01—Abstract
Summary
Summary of the 10-K filed February 26, 2002. Cited figures are marked; the original filing is the authoritative source.
Amgen's fiscal 2001 10-K shows a company with strong core franchises but a year marked by significant one-time charges and a pending transformational acquisition.
Total revenues rose 11% to $4,015.7 milliona, and product sales grew 10% to $3,511.0 million, driven by EPOGEN/Aranesp ($2,150.0 million, up 10%) and NEUPOGEN ($1,346.4 million, up 10%). Net income increased only about 2% to $1,119.7 million, and diluted EPS fell to $1.03 from $1.05, reflecting a $203.1 million charge for terminating collaboration agreements (notably with Praecis) and a $39.5 million inventory write-off. Excluding these items, earnings would have been meaningfully higher, though the company's cost of sales as a percentage of product sales improved to 12.6%.
The balance sheet strengthened, with cash and marketable securities of $2,662.2 million, stockholders' equity rising to $5,217.2 millionb, and operating cash flow of $1,480.2 million. Management also announced a $3.5 billion zero-coupon convertible note offering (net proceeds about $2.45 billion) and a plan to acquire Immunex for an estimated $17.6 billion, with closing expected in the second half of 2002 subject to FTC and shareholder approvals. Investors should weigh this transaction's dilution, integration risk, and the $475 million termination fee exposure against Amgen's growth prospects.
Key risks in the filing include dependence on U.S. ESRD dialysis reimbursement for EPOGEN, the upcoming April 2002 Neulasta launch that may cannibalize NEUPOGEN, pending patent litigation with Transkaryotic Therapies and Aventis, and the Johnson & Johnson arbitration over dialysis market spillover sales. Growth in 2002 is expected to depend largely on Aranesp uptake in new markets and the rollout of Neulasta and Kineret.
02—Key points
Key Highlights
- Total revenues rose 11% to $4,015.7 million; product sales grew 10% to $3,511.0 million, led by EPOGEN/Aranesp ($2,150.0 million) and NEUPOGEN ($1,346.4 million)
- Net income increased about 2% to $1,119.7 million, while diluted EPS declined to $1.03 from $1.05 due to a $203.1 million collaboration termination charge and a $39.5 million inventory write-off
- Proposed acquisition of Immunex for an estimated $17.6 billion (0.44 Amgen shares plus $4.50 cash per Immunex share), expected to close in 2H 2002 pending FTC approval
- Announced $3.5 billion of 30-year zero-coupon convertible senior notes (about $2.45 billion net), with roughly $650 million earmarked for share repurchases
- Strong liquidity: cash and marketable securities of $2,662.2 million, operating cash flow of $1,480.2 million, and stockholders' equity of $5,217.2 million
- Aranesp approved in the U.S. in September 2001 and Neulasta approved in January 2002 (launch planned April 2002); Kineret approved for rheumatoid arthritis in November 2001
- Significant litigation and reimbursement exposure, including the TKT/Aventis EPO patent appeal, the Johnson & Johnson dialysis arbitration, and the Genentech NEUPOGEN appeal
03—Questions
Frequently Asked Questions
How did Amgen perform financially in 2001?
Amgen grew total revenues 11% to $4,015.7 million and product sales 10% to $3,511.0 million. Net income rose about 2% to $1,119.7 million, but diluted EPS slipped to $1.03 from $1.05 because of a $203.1 million charge for terminating collaboration agreements and a $39.5 million inventory write-off.
What is the Immunex deal and how will it affect shareholders?
Amgen agreed to acquire Immunex for an estimated $17.6 billion, with each Immunex share converted into 0.44 Amgen shares and $4.50 in cash. Amgen shareholders would face dilution from the new shares, and the deal is expected to close in the second half of 2002, subject to FTC and shareholder approvals. The filing notes Amgen could owe Immunex a $475 million termination fee if the deal fails under certain circumstances.
Why is Neulasta important, and could it hurt NEUPOGEN sales?
Neulasta (pegfilgrastim) is a longer-acting G-CSF that requires only one dose per chemotherapy cycle, versus more frequent NEUPOGEN dosing. Approved in January 2002 with launch planned for April 2002, it could extend Amgen's neutropenia franchise but may also shift patients away from NEUPOGEN, which generated $1,346.4 million in 2001.
What are the biggest risks to Amgen's EPOGEN business?
EPOGEN sales depend heavily on U.S. federal Medicare ESRD reimbursement rates, which Congress sets and CMS monitors. Changes in reimbursement have hurt sales before, as in 1997. Competition from Johnson & Johnson's PROCRIT, the Aventis/TKT gene-activated EPO, and other developers adds further pressure, and the ongoing arbitration with Johnson & Johnson over dialysis sales could also affect results.
How is Amgen funding its growth and shareholder returns?
Amgen plans to raise about $2.45 billion net from the $3.5 billion convertible notes, using roughly $650 million for share repurchases and the rest for general corporate purposes. It also has $2 billion in repurchase authorization through 2002 ($1,262.5 million remaining at year-end), a $150 million credit facility, and existing cash and securities of $2.66 billion. Management believes these sources are adequate for working capital, capital spending of $450 to $550 million in 2002, and the Immunex acquisition.
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