Amgen Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Amgen is a global biotechnology company operating in one segment: human therapeutics. Amounts below are in U.S. dollars; financial statement amounts are in millions unless noted.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $6,903 | $6,652 | $19,994 | $19,484 |
| Product sales | $6,548 | $6,237 | $19,077 | $18,249 |
| Operating income | $2,021 | $2,660 | $6,626 | $7,336 |
| Net income | $1,730 | $2,143 | $5,950 | $4,936 |
| Diluted EPS | $3.22 | $3.98 | $11.06 | $9.11 |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $7,933 | $7,072 |
- Q3 revenue increased 4% year over year, as product sales rose 5% and other revenue declined 14%. Nine-month revenue increased 3%; product sales rose 5%, while other revenue fell 26%, mainly because of lower COVID-19 manufacturing collaboration revenue.
- Q3 operating income fell 24% and net income fell 19%. For the nine months, operating income declined 10%, while net income rose 21%, reflecting gains recorded in other income, principally from the BeiGene investment.
- Approximate operating margin was 29.3% in Q3 2023 versus 40.0% in Q3 2022, and 33.1% for the first nine months of 2023 versus 37.7% in 2022. Q3 cost of sales was 26.2% of revenue, compared with 23.9% a year earlier; higher profit share and acquisition-related amortization and product mix contributed.
- Q3 interest expense, net, was $759 million versus $368 million; nine-month expense was $2.054 billion versus $991 million, primarily due to higher debt and interest rates. Nine-month other income, net, was $2.431 billion versus expense of $747 million in 2022.
- Cash provided by operations for nine months increased to $7.933 billion from $7.072 billion, mainly due to timing of tax payments, partly offset by lower adjusted net income. Capital expenditures were $863 million; management estimated approximately $950 million of 2023 capital spending.
Balance sheet, liquidity and capital allocation
- At September 30, cash and cash equivalents were $34.741 billion, total assets $90.534 billion, current liabilities $16.954 billion and total stockholders’ equity $7.656 billion. Cash included a substantial balance intended for the Horizon acquisition.
- Debt carrying value was $60.468 billion, including $1.428 billion current and $59.040 billion long term, versus $38.945 billion at December 31, 2022. The increase chiefly followed $24 billion of notes issued to finance Horizon. The company reported compliance with applicable debt covenants.
- Nine-month financing cash inflow was $18.294 billion, largely from $23.781 billion of debt proceeds, partly offset by $3.416 billion of dividends and debt repayments/extinguishments. Amgen paid quarterly dividends of $2.13 per share and made no share repurchases during the nine months; $7.0 billion of repurchase authorization remained.
- On October 6, 2023, after quarter-end, Amgen completed its approximately $27.8 billion cash acquisition of Horizon. The company said most of the September 30 cash balance was used for the acquisition and disclosed a subsequent $4 billion term-loan borrowing, bearing interest at three-month SOFR plus 1.225%.
Business developments, outlook and risks
- Product growth was led by EVENITY (+53% Q3), Nplate (+45%), Repatha (+31%), Prolia (+14%) and KYPROLIS (+10%). Declines included ENBREL (-6%), Otezla (-10%) and Aranesp (-10%). Nplate’s increase included U.S. government orders of $142 million in Q3.
- Management expected portfolio-level net selling prices to continue declining year over year for the remainder of 2023, citing competition. It also cited macroeconomic and geopolitical uncertainty, foreign-exchange volatility, persistent pricing pressure and lingering effects of pandemic-related reductions in diagnoses. No full-year revenue or EPS guidance is provided in the supplied filing text.
- Amgen initiated a restructuring plan in Q1 to reallocate resources and improve its cost structure. It expected $250 million to $350 million of pretax 2023 charges; $252 million had been recorded through September, with a $54 million restructuring liability remaining.
- Amgen recorded a $783 million impairment after terminating development of AMG 340, partly offset by a $147 million reduction in related contingent consideration. Q3 operating expenses also reflected restructuring costs and higher profit-share expenses.
- The Horizon acquisition adds TEPEZZA, KRYSTEXXA and UPLIZNA. Amgen identified integration costs and execution, rare-disease reimbursement and development, and supply-chain exposure—including a KRYSTEXXA manufacturing supplier affected by the Israel-Gaza conflict—as risks to realizing expected benefits.
- Material tax uncertainty remains: IRS disputes for 2010–2012 and 2013–2015 assert additional federal tax of approximately $3.6 billion and $5.1 billion, respectively, plus interest; the latter also asserts approximately $2.0 billion in penalties. Previously accrued repatriation tax could reduce the amounts. The cases are contested, with a Tax Court trial set for November 2024; Amgen warns ultimate payments could exceed accruals and materially affect results.
- Other risks include IRA Medicare price-setting and rebate provisions, payer and biosimilar competition, regulatory uncertainty for LUMAKRAS, and ongoing patent, antitrust and securities litigation. ENBREL was among the first ten drugs selected for Medicare price setting, with prices scheduled for publication in September 2024 and application beginning in 2026. The FTC litigation over Horizon was resolved by a consent agreement and dismissed.
- Management reported disclosure controls were effective as of September 30, 2023, and no material change in internal control over financial reporting occurred during the quarter.
Most important facts for investors to verify
- How Horizon’s post-close results, acquisition accounting, integration costs and debt affect leverage, interest expense and cash generation.
- Whether core product-sales growth can offset net price declines, competition and pressure on products including ENBREL, Otezla, Aranesp and Neulasta.
- The underlying earnings contribution from BeiGene fair-value gains and other non-operating items, versus recurring operating performance.
- Progress and cost outcomes for the restructuring plan and the terminated AMG 340 program.
- Developments in the IRS tax cases, IRA implementation and other material litigation or regulatory proceedings.