01—Abstract
Summary
Summary of the 10-K filed March 29, 1996. Cited figures are marked; the original filing is the authoritative source.
Amgen's 1995 annual report shows a company with strong top-line growth and a sharp rebound in profitability.
Total revenues rose 18% to $1.94 billiona, driven by product sales of $1.82 billion (up 17%). EPOGEN, the anemia treatment for dialysis patients, grew 22% to $882.6 million, and NEUPOGEN, the neutrophil-stimulating product, grew 13% to $936.0 million. Net income more than doubled to $537.7 million, or $1.92 per primary share, compared with $319.7 million in 1994.
The 1994 figure absorbed a $116.4 millionb write-off tied to the Synergen acquisition, so the underlying improvement is smaller than the headline suggests, but operating income still rose about 28% to $743.6 million. Management expects 1996 product sales and earnings to grow at double-digit rates, though slower than in 1995, citing cost-containment pressure on NEUPOGEN and dialysis reimbursement risk for EPOGEN. The balance sheet and cash generation are solid.
Operating cash flow was $773.2 millionc, cash and marketable securities totaled $1.05 billion, and long-term debt was modest at $177.2 million against stockholders' equity of $1.67 billion. Amgen plans to spend $350 to $450 million repurchasing stock in 1996 and $250 to $350 million per year on capital projects. R&D spending rose 40% to $451.7 million, and management plans faster R&D growth than sales growth.
Research pipeline items include INFERGEN, BDNF for ALS, MGDF for platelet production, and Leptin, which is expected to enter human trials in 1996. The main investor concern is legal exposure. The most significant matter is the arbitration with Johnson & Johnson over EPOGEN sales allocation.
Amgen seeks about $10 milliond for 1989 through 1994, while J&J seeks about $419 million, and a trial was scheduled for March 1996. Amgen has also sought termination of J&J's license.
Other matters include the Genetics Institute and Biogen patent suits, Elanex patent litigation, and securities suits related to the Synergen ANTRIL program. Management says none of these is expected to have a material adverse effect on the financial statements, but the J&J outcome could change how EPOGEN sales are recognized in prior periods.
02—Key points
Key Highlights
- Total revenues grew 17.7% to $1,939.9 million in 1995, from $1,647.9 million in 1994, with product sales up 17% to $1,818.6 million.
- EPOGEN sales rose 22% to $882.6 million, driven by a larger U.S. dialysis population, higher dosing, and modest penetration gains; NEUPOGEN sales rose 13% to $936.0 million.
- Net income rose to $537.7 million ($1.92 primary EPS, $1.88 fully diluted) from $319.7 million in 1994, which included a $116.4 million Synergen in-process technology write-off.
- Operating cash flow was $773.2 million, and cash plus marketable securities ended the year at $1,050.3 million, versus long-term debt of $177.2 million.
- R&D expense rose 40% to $451.7 million, and management expects R&D growth to exceed product sales growth in coming years.
- The Johnson & Johnson arbitration is the key legal risk: J&J seeks about $419 million for 1989 to 1994 sales allocation, versus about $10 million sought by Amgen, with a March 1996 trial scheduled.
- Management guided to double-digit growth in 1996 product sales and earnings, but at rates below 1995, and plans $350 to $450 million in 1996 share repurchases.
03—Questions
Frequently Asked Questions
How much of Amgen's revenue depends on its two products?
In 1995, NEUPOGEN accounted for about 48% of total revenues and EPOGEN for about 45%, so the two products together made up roughly 93%. This concentration means results depend heavily on the NEUPOGEN and EPOGEN franchises, including reimbursement policies and competition from products such as GM-CSF and any future anemia treatments.
Why did net income more than double in 1995?
Net income rose from $319.7 million to $537.7 million. Much of the increase reflects the absence of the $116.4 million non-deductible write-off taken in 1994 for the Synergen acquisition. Revenue growth, a lower effective tax rate of 32.3% (down from 45.7%, helped by Puerto Rico operations), and higher interest and other income of $66.1 million also contributed, partly offset by higher R&D and loss of affiliates.
What is the financial exposure from the Johnson & Johnson arbitration?
The dispute concerns how EPOGEN and PROCRIT sales are allocated between Amgen's and J&J's exclusive markets. Amgen seeks about $10 million from J&J for 1989 to 1994 under its current methodology. J&J proposes a different methodology under which it seeks about $419 million. Amgen says the outcome should not be materially adverse to its financial statements, but a different methodology could change EPOGEN sales recognized in prior periods. A trial was scheduled for March 1996.
What does management expect for 1996 and how will capital be deployed?
Management expects worldwide NEUPOGEN and EPOGEN sales growth in 1996 to be lower than in 1995, and total product sales and earnings to grow at double-digit rates. Cost of sales is expected to be 14% to 15% of product sales. Amgen plans to repurchase $350 million to $450 million of stock, spend $250 million to $350 million per year on capital projects, and continue expanding R&D and external collaborations. Management has also said it may raise additional capital for corporate development.
Does Amgen carry significant debt or liquidity risk?
Liquidity appears strong. Cash, cash equivalents, and marketable securities were $1,050.3 million at year-end 1995, while long-term debt was $177.2 million, mostly Medium Term Notes and Puerto Rico promissory notes. Commercial paper of $69.7 million was outstanding, backed by a $150 million revolving credit line that was undrawn. Management believes existing funds, operating cash flow, and debt sources are adequate for the foreseeable future.
04—Continue