What is the outlook for 2001 and what does management expect?

Management expects total product sales to grow in the mid-to-high teens, with combined EPOGEN and ARANESP sales growing high-teens to low-twenties percent and NEUPOGEN growing in the high single digits. Cost of sales is projected at 11.5% to 12.5% of product sales, R&D and SG&A each at 25% to 27% of product sales, the tax rate near 34%, and EPS growth in the mid-teens. The company cautions that these estimates are speculative and that the timing of the EPOGEN-to-ARANESP transition is difficult to predict.

What are the biggest risks to Amgen's earnings and stock?

The most significant risk is reimbursement: most EPOGEN dialysis patients are covered by the federal ESRD Program, so changes to rates or reimbursement bases could materially affect sales. Other risks include regulatory approval delays for pipeline products such as ARANESP, anakinra, and abarelix-depot; patent litigation, including the erythropoietin case against Transkaryotic Therapies and Aventis and the Genentech appeal; competition from new anemia and G-CSF products; and the company's dependence on two large wholesalers. Amgen's stock is also described as highly volatile.

How strong is Amgen's balance sheet and how is it returning capital to shareholders?

The balance sheet is strong: stockholders' equity increased to $4,314.5 million, cash and marketable securities totaled $2,028.1 million, and long-term debt was only $223 million. Operating cash flow of $1,634.6 million covered $437.7 million of capital expenditures, with capex guided to $450 million to $550 million for 2001. Amgen repurchased $799.9 million of stock in 2000 and has authorized up to $2 billion of additional repurchases through 2002. The company does not pay cash dividends.

What are the key pipeline catalysts for investors to watch?

ARANESP (darbepoetin alfa) is the most important near-term catalyst, with regulatory filings submitted in the U.S., EU, Canada, Australia, and New Zealand, and a launch expected in 2001 if approved. Abarelix-depot for prostate cancer received FDA priority review in January 2001. Anakinra for rheumatoid arthritis has a pending FDA application that Amgen plans to supplement with additional data, and SD/01, a sustained-duration G-CSF, reported successful phase 3 results in breast cancer. Investors should note that several earlier candidates, including BDNF, native leptin, and MGDF, failed in development.

AMGN 10-K FY2000 Annual Report — Revenue, Net Income, EPS

Q: How did Amgen's core products perform in 2000, and what drove the results?

EPOGEN, the company's largest product, grew 12% to $1,962.9 million, driven by rising U.S. dialysis patient counts and some growth in dosing. NEUPOGEN declined 3% to $1,223.7 million because of Year 2000-related wholesaler stocking in late 1999, dialysis provider inventory drawdowns, and adverse currency effects, partly offset by mid-single-digit underlying demand growth. Total product sales increased only 5%, below the 21% growth rate of 1999.

01—Abstract

Summary

Summary of the 10-K filed March 7, 2001. Cited figures are marked; the original filing is the authoritative source.

Amgen closed fiscal 2000 with total revenues of $3,629.4 million^a (up 9% from $3,340.1 million in 1999) and net income of $1,138.5 million (up 4%), with diluted EPS of $1.05 versus $1.02.

Product sales grew only 5% to $3,202.2 million^b, held back by Year 2000-related wholesaler stocking in late 1999, dialysis provider inventory drawdowns, and adverse foreign exchange. EPOGEN grew 12% to $1,962.9 million on higher dialysis patient volume, while NEUPOGEN declined 3% to $1,223.7 million on wholesaler buying patterns and currency effects. Operating income rose modestly to $1,544.0 million, and reported earnings included a $73.9 million legal award from Johnson & Johnson offset by a $30.1 million in-process R&D write-off (Kinetix acquisition) and a $25 million Amgen Foundation contribution, which had no net impact on reported net income.

The balance sheet strengthened considerably, with cash and marketable securities of $2,028.1 million^c, operating cash flow of $1,634.6 million, and stockholders' equity rising to $4,314.5 million from $3,023.5 million, largely due to employee option exercises and tax benefits. Long-term debt remained modest at $223 million. Management guided to 2001 product sales growth in the mid-to-high teens, with EPOGEN and ARANESP combined sales growing in the high-teens to low-twenties range, NEUPOGEN growing in the high single digits, and EPS growing in the mid-teens.

Key risks include potential reimbursement changes from the federal ESRD Program (which funds most EPOGEN use), the timing of the EPOGEN-to-ARANESP transition, pending patent litigation (including the Transkaryotic Therapies/Aventis erythropoietin case and Genentech appeal), and concentration in two wholesalers that account for more than 10% of revenues. The company also announced a $2 billion^d share repurchase authorization for 2001-2002, funded by strong cash generation, and continued to advance its pipeline, including ARANESP filings with the FDA, abarelix-depot with priority review, and SD/01 phase 3 success in breast cancer. Investors should weigh strong growth prospects and cash generation against heavy reliance on the federal government's ESRD reimbursement and the high-risk nature of the development pipeline.

02—Key points

Key Highlights

Total revenues grew 9% to $3,629.4 million, while net income rose 4% to $1,138.5 million and diluted EPS reached $1.05 (vs. $1.02 in 1999).
EPOGEN sales rose 12% to $1,962.9 million on higher U.S. dialysis patient demand; NEUPOGEN sales fell 3% to $1,223.7 million due to wholesaler buying patterns and foreign exchange.
Operating cash flow of $1,634.6 million (up 33%) funded capital spending of $437.7 million, leaving cash and marketable securities of $2,028.1 million at year-end.
Management guides 2001 product sales growth to the mid-to-high teens and EPS growth to the mid-teens; ARANESP launch expected in most markets beginning in 2001.
A $2 billion stock repurchase program was authorized for January 2001 through December 2002, following $799.9 million of buybacks in 2000.
Non-recurring items offset each other: a $73.9 million legal award from Johnson & Johnson was offset by a $30.1 million Kinetix in-process R&D write-off and a $25 million Amgen Foundation contribution.
Principal risks include federal ESRD Program reimbursement changes affecting EPOGEN, EPOGEN-to-ARANESP transition uncertainty, ongoing patent litigation, and concentration in two wholesalers (Bergen Brunswig and Cardinal) above 10% of revenues.

03—Questions

Frequently Asked Questions

How did Amgen's core products perform in 2000, and what drove the results?
EPOGEN, the company's largest product, grew 12% to $1,962.9 million, driven by rising U.S. dialysis patient counts and some growth in dosing. NEUPOGEN declined 3% to $1,223.7 million because of Year 2000-related wholesaler stocking in late 1999, dialysis provider inventory drawdowns, and adverse currency effects, partly offset by mid-single-digit underlying demand growth. Total product sales increased only 5%, below the 21% growth rate of 1999.
What is the outlook for 2001 and what does management expect?
Management expects total product sales to grow in the mid-to-high teens, with combined EPOGEN and ARANESP sales growing high-teens to low-twenties percent and NEUPOGEN growing in the high single digits. Cost of sales is projected at 11.5% to 12.5% of product sales, R&D and SG&A each at 25% to 27% of product sales, the tax rate near 34%, and EPS growth in the mid-teens. The company cautions that these estimates are speculative and that the timing of the EPOGEN-to-ARANESP transition is difficult to predict.
What are the biggest risks to Amgen's earnings and stock?
The most significant risk is reimbursement: most EPOGEN dialysis patients are covered by the federal ESRD Program, so changes to rates or reimbursement bases could materially affect sales. Other risks include regulatory approval delays for pipeline products such as ARANESP, anakinra, and abarelix-depot; patent litigation, including the erythropoietin case against Transkaryotic Therapies and Aventis and the Genentech appeal; competition from new anemia and G-CSF products; and the company's dependence on two large wholesalers. Amgen's stock is also described as highly volatile.
How strong is Amgen's balance sheet and how is it returning capital to shareholders?
The balance sheet is strong: stockholders' equity increased to $4,314.5 million, cash and marketable securities totaled $2,028.1 million, and long-term debt was only $223 million. Operating cash flow of $1,634.6 million covered $437.7 million of capital expenditures, with capex guided to $450 million to $550 million for 2001. Amgen repurchased $799.9 million of stock in 2000 and has authorized up to $2 billion of additional repurchases through 2002. The company does not pay cash dividends.
What are the key pipeline catalysts for investors to watch?
ARANESP (darbepoetin alfa) is the most important near-term catalyst, with regulatory filings submitted in the U.S., EU, Canada, Australia, and New Zealand, and a launch expected in 2001 if approved. Abarelix-depot for prostate cancer received FDA priority review in January 2001. Anakinra for rheumatoid arthritis has a pending FDA application that Amgen plans to supplement with additional data, and SD/01, a sustained-duration G-CSF, reported successful phase 3 results in breast cancer. Investors should note that several earlier candidates, including BDNF, native leptin, and MGDF, failed in development.

04—Continue

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