Amgen Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Amgen is a global human therapeutics company reporting one business segment. Amounts below are in U.S. dollars; financial statement amounts are in millions unless noted.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $6,706 | $6,423 | $19,133 | $18,790 |
| Operating income | $2,378 | $2,453 | $5,335 | $7,131 |
| Net income | $1,884 | $2,021 | $3,994 | $5,649 |
| Diluted EPS | $3.31 | $3.43 | $6.93 | $9.54 |
| Operating cash flow | Not separately reported for the quarter | $6,453 | $8,344 |
Q3 revenue rose 4%, while operating income fell 3%, net income fell 7%, and diluted EPS fell 3%. For the nine months, revenue increased 2%, but operating income declined 25%, net income 29%, and diluted EPS 27%. Revenue growth did not offset higher expenses, including acquired in-process R&D (IPR&D), and lower income.
Product sales were $6.32 billion in Q3 (+4%) and $18.03 billion for the nine months (+1%). Other revenue was $386 million in Q3 and $1.11 billion for the nine months; the increase was primarily attributed to sales of COVID-19 antibody material. Q3 and nine-month operating margins, calculated from reported operating income and revenue, were approximately 35.5% and 27.9%, versus 38.2% and 37.9% a year earlier. Cost of sales was 24.0% of total revenue in Q3 and 24.8% for the nine months.
Products and material changes
- Growth leaders included Prolia (Q3 +15%; nine months +18%) and Repatha (Q3 and nine months +33%), primarily on higher demand. Otezla, XGEVA, and KYPROLIS also grew.
- ENBREL sales declined 3% in Q3 and 10% for the nine months. Neulasta fell 25% and 21%, respectively, with biosimilar competition affecting price and demand.
- U.S. product sales declined 1% in Q3 and 4% for the nine months; rest-of-world sales increased 19% and 13%, respectively.
- R&D expense increased 34% in Q3 and 17% for the nine months. The quarter included a $400 million upfront payment under the Kyowa Kirin collaboration; the nine-month period also included $1.505 billion of acquired IPR&D expense for Five Prime’s bemarituzumab program.
- Effective tax rates were 12.6% for both 2021 periods, compared with 8.4% for Q3 2020 and 9.7% for the prior-year nine-month period. Amgen cited the nondeductible Five Prime IPR&D expense and prior-year favorable items.
Cash, debt and capital allocation
At September 30, cash and cash equivalents were $11.97 billion and marketable securities were $952 million, totaling $12.92 billion, versus $10.65 billion at December 31, 2020. Current assets were $24.38 billion and current liabilities $14.84 billion. Debt carrying value was $37.58 billion, including $4.29 billion classified as current, compared with total debt of $32.99 billion at year-end 2020. Amgen issued $5.0 billion of debt in Q3. It reported compliance with applicable debt covenants.
Nine-month operating cash flow was $6.45 billion, down from $8.34 billion. Investing activities provided $963 million, including net inflows from marketable securities, partly offset by the $1.64 billion Five Prime acquisition and $593 million of capital expenditures. Financing activities used $1.71 billion: $3.53 billion for share repurchases and $3.02 billion for dividends, partly offset by debt issuance. Cash and cash equivalents increased by $5.70 billion during the period.
Amgen said existing funds, operating cash generation, and financing access were adequate for working capital, capital expenditures, debt service, planned dividends, repurchases, and strategic initiatives. It estimated 2021 capital-project spending at approximately $900 million. The quarterly dividend was $1.76 per share; in October, the board authorized an additional $4.5 billion for repurchases.
Outlook, risks and unusual items
- Outlook: The filing does not provide a clear full-year revenue or EPS guidance range. Management expected continued quarter-to-quarter sales variability and said the cumulative pandemic-related decline in diagnoses would continue to affect new-patient starts for the remainder of 2021.
- COVID-19: Patient visits and diagnoses gradually recovered through Q3 but remained below pre-pandemic levels. Amgen reported no material supply disruption to date, while warning that variants, restrictions, clinical-trial impacts, and changing patient behavior could affect operations and sales.
- Pricing and competition: Management expected net selling-price declines to continue, including for ENBREL, Neulasta, Repatha, and some biosimilars. Biosimilar competition was already materially affecting Neulasta; payer and government pricing proposals were additional risks.
- Tax dispute: The IRS notices for 2010–2012 seek additional federal tax of approximately $3.6 billion plus interest; up to approximately $900 million of previously accrued repatriation tax could reduce any additional tax. Amgen contests the IRS position. Separate IRS proposals for 2013–2015 and other tax examinations remain unresolved; management warned outcomes could materially adversely affect results.
- Transactions and commitments: Amgen completed the $1.6 billion Five Prime acquisition in April, expensing $1.505 billion as IPR&D. Its Kyowa Kirin agreement includes potential milestone payments of up to $850 million and significant double-digit royalties. After quarter-end, Amgen acquired Teneobio for $900 million upfront, with up to $1.6 billion in contingent milestones.
- Other risks and legal matters: The filing describes ongoing patent, contract, and other proceedings; adverse outcomes in one or more matters could have a material effect, though loss estimates are generally unavailable or not material. Amgen also highlighted cybersecurity, privacy, regulatory, reimbursement, and proposed tax-law risks.
Key facts for investors to verify
- Whether sales growth and recovery in patient visits and diagnoses persist, and how pandemic effects and product-specific pricing or competition affect demand.
- How operating expenses, particularly R&D and acquisition-related costs, develop and affect earnings and margins.
- Progress and potential exposure in the IRS tax litigation, including any changes to the asserted amount or recorded tax accruals.
- Debt maturities, liquidity, and the capacity to maintain dividends, repurchases, and strategic investment as debt levels rise.
- Development and commercial milestones for bemarituzumab, the Kyowa Kirin collaboration, and the post-quarter Teneobio acquisition.