01—Abstract
Summary
Summary of the 10-K filed February 24, 2014. Cited figures are marked; the original filing is the authoritative source.
Amgen's fiscal 2013 10-K shows a company in transition: revenue rose 8% to $18.7 billiona, net income rose 17% to $5.1 billion, and diluted EPS grew 20% to $6.64.
Growth was led by Prolia and XGEVA (up 45% combined), ENBREL (up 7%), and Neulasta/NEUPOGEN (up 8%), while Aranesp (down 6%) continued to erode under ESA safety-driven label and reimbursement changes. The effective tax rate fell to 3.5%, which flattered earnings. Part of the net income gain reflects one-time items, including a $182 millionb tax benefit from the Onyx acquisition and a $187 million IRS settlement.
Operating income grew only 5%, and the company's share of reported profit growth came largely from the lower tax rate. The Onyx Pharmaceuticals acquisition for roughly $9.5 billionc in cash, closed October 1, 2013, is the defining event of the year. It added Kyprolis for multiple myeloma and the Nexavar and Stivarga partnerships, but it was financed almost entirely with debt.
Total debt rose to $32.1 billiond from $26.5 billion, including an $8.1 billion Master Repurchase Agreement and Term Loan. Management stated it does not expect significant share repurchases in 2014 or 2015, a notable shift after $8.3 billion of buybacks in 2011. Dividends were raised 30% to $0.61 per quarter.
Cash, equivalents, and marketable securities of $22.8 billion are largely held offshore, with about $20.9 billion intended to remain outside the U.S. for tax reasons. Looking ahead, investors face a heavy slate of patent expirations and competitive pressures. U.S. filgrastim patents expired in December 2013, Granix launched as a competitor, and MIRCERA is expected to enter the U.S. market in mid-2014.
Biosimilars are a growing threat in Europe and an expected threat in the U.S. The pipeline is the main offset, with evolocumab (PCSK9) positive in five phase 3 studies, talimogene laherparepvec and trebananib advancing, and 16 phase 3 programs. The 10-K also discloses a January 2014 FDA warning letter about combination products and a Sandoz patent suit over etanercept. Key risks are the durability of the growth outside Prolia and XGEVA, the leverage taken on for Onyx, and the company's ability to replace Aranesp and Neulasta/NEUPOGEN revenue as exclusivity ends.
02—Key points
Key Highlights
- Revenue grew 8% to $18.7B and diluted EPS rose 20% to $6.64, but operating income grew only 5% to $5.9B, and much of the net income gain came from a 3.5% effective tax rate versus 13.3% in 2012.
- The $9.5B cash acquisition of Onyx (closed October 1, 2013) added Kyprolis and the Nexavar/Stivarga partnerships, and was funded primarily with about $8.1B of new debt, pushing total debt to $32.1B.
- Prolia (+58%) and XGEVA (+36%) were the fastest-growing products, together reaching $1.76B in sales, while Aranesp declined 6% and NEUPOGEN ex-government order sales fell as Neulasta conversion and Granix competition continued.
- Capital return shifted: $832M of buybacks in 2013 versus $4.6B in 2012 and $8.3B in 2011; management does not expect significant repurchases in 2014 or 2015, while the quarterly dividend was raised 30% to $0.61.
- Patent cliffs and competition are imminent: U.S. filgrastim exclusivity ended December 2013, Neulasta's U.S. patent expires in 2015, MIRCERA may launch in the U.S. in mid-2014, and biosimilar competition is increasing in Europe.
- Pipeline catalysts include evolocumab (five positive phase 3 lipid studies, with the U.S. filing dependent on an ongoing cardiovascular outcomes study), talimogene laherparepvec (DRR win in melanoma), trebananib (34% PFS risk reduction in ovarian cancer), and 16 phase 3 programs overall.
- Regulatory and legal risks include a January 2014 FDA warning letter on combination product quality systems, the corporate integrity agreement from the 2012 settlement, the Sandoz etanercept patent suit, and the long-running securities and derivative litigation.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2013, Amgen Inc kept $0.27.
- Revenue$18.68B100.0%
- Cost of revenue−$3.35B17.9%
- Gross profit$15.33B82.1%
- Operating costs−$9.46B50.7%
- Operating income$5.87B31.4%
- Interest, other & tax−$786.0M4.2%
- Net income$5.08B27.2%
Where FY2013 revenue went
$18.68B- SG&A: $5.18B, 28% of revenue
- Net income: $5.08B, 27% of revenue
- Other operating costs: $4.28B, 23% of revenue
- Cost of revenue: $3.35B, 18% of revenue
- Interest, other & tax: $786.0M, 4.2% of revenue
Kept 27% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2013filed February 24, 2014Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $18.68B$17.27B | +8.2% |
| Cost of Revenue | $3.35B$3.20B | +4.6% |
| Gross Profit | $15.33B$14.07B | +9.0% |
| SG&A Expenses | $5.18B$4.81B | +7.7% |
| Operating Expenses | $12.81B$11.69B | +9.6% |
| Operating Income | $5.87B$5.58B | +5.2% |
| Interest Expense | $1.02B$1.05B | −2.9% |
| Net Income | $5.08B$4.34B | +16.9% |
| EPS (Basic) | $6.75$5.61 | +20.3% |
| EPS (Diluted) | $6.64$5.52 | +20.3% |
| Shares Outstanding (Basic) | 753.00M775.00M | −2.8% |
| Shares Outstanding (Diluted) | 765.00M787.00M | −2.8% |
05—Questions
Frequently Asked Questions
Why did net income grow faster than operating income in 2013?
Net income rose 17% to $5.1B while operating income rose only 5% to $5.9B. The main driver was a much lower effective tax rate of 3.5%, down from 13.3%. This was helped by a $182M tax benefit from the Onyx acquisition, a $187M IRS audit settlement, and a $70M retroactive R&D credit. Investors should treat part of the 2013 earnings growth as non-recurring tax benefit rather than operating improvement.
How is Amgen paying for the Onyx acquisition, and what does it mean for leverage?
The acquisition cost about $9.5B in cash. It was funded mainly by an $8.1B debt package: a $3.1B Master Repurchase Agreement obligation due 2018, which is accounted for as debt, and a $5.0B Term Loan due 2018, with a $742M convertible debt assumed in the deal. Total debt rose to $32.1B from $26.5B. Credit ratings were A (S&P), Baa1 negative (Moody's), and BBB negative (Fitch). Investors should watch for pressure on ratings and the company's ability to reduce debt, given the pause in buybacks.
Which products are driving growth, and which are at risk?
Growth came from Prolia (+58% to $744M), XGEVA (+36% to $1.02B), Sensipar/Mimpara (+15%), and ENBREL (+7% to $4.55B). The main risks are Aranesp (-6%) and EPOGEN, which face ESA safety and reimbursement pressure, a planned MIRCERA launch in mid-2014, and the NEUPOGEN and Neulasta franchise, which faces filgrastim biosimilar and Granix competition as U.S. patents expire. The 2013 NEUPOGEN sales figure included a $155M one-time U.S. government stockpile order.
Will Amgen keep returning cash to shareholders?
The dividend is growing: quarterly payments rose 31% to $0.47 in 2013 and then 30% to $0.61 for March 2014. Share repurchases slowed sharply, with $832M in 2013 and $1.6B of authorization remaining. Management said it does not expect significant buybacks in 2014 or 2015 while it manages debt from the Onyx deal. The 10-K also notes that future dividends depend on capital availability and board decisions, and that the company cannot guarantee it will keep declaring them.
What are the main pipeline catalysts to watch in 2014?
Evolocumab, a PCSK9 antibody, is the most significant near-term catalyst after five positive phase 3 lipid studies; U.S. filing depends on progress in its cardiovascular outcomes study. Other items include romosozumab, which completed enrollment in its phase 3 osteoporosis trial in January 2014; talimogene laherparepvec, with an overall survival analysis still pending; trebananib, with a phase 3 ovarian cancer program ongoing; and Kyprolis's head-to-head phase 3 trials (ENDEAVOR and CLARION). Biosimilar pivotal trials for bevacizumab, adalimumab, and trastuzumab began in 2013, but revenue is not expected for several years.
06—Continue