Amgen Inc. — 2017 Form 10-K Summary
Business context and reporting period. Amgen is a biotechnology company focused on human therapeutics, reporting one business segment. This annual filing covers the fiscal year ended December 31, 2017; quarterly figures below include the fourth quarter.
Financial performance and position
| Metric | 2017 | 2016 |
|---|---|---|
| Total revenue | $22.849 billion | $22.991 billion |
| Product sales | $21.795 billion | $21.892 billion |
| Operating income | $9.973 billion | $9.794 billion |
| Operating margin | 43.6% | 42.6% |
| Net income | $1.979 billion | $7.722 billion |
| Diluted EPS | $2.69 | $10.24 |
| Operating cash flow | $11.177 billion | $10.354 billion |
| Cash, cash equivalents and marketable securities | $41.678 billion | $38.085 billion |
| Total debt | $35.342 billion | $34.596 billion |
- Revenue declined about 1%, while operating income rose 2%; lower operating expenses helped lift operating margin. R&D expense was $3.562 billion, down 7%.
- Net income fell sharply primarily because the 2017 Tax Act produced an estimated $6.1 billion net tax charge. The reported income-tax provision was $7.618 billion and the effective tax rate was 79.4%, compared with 15.7% in 2016.
- Fourth-quarter product sales were $5.569 billion. Amgen recorded a quarterly net loss of $4.264 billion, or diluted loss per share of $5.89, largely reflecting the tax-related charge.
- Cash from operating activities increased 8%. Capital expenditures were $664 million; cash used in financing was $6.594 billion, including dividends and share repurchases.
- At year-end, current assets were $49.476 billion and current liabilities $9.020 billion. Cash and marketable securities exceeded total debt by approximately $6.3 billion.
- Total sales deductions rose to 35% of gross product sales from 31% in 2016, an important factor in interpreting net product revenue.
Material changes versus the prior year
- Product sales were broadly flat, as U.S. sales fell 1% and rest-of-world sales rose 2%. U.S. declines reflected lower unit demand from competition, partly offset by higher net selling prices and inventory changes.
- Growth in Prolia (up 20%), Sensipar/Mimpara (up 9%), XGEVA (up 3%) and other products (up 8%) was offset by declines in ENBREL (down 9%), EPOGEN (down 15%), NEUPOGEN and Neulasta.
- Amgen repurchased 18.5 million shares for $3.1 billion and paid $3.4 billion in dividends. The annual dividend increased 15% to $1.15 per share each quarter.
- Debt increased by approximately $0.7 billion year over year. Cash and marketable securities rose by approximately $3.6 billion.
Outlook, commentary, risks and unusual items
- Management described 2018 as an important year, with continued investment in the pipeline, global growth and new product launches, alongside transformation and cost-saving initiatives. The filing does not provide clear numerical 2018 revenue or EPS guidance.
- Amgen said it expects lower ENBREL unit demand and net selling prices to continue in 2018, and cited potential new biosimilar competition for Neulasta and EPOGEN and increasing branded competition for Aranesp.
- The 2017 Tax Act made foreign cash globally accessible, but created an estimated $7.3 billion repatriation tax, payable in eight annual installments beginning in 2018. The tax accounting remained provisional, with analysis expected to continue into 2018.
- Amgen reported $146 million in 2017 pre-tax expenses related to Hurricane Maria. Its Puerto Rico facility resumed full operations, but the company identified continuing risks involving island infrastructure, utilities, supplies and staffing.
- Discontinuation of AMG 899 resulted in a $400 million in-process R&D impairment; release of related contingent consideration liabilities contributed to a net charge of $284 million in other operating expenses. Restructuring costs were $88 million in 2017, with most remaining estimated costs expected in 2018.
- The IRS continued to propose substantial adjustments concerning the allocation of profits between U.S. and Puerto Rico entities for 2010–2012. Amgen disputes the proposed adjustments; an unfavorable resolution could materially affect results and cash flows.
- Other key risks include payer restrictions and pricing pressure, patent disputes and biosimilar or generic competition, product safety and regulatory outcomes, manufacturing and supplier concentration, and reliance on three major U.S. wholesalers. The wholesalers accounted for 81% of worldwide gross revenues combined.
- In February 2018, Amgen announced a tender offer to repurchase up to $10 billion of stock, at $175–$200 per share, subject to the offer terms.
Investor facts to verify
- How the provisional tax-reform estimates, installment payments and IRS audit outcome affect future tax expense and cash flow.
- Whether product-sales trends improve or worsen, particularly for ENBREL, Neulasta, EPOGEN, Aranesp and Repatha, amid pricing pressure and competition.
- Whether pipeline and launch milestones—including Aimovig and EVENITY—are achieved, and how safety or regulatory developments affect commercialization.
- Progress in restoring and diversifying manufacturing capacity and maintaining uninterrupted supply, especially in Puerto Rico.
- Debt, capital returns and liquidity following the announced tender offer and the acquisition of the remaining interest in Kirin-Amgen, completed in the first quarter of 2018.