exceed accruals materially.
- Other risks include drug-price and reimbursement pressure, payer access restrictions, biosimilar and generic competition, product and patent litigation, regulatory changes, foreign-exchange exposure, and potential tax-law changes. Management reported effective disclosure controls as of June 30 and compliance with applicable debt covenants.
Important facts for investors to verify
- Whether product-demand gains can offset continuing price erosion, payer pressure and declines in mature or biosimilar-exposed products.
- How much reported earnings growth reflects the absence of the prior-year Five Prime IPR&D charge, and the effects of the Gensenta loss and investment-related losses.
- Developments and potential financial exposure in the IRS tax cases, including the company’s tax accruals and any effects of Puerto Rico tax changes.
- Debt growth, interest expense, upcoming maturities, and the continued pace of dividends and buybacks relative to operating cash generation.
- Completion and final share settlement of the $6.0 billion accelerated share repurchase, the Gensenta sale, and the proposed ChemoCentryx acquisition and its financing.